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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-9950
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TEAM, INC.
(Exact name of registrant as specified in its charter)
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TEXAS 74-1765729
(State of incorporation) (I.R.S. Employer Identification No.)
200 HERMANN DRIVE, ALVIN, TEXAS 77511
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (281) 331-6154
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.30 par value American Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of August 10, 1999, 8,218,952 shares of the registrant's common stock
were outstanding, and the aggregate market value of common stock held by
non-affiliates of the registrant (based upon the closing sales price of common
stock on the American Stock Exchange, Inc. on such date) was approximately
$23,629,487.
DOCUMENTS INCORPORATED BY REFERENCE
Part III. Portions of the Definitive Proxy Statement for the 1999 Annual Meeting
of Shareholders of Team, Inc. to be held October 7, 1999.
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FORM 10-K INDEX
PART I
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PAGE
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Item 1. Business.................................................... 2
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
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PART II
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Market for Team's Common Equity and Related Stockholder
Item 5. Matters..................................................... 7
Item 6. Selected Financial Data..................................... 9
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations................................... 10
Quantitative and Qualitative Disclosures About Market
Item 7A. Risk........................................................ 12
Item 8. Consolidated Financial Statements and Supplementary Data.... 14
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure.................................... 31
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PART III
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Item 10. Directors and Executive and Other Officers of Team.......... 31
Item 11. Executive Compensation...................................... 31
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 31
Item 13. Certain Relationships and Related Transactions.............. 31
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PART IV
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Exhibits, Financial Statement Schedules and Reports on Form
Item 14. 8-K......................................................... 31
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PART I.
ITEM 1. BUSINESS
(a) General Development of Business
Team, Inc. ("Team" or the "Company"), incorporated in 1973, is a full
service provider of industrial repair services including leak repair, hot
tapping, field machining, and emissions control monitoring. These services are
provided throughout the United States in 40 locations. In April of 1999, the
Company added mechanical inspection services to its industrial service offerings
through the acquisition of X Ray Inspection, Inc. ("XRI"), which primarily
serves the Louisiana Gulf Coast market.
In August of 1998, the Company entered a new business segment -- equipment
sales and rental -- through the acquisition of Climax Portable Machine Tools,
Inc. ("Climax") of Newberg, Oregon. Climax is a leading designer-manufacturer of
portable, metal cutting machine tools used for on-site industrial maintenance.
The Climax acquisition provided the support for the Company's offering of
on-site field machining services beginning in February of 1999.
(b) Financial Information about Segments
See Note 12 to accompanying financial statements for financial information
about business segments.
(c) Narrative Description of Business
The Company operates in two reportable segments -- (1) industrial services
and (2) equipment sales and rental. Industrial services consist principally of
leak repair, hot tapping, emissions control monitoring, on-site field machining
and inspection. The equipment sales and rentals segment is comprised of the
Climax business. The following table sets forth the revenues from each segment
in the three years ended May 31:
<TABLE>
<CAPTION>
SEGMENT 1999 1998 1997
- ------- ------- ------- -------
<S> <C> <C> <C>
Industrial Services..................................... $47,282 $45,457 $43,655
Equipment Sales And Rentals........................... 7,350
------- ------- -------
Total......................................... $54,632 $45,457 $43,655
======= ======= =======
</TABLE>
(Note: 1999 Equipment sales and rentals includes third party revenues for
nine months only -- since the date of Climax acquisition effective September 1,
1999).
INDUSTRIAL SERVICES
The Company provides industrial services for approximately 3,000 customers
in the chemical, petrochemical, refining, pulp and paper, power, steel and other
industries. Services include leak repair, hot tapping, emissions control, and,
more recently, field machining and inspection.
Leak Repair Services. The Company is the leader in the industry in
providing on-stream repairs of leaks in piping systems and related equipment. In
conjunction with its leak repair services, the Company markets a line of
products, which includes both standard and custom-designed clamps and enclosures
for plant systems and pipelines. The Company's leak repair services consist of
on-stream repairs of leaks in pipes, valves, flanges and other parts of piping
systems and related equipment primarily in the chemical, refining and utility
industries. The Company uses specially developed techniques, sealants and
equipment for repairs. Many of the Company's repairs are furnished as interim
measures which allow plant systems to continue operating until more permanent
repairs can be made during scheduled plant shutdowns.
The Company's leak repair services involve inspection of the leak by the
Company's field crew who records pertinent information about the faulty part of
the system and transmits the information to the Company's engineering department
for determination of appropriate repair techniques. Repair materials such as
clamps and enclosures are custom designed and manufactured at the Company's
facility in Alvin, Texas
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and delivered to the job site. The Company maintains an inventory of raw
materials and semi-finished clamps and enclosures to reduce the time required to
manufacture the finished product. Installations of the clamps and enclosures for
on-stream repair work are then performed by the field crew using, in large part,
materials and sealants that are developed and produced by the Company.
The Company's manufacturing center has earned the international ISO-9001
certification for its engineering design and manufacturing operations. ISO-9001
is the most stringent of all ISO-9000 certification programs.
The Company's non-destructive repair methods do not compromise the
integrity of its customer's process system and can be performed in temperatures
ranging from cryogenic to 1,700 degrees Fahrenheit and with pressures from
vacuum to 6,000 pounds per square inch. The Company's proprietary sealants are
specifically formulated to repair leaks involving over 300 different kinds of
chemicals.
Management attributes the success of its leak repair services to be
substantially due to the quality and timely performance of its services by its
highly skilled in-house trained technicians, its proprietary techniques and
materials and its ability to repair leaks without shutting down the customer's
operating system. On-stream repairs can prevent a customer's continued loss of
energy or process materials through leaks, thereby avoiding costly energy and
production losses that accompany equipment shutdowns, and also lessen fugitive
emissions escaping into the atmosphere.
The Company has continued to develop different types of standard and
custom-designed clamps, enclosures and other repair products, which complement
the Company's existing industrial market for leak repair services. The Company's
leak repair services are supported by an in-house Quality Assurance/Quality
Control program that monitors the design and manufacture of each product to
assure material traceability on critical jobs and to ensure compliance with
customers' requirements.
Hot Tapping Services. The Company's hot tapping services consist primarily
of hot tapping and Line-stop(R) services. Hot tapping services involve utilizing
special equipment to cut a hole in an on-stream, pressurized pipeline so that a
new line can be connected onto the existing line without interrupting
operations. Hot tapping is frequently used for making branch connections into
piping systems while the production process is operative. Line-stop(R) services
permit the line to be depressurized downstream so that maintenance work can be
performed on the piping system. The Company typically performs these services by
mechanically drilling and cutting into the pipeline and installing a device to
stop the process flow. The Company also utilizes a line freezing procedure when
applicable to stop the process flow using special equipment and techniques.
Emissions Control Services. The Company also provides leak detection
services that include fugitive emissions identification, monitoring, data
management and reporting services primarily for the chemical, refining and
natural gas processing industries. These services are designed to monitor and
record emissions from specific process equipment components as requested by the
customer, typically to assist the customer in establishing an ongoing
maintenance program and/or complying with present and/or future environmental
regulations. The Company prepares standard reports in conjunction with EPA
requirements or can custom-design these reports to its customers'
specifications.
Field Machining Services. The Climax acquisition in August, 1998 provided
the platform for the Company's entry into field machining services in February,
1999. This service involves the use of portable machining equipment
(manufactured by Climax, as well as third party vendors) to repair or modify
in-place machinery, equipment, vessels and piping systems not easily removed
from a permanent location. As opposed to the conventional machining process
where the work piece rotates and the cutting tool is fixed, in field machining,
the work piece remains fixed and the cutting tool rotates. Other common
descriptions for this service are on-site or in-place machining. Field machining
services include flange facing, pipe cutting, line boring, journal turning,
drilling, and milling. Field machining services are offered to the Company's
existing customer base through its extensive branch operations. Team invested
approximately $800 thousand in portable machining equipment in fiscal 1999 to
equip four regional service centers for this service line and has plans to equip
another two equipment centers in fiscal 2000. In contrast to Team's other
traditional industrial
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services which are performed while plant units are in operation (i.e.,
on-stream), field machining is an off-stream operation performed during piping
isolations, shutdowns, or plant turnarounds.
Inspection Services. With the acquisition of XRI, the Company has
incorporated mechanical inspection as a core industrial service offering.
Inspection services consists of the testing and evaluation of piping, piping
components and equipment to determine the present condition and predict
remaining operability. The Company's inspection services uses all the common
methods of non-destructive testing which includes radiography, ultrasonics,
magnetic particle and dye penetrant, as well as, higher end robotic and newly
developed ultrasonic systems. The Company provides these services through
planned construction and maintenance programs and on demand as the situation
dictates, and provides reports based on interpretation in accordance to industry
and national standards. Inspection services are marketed to the same industrial
customer base as other Team services, in addition to the pipeline industry.
There are a large number of companies offering mechanical inspection services,
with no single company having a significant share of the overall market. XRI's
inspection operations are located in the Louisiana Gulf Coast region with
expansion planned into other Team locations based on managed growth and market
opportunities.
Marketing and Customers. Team's industrial repair services are marketed
principally by personnel based at the Company's 40 locations. Team has developed
a cross-marketing program to utilize its sales personnel in offering many of the
Company's services at its operating locations. Management believes that these
operating and office locations are situated to facilitate timely response to
customer needs, which is an important feature of its services. No customer
accounted for 10% or more of consolidated Company revenues during any of the
last three fiscal years.
Generally, customers are billed on a time and materials basis although some
work may be performed pursuant to a fixed-price bid. Emission control services
are typically billed based on the number of components monitored. Services are
usually performed pursuant to purchase orders issued under written customer
agreements. While some purchase orders provide for the performance of a single
job, others provide for services to be performed for a term of one year or less.
In addition, Team is party to certain long-term contracts. Substantially all
such agreements may be terminated by either party on short notice. The
agreements generally specify the range of services to be performed and the
hourly rates for labor. While contracts have traditionally been entered into for
specific plants or locations over the past few years, the Company has entered
into several regional or national contracts which cover multiple plants or
locations.
The Company's industrial services are available 24 hours a day, seven days
a week, 365 days a year. The Company typically provides various limited
warranties for certain of its repair services. To date, there have been no
significant warranty claims filed against the Company.
Business Risks. The Company believes that the aging of its customers'
plants and pipelines should result in increasing demand for its industrial
services. However, a variety of risks are inherent in this: (1) Marketing
efforts may not generate increases in revenues as expected; (2) although
management believes sufficient qualified personnel are available in most areas,
no assurance can be made that such personnel will be available when needed; (3)
growth may require additional capital that the Company may be unable to obtain;
and (4) the Company may be unable to develop profitable new services and
technologies or acquire companies that provide such services on terms that
permit an acceptable rate of return. Additionally, weak economics in the markets
served by the Company may constrain market demand. Although the Company has a
diversified customer base, a substantial portion of its business is dependent
upon the chemical and refining industry sectors.
Competition. Competition in the Company's industrial services is primarily
on the basis of service, product performance and price. In general, competition
stems from other outside service contractors and customers' in-house maintenance
departments. Team believes it has a competitive advantage due to its ability to
perform quality leak repair services on a timely basis, using special techniques
and materials, while the customers' equipment remains in service. Management
believes Team has a competitive advantage over most outside service contractors
due to its in-house and customer site-specific trained technicians who are
approved for immediate entry into the customer's facility, proprietary sealant
materials, 40 domestic locations and ISO-9001 quality procedures and
specifications. If, however, customers emphasize price over service and
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product performance, the Company's competitive advantage may be impaired.
Management knows of one outside service contractor of a similar size with which
the Company generally competes for leak repair business. Other principal
competitors are primarily regionally-based companies that compete within a
certain geographical area.
EQUIPMENT SALES AND RENTALS
In August, 1998 the Company entered a new business segment -- equipment
sales and rentals -- through the acquisition of Climax, a leading
design-manufacturer of portable machine tools located in Newberg, Oregon.
Climax' standard tools offering consists of boring bars, pipe beveling tools,
key mills, portable flange facers, and portable lathes. These tools are sold to
end users in the utilities, refining, and extractive industries, or to other
service providers and contractors, such as Team. In addition, Climax designs and
manufactures customized machining tools for on-site machine repair,
manufacturing, fabrication and construction applications.
Climax' design and manufacturing operations are conducted in a 40,000
square feet facility in Newberg, OR that is owned by the company and pledged to
secure Team's bank debt (see Note 8 of Notes to the Consolidated Financial
Statements). Climax uses state of the art equipment in its manufacturing process
and maintains an inventory of raw materials, parts and completed machines as
needed to support the current level of business. The Company utilizes an inside
sales force to market its machines, as well as sales personnel located in Team's
industrial service branches. Most of the Company's orders for equipment are
filled within 30 days of receipt. The Company believes that there are a limited
number of original equipment manufacturers that compete with Climax and that it
has a market share of approximately 10%. No single customer accounted for more
than 10% of Climax revenues in 1999.
GENERAL
Employees. As of May 31, 1999, the Company and its subsidiaries had 700
employees in its operations. The Company's employees are not unionized. There
have been no employee work stoppages to date, and management believes its
relations with its employees are good.
Insurance. The Company carries insurance it believes to be appropriate for
the businesses in which it is engaged. Under its insurance policies, the Company
has per occurrence self-insured retention limits of $25,000 for general
liability, $100,000 for professional liability, $250,000 for automobile
liability and workers' compensation in most states. The Company has obtained
fully insured layers of coverage above such self-retention limits. Since its
inception, the Company has not been the subject of any significant liability
claims not covered by insurance arising from the furnishing of its services or
products to customers. However, because of the nature of the Company's business,
there exists the risk that in the future such liability claims could be asserted
which might not be covered by insurance.
Regulation. Substantially all of the Company's business activities are
subject to federal, state and local laws and regulations. These regulations are
administered by various federal, state and local health and safety and
environmental agencies and authorities, including the Occupational Safety and
Health Administration ("OSHA") of the U.S. Department of Labor and the EPA. The
Company's training programs are required to meet certain OSHA standards.
Expenditures relating to such regulations are made in the normal course of the
Company's business and are neither material nor place the Company at any
competitive disadvantage. The Company does not currently expect to expend
material amounts for compliance with such laws during the ensuing two fiscal
years.
From time-to-time in the operation of its environmental consulting and
engineering services, the assets of which were sold in 1996, the Company handled
small quantities of certain hazardous wastes or other substances generated by
its customers. Under the Comprehensive Environmental Response Compensation and
Liability Act of 1980 (the "Superfund Act"), the EPA is authorized to take
administrative and judicial action to either cause parties who are responsible
under the Superfund Act for cleaning up any unauthorized release of hazardous
substances to do so, or to clean up such hazardous substances and to seek
reimbursement of the costs thereof from the responsible parties, who are jointly
and severally liable for such costs under the
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Superfund Act. The EPA may also bring suit for treble damages from responsible
parties who unreasonably refuse to voluntarily participate in such a clean up or
funding thereof. Responsible parties include anyone who owns or operates the
facility where the release occurred (either currently and/or at the time such
hazardous substances were disposed of), or who by contract arranges for
disposal, treatment, or transportation for disposal or treatment of a hazardous
substance, or who accepts hazardous substances for transport to disposal or
treatment facilities selected by such person from which there is a release.
Management believes that its risk of liability is minimized since its handling
consisted solely of maintaining and storing small samples of materials for
laboratory analysis that are classified as hazardous. The Company does not
currently carry insurance to cover liabilities which the Company may incur under
the Superfund Act or similar environmental statutes due to its prohibitive
costs.
Patents. While the Company is the holder of various patents, trademarks,
and licenses, the Company does not consider any individual property to be
material to its consolidated business operations.
ITEM 2. PROPERTIES
Team and its subsidiaries own real estate and office facilities in the
Alvin, Texas area totaling approximately 88,000 square feet of floor space,
These facilities are comprised of a corporate office and training building and a
manufacturing facility for clamps, enclosures and sealants. The Company also
owns real estate and facilities in Newberg, Oregon, which is the manufacturing
facility and corporate office of Climax. All of those facilities are pledged as
security for the $24 million bank credit agreement. (See Note (8) of Notes to
Consolidated Financial Statements). The Company and its subsidiaries also lease
37 office and/or plant and shop facilities at separate locations in 20 states.
In addition, the Company owns real property and office facilities in Houston,
Texas previously used in its discontinued operations which are currently being
leased to a third party pursuant to a long-term lease agreement.
The Company believes that its property and equipment, as well as that of
its subsidiaries, are adequate for its current needs, although additional
investments are expected to be made in additional property and equipment for
expansion, replacement of assets at the end of their useful lives and in
connection with corporate development activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note (10) of
Notes to Consolidated Financial Statements for information regarding lease
obligations on these properties.
ITEM 3. LEGAL PROCEEDINGS
The Company and certain subsidiaries are involved in various lawsuits and
subject to various claims and proceedings encountered in the normal conduct of
business. In the opinion of management, any uninsured losses that might arise
from these lawsuits and proceedings will not have a material adverse affect on
the Company's consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
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PART II.
ITEM 5. MARKET FOR TEAM'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Team's common stock is traded on the American Stock Exchange, Inc. under
the symbol "TMI". The table below reflects the high and low sales prices of the
Company's common stock on the American Stock Exchange by fiscal quarter for the
fiscal years ended May 31, 1999 and 1998, respectively.
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SALES PRICE
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HIGH LOW
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FISCAL 1999
Quarter Ended:
August 31.............................................. $5 7/8 $3 5/8
November 30............................................ 4 1/8 3 1/8
February 28............................................ 4 7/8 3
May 31................................................. 3 5/8 2 1/4
FISCAL 1998
Quarter Ended:
August 31.............................................. $3 7/16 $1 5/8
November 30............................................ 4 2 7/8
February 28............................................ 4 3 3/8
May 31................................................. 5 3/8 3
</TABLE>
(b) Holders
There were 423 holders of record of Team's common stock as of August 10,
1999, excluding beneficial owners of stock held in street name. Although exact
information is unavailable, the Company estimates there are approximately 1,000
additional beneficial owners based upon information gathered in connection with
proxy solicitation.
(c) Dividends
No dividends were declared or paid in fiscal 1999 or fiscal 1998. Pursuant
to the Company's Credit Agreement, the Company may not pay quarterly dividends
without the consent of its primary lender. Additionally, future dividend
payments will continue to depend on Team's financial condition, market
conditions and other matters deemed relevant by the Board of Directors.
(d) Recent Sales of Unregistered Securities
In November 1998 the company issued 45,000 shares of Common Stock to
Phillip J. Hawk ("Hawk") in exchange for cash in the amount of $3.625 per share,
for a total of $163,125, in accordance with the terms and conditions of the
Stock Purchase Agreement (the "Agreement") dated November 2, 1998. The Agreement
was made pursuant to an employment agreement of the same date, wherein Hawk
became Chief Executive Officer of the Company. There were no underwriters used
nor any discounts or commissions paid on the sale of stock to Hawk. The proceeds
from the sale were used by the Company to repay long term debt or to repay the
Company's revolving credit facility.
The shares of Common Stock sold to Hawk were issued in a private
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Act"), pursuant to Section 4 (2) thereof as a "transaction by an
issuer not involving any public offering" in accordance with the terms of the
issuance as set forth in the Agreement. In issuing such shares in reliance on
such exemption, the Company is relying upon representations and warranties of
Hawk with respect to (i) his financial capacity, business experience, and
business and legal advisors; (ii) the fact that he acquired these shares for
investment purposes only and understood the transfer restrictions thereon; and
(iii) the fact that he reviewed the information and materials about the Company
and
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its shares made available by the Company in connection with its acquisition of
such shares, which was personally negotiated at arms-length between Hawk and the
Company.
None of the unregistered securities sold to Hawk are convertible or
exchangeable into other equity securities, nor do such unregistered securities
constitute warrants or options.
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ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain consolidated financial information
regarding the Company for the five years ended May 31, 1999.
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YEAR ENDED MAY 31,
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1999 1998 1997 1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Revenues..................................... $54,632 $45,457 $43,655 $47,449 $50,816
Earnings (Loss) from Continuing Operations,
Net of Income Taxes........................ $ 276 $ 1,393 $ 759 $(8,744) $(1,105)
Earnings (Loss) from Discontinued Operations,
Net of Income Taxes........................ -- -- 1 (534) (4,869)
------- ------- ------- ------- -------
Net Earnings (Loss)................ $ 276 $ 1,393 $ 760 $(9,278) $(5,974)
======= ======= ======= ======= =======
Earnings (Loss) Per Common Share: Basic
Earnings (Loss) from Continuing
Operations.............................. $ 0.04 $ 0.23 $ 0.15 $ (1.70) $ (0.22)
Earnings (Loss) from Discontinued
Operations.............................. -- -- 0.00 (0.10) (0.94)
------- ------- ------- ------- -------
Net Earnings (Loss)................ $ 0.04 $ 0.23 $ 0.15 $ (1.80) $ (1.16)
======= ======= ======= ======= =======
Earnings (Loss) Per Common Share: Diluted
Earnings (Loss) from Continuing
Operations.............................. $ 0.04 $ 0.23 0.15 (1.70) (0.22)
Earnings (Loss) from Discontinued
Operations.............................. -- -- 0.00 (0.10) (0.94)
------- ------- ------- ------- -------
Net Earnings (Loss)................ $ 0.04 $ 0.23 $ 0.15 $ (1.80) $ (1.16)
======= ======= ======= ======= =======
Weighted Average Shares Outstanding: Basic... 7,547 5,947 5,162 5,160 5,160
Weighted Average Shares Outstanding:
Diluted.................................... 7,741 6,112 5,162 5,160 5,160
Cash Dividend Declared, per common share..... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
Balance Sheet data
<TABLE>
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MAY 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS)
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Total Assets................................. $47,877 $27,080 $24,068 $28,926 $38,631
Long-Term Debt and Other..................... $20,518 $ 5,966 $ 7,601 $11,754 $13,627
Stockholders' Equity......................... $21,344 $15,581 $11,963 $11,045 $20,323
Working Capital.............................. $15,848 $13,049 $11,509 $10,644 $14,874
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Earnings before income taxes were $897 thousand for the year ended May 31,
1999 compared to $2.5 million in 1998 and $1.5 million in 1997. The following
table identifies certain percentage relationships of costs with consolidated
revenues:
<TABLE>
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FISCAL YEAR
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1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Cost and Expenses:
Cost of operations........................................ (58.3) (57.0) (56.4)
----- ----- -----
Gross profit.............................................. 41.7 43.0 43.6
Selling, general and administrative expenses.............. (36.2) (36.5) (38.0)
Severance and other charges............................... (2.3)
Interest expense.......................................... (1.6) (1.0) (2.1)
----- ----- -----
Earnings before income taxes................................ 1.6 5.5 3.5
Income taxes................................................ (1.1) (2.4) (1.7)
----- ----- -----
Net income.................................................. 0.5% 3.1% 1.8%
===== ===== =====
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
Revenues in 1999 were $54.6 million compared to $45.5 million in 1998, an
increase of 20%. The significant portion of the increase, $7.4 million or 16.3%,
is a result of the Company's entry into a new business segment -- equipment
sales and rentals -- through the Climax acquisition effective September, 1998.
The industrial services segment of the business experienced modest revenue
growth of 4%, which is attributable to the introduction of new service lines in
1999 -- field machining and inspection. Inspection services contributed $1.3
million in 1999 revenues in only two months of operations since the XRI
acquisition in April, 1999, while field machining added $1.1 million since its
introduction in February, 1999.
Operating margins were 41.7% of revenues in 1999 compared to 43.0% in 1998.
Substantially all of the margin decline occurred in the fourth quarter of the
year, primarily as a result of a softening in the market for the Company's
traditional industrial services particularly in the refining and petrochemical
industries. The impact of declining margins was mitigated by the additions of
inspection services and by the equipment sales and rental segment.
Selling, General and Administrative expenses ("SG&A") as a percentage of
revenues were slightly improved in 1999 versus 1998 -- 36.2% compared to 36.5%.
In January, 1999 the Company implemented a reduction in headquarters staffing in
Alvin and at Climax involving approximately 20% of support personnel. The impact
of that reduction was somewhat offset by an increase in field operations SG&A
and by start-up costs associated with the Company's international operations in
Singapore.
In connection with the January, 1999 staffing reduction, the Company
incurred severance and related separation costs of $436 thousand. At the same
time, management decided to expense $816 thousand of remaining payments due
under consulting agreements with two former officers, since the Company does not
expect to continue to utilize the services of those individuals in the future.
The aggregate of those costs, $1.25 million, represented 2.3% of revenues in the
current year.
As a result of additional borrowings associated with business acquisitions
in 1999, interest expense increased to $868 thousand (1.6% of revenues) as
compared to $450 thousand (1.0%) in 1998. See the discussion of liquidity and
capital resources below.
10
<PAGE> 12
FISCAL 1998 COMPARED TO FISCAL 1997
Revenues in 1998 were $45.5 million compared to $43.7 million in 1997 -- an
increase of 4%. The increase was attributable primarily to a significant
expansion in the Company's hot tapping services line ("HTS") which reported a
59% gain in revenues. The increase in that service line was partially offset by
a 17% decline in emissions control services ("ECS") revenues in 1998. The
largest service line, Leak Repair, was relatively flat with 1998 revenues.
The expansion of HTS was directly attributable to the completion of
decentralization efforts which began in 1997. During 1998, a full-time service
line manager was appointed for HTS and six regional service centers were fully
equipped with specialized hot tapping equipment. (Previously, all HTS services
were provided from a central location in Pearland, Texas). Additionally, more
than twenty senior technicians from around the country were expressly trained in
HTS sales and service procedures, which expanded the Company's service
capability.
The decline in emissions control services revenues continued a trend that
has existed since 1994 -- resulting from the continuing pricing pressure in the
market and the general relaxation of monitoring and reporting frequencies.
However, during the fourth quarter of fiscal 1998, the revenues for emissions
control services were comparable to that for the fourth quarter of fiscal 1997
indicating that the trend of declining revenues for this service line may be at
an end.
Operating expenses as a percent of revenues in 1998 were fairly consistent
(57.0%) with the 1997 percentage (56.4%). On an aggregate basis, selling,
general and administrative expenses ("SG&A") were flat in 1998 compared to 1997
- -$16.6 million in both years. As a percentage of sales, however, SG&A declined
to 36.5% in 1998 versus 38.0% in 1997, which directly resulted in a 1.5%
improvement in net earnings as a percentage of revenues. Net earnings were also
positively impacted by a $477 thousand reduction in interest expense in 1998
from 1997 (an improvement of 1.1% of revenue), which was a result of an overall
reduction in indebtedness (see discussion of Liquidity and Capital Resources.)
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1999, the Company's working capital totaled $15.8 million, an
increase of $2.8 million from working capital of $13.0 million a year earlier.
The increase in working capital is primarily attributable to additions to
working capital contributed by businesses acquired in 1999 (Climax and XRI).
Financing for the acquisitions was provided through a new credit facility
executed in August, 1998. The credit facility, totaling $24 million, is
comprised of a $12.5 million revolving credit loan, $9.5 million in term loans
for acquisition financing and a $2.0 million real estate loan. At May 31, 1999,
the available borrowing under the revolving credit facility was $2.5 million.
In June 1997, the Company sold, through a private placement, 650,000 shares
of its common stock and received net proceeds of $1,950,000, substantially all
of which was used to repay long term debt. In June 1998, the Company sold, also
through a private placement, 1,200,000 shares of common stock for $3.3 million.
In July 1998, the $2.5 million that was outstanding under the Company's
revolving credit facility at May 31, 1998 was repaid in full using the proceeds
from the sale of stock.
In the opinion of management, the Company currently has sufficient funds
and adequate financial sources available to meet its anticipated liquidity
needs. Management believes that cash flow from operations, cash balances and
available borrowings will be sufficient for the foreseeable future to finance
anticipated working capital requirements, capital expenditures and debt service
requirements.
YEAR 2000 COMPLIANCE
The Company, like other businesses, is facing the Year 2000 issue. Many
computer systems and equipment with embedded chips or processors use only two
digits to represent the calendar year. This could result in computational or
operational errors as dates are compared across the century boundary, causing
possible disruptions in business operations. The year 2000 issue can arise at
any point in the company's supply, manufacturing, processing, distribution, and
financial chains.
11
<PAGE> 13
State of Readiness -- The Company began addressing the Year 2000 issue in
1997, with an initial assessment of Year 2000 readiness. Based on the
assessment, a Year 2000 Plan was developed and, effective February 1, 1999, the
Company substantially completed a comprehensive project to upgrade its
information, technology, and manufacturing facilities' computer hardware and
software to programs that address the Year 2000 problem. The new hardware and
packaged software was purchased from large vendors who have represented that the
systems are already Year 2000 compliant.
With respect to the plant systems, including automation and embedded chips
used in manufacturing operations, the Company is relying on vendor certification
and testing.
With respect to the external parties, including suppliers and customers,
the Company's Year 2000 compliance team is in the process of surveying the Year
2000 readiness efforts of critical external parties. Risk assessment and
monitoring will continue through the third quarter of calendar year 1999, as
many external parties will not have completed their Year 2000 readiness efforts.
Cost -- The total estimated cost for the Company's Year 2000 readiness
efforts is $950,000, which consists primarily of a new management information
system that was implemented during February and March of 1999.
Risks -- The Company relies on third party suppliers for raw materials,
water, utilities, transportation, and other key services. Interruption of
supplier operations due to Year 2000 issues could affect the Company's
operations. While the project team will evaluate the status of its major
suppliers' Year 2000 readiness efforts and develop contingency plans to manage
the risk, it cannot eliminate the potential for disruption due to third party
failures.
The Company is also dependent upon its customers for sales and cash flow.
Year 2000 interruptions in the operations of its major customers could result in
reduced sales, increased inventory or receivable levels and cash flow
reductions.
The Company believes that it is taking all reasonable steps to ensure Year
2000 readiness. Its ability to meet the projected goals, including the costs of
addressing the Year 2000 issue and the dates upon which compliance will be
attained, depends on the Year 2000 readiness of its key suppliers and customers,
the completion of its final remediation and testing efforts, and the successful
development and implementation of contingency plans. The Company currently has
not yet developed any contingency plans. These and other unanticipated Year 2000
issues could have a material adverse effect on the results of operations or
financial condition.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain forward-looking information contained herein is being provided in
accordance with the provisions of the Private Securities Litigation Reform Act.
Such information is subject to certain assumptions and beliefs based on current
information known to the Company and is subject to factors that could result in
actual results differing materially from those anticipated in the
forward-looking statements contained herein. Such factors include domestic and
international economic activity, interest rates, market conditions for the
Company's customers, regulatory changes and legal proceedings, and the Company's
successful implementation of its internal operating plans. Accordingly, there
can be no assurance that the forward-looking statement contained herein will
occur or that objectives will be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has a credit facility and interest rate swap agreements, which
subject the Company to the risk of loss associated with movements in market
interest rates. At May 31, 1999, the Company has floating-rate obligations
totaling $18.8 million outstanding under its credit facility (see Note 8 to the
Company's Consolidated Financial Statements). The exposure of these obligations
to increases in short-term interest rates is limited in part by interest rate
swap agreements entered into by the Company. These swap agreements effectively
fix the interest rate on $8.3 million of the Company's variable rate debt. Under
these swap agreements, payments are made based on a fixed rate ($6.5 million at
5.19% and $1.8 million at 5.24%) and
12
<PAGE> 14
received on a LIBOR based variable rate. Any change in the value of the swap
agreements, real or hypothetical, would be offset by an inverse change in the
value of the underlying hedged item. With respect to the remaining $10.5 million
of floating-rate debt not covered by swap agreements, a 1% increase in interest
rates could result in a $0.1 million annual increase in interest expense.
13
<PAGE> 15
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of Team, Inc.
Alvin, Texas
We have audited the accompanying consolidated balance sheets of Team, Inc.
and subsidiaries as of May 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended May 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Team, Inc. and subsidiaries as
of May 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended May 31, 1999 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
July 28, 1999
14
<PAGE> 16
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 1,035,000 $ 1,355,000
Receivables............................................... 10,726,000 9,564,000
Inventories............................................... 8,566,000 6,801,000
Income tax receivable..................................... 87,000 --
Deferred income taxes..................................... 709,000 531,000
Prepaid expenses and other current assets................. 512,000 331,000
------------ ------------
Total Current Assets.............................. 21,635,000 18,582,000
Property, Plant and Equipment:
Land and buildings........................................ 9,996,000 6,735,000
Machinery and equipment................................... 17,100,000 11,746,000
------------ ------------
27,096,000 18,481,000
Less accumulated depreciation and amortization............ 13,600,000 11,833,000
------------ ------------
13,496,000 6,648,000
Goodwill, net of accumulated amortization of $100,000....... 10,769,000 --
Deferred income taxes....................................... -- 1,062,000
Other assets................................................ 1,526,000 788,000
Restricted cash............................................. 451,000 --
------------ ------------
Total Assets...................................... $ 47,877,000 $ 27,080,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 948,000 $ 286,000
Accounts payable.......................................... 1,104,000 1,416,000
Other accrued liabilities................................. 3,735,000 3,483,000
Current income taxes payable.............................. -- 348,000
------------ ------------
Total Current Liabilities......................... 5,787,000 5,533,000
Deferred income taxes....................................... 228,000 --
Long-term debt and other.................................... 20,518,000 5,966,000
Stockholders' Equity:
Preferred stock, cumulative, par value $100 per share,
500,000 shares authorized, none issued................. -- --
Common stock, par value $.30 per share, 30,000,000 shares
authorized and 8,213,652 and 6,093,442 shares issued at
May 31, 1999 and 1998.................................. 2,464,000 1,828,000
Additional paid-in capital................................ 32,000,000 27,098,000
Accumulated deficit....................................... (12,972,000) (13,248,000)
Unearned stock compensation............................... (51,000) --
Treasury stock at cost, 9,700 shares at May 31, 1999 and
1998................................................... (97,000) (97,000)
------------ ------------
Total Stockholders' Equity........................ 21,344,000 15,581,000
------------ ------------
Total Liabilities and Stockholders' Equity........ $ 47,877,000 $ 27,080,000
============ ============
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 17
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................................. $54,632,000 $45,457,000 $43,655,000
Operating expenses.................................... 31,872,000 25,933,000 24,634,000
Selling, general and administrative expenses.......... 19,743,000 16,610,000 16,579,000
Severance and other charges........................... 1,252,000 -- --
----------- ----------- -----------
Earnings from operations.............................. 1,765,000 2,914,000 2,442,000
Interest.............................................. 868,000 450,000 927,000
----------- ----------- -----------
Earnings from continuing operations before income
taxes............................................... $ 897,000 $ 2,464,000 $ 1,515,000
Provision for income taxes............................ 621,000 1,071,000 756,000
----------- ----------- -----------
Earnings from continuing operations, net of income
taxes............................................... 276,000 1,393,000 759,000
Earnings from discontinued operations, net of income
taxes............................................... -- -- 1,000
----------- ----------- -----------
Net earnings................................ $ 276,000 $ 1,393,000 $ 760,000
=========== =========== ===========
Net earnings per common share -- Basic
Net earnings from continuing operations............. $ 0.04 $ 0.23 $ 0.15
Net earnings from discontinued operations........... -- -- 0.00
----------- ----------- -----------
Net earnings................................ $ 0.04 $ 0.23 $ 0.15
=========== =========== ===========
Net earnings per common share -- Diluted
Net earnings from continuing operations............. $ 0.04 $ 0.23 $ 0.15
Net earnings from discontinued operations........... -- -- 0.00
----------- ----------- -----------
Net earnings per common share -- Diluted.... $ 0.04 $ 0.23 $ 0.15
=========== =========== ===========
Weighted average number of shares
outstanding -- Basic................................ 7,547,000 5,947,000 5,162,000
=========== =========== ===========
Weighted average number of shares
outstanding -- Diluted.............................. 7,741,000 6,112,000 5,162,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 18
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year..................... $ 1,828,000 $ 1,578,000 $ 1,551,000
Shares issued.................................... 625,000 195,000 --
Exercise of stock options........................ 11,000 55,000 --
Shares exchanged for services.................... -- -- 27,000
------------ ------------ ------------
Balance at end of year........................... $ 2,464,000 $ 1,828,000 $ 1,578,000
============ ============ ============
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year..................... $ 27,098,000 $ 25,123,000 $ 24,992,000
Shares issued.................................... 4,838,000 1,633,000 --
Exercise of stock options........................ 64,000 342,000 --
Shares exchanged for services.................... -- -- 131,000
------------ ------------ ------------
Balance at end of year........................... $ 32,000,000 $ 27,098,000 $ 25,123,000
============ ============ ============
ACCUMULATED DEFICIT:
Balance at beginning of year..................... $(13,248,000) $(14,641,000) $(15,401,000)
Net earnings..................................... 276,000 1,393,000 760,000
------------ ------------ ------------
Balance at end of year........................... $(12,972,000) $(13,248,000) $(14,641,000)
============ ============ ============
UNEARNED STOCK COMPENSATION:
Balance at beginning of year..................... $ -- $ -- $ --
Restricted Stock Grant........................... (67,000) -- --
Compensation Expense............................. 16,000 -- --
------------ ------------ ------------
Balance at end of year........................... $ (51,000) $ -- $ --
============ ============ ============
TREASURY STOCK:
Balance at beginning of year..................... $ (97,000) $ (97,000) $ (97,000)
------------ ------------ ------------
Balance at end of year........................... $ (97,000) $ (97,000) $ (97,000)
============ ============ ============
</TABLE>
See notes to consolidated financial statements
17
<PAGE> 19
TEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings.............................................. $ 276,000 $ 1,393,000 $ 760,000
Earnings from discontinued operations..................... -- -- (1,000)
------------ ----------- -----------
Net earnings from continuing operations................. 276,000 1,393,000 759,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 2,230,000 1,467,000 1,385,000
Provision for doubtful accounts........................... 50,000 195,000 --
Loss (Gain) on disposal of assets......................... (101,000) 89,000 (21,000)
Provision for amount due former officers.................. 816,000 -- --
Deferred income taxes..................................... 331,000 564,000 385,000
Change in other long-term obligations..................... -- -- (354,000)
Change in assets and liabilities, net of effects from
business acquisitions (Increase) decrease:
Accounts receivable..................................... 1,153,000 (2,548,000) 929,000
Inventories............................................. 359,000 (491,000) (562,000)
Prepaid expenses and other current assets............... 159,000 (42,000) 26,000
Income tax receivable..................................... (87,000) -- --
Increase (decrease):
Accounts payable........................................ (597,000) 676,000 (106,000)
Other accrued liabilities............................... (1,032,000) 185,000 (90,000)
Income taxes payable.................................... (348,000) 182,000 166,000
------------ ----------- -----------
Net cash provided by continuing operating activities........ 3,209,000 1,670,000 2,517,000
------------ ----------- -----------
Cash Flows From Discontinued Operations:
Earnings.................................................. -- -- 1,000
Depreciation.............................................. -- -- 1,336,000
Increase in current assets................................ -- -- (3,000)
Increase in current liabilities........................... -- -- 84,000
------------ ----------- -----------
Net cash provided by discontinued operating activities...... -- -- 1,418,000
------------ ----------- -----------
Net cash provided by operating activities................... 3,209,000 1,670,000 3,935,000
------------ ----------- -----------
Cash Flows From Investing Activities:
Capital expenditures...................................... (2,454,000) (2,045,000) (1,393,000)
Proceeds from disposal of property and equipment.......... 202,000 -- 188,000
Business acquisitions, net of cash acquired............... (15,468,000) -- --
Payment of Climax notes payable at acquisition date....... (2,893,000) -- --
Other..................................................... (451,000) (175,000) 53,000
Net proceeds from sale of discontinued operations......... -- -- 3,127,000
------------ ----------- -----------
Net cash provided by (used in) investing activities......... (21,064,000) (2,220,000) 1,975,000
------------ ----------- -----------
Cash Flows From Financing Activities:
Payments under debt agreements and other long-term
obligations -- continuing operations.................... $ (5,035,000) $(3,040,000) $(5,234,000)
Proceeds from issuance of debt............................ 19,034,000 1,048,000 --
Issuance of common stock.................................. 3,536,000 2,225,000 --
Principal payments under debt agreements -- discontinued
operations.............................................. -- -- (1,041,000)
------------ ----------- -----------
Net cash provided by (used in) financing
activities........................................ 17,535,000 233,000 (6,275,000)
------------ ----------- -----------
Net decrease in cash and cash equivalents................... (320,000) (317,000) (365,000)
Cash and cash equivalents at beginning of year.............. $ 1,355,000 1,672,000 2,037,000
------------ ----------- -----------
Cash and cash equivalents at end of year.................... $ 1,035,000 $ 1,355,000 $ 1,672,000
============ =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest:
Operating............................................... $ 632,000 $ 475,000 $ 929,000
Discontinued............................................ -- -- 3,274,000
------------ ----------- -----------
$ 632,000 $ 475,000 $ 4,203,000
============ =========== ===========
Income taxes paid......................................... $ 806,000 $ 618,000 $ 84,000
============ =========== ===========
Income taxes refunded..................................... $ -- $ 40,000 $ 4,000
============ =========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1999, the Company issued 795,000 shares of the Company's common stock
valued at $1,951,000 in connection with the business acquisitions.
During 1998, equipment and software acquired under capital lease obligations was
$343,000.
During 1997, 90,000 shares of the Company's common stock valued at $158,000 were
exchanged for services rendered.
See notes to consolidated financial statements.
18
<PAGE> 20
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of Team, Inc. (the "Company") include
the financial statements of the Company and its subsidiaries. All significant
intercompany transactions have been eliminated.
Use of Estimates in Financial Statement Preparation
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. The Company's
financial statements include amounts that are based on management's best
estimates and judgments. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
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:
<TABLE>
<CAPTION>
CLASSIFICATION LIFE
- -------------- ----
<S> <C>
Buildings.............................................. 20-30 years
Machinery and equipment................................ 2-10 years
</TABLE>
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
acquired companies and is being amortized on a straight line basis over the
estimated economic lives of the acquired companies of forty years. Amortization
expense for the year ended May 31, 1999 was approximately $100,000.
Revenue Recognition
The Company recognizes revenue when services are rendered or when product
is shipped.
Income Taxes
The Company accounts for taxes on income using the asset and liability
method wherein deferred tax assets and liabilities are recognized for the future
tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities using enacted rates.
Concentration of Credit Risk
The Company provides services to the chemical, petrochemical, refining,
pulp and paper, power and steel industries throughout the United States. No
single customer accounts for more than 10% of consolidated revenues.
Earnings Per Share
In 1998 the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 128, "Earnings per Share," which specifies the computation,
presentation and disclosure requirements for earnings
19
<PAGE> 21
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per share ("EPS"). The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations for earnings from
continuing operations, net of income taxes:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1999 YEAR ENDED MAY 31, 1998
--------------------------------------- ---------------------------------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Earnings from continuing
operations, net of
income taxes.......... $276,000 7,547,000 $0.04 $1,393,000 5,947,000 $0.23
Effect of Dilutive
Securities:
Options............... -- 194,000 -- 165,000
-------- ---------- ---------- ----------
Diluted EPS:
Earnings from continuing
operations, net of
income taxes.......... $276,000 7,741,000 $0.04 $1,393,000 6,112,000 $0.23
======== ========== ===== ========== ========== =====
<CAPTION>
YEAR ENDED MAY 31, 1997
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Earnings from continuing
operations, net of
income taxes.......... $759,000 5,162,000 $0.15
Effect of Dilutive
Securities:
Options............... -- --
-------- ----------
Diluted EPS:
Earnings from continuing
operations, net of
income taxes.......... $759,000 5,162,000 $0.15
======== ========== =====
</TABLE>
Options to purchase 80,000, 314,000, and 516,000 shares of common stock
were outstanding during the years ended May 31, 1999, 1998 and 1997,
respectively, but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market price of
common shares during the period.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
Dividends
No dividends were paid during the current or prior two fiscal years.
Pursuant to the Company's Credit Agreement, the Company may not pay quarterly
dividends without the consent of its senior lender. Future dividend payments
will depend upon the Company's financial condition and other relevant matters.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements which effectively
exchange variable interest rate debt for fixed interest rate debt. The
agreements are used to reduce the exposure to possible increases in interest
rates. The Company enters into these agreements with major financial
institutions. The differential to be paid or received as interest rates change
is accrued and recognized as an adjustment to interest expense.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, receivables and accounts
payable approximate their carrying amounts because of the short maturity of
those instruments. The fair value of the Company's long-term debt is estimated
based on the current rates available to the Company for instruments with similar
terms and maturities. The fair value of interest rate swaps is estimated by
discounting expected cash flows using quoted market interest rates.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
20
<PAGE> 22
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. The Company is currently analyzing this statement to determine the
impact on the Company's financial position, results of operations, and cash
flows.
2. ACQUISITIONS
Effective August 31, 1998, the Company acquired all of the outstanding
capital stock of Climax Portable Machine Tools, Inc., an Oregon corporation
("Climax"), in exchange for cash in the amount of $6.4 million and 200,000
newly-issued shares of the Company's common stock, $0.30 par value per share
(the "Common Stock"). Additionally, at the acquisition date, the Company
refinanced the majority of Climax's notes payable in the amount of $2.9 million.
A value of $3.696 per share was assigned to the Common Stock issued to the
former shareholders of Climax, based on the market value of the Common Stock,
discounted to reflect certain restrictions placed on the Common Stock. In order
to finance the acquisition of the Climax shares, the Company borrowed $8.5
million under a new credit facility. See note 8. The Company also entered into
employment agreements with three of the former shareholders, pursuant to which
such persons were granted options to purchase up to an aggregate of 50,000
shares of Common Stock at an exercise price of $4.125 per share. Climax designs
and manufactures portable, metal cutting machine tools for on-site maintenance
and repair purposes.
Effective March 31, 1999, the Company acquired 100% of the outstanding
capital stock of X-Ray Inspection, Inc., ("X-Ray"), a Louisiana corporation, in
consideration for the payment to the sellers of an aggregate of $8.4 million in
cash and 595,000 shares of newly issued Company Common Stock, valued at $2.037
per share based on the market value discounted to reflect certain restrictions
placed on the common stock. The cash component included $7.7 million paid at
closing and an additional $700,000 paid subsequent to closing for excess working
capital conveyed in the transaction. Additional consideration of up to $2.5
million in cash could be payable to the sellers over the next four years if
certain high growth operating results are achieved by X-Ray. In order to finance
the purchase, the Company borrowed $8.4 million under its existing credit
facilities. X-Ray is in the business of providing mechanical inspection services
consisting primarily of non-destructive inspections of pipelines and piping
systems in industrial plants, using radiographic testing, ultrasonic testing,
magnetic particle testing, and visual inspection.
The acquisitions were accounted for using the purchase method of
accounting, accordingly, the consolidated financial statements subsequent to the
effective dates of the acquisitions reflect the purchase price, including
transaction costs. As the acquisition of Climax was effective August 31, 1998,
the consolidated results of operations for the Company for the year ended May
31, 1999, include the results for Climax for the period from September 1, 1998,
to May 31, 1999. As the acquisition of X-Ray was effective March 31, 1999, the
consolidated results of operations for the Company include the results of X-Ray
for the period April 1, 1999, to May 31, 1999. The purchase price of Climax and
X-Ray was allocated to the assets and liabilities of the respective companies
based on their estimated fair values. Based on preliminary purchase accounting,
the goodwill associated with the Climax acquisition approximated $3.6 million,
which is being amortized on a straight-line basis over forty years. Based on
preliminary purchase accounting, the goodwill associated with the X-Ray
acquisition approximated $7.3 million, which is being amortized on a
straight-line basis over forty years.
The unaudited pro forma consolidated results of operations of the Company
are shown below as if the acquisitions had occurred at the beginning of the
fiscal periods indicated. These results are not necessarily
21
<PAGE> 23
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indicative of the results which would actually have occurred if the purchases
had taken place at the beginning of the periods, nor are they necessarily
indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales.................................................. $64,799,000 $65,547,000
Net income................................................. $ 653,000 $ 2,814,000
Earnings (loss) per share
Basic.................................................... $ 0.08 $ 0.42
Diluted.................................................. $ 0.08 $ 0.41
</TABLE>
3. DIVESTITURES AND DISCONTINUED OPERATIONS
In May 1997, the Company sold substantially all of the assets of its
Military Housing Projects segment. Proceeds of this divestiture amounted to
approximately $3.2 million and were used primarily to reduce the Company's
long-term debt. A loss on the sale of this segment of $181,000, net of income
taxes, was recorded in the year ended May 31, 1997.
4. RECEIVABLES
Receivables consist of:
<TABLE>
<CAPTION>
MAY 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Trade accounts receivable................................... $10,632,000 $9,610,000
Other receivables........................................... 391,000 201,000
Allowance for doubtful accounts............................. (297,000) (247,000)
----------- ----------
Total............................................. $10,726,000 $9,564,000
=========== ==========
</TABLE>
5. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
MAY 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Raw materials............................................... $1,081,000 $1,049,000
Finished goods and work in progress......................... 7,485,000 5,752,000
---------- ----------
Total............................................. $8,566,000 $6,801,000
========== ==========
</TABLE>
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of:
<TABLE>
<CAPTION>
MAY 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Payroll and other compensation expenses..................... $1,734,000 $1,683,000
Insurance accruals.......................................... 603,000 1,076,000
Accrued interest............................................ 225,000 35,000
Current payments due to former officers..................... 371,000 150,000
Other....................................................... 802,000 539,000
---------- ----------
Total............................................. $3,735,000 $3,483,000
========== ==========
</TABLE>
22
<PAGE> 24
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision for income taxes attributable to pre-tax earnings from
continuing operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1999 1998 1997
-------- ---------- --------
<S> <C> <C> <C>
Federal income taxes:
Current........................................... $282,000 $ 609,000 $ 63,000
Deferred.......................................... 277,000 270,000 586,000
State income taxes:
Current........................................... 8,000 171,000 162,000
Deferred.......................................... 54,000 21,000 (55,000)
-------- ---------- --------
Total..................................... $621,000 $1,071,000 $756,000
======== ========== ========
</TABLE>
A reconciliation between income taxes related to earnings from continuing
operations before income taxes and income taxes computed by applying the
statutory federal income tax rate to such earnings follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------
1999 1998 1997
-------- ---------- ----------
<S> <C> <C> <C>
Earnings from continuing operations before federal
income taxes.................................... $897,000 $2,464,000 $1,515,000
======== ========== ==========
Computed income taxes at statutory rate........... $305,000 $ 838,000 $ 515,000
Goodwill amortization............................. 32,000 -- --
State income taxes, net of federal tax benefit.... 41,000 127,000 71,000
Other............................................. 243,000 106,000 170,000
-------- ---------- ----------
Total................................... $621,000 $1,071,000 $ 756,000
======== ========== ==========
</TABLE>
A summary of the significant components of the Company's deferred tax
assets and liabilities follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Property, plant and equipment............................... $ (845,000) $ --
Receivables................................................. -- (42,000)
Other....................................................... (98,000) (5,000)
---------- ----------
Gross deferred liabilities.................................. (943,000) (47,000)
---------- ----------
Receivables................................................. 106,000 --
Property, plant and equipment............................... -- 192,000
Accrued expenses and other liabilities...................... 1,089,000 1,254,000
Inventory................................................... 229,000 194,000
---------- ----------
Gross deferred assets....................................... 1,424,000 1,640,000
---------- ----------
Net deferred taxes................................ $ 481,000 $1,593,000
========== ==========
</TABLE>
No valuation account is required for the deferred tax assets as the Company
is projecting profitable fiscal years in the future. Most of the assets
represent temporary differences on certain accruals that will reverse over a
period of less than 10 years.
23
<PAGE> 25
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM OBLIGATIONS
Long-term obligations consist of:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Revolving credit agreement.................................. $ 7,470,000 $2,500,000
Term note................................................... 11,307,000 1,693,000
Capital lease obligations................................... 238,000 340,000
Agreements with former offices.............................. 1,657,000 1,418,000
Deferred compensation....................................... 451,000 --
Other....................................................... 343,000 301,000
----------- ----------
21,466,000 6,252,000
Less current portion........................................ 948,000 286,000
----------- ----------
Total............................................. $20,518,000 $5,966,000
=========== ==========
</TABLE>
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
- -------------------
<S> <C>
2000.................................................... $ 948,000
2001.................................................... 9,428,000
2002.................................................... 1,871,000
2003.................................................... 6,560,000
2004.................................................... 391,000
Thereafter.............................................. 2,268,000
-----------
Total......................................... $21,466,000
===========
</TABLE>
LONG-TERM DEBT:
Effective August 26, 1998, the Company entered into a new credit facility
with a new primary lender in the amount of $24,000,000. This new facility
provides for (i) a $12,500,000 revolving loan, (ii) $9,500,000 in term loans for
business acquisitions and (iii) a $2,000,000 mortgage loan to refinance existing
real estate indebtedness. This new credit facility replaced the previous
$10,000,000 line of credit, which was due December 31, 1999 and bore interest at
the prime rate plus 0.5 percent, and the previous term note, which was due in
part on October 15, 2006 and in part on July 15, 2010 and bore interest at the
prime rate plus 0.5 percent. Amounts borrowed under the new revolving credit
loan are due September 30, 2001. Amounts borrowed against the new term loans are
due in quarterly installments in the amount of $339,000 beginning December 31,
1999, with the remaining principal balance to be paid on the term loans maturity
date of September 30, 2003. Amounts borrowed against the mortgage loan are to be
repaid in quarterly installments in the amount of $31,000 beginning December 31,
1998, with the remaining principal balance to be paid on the mortgage loan
maturity date of September 30, 2008. Amounts outstanding under this facility
bear interest at a marginal rate over either the LIBOR rate or the prime rate.
The marginal rate is based on the Company's level of funded debt to cash flow,
and ranges from 1.50% to 2.50% over the LIBOR rate and from 0.00% to 0.50% over
the prime rate. The effective rate on outstanding borrowings at May 31, 1999 is
approximately 7.3%.
In October 1998, the Company entered into an interest rate swap transaction
on $4,500,000 of the outstanding term loans, exchanging a floating LIBOR rate
(5.3% at the time of the swap) for a fixed rate of 5.19%. The maturity of this
swap agreement is September 30, 2003. In December 1998, the Company executed two
additional swap transactions related to the $1,800,000 borrowed against the
mortgage loan and to $2,000,000 of the amount outstanding under the revolver. A
floating LIBOR rate (5.25% at the time of these
24
<PAGE> 26
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
swap transactions) was exchanged for fixed rates of 5.24% and 5.19% on the
$1,800,000 and $2,000,000 notional amounts, respectively. The maturity of these
swap agreements is December 31, 2001.
As the interest rates on the credit facility are based on market rates, the
fair value of amounts outstanding under the facility approximate the carrying
value. The interest rate swap agreements, which have no carrying value, have a
fair value of approximately $162,000.
Loans under the credit facility are secured by substantially all of the
assets of the Company. The terms of the agreement require the maintenance of
certain financial ratios and limit investments, liens, leases and indebtedness,
among other things. At May 31, 1999, the Company was in compliance with all
credit facility covenants.
AGREEMENTS WITH FORMER OFFICERS
During the years ended May 31, 1999 and 1996, the Company accrued for
payments to be made to former employees of the Company beyond the period in
which services are expected to be rendered. At May 31, 1999, these long-term
obligations totaled $1,657,000.
DEFERRED COMPENSATION ARRANGEMENT
Under a nonqualified deferred compensation agreement, a former officer of
the Company (the "Participant") elected to defer a portion of his compensation
into a trust established by the Company. The trust assets, consisting of cash
and cash equivalents, are subject to the claims of the Company's creditors in
the event of the Company's insolvency, until paid to the Participant and his
beneficiaries. In accordance with EITF 97-14, "Accounting for Deferred
Compensation Arrangements where amounts earned are held in a Rabbi Trust and
Invested," the accounts of the trust have been consolidated in the Company's
financial statements for fiscal 1999. The principal of the trust and any
earnings thereon are to be used exclusively for the uses and purposes of the
Participant and general creditors of the Company in the event of the Company's
insolvency, and therefore the trust assets of $451,000 at May 31, 1999 have been
classified as restricted cash in the balance sheet.
9. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS AND SHAREHOLDER RIGHTS PLAN
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pursuant to option plans, the Company has granted options to purchase
common stock to officers, directors and 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 the
Company's
25
<PAGE> 27
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plans are generally determined by the Compensation Committee at the time of
grant of each option and may vary. Transactions under all plans are summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------
1999 1998 1997
---------- --------- --------
<S> <C> <C> <C>
Shares under option, beginning of year............. 692,600 516,000 511,700
Changes during the year:
Granted.......................................... 394,000 379,000 30,000
Exercised........................................ (36,400) (166,900) --
Canceled......................................... (21,000) (35,500) (25,700)
---------- --------- --------
Shares under option, end of year................... 1,029,200 692,600 516,000
========== ========= ========
Average option price per share..................... $ 3.03 $ 2.76 $ 2.12
========== ========= ========
Exercisable at end of year......................... 655,900 481,500 503,500
========== ========= ========
Available for future grant......................... 30,300 259,000 377,000
========== ========= ========
</TABLE>
At May 31, 1999, the exercise prices of options outstanding range from
$2.00 per share to $4.125 per share and the weighted-average remaining
contractual life is 7.2 years.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for the options granted after this date was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 6.5%, 5.9% and 6.4%;
volatility factor of the expected market price of the Company's common stock of
62.3%, 67.4% and 65.8%; and a weighted average expected life of the option of
three years for 1999, 1998 and 1997, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1999 1998 1997
------- ---------- --------
<S> <C> <C> <C>
Pro forma net earnings from continuing operations.... $24,000 $1,255,000 $747,000
Net earnings from discontinued operations............ -- -- 1,000
------- ---------- --------
Pro forma net earnings............................... $24,000 $1,255,000 $748,000
======= ========== ========
Net earnings per common share -- Diluted:
Pro forma earnings per share from continuing
operations...................................... $ 0.00 $ 0.21 $ 0.14
Net earnings per share from discontinued
operations...................................... -- -- 0.00
------- ---------- --------
Pro forma earning per share........................ $ 0.00 $ 0.21 $ 0.14
======= ========== ========
</TABLE>
26
<PAGE> 28
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the options granted under the option plans as discussed
above, an officer of the Company has been granted options to purchase 200,000
shares of common stock at a price of $3.625 per share, subject to a vesting
schedule based on stock performance measures. As of May 31, 1999, none of these
options had vested as the target share prices detailed in the vesting schedule
had not been obtained.
RESTRICTED STOCK AWARDS
During fiscal 1999, 18,000 shares of restricted common stock were granted
to certain officers of the Company. Vesting of the shares occurs over a
three-year period of time. Accordingly, at the grant date, the value of the
shares ($3.75 per share) was recorded as unearned compensation and reflected as
a contra-equity account in the balance sheet. Compensation expense is recognized
as the officers provide services to the Company and become vested in the shares.
At May 31, 1999, the unearned compensation balance was $51,000.
EMPLOYEE BENEFIT PLANS
Under the Team, Inc. Salary Deferral Plan, contributions are made by
qualified employees at their election and matching Company contributions are
made at specified rates. Company contributions in fiscal 1999, 1998 and 1997
were $242,000, $210,000 and $104,000, respectively.
Employer contributions for the Team, Inc. Employee Stock Ownership Plan are
determined at the discretion of the Company's Board of Directors. The Plan does
not allow for employee contributions. No contributions were made in 1999, 1998
or 1997.
SHAREHOLDER RIGHTS PLANS
On October 24, 1990, the Board of Directors of the Company adopted a
Shareholder Rights Plan ("Rights Plan"). Pursuant to the Rights Plan, the Board
of Directors declared a dividend distribution of one right ("Right") for each
outstanding share of the Company's common stock ("Common Stock"), and on each
share subsequently issued until separate Rights are distributed, or the Rights
expire or are redeemed. On June 15, 1998, the Company redeemed the Rights at a
total cost of approximately $60,000.
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company's capital leases relate to certain computer equipment and
software. Property, plant and equipment include assets under capital lease in
the amount of $930,000 and $641,000 at May 31, 1999 and 1998, before accumulated
amortization of $414,000 and $253,000, respectively. Other assets include
software under capital lease in the amount of $281,000 at May 31, 1999 and 1998,
before accumulated amortization of $267,000 and $208,000, respectively. The
Company also has operating leases which relate to facilities and transportation
and other equipment which are leased over terms ranging from one to five years
with typical renewal options and escalation clauses. Rental payments on
operating leases charged against earnings were $1,936,000, $1,790,000 and
$1,950,000 in 1999, 1998 and 1997, respectively.
27
<PAGE> 29
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rental commitments for future periods are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING MAY 31, CAPITAL LEASES LEASES TOTAL
- ------------------- -------------- ---------- ----------
<S> <C> <C> <C>
2000............................................ $ 98,000 $1,453,000 $1,551,000
2001............................................ 75,000 1,035,000 1,110,000
2002............................................ 35,000 666,000 701,000
2003............................................ 35,000 319,000 354,000
2004............................................ 31,000 62,000 93,000
-------- ---------- ----------
Total minimum lease payments.................... 274,000 $3,535,000 $3,809,000
========== ==========
Less: amount representing interest.............. 36,000
--------
Present value of net minimum lease payments..... $238,000
========
</TABLE>
Legal Proceedings
The Company and certain subsidiaries are involved in various lawsuits and
subject to various claims and proceedings encountered in the normal conduct of
business. In the opinion of management, any uninsured losses that might arise
from these lawsuits and proceedings will not have a material adverse affect on
the Company's consolidated financial statements.
11. COMMON STOCK
On June 30, 1997, the Company issued 650,000 shares of Common Stock to
Armstrong International, Inc. in exchange for cash in the amount of $3.00 per
share for a total of $1,950,000. On June 19, 1998, the Company completed the
sale of 1,200,000 shares of Team's Common Stock for $2.75 per share to Houston
Post Oak Partners, Ltd. ("Houston Partners") for a total consideration of
$3,300,000. Houston Partners now owns approximately 15% of the Company's
outstanding common shares. On November 2, 1998 the Company issued 45,000 common
shares to Philip J. Hawk ("Hawk") in exchange for cash in the amount of $3.625
per share, for a total of $163,125. This sale was in accordance with the terms
and conditions of an employment agreement wherein Hawk became Chief Executive
Officer of the Company.
Substantially all of the net proceeds of each of the private placement
transactions were used to repay long term debt or to repay the Company's
revolving credit facility.
12. INDUSTRY SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," in fiscal 1999. SFAS No. 131 requires that
the Company disclose certain information about its operating segments where
operating segments are defined as "components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance." Generally, financial information is required to be
reported on the basis that is used internally for evaluating segment performance
and deciding how to allocate resources to segments.
Pursuant to SFAS No. 131, the Company has two reportable segments:
industrial services and equipment sales and rentals. The industrial services
segment includes services consisting of leak repair, hot tapping, emissions
control monitoring, field machining, and mechanical inspection. The equipment
sales and rental segment consists of the Climax business.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on earnings before income taxes. Inter-
28
<PAGE> 30
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
segment sales are eliminated in the operating measure used by the Company to
evaluate segment performance, and thus have been eliminated in the following
schedule. Interest is not allocated to the segments.
Prior to the acquisition of Climax in August 1998, the Company operated
solely in the industrial services segment. Therefore, the information below is
only provided for fiscal 1999.
YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
INDUSTRIAL EQUIPMENT CORPORATE
SERVICES SALES & RENTALS & OTHER TOTAL
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues........................ $47,282,000 $7,350,000 $ -- $54,632,000
Operating expenses.............. 27,787,000 4,085,000 -- 31,872,000
Selling, general and
administrative expenses....... 13,852,000 2,681,000 3,210,000 19,743,000
Severance and other charges..... 269,000 114,000 869,000 1,252,000
Interest........................ -- -- 868,000 868,000
----------- ---------- ----------- -----------
Earnings before income taxes.... $ 5,374,000 $ 470,000 $(4,947,000) $ 897,000
=========== ========== =========== ===========
Depreciation and Amortization... $ 1,284,000 $ 457,000 $ 489,000 $ 2,230,000
=========== ========== =========== ===========
Capital expenditures............ $ 1,232,000 $ 130,000 $ 1,092,000 $ 2,454,000
=========== ========== =========== ===========
Identifiable assets............. $34,244,000 $8,856,000 $ 4,777,000 $47,877,000
=========== ========== =========== ===========
</TABLE>
13. SEVERANCE AND OTHER CHARGES
In fiscal 1999, the Company reduced headquarters support staff by
approximately 20% (19 individuals) which resulted in a charge of $436,000.
Additionally, a charge of $816,000 was made during fiscal 1999 to fully provide
for the future payments due to two former officers under deferred compensation
agreements that extend beyond the period in which services are expected to be
rendered. Payments pursuant to that charge will be made through 2004.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's consolidated results of operations by quarter for the fiscal
years ended May 31, 1999 and 1998 were as follows: (in thousands except per
share amounts)
<TABLE>
<CAPTION>
FISCAL 1999
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues....................................... $11,368 $13,892 $14,419 $14,953
======= ======= ======= =======
Gross Profit................................... $ 4,876 $ 5,750 $ 5,805 $ 6,329
======= ======= ======= =======
Net Earnings (Loss)............................ $ 292 $ 107 $ (557) $ 434
======= ======= ======= =======
Net Earnings (Loss) per Share -- Basic......... $ 0.04 $ 0.01 $ (0.07) $ 0.05
======= ======= ======= =======
Net Earnings (Loss) per Share -- Diluted....... $ 0.04 $ 0.01 $ (0.07) $ 0.05
======= ======= ======= =======
</TABLE>
29
<PAGE> 31
TEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL 1998
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues....................................... $10,229 $11,717 $11,483 $12,028
======= ======= ======= =======
Gross Profit................................... $ 4,178 $ 5,130 $ 4,739 $ 5,477
======= ======= ======= =======
Net Earnings................................... $ 107 $ 528 $ 315 $ 443
======= ======= ======= =======
Net Earnings per Share -- Basic................ $ 0.02 $ 0.09 $ 0.05 $ 0.07
======= ======= ======= =======
Net Earnings per Share -- Diluted.............. $ 0.02 $ 0.09 $ 0.05 $ 0.07
======= ======= ======= =======
</TABLE>
30
<PAGE> 32
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no disagreements concerning accounting and financial
disclosures with the Company's independent accountants within the past two
years.
PART III.
THE INFORMATION CONTAINED IN ITEMS 10, 11, 12 AND 13 OF PART III HAS BEEN
OMITTED FROM THIS REPORT ON FORM 10-K SINCE THE COMPANY WILL FILE, NOT LATER
THAN 120 DAYS FOLLOWING THE CLOSE OF ITS FISCAL YEAR ENDED MAY 31, 1999, ITS
DEFINITIVE PROXY STATEMENT. THE INFORMATION REQUIRED BY PART III WILL BE
INCLUDED IN THAT PROXY STATEMENT AND SUCH INFORMATION IS HEREBY INCORPORATED BY
REFERENCE, WITH THE EXCEPTION OF THE INFORMATION UNDER THE HEADINGS
"COMPENSATION COMMITTEE REPORT" AND "COMPARISON OF TOTAL SHAREHOLDERS' RETURN."
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of Team, Inc. and its
subsidiaries are included in Part II, Item 8.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 14
Consolidated Balance Sheets -- May 31, 1999 and 1998........ 15
Consolidated Statements of Operations -- Years ended May 31,
1999, 1998 and 1997....................................... 16
Consolidated Statements of Stockholders' Equity -- Years
ended May 31, 1999, 1998 and 1997......................... 17
Consolidated Statements of Cash Flows -- Years ended May 31,
1999, 1998 and 1997....................................... 18
Notes to Consolidated Financial Statements.................. 19
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted because they are not applicable or because
the required information is included in the Consolidated Financial Statements or
Notes thereto.
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
3(a) -- Second Restated Articles of Incorporation of the Company
(as amended through August 31, 1999)
3(b)* -- Bylaws of the Company (filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-2, File No.
33-31663).
4(a)* -- Certificate representing shares of common stock of
Company (filed as Exhibit 4(1) to the Company's
Registration Statement on Form S-1, File No. 2-68928).
4(b)* -- Statement of Relative Rights and Preferences of Series A
Participatory Preferred Stock of Team, Inc. (filed as
Exhibit 2.2 to the Company's Form 8-A with the Securities
and Exchange Commission on October 26, 1990).
10(a)*# -- Team, Inc. Amended and Restated 1987 Restricted Stock
Option Plan dated December 16, 1991 (filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 28, 1994).
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10(b)*# -- Fourth Amendment to Team, Inc. Amended and Restated 1987
Restricted Stock Option Plan (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1995).
10(c)*# -- Employment Agreements and Consulting and Salary
Continuation Agreements between the Company and certain
of its executive officers (filed as Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1988, as Exhibit 10 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31,
1989, as amended by Form 8 dated October 19, 1989, and
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended November 30, 1990).
10(d)* -- Ninth Amendment and Restatement of the Team, Inc. Salary
Deferral Plan (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996).
10(e)*# -- Sixth Amendment and Restatement of the Team, Inc.
Employee Stock Ownership Plan (filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended February 29, 1996).
10(f)*# -- Team, Inc. Restated Non-Employee Directors' Stock Option
Plan as amended through March 28, 1996 (filed as Exhibit
10(z) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996).
10(g)*# -- Amendment dated January 9, 1997, to the Team, Inc.
Restated Non-Employee Directors Stock Option Plan (filed
as Exhibit 10(m) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997).
10(h)*# -- Amendment dated January 29, 1998, to the Team, Inc.
Restated Non-Employee Directors Stock Option Plan (filed
as Exhibit 10(k) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997).
10(i)* -- Team, Inc. 1992 Stock Option Plan for Key Employees of
Acquired Business effective January 1992 (filed as
Exhibit 10(r) to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1992) (filed as Exhibit
10(dd) to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1996).
10(j)*# -- Team, Inc. Officers' Restricted Stock Option Plan dated
December 14, 1995 (filed as Exhibit 10(dd) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996).
10(k)*# -- First Amendment to the Consulting and Salary Continuation
Agreement by and between Team, Inc. and George W.
Harrison dated December 24, 1990 (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
Quarter ended November 30, 1996).
10(l)* -- Registration Rights Agreement by and between Team, Inc.
and Armstrong International, Inc. dated June 30, 1997
(filed as Exhibit 10(v) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997).
10(m)* -- Standstill and Voting Agreement by and between Team, Inc.
and Armstrong International, Inc. dated June 30, 1997
(filed as Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the year ended May 31, 1997).
10(n)*# -- Employment Agreement by and between Philip J. Hawk and
Team, Inc. dated November 2, 1998 (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1998).
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10(o)*# -- Incentive Stock Option Award Agreement by and between
Philip J. Hawk and Team, Inc. dated November 2, 1998
(filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1998).
10(p)*# -- Standard Restricted Stock Option Award Agreement by and
between Philip J. Hawk and Team, Inc. dated November 2,
1998 (filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 30,
1998).
10(q)*# -- Price Vested Restricted Stock Option Award Agreement by
and between Philip J. Hawk and Team, Inc. dated November
2, 1998 (filed as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 30,
1998).
10(r)*# -- Stock Purchase Agreement by and between Philip J. Hawk
and Team, Inc. dated November 2, 1998 (filed as Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for
the quarter ended November 30, 1998).
10(s)*# -- Employment Termination and Consulting Agreement, by and
between Team, Inc. and William A. Ryan, dated effective
as of November 1, 1998 (filed as Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1998).
10(t)# -- Restricted Stock Award, in the amount of 2,000 shares of
the Company's common stock to Kenneth M. Tholan, and
1,000 shares of common stock to each of Ted W. Owen,
Clark A. Ingram, John P. Kearns and William H. Nelson,
effective as October 26, 1998 (only the form of such
Restricted Stock Award is made an exhibit, as there are
no particular provisions of each such individual's
Restricted Stock Award that vary from the form, other
than the amounts indicated above).
10(u)* -- Construction Loan Agreement dated February 20, 1998, by
and between Sterling Bank and Team, Inc. (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 1998).
10(v)* -- Modification and Extension Agreement dated February 20,
1998, by and between Sterling Bank and Team, Inc. (filed
as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 1998).
10(w)* -- 1998 Incentive Stock Option Plan dated January 29, 1998
(filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 28, 1998).
10(x)* -- Stock Purchase Agreement by and between Team, Inc. and
Houston Post Oak Partners, Ltd. dated June 9, 1998 (filed
as an exhibit to the Company's Current Report on Form 8-K
filed June 8, 1998).
10(y)* -- Stock Purchase Agreement by and between Team, Inc. and R.
LeRoy and Paula Benham, The Climax Portable Machine
Tools, Inc. Employee Stock Ownership Plan Trust, Phillip
R. Edin, Trustee of the Phillip Edin Living Trust u/t/a
dated November 25, 1996, and Terry W. Weigel dated July
3, 1998 (filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K filed September 9, 1998).
10(z)* -- First Amendment to Stock Purchase Agreement dated as of
July 29, 1998, among Team and R. Leroy and Paula Benham,
the Climax Portable Machine Tools, Inc. Employee Stock
Ownership Plan Trust, Phillip R. Edin, Trustee of the
Phillip Edin Living Trust and Terry W. Weigel (filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K
filed September 9, 1998).
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10(aa)* -- Second Amendment to Stock Purchase Agreement dated as of
August 28, 1998, among Team and R. Leroy and Paula
Benham, the Climax Portable Machine Tools, Inc. Employee
Stock Ownership Plan Trust, Phillip R. Edin, Trustee of
the Phillip Edin Living Trust and Terry W. Weigel (filed
as Exhibit 2.3 to the Company's Current Report on Form
8-K filed September 9, 1998).
10(bb)* -- Form of Stock Purchase Agreement among Team and each of
the following minority shareholders of Climax Portable
Machine Tools, Inc.: Paul and Gladys Strait, Timothy
Benham, Elizabeth Allen, Louise Sperling, Amy Sperling,
Melissa Sperling, Sarah Sperling, Emily Sperling, Jodi
Strait, and Raelyn Riedlinger (filed as Exhibit 2.4 to
the Company's Current Report on Form 8-K filed September
9, 1998).
10(cc)* -- Credit Agreement dated August 28, 1998 among Team,
NationsBank, N.A. and various Financial Institutions
named in the Credit Agreement (filed as Exhibit 2.5 to
the Company's Current Report on Form 8-K filed September
9, 1998).
10(dd)* -- Stock Purchase Agreement Among Team, Inc. (Buyer) and E.
Patrick Manuel and B. Dal Miller (Sellers) dated April 9,
1999 providing for the acquisition by Team, Inc. of 100%
of the outstanding capital stock of X-Ray Inspection,
Inc. (filed as Exhibit 2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28,
1999).
21 -- Subsidiaries of the Company.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated herein by reference to the respective filing identified above.
# Management contracts and/or compensation plans required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.
(B) REPORTS ON FORM 8-K.
The Company reported one matter reportable on Form 8-K since the beginning
of the fourth quarter of fiscal 1999.
(i) In lieu of filing a Current Report on Form 8-K, the Company
reported in its Quarterly Report on Form 10-Q for the quarter ended
February 28, 1999 the acquisition of 100% of the outstanding capital stock
of X-Ray Inspection, Inc. ("X-Ray"), a Louisiana corporation, from E.
Patrick Manuel and B. Dal Miller in consideration for the payment to the
sellers of an aggregate of $7.7 million in cash and 595,000 shares of newly
issued Company common stock. Additional consideration of up to $2.5 million
in cash could be payable to sellers over the next four years if certain
increases in operating results are achieved by X-Ray.
(ii) The Company reported the following financial information on Form
8-K:
Financial Statements of X-Ray Inspection, Inc.
Independent Auditors' Report
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the Years Ended December 31, 1998
and 1997
Statements of Retained Earnings for the Years Ended December 31,
1998 and 1997
Statements of Cash Flows for the Years Ended December 31, 1998
and 1997
Notes to Financial Statements
34
<PAGE> 36
Pro Forma Consolidated Financial Information of Team, Inc.
(Unaudited)
Pro Forma Consolidated Balance Sheet as of February 28, 1999
Pro Forma Consolidated Statement of Operations -- Year Ended May
31, 1998
Pro Forma Consolidated Statement of Operations -- Nine Months
Ended February 28, 1999
Notes to Pro Forma Consolidated Financial Statements
35
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized August 27, 1999.
TEAM, INC.
By: /s/ PHILIP J. HAWK
----------------------------------
Philip J. Hawk
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ PHILIP J. HAWK Chief Executive Officer and August 27, 1999
- ----------------------------------------------------- Director
(Philip J. Hawk)
/s/ GEORGE W. HARRISON Director August 27, 1999
- -----------------------------------------------------
(George W. Harrison)
/s/ JACK M. JOHNSON, JR. Director August 27, 1999
- -----------------------------------------------------
(Jack M. Johnson, Jr.)
/s/ E. THEODORE LABORDE Director August 27, 1999
- -----------------------------------------------------
(E. Theodore Laborde)
/s/ WILLIAM A. RYAN Director August 27, 1999
- -----------------------------------------------------
(William A. Ryan)
/s/ LOUIS A. WATERS Director August 27, 1999
- -----------------------------------------------------
(Louis A. Waters)
/s/ SIDNEY B. WILLIAMS Director August 27, 1999
- -----------------------------------------------------
(Sidney B. Williams)
/s/ TED W. OWEN Vice President Chief Financial August 27, 1999
- ----------------------------------------------------- Officer (Principal Financial
(Ted W. Owen) Officer and Principal
Accounting Officer)
</TABLE>
36
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(a) -- Second Restated Articles of Incorporation of the Company
(as amended through August 31, 1999)
3(b)* -- Bylaws of the Company (filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-2, File No.
33-31663).
4(a)* -- Certificate representing shares of common stock of
Company (filed as Exhibit 4(1) to the Company's
Registration Statement on Form S-1, File No. 2-68928).
4(b)* -- Statement of Relative Rights and Preferences of Series A
Participatory Preferred Stock of Team, Inc. (filed as
Exhibit 2.2 to the Company's Form 8-A with the Securities
and Exchange Commission on October 26, 1990).
10(a)*# -- Team, Inc. Amended and Restated 1987 Restricted Stock
Option Plan dated December 16, 1991 (filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 28, 1994).
10(b)*# -- Fourth Amendment to Team, Inc. Amended and Restated 1987
Restricted Stock Option Plan (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1995).
10(c)*# -- Employment Agreements and Consulting and Salary
Continuation Agreements between the Company and certain
of its executive officers (filed as Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1988, as Exhibit 10 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31,
1989, as amended by Form 8 dated October 19, 1989, and
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended November 30, 1990).
10(d)* -- Ninth Amendment and Restatement of the Team, Inc. Salary
Deferral Plan (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996).
10(e)*# -- Sixth Amendment and Restatement of the Team, Inc.
Employee Stock Ownership Plan (filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended February 29, 1996).
10(f)*# -- Team, Inc. Restated Non-Employee Directors' Stock Option
Plan as amended through March 28, 1996 (filed as Exhibit
10(z) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996).
10(g)*# -- Amendment dated January 9, 1997, to the Team, Inc.
Restated Non-Employee Directors Stock Option Plan (filed
as Exhibit 10(m) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997).
10(h)*# -- Amendment dated January 29, 1998, to the Team, Inc.
Restated Non-Employee Directors Stock Option Plan (filed
as Exhibit 10(k) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997).
10(i)* -- Team, Inc. 1992 Stock Option Plan for Key Employees of
Acquired Business effective January 1992 (filed as
Exhibit 10(r) to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1992) (filed as Exhibit
10(dd) to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1996).
10(j)*# -- Team, Inc. Officers' Restricted Stock Option Plan dated
December 14, 1995 (filed as Exhibit 10(dd) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996).
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(k)*# -- First Amendment to the Consulting and Salary Continuation
Agreement by and between Team, Inc. and George W.
Harrison dated December 24, 1990 (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
Quarter ended November 30, 1996).
10(l)* -- Registration Rights Agreement by and between Team, Inc.
and Armstrong International, Inc. dated June 30, 1997
(filed as Exhibit 10(v) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997).
10(m)* -- Standstill and Voting Agreement by and between Team, Inc.
and Armstrong International, Inc. dated June 30, 1997
(filed as Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the year ended May 31, 1997).
10(n)*# -- Employment Agreement by and between Philip J. Hawk and
Team, Inc. dated November 2, 1998 (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1998).
10(o)*# -- Incentive Stock Option Award Agreement by and between
Philip J. Hawk and Team, Inc. dated November 2, 1998
(filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1998).
10(p)*# -- Standard Restricted Stock Option Award Agreement by and
between Philip J. Hawk and Team, Inc. dated November 2,
1998 (filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 30,
1998).
10(q)*# -- Price Vested Restricted Stock Option Award Agreement by
and between Philip J. Hawk and Team, Inc. dated November
2, 1998 (filed as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 30,
1998).
10(r)*# -- Stock Purchase Agreement by and between Philip J. Hawk
and Team, Inc. dated November 2, 1998 (filed as Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for
the quarter ended November 30, 1998).
10(s)*# -- Employment Termination and Consulting Agreement, by and
between Team, Inc. and William A. Ryan, dated effective
as of November 1, 1998 (filed as Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1998).
10(t)# -- Restricted Stock Award, in the amount of 2,000 shares of
the Company's common stock to Kenneth M. Tholan, and
1,000 shares of common stock to each of Ted W. Owen,
Clark A. Ingram, John P. Kearns and William H. Nelson,
effective as October 26, 1998 (only the form of such
Restricted Stock Award is made an exhibit, as there are
no particular provisions of each such individual's
Restricted Stock Award that vary from the form, other
than the amounts indicated above).
10(u)* -- Construction Loan Agreement dated February 20, 1998, by
and between Sterling Bank and Team, Inc. (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 1998).
10(v)* -- Modification and Extension Agreement dated February 20,
1998, by and between Sterling Bank and Team, Inc. (filed
as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended February 28, 1998).
10(w)* -- 1998 Incentive Stock Option Plan dated January 29, 1998
(filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 28, 1998).
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10(x)* -- Stock Purchase Agreement by and between Team, Inc. and
Houston Post Oak Partners, Ltd. dated June 9, 1998 (filed
as an exhibit to the Company's Current Report on Form 8-K
filed June 8, 1998).
10(y)* -- Stock Purchase Agreement by and between Team, Inc. and R.
LeRoy and Paula Benham, The Climax Portable Machine
Tools, Inc. Employee Stock Ownership Plan Trust, Phillip
R. Edin, Trustee of the Phillip Edin Living Trust u/t/a
dated November 25, 1996, and Terry W. Weigel dated July
3, 1998 (filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K filed September 9, 1998).
10(z)* -- First Amendment to Stock Purchase Agreement dated as of
July 29, 1998, among Team and R. Leroy and Paula Benham,
the Climax Portable Machine Tools, Inc. Employee Stock
Ownership Plan Trust, Phillip R. Edin, Trustee of the
Phillip Edin Living Trust and Terry W. Weigel (filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K
filed September 9, 1998).
10(aa)* -- Second Amendment to Stock Purchase Agreement dated as of
August 28, 1998, among Team and R. Leroy and Paula
Benham, the Climax Portable Machine Tools, Inc. Employee
Stock Ownership Plan Trust, Phillip R. Edin, Trustee of
the Phillip Edin Living Trust and Terry W. Weigel (filed
as Exhibit 2.3 to the Company's Current Report on Form
8-K filed September 9, 1998).
10(bb)* -- Form of Stock Purchase Agreement among Team and each of
the following minority shareholders of Climax Portable
Machine Tools, Inc.: Paul and Gladys Strait, Timothy
Benham, Elizabeth Allen, Louise Sperling, Amy Sperling,
Melissa Sperling, Sarah Sperling, Emily Sperling, Jodi
Strait, and Raelyn Riedlinger (filed as Exhibit 2.4 to
the Company's Current Report on Form 8-K filed September
9, 1998).
10(cc)* -- Credit Agreement dated August 28, 1998 among Team,
NationsBank, N.A. and various Financial Institutions
named in the Credit Agreement (filed as Exhibit 2.5 to
the Company's Current Report on Form 8-K filed September
9, 1998).
10(dd)* -- Stock Purchase Agreement Among Team, Inc. (Buyer) and E.
Patrick Manuel and B. Dal Miller (Sellers) dated April 9,
1999 providing for the acquisition by Team, Inc. of 100%
of the outstanding capital stock of X-Ray Inspection,
Inc. (filed as Exhibit 2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended February 28,
1999).
21 -- Subsidiaries of the Company.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated herein by reference to the respective filing identified above.
# Management contracts and/or compensation plans required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.
<PAGE> 1
EXHIBIT 3(a)
(As amended through August 29, 1999)
SECOND RESTATED ARTICLES OF INCORPORATION OF
TEAM, INC.
ARTICLE ONE
Team, Inc., pursuant to the provisions of Article 4.07 of the Texas
Business Corporation Act, hereby adopts its Second Restated Articles of
Incorporation, which accurately copy the prior Restated Articles of
Incorporation and all amendments thereto that are in effect to date and such
Second Restated Articles of Incorporation contain no change in any provision
thereof.
ARTICLE TWO
The Second Restated Articles of Incorporation were adopted by
resolution of the Board of Directors of the Corporation on October 25, 1989.
ARTICLE THREE
The prior Restated Articles of Incorporation and all amendments and
supplements thereto are hereby superseded by the following Second Restated
Articles of Incorporation which accurately copy the entire text thereof:
"ARTICLE I.
The name of the Corporation is TEAM, INC.
ARTICLE II.
The period of its duration is perpetual.
ARTICLE III.
The purpose for which the Corporation is organized is to transact any
and all lawful business for which corporations may be incorporated under the
Texas Business Corporation Act.
ARTICLE IV.
(As amended October 23, 1998)
The aggregate number of shares which the Corporation shall have the
authority to issue is Thirty Million Five Hundred Thousand (30,500,000) shares,
of which Thirty Million (30,000,000) shares shall be common shares of Thirty
Cents ($0.30) par value each and Five Hundred Thousand
<PAGE> 2
(500,000) shares shall be preferred shares of One Hundred Dollars ($100) par
value each, issuable in series.
The Board of Directors is hereby authorized from time to time to divide
all or any part of the preferred shares into series thereof and to fix and
determine variations, if any, between any series so established as to any one or
more of the following matters:
(i) The rate of dividends;
(ii) The price at and the terms and conditions under which
shares may be redeemed;
(iii) The amount payable upon shares in the event of voluntary
liquidation;
(iv) The amount payable upon shares in the event of
involuntary liquidation;
(v) Sinking fund provisions for the redemption or purchase of
shares;
(vi) The terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege of
conversion;
(vii) Voting rights; and
(viii) Any and all such other provisions as may be fixed or
determined by the Board of Directors of the Corporation pursuant to
Texas law.
All shares of preferred stock shall be identical except as to the
relative rights and preferences fixed and determined from time to time by the
Board of Directors with respect to different series of shares when each such
series is established in accordance with the Articles of Incorporation, as
amended, and the Texas Business Corporation Act.
The following provisions set forth the preferences, limitations and
relative rights of the classes of shares:
(1) Preferred Dividends. The holders of all preferred shares,
regardless of series, at the time outstanding shall be entitled to receive, when
and as declared to be payable by the Board of Directors, out of any funds
legally available for the payment thereof, dividends at the rate theretofore
fixed by the Board of Directors for each series of such preferred shares that
have theretofore been established, and no more, with dividend payment dates at
such intervals as the Board of Directors shall determine.
(2) Dividends Other Than Preferred Dividends. After adequate provision
has been made for payment of full dividends on all preferred shares then
outstanding for all past dividend periods and for the current dividend period,
the Board of Directors may declare such further dividends as are permitted by
law, and the Board of Directors shall have the absolute discretion of fixing the
fashion
-2-
<PAGE> 3
in which holders of preferred shares and holders of common shares shall
participate in such further dividends, with provision being made for one class
participating more fully than the other or to the total exclusion of the other.
(3) Cumulativeness of Preferred Dividends. Dividends on all preferred
shares, regardless of series, shall be cumulative. No dividends shall be
declared on any shares of any series of preferred shares for any dividend period
unless all dividends accumulated for all prior dividend periods shall have been
declared or shall then be declared at the same time upon all preferred shares
then outstanding. No dividends shall be declared on shares of any series of
preferred shares unless a dividend for the same period shall be declared at the
same time upon all preferred shares outstanding at the time of such declaration
in like proportion to the dividend rate then declared. No dividends shall be
declared or paid on the common shares unless full dividends on all the preferred
shares then outstanding for all past dividend periods and for the current
dividend period shall have been declared and the Corporation shall have paid
such dividends or shall have set apart a sum sufficient for the payment thereof.
(4) Preferences on Liquidation. In the event of any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
the holders of each series of the then outstanding preferred shares shall be
entitled to receive the amount fixed for such purpose in the resolution or
resolutions of the Board of Directors establishing the respective series of
preferred shares that might then be outstanding, together with a sum equal to
the amount of all accumulated and unpaid dividends thereon at the dividend rate
fixed therefor in the aforesaid resolution or resolutions. After such payment to
such holders of preferred shares, the remaining assets and funds of the
Corporation shall be distributed pro rata among the holders of the common
shares. A consolidation, merger or other reorganization of the Corporation with
any other corporation or corporations or a sale of all or substantially all of
the assets of the Corporation shall not be considered a dissolution, liquidation
or winding up of the Corporation within the meaning of these provisions.
(5) Redemption Privileges of the Corporation. The whole or any part of
the outstanding preferred shares or the whole or any part of any series thereof
may be called for redemption and redeemed at any time at the option of the
Corporation, exercisable by the Board of Directors upon thirty (30) days' notice
by mail to the holders of such shares as are to be redeemed, by paying therefor
in cash the redemption price fixed for such shares in the resolution or
resolutions of the Board of Directors establishing the respective series of
which the shares to be redeemed are a part, together with a sum equal to the
amount of all accumulated and unpaid dividends thereon at the dividend rate
fixed therefor in the aforesaid resolution or resolutions to the date fixed for
such redemption. The Corporation may redeem the whole or any part of the shares
of any series without redeeming the whole or any part of the shares of any other
series; provided, however, that if at any time less than the whole of the
preferred shares of any particular series then outstanding shall be called for
redemption, the particular shares called for redemption shall be determined by
lot or by such other equitable method as may be determined by the Board of
Directors. The Corporation may, on or prior to the date fixed for redemption of
redeemable shares as specified in the notice, deposit with any bank or trust
company in the City of Houston, Texas, or any bank or trust company in the
United States duly appointed and acting as transfer agent for such Corporation,
as a trust fund, a sum
-3-
<PAGE> 4
sufficient to redeem shares called for redemption, with irrevocable instructions
and authority to such bank or trust company to give or complete the notice of
redemption thereof and to pay, on or after the date fixed for such redemption,
to the respective holders of shares, as evidenced by a list of holders of such
shares certified by the corporation by its President or a Vice President and by
its Secretary or an Assistant Secretary, the redemptive price upon the surrender
of their respective share certificates. Thereafter, from and after the date
fixed for redemption, such shares shall be deemed to be redeemed and dividends
thereon shall cease to accrue after such date fixed for redemption. Such deposit
shall be deemed to constitute full payment of such shares to their holders.
Thereafter, such shares shall no longer be deemed to be outstanding, and the
holders thereof shall cease to be shareholders with respect to such shares, and
shall have no rights with respect thereto except the right to receive from the
bank or trust company payment of the redemptive price of such shares without
interest, upon the surrender of their respective certificates therefor, and any
right to convert such shares which may exist. In case the holders of such shares
shall not, within six (6) years after such deposit, claim the amount deposited
for redemption thereof, such bank or trust company shall upon demand pay over to
the Corporation the balance of such amount so deposited to be held in trust and
such bank or trust company shall thereupon be relieved of all responsibility to
the holders thereof.
(6) Conversion Privilege. The Board of Directors is authorized to grant
or to deny to the holders of shares of one or more of the series of preferred
shares the right to convert such preferred shares into common shares with par
value of thirty cents ($0.30) a share, and the Board of Directors is further
authorized to fix and determine the terms and conditions on which such preferred
shares may be so converted into common shares. The conversion rights granted,
fixed and determined pursuant to the preceding sentence, along with the terms
and conditions thereof, shall be set forth in the resolution or resolutions in
which the Board of Directors establishes the respective series of preferred
shares.
(7) Preemptive Rights Denied. No shareholder of the Corporation shall
have any preemptive right to acquire any additional unissued or treasury shares
of the Corporation of any class now or hereafter authorized or held.
(8) Voting Rights. The holders of common shares shall vote one (1) vote
for each share of common stock with respect to all of the affairs of the
Corporation. The Board of Directors is authorized to fix and determine or to
deny voting rights with respect to one or more series of the preferred shares,
and such voting rights shall be fixed and determined or denied in the resolution
or resolutions adopted by the Board of Directors by which such respective series
of preferred shares is established. Except as required by law, the holders of
preferred shares having voting rights and the holders of common shares shall
vote together as one class. Shareholders of this Corporation shall not have the
right to accumulate their votes at any election of directors.
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ARTICLE V.
The Corporation will not commence business until it has received for
the issuance of its shares consideration of a value of at least $1,000,
consisting of money, labor done or property actually received.
ARTICLE VI.
A director of the Corporation is not liable to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director except for liability for: (i) a breach of a director's
duty of loyalty to the Corporation or its shareholders; (ii) an act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of the law; (iii) a transaction from which a director received improper benefit,
whether or not the benefit resulted from an action taken with the scope of the
director's office; (iv) an act or omission for which the liability of a director
is expressly provided for by statute; or (v) an act related to an unlawful stock
repurchase or payment of a dividend.
ARTICLE VII.
-- Deleted --
ARTICLE VIII.
The Corporation shall have the power to indemnify directors, officers,
employees and agents pursuant to applicable law.
ARTICLE IX.
No contract or other transaction between the Corporation and any other
corporation shall be affected by the fact that one or more of the directors or
officers of this Corporation is interested in or is a director or officer of
such other Corporation, and any director or officer individually may be a party
to or may be interested in any contract or transaction of this Corporation. No
contract or transaction of this Corporation with any person or persons, firm or
association shall be affected by the fact that any director or officer of this
Corporation is a party to or interested in such contract or transaction, or in
any way connected with such person or persons, firm or association, provided
that the interest in any such contract or other transaction of any such director
or officer shall be fully disclosed and that such contract or other transaction
shall be authorized or ratified by the vote of a sufficient number of directors
of the company not so interested. In the absence of fraud, no director or
officer having such adverse interest shall be liable to the Corporation or to
any shareholder or creditor thereof, or to any other person, for any loss
incurred by it under or by reason of such contract or transaction, nor shall any
such director or officer be accountable for any gains or profits realized
thereon. In any case described in this Article IX, any such director may be
counted in determining the existence of a quorum at any meeting of the Board of
Directors which shall authorize or ratify any such contract or transaction.
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<PAGE> 6
ARTICLE X.
The address of the initial registered office of the Corporation is 1930
Two Shell Plaza, Houston, Texas. The name of the initial registered agent of the
Corporation at such address is Sidney B. Williams.
ARTICLE XI.
1. Number and Classification of Company's Board of Directors. The
number of directors which shall constitute the whole Board of Directors of the
Corporation shall be not less than six (6) nor more than nine (9) as specified
from time to time by action of the Board of Directors pursuant to the Bylaws.
The directors shall be classified into three classes: Class I, Class II and
Class III. Such classes shall be as nearly equal in number of directors as
possible. Each director shall serve for a term ending on the third annual
meeting following the annual meeting at which such director was elected;
provided, however, that the directors originally elected to Class I shall serve
for a term expiring at the annual meeting of shareholders to be held in 1990,
the directors originally elected to Class II shall serve for a term expiring at
the annual meeting of shareholders to be held in 1991 and the directors
originally elected to Class III shall serve for a term expiring at the annual
meeting of shareholders to be held in 1992. The foregoing notwithstanding, each
director shall serve until his successor shall have been duly elected and
qualified, unless he shall resign, become disqualified or disabled, or shall
otherwise be removed.
At each annual election, the directors chosen to succeed those whose
terms then expire shall be of the same class as the directors they succeed,
unless, by reason of any intervening changes in the authorized number of
directors, the Board of Directors shall designate one or more directorships
whose term then expires as directorships of another class in order more nearly
to achieve equality of number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as possible, in the event of any change in the
authorized number of directors, each director then continuing to serve as such
shall nevertheless continue as a director of the class of which he is a member
until the expiration of his current term, or his prior death, resignation or
removal. If any newly created directorship may, consistent with the rule that
the three classes shall be as nearly equal in number of directors as possible,
be allocated to one or two or more classes, the Board of Directors shall
allocate it to that of the available classes whose terms of office are due to
expire at the earliest date following such allocation. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
2. Removal. No director of the Corporation shall be removed from his
office as a director by vote or other action of shareholders or otherwise except
for cause.
3. Newly Created Directorships and Vacancies. Newly created
directorships resulting from any increase in the number of directors may be
filled by the affirmative vote of a majority of the
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<PAGE> 7
directors for a term of office continuing only until the next election of one or
more directors by the shareholders entitled to vote thereon; provided, however,
that the Board of Directors shall not fill more than two such directorships
during the period between two successive annual meetings of shareholders. Any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any director elected to fill any such vacancy
shall hold office for the remainder of the full term of the director whose
departure from the Board of Directors created the vacancy and until such newly
elected director's successor shall have been elected and qualified.
4. Provision, Repeal, Etc. Notwithstanding anything contained in these
Articles of Incorporation to the contrary, the affirmative vote of the holders
of at least eighty percent (80%) of the voting power of all outstanding shares
of capital stock of the Corporation entitled to vote on the election of
directors, voting together as a single class, shall be required to alter, amend
or repeal, or adopt any provision inconsistent with, this Article XI or any
parallel or similar provision contained in the Bylaws of the Corporation.
ARTICLE XII.
1. Vote Required for Certain Business Combinations. In addition to any
affirmative vote required by law or these Articles of Incorporation or the
Bylaws of the Corporation, and except as otherwise expressly provided in Section
2 of this Article XII, a Business Combination (as hereinafter defined) with, or
proposed by or on behalf of, any Related Person (as hereinafter defined) or any
Affiliate or Associate (as hereinafter defined) of any Related Person or any
person who thereafter would be an Affiliate or Associate of such Related Person,
shall require the affirmative vote of not less than eighty percent (80%) of the
votes entitled to be cast by the holders of all of the then outstanding shares
of Voting Stock (as hereinafter defined), voting together as a single class, and
the affirmative vote of not less than a majority of the votes entitled to be
cast by the Voting Stock beneficially owned by persons other than such Related
Person. Each share of Voting Stock shall have the number of votes granted to it
in, or duly fixed by the Board of Directors pursuant to, Article IV of these
Articles of Incorporation. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage or separate class vote may be specified, by law, or in any agreement
with any national securities exchange or otherwise.
2. Exceptions to Higher Vote Requirement. The provisions of Section 1
of this Article XII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote, if any, as is required by law or by any other provision of these Articles
of Incorporation or the Bylaws of the Corporation, or any agreement with any
national securities exchange, if all of the conditions specified in either of
the following Paragraphs (a) or (b) are met or, in the case of a Business
Combination not involving the payment of consideration to the holders of the
Corporation's outstanding Capital Stock (as hereinafter defined), if the
condition specified in the following Paragraph (a) is met:
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<PAGE> 8
(a) The Business Combination shall have been approved either
specifically or as a transaction which is within an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of or announcement or public disclosure of the
intention to acquire, beneficial ownership of the Voting Stock that caused the
Related Person to become a Related Person) of the Continuing Directors (as
hereinafter defined).
(b) All of the following conditions shall have been met:
(i) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per share by
holders of common stock of the Corporation in such Business Combination shall be
at least equal to the higher amount determined under clauses (A) and (B) below:
(A) (If applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Related Person for any share of common stock
of the Corporation in connection with the acquisition by the Related Person of
beneficial ownership of shares of common stock,
(x) within the two-year period immediately
prior to the first public announcement of the proposed Business Combination (the
"Announcement Date"), or
(y) in the transaction in which it became a
Related Person,
whichever is higher, in either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect to the common stock
of the Corporation; and
(B) The Fair Market Value per share of common stock
of the Corporation on the Announcement Date or on the date (the "Determination
Date") on which the Related Person became a Related Person, whichever is higher,
as adjusted for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to the common stock of the Corporation.
(ii) The aggregate amount of cash and the Fair Market Value,
as of the date of the consummation of the Business Combination, of consideration
other than cash to be received per share by holders of shares of any class or
series of outstanding Capital Stock, other than common stock of the Corporation,
shall be at least equal to the highest amount determined under clauses (A), (B)
and (C) below:
(A) (If applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Related Person for any share of such class or
series of Capital Stock in connection with the acquisition by the Related Person
of beneficial ownership of shares of such class or series of Capital Stock,
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<PAGE> 9
(x) within the two-year period immediately
prior to the Announcement Date, or
(y) in the transaction in which it became a
Related Person,
whichever is higher, in either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect to such class or
series of Capital Stock;
(B) The Fair Market Value per share of such class or
series of Capital Stock on the Announcement Date or on the Determination Date,
whichever is higher, as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to such class or series of Capital
Stock; and
(C) (If applicable) the highest preferential amount
per share to which the holders of shares of such class or series of Capital
Stock would be entitled, as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect to such class or series
of Capital Stock, in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation regardless of
whether the Business Combination to be consummated constitutes such an event.
The provisions of this Paragraph (b) shall be required to be met with respect to
every class or series of outstanding Capital Stock, whether or not the Related
Person has previously acquired beneficial ownership of any shares of a
particular class or series of Capital Stock.
(iii) The consideration to be received by holders of a
particular class or series of outstanding Capital Stock shall be in cash or in
the same form as previously has been paid by or on behalf of the Related Person
in connection with its direct or indirect acquisition of beneficial ownership of
shares of such class or series of Capital Stock. If the consideration so paid
for shares of any class or series of Capital Stock varies as to form, the form
of consideration for such class or series of Capital Stock shall be either cash
or the form used to acquire beneficial ownership of the largest number of shares
of such class or series of Capital Stock previously acquired by the Related
Person.
(iv) After the Determination Date and prior to the
consummation of such Business Combination:
(A) Except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not cumulative)
payable in accordance with the terms of any outstanding Capital Stock;
(B) There shall have been no reduction in the annual
rate of dividends paid on the common stock of the Corporation (except as
necessary to reflect any stock split, stock dividend or subdivision of the
common stock of the Corporation), except as approved by a majority of the
Continuing Directors;
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<PAGE> 10
(C) There shall have been an increase in the annual
rate of dividends paid on the common stock of the Corporation as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that has the effect
of reducing the number of outstanding shares of common stock of the Corporation,
unless the failure to increase such annual rate is approved by a majority of the
Continuing Directors; and
(D) Such Related Person shall not have become the
beneficial owner of any additional shares of Capital Stock except as part of the
transaction that results in such Related Person becoming a Related Person and
except in a transaction that, after giving effect thereto, would not result in
any increase in the Related Person's percentage beneficial ownership of any
class or series of Capital Stock.
(v) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Act") (or any subsequent provisions replacing such Act, rules or regulations)
shall be mailed to all shareholders of the Corporation at least thirty (30) days
prior to the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to such Act or
subsequent provisions). The proxy or information statement shall contain on the
first page thereof, in a prominent place, any statement as to the advisability
(or inadvisability) of the Business Combination that the Continuing Directors,
or any of them, may choose to make and, if deemed advisable by a majority of the
Continuing Directors, the opinion of an investment banking firm selected by a
majority of the Continuing Directors as to the fairness (or lack of fairness) of
the terms of the Business Combination from the financial point of view of the
holders of the outstanding shares of Capital Stock other than the Related Person
and its Affiliates or Associates, such investment banking firm to be furnished
with all information it reasonably requests and to be paid a reasonable fee for
its services by the Corporation.
(vi) Such Related Person shall not have made any major change
in the Corporation's business or equity capital structure without the approval
of a majority of the Continuing Directors.
(vii) After the Determination Date, the Related Person shall
not have received the benefit, directly or indirectly (except proportionately as
a shareholder), of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantages provided by the
Corporation, whether in anticipation of or in connection with such Business
Combination or otherwise.
3. Certain Definitions. The following definitions shall apply with
respect to this Article XII:
(a) The term "Business Combination" shall mean:
(i) Any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (A) any Related Person or (B) any other
company (whether or not itself a Related
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<PAGE> 11
Person) which is, or after such merger or consolidation would be, an Affiliate
or Associate of a Related Person; or
(ii) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition or security arrangement, investment, loan, advance, guarantee,
agreement to purchase, agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a series of
transactions) to, with or for the benefit of any Related Person or any Affiliate
or Associate of any Related Person involving any assets, securities or
commitments of the Corporation, any Subsidiary or any Related Person or any
Affiliate or Associate of any Related Person which (except for any arrangement,
whether as employee, consultant or otherwise, other than as a director, pursuant
to which any Related Person or any Affiliate or Associate thereof shall,
directly or indirectly, have any control over or responsibility for the
management of any aspect of the business or affairs of the Corporation, with
respect to which arrangements the value tests set forth below shall not apply),
together with all other such arrangements (including all contemplated future
events), has an aggregate Fair Market Value and/or involves aggregate
commitments of $2,500,000 or more or constitutes more than five percent (5%) of
the book value of the total assets (in the case of transactions involving assets
or commitments other than capital stock) or five percent (5%) of the
shareholders' equity (in the case of transactions in capital stock) of the
entity in question (the "Substantial Part"), as reflected in the most recent
fiscal year-end consolidated balance sheet of such entity existing at the time
the shareholders of the Corporation would be required to approve or authorize
the Business Combination involving the assets, securities and/or commitments
constituting any Substantial Part; or
(iii) The adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of any Related Person
or any Affiliate or Associate of any Related Person; or
(iv) Any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with, into or otherwise involving a Related Person)
that has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of Equity Security (as hereinafter
defined) of the Corporation or any Subsidiary, that is beneficially owned by any
Related Person or any Affiliate or Associate of any Related Person; or
(v) Any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses (i) to (iv).
(b) The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article IV of these
Articles of Incorporation, and the term "Voting Stock" shall mean all Capital
Stock which by its terms may be voted on all matters submitted to the
shareholders of the Corporation generally.
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<PAGE> 12
(c) The term "person" shall mean any individual, firm, company or other
entity and shall include any group comprised of any person and any other person
with whom such person or any Affiliate or Associate of such person has any
agreement, arrangement or understanding, directly or indirectly, for the purpose
of acquiring, holding, voting or disposing of Capital Stock.
(d) The term "Related Person" shall mean any person (other than the
Corporation or any Subsidiary and other than any profit-sharing, employee stock
ownership or other employee benefit plan of the Corporation or any Subsidiary or
any trustee of or fiduciary with respect to any such plan when acting in such
capacity and other than any person who on the date of adoption by the
Corporation's Board of Directors of this Article XII was the holder of five
percent (5%) of more of the outstanding shares of common stock of the
Corporation) who or which (i) is or has announced or publicly disclosed a plan
or intention to become the beneficial owner of Voting Stock representing ten
percent (10%) of more of the votes entitled to be cast by the holders of all the
then outstanding shares of Voting Stock; or (ii) is an Affiliate or Associate of
the Corporation and at any time within the two-year period immediately prior to
the date in question was the beneficial owner of Voting Stock representing ten
percent (10%) of more of the votes entitled to be cast by the holders of all the
then outstanding shares of Voting Stock; or (iii) is an assignee of or has
otherwise succeeded to any shares of Voting Stock that were at any time within
the two-year period immediately prior to the date in question beneficially owned
by any Related Person, if such assignment or succession shall have occurred in
the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933, as amended.
(e) A person shall be a "beneficial owner" of any Capital Stock (i)
which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (ii) which such person or any of its Affiliates or
Associates has, directly or indirectly, (A) the right to Acquire (whether such
right is exercisable immediately or only after the passage of time and
notwithstanding that Rule 13d-3 under the Act deems such shares to be
beneficially owned only if such right may be exercised within sixty (60) days),
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Capital Stock. For the purposes of determining
whether a person is a Related Person pursuant to Paragraph (d) of this Section
3, the number of shares of Capital Stock deemed to be outstanding shall include
shares deemed beneficially owned by such person through application of this
Paragraph (e) of Section 3, but shall not include any other shares of Capital
Stock that may be issuable pursuant to any arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(f) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Act as in effect on
September 1, 1989 (the term "registrant" in said Rule 12b-2 meaning, in this
case, the Corporation).
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<PAGE> 13
(g) The term "Subsidiary" means any company of which a majority of any
class of Equity Security is beneficially owned by the Corporation; provided,
however, that for the purposes of the definition of Related Person set forth in
Paragraph (d) of this Section 3, the term "Subsidiary" shall mean only a company
of which a majority of each class of Equity Security is beneficially owned by
the Corporation.
(h) The term "Continuing Director" means any member of the Board of
Directors of the Corporation, while such person is a member of the Board of
Directors, who is not an Affiliate or Associate or representative of the Related
Person and was a member of the Board of Directors prior to the Determination
Date, and any successor of a Continuing Director, while such successor is a
member of the Board of Directors, who is not an Affiliate or Associate or
representative of the Related Person and is recommended or elected to succeed
the Continuing Director by a majority of Continuing Directors.
(i) The term "Fair Market Value" means (i) in the case of stock, the
highest closing sales price during the 30-day period immediately preceding the
date in question of a share of such stock on the principal United States
securities exchange registered under the Act on which such stock is listed, or,
if such stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any similar system then in use, or
if no such quotations are available, the fair market value on the date in
question of a share of such stock as determined by a majority of the Continuing
Directors in good faith; and (ii) in the case of property other than stock, ,the
fair market value of such property on the date in question as determined by a
majority of the Continuing Directors in good faith.
(j) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
Paragraphs (b)(i) and (b)(ii) of Section 2 of this Article XII shall include the
shares of common stock of the Corporation and/or the shares of any other class
or series of Capital Stock retained by the holders of such shares.
(k) The term "Equity Security" shall have the meaning ascribed to such
term in Section 3(a)(11) of the Act, as in effect on September 1, 1989.
4. Powers of Continuing Directors. A majority of the Continuing
Directors shall have the power and duty to determine for the purposes of this
Article XII, on the basis of information known to them after reasonable inquiry,
any and all questions, interpretations and determinations arising under, or with
regard to the application of, this Article XII, including, without limitation,
(a) whether a person is a Related Person, (b) the number of shares of Capital
Stock or other securities beneficially owned by any person, (c) whether a person
is an Affiliate or Associate of another, (d) whether a Business Combination is
with, or proposed by, or on behalf of a Related Person or an Affiliate or
Associate of a Related Person, (e) whether the assets that are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any Subsidiary in any
Business Combination has, an aggregate Fair Market Value of $2,500,000 or more,
and (f) whether the assets or securities that are the subject of any Business
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<PAGE> 14
Combination constitute a Substantial Part. Any such determination made in good
faith shall be binding and conclusive on all parties.
5. No Effect on Fiduciary Obligations of Related Persons. Nothing
contained in this Article XII shall be construed to relieve any Related Person
from any fiduciary obligation imposed by law.
6. Compliance with this Article XII. The fact that any Business
Combination complies with the provisions of Section 2 of this Article XII shall
not be construed to impose any fiduciary duty, obligation or responsibility on
the Board of Directors, or any member thereof, to approve such Business
Combination or recommend its adoption or approval to the shareholders of the
Corporation, nor shall such compliance limit, prohibit or otherwise restrict in
any manner the Board of Directors, or any member thereof, with respect to
evaluations of or actions and responses taken with respect to such Business
Combination.
7. Business Combinations Proposed by a Related Person. For the purposes
of this Article XII, a Business Combination is presumed to have been proposed
by, or on behalf of, a Related Person or an Affiliate or Associate of a Related
Person or a person who thereafter would become such if (a) after the Related
Person became such, the Business Combination is proposed following the election
of any director of the Corporation who with respect to such Related Person,
would not qualify to serve as a Continuing Director or (b) such Related Person,
Affiliate, Associate or person votes for or consents to the adoption of any such
Business Combination, unless as to such Related Person, Affiliate, Associate or
person a majority of the Continuing Directors makes a good faith determination
that such Business Combination is not proposed by or on behalf of such Related
Person, Affiliate, Associate or person, based on information known to them after
reasonably inquiry.
8. Provision, Repeal, Etc. Notwithstanding anything contained in these
Articles of Incorporation to the contrary, the affirmative vote of the holders
of at least eight percent (80%) of the voting power of all outstanding shares of
Voting Stock, voting together as a single class, and the affirmative vote of the
holders of at least a majority of the voting power of all outstanding shares of
Voting Stock, voting together as a single class, excluding the Voting Stock
beneficially owned by a Related Person, shall be required to alter, amend or
repeal, or adopt any provision inconsistent with, this Article XII."
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EXHIBIT 10(t)
TEAM, INC.
RESTRICTED STOCK AWARD AGREEMENT
THIS RESTRICTED STOCK AWARD AGREEMENT (This "Award") is entered into by
and between ______________________________ and Team, Inc., a Texas corporation
effective as of October 26, 1998.
I. PURPOSE AND TERM
The purpose of this Award is to provide Team, Inc., a Texas
corporation, Team Facilities & Services, L.P., a Texas limited partnership
("Team, L.P."), and the subsidiaries of Team, Inc. and Team, L.P. (Team, Inc.,
Team, L.P., and their subsidiaries are collectively referred to herein as the
"Company"), a means whereby ______________________________ (hereinafter referred
to as "Key Employee"), whose present and potential contributions to the welfare
of the Company are very important, can acquire and maintain stock ownership in
the Company, thereby strengthening his concern for the welfare of the Company
and his desire to remain in its employ. A further purpose of this Award is to
provide Key Employee with additional incentive and reward opportunities designed
to enhance the profitable growth of the Company. Accordingly, this Award
provides for granting Restricted Stock to the Key Employee as specified herein.
The TERM of this Award shall commence on the effective date of this
agreement and shall terminate when all of the Shares granted pursuant to this
Award have vested or been forfeited (hereinafter referred to as the "TERM").
As used in this Award the "BOARD OF DIRECTORS OF THE COMPANY" shall
mean the board of directors of Team, Inc., a Texas corporation.
II. RESTRICTED STOCK GRANT
2.1 VESTING SCHEDULE. Pursuant to the authorization and approval of the
Board of Directors of the Company, in consideration for the continued employment
of Key Employee with the Company, Key Employee has been awarded _________ shares
of common stock of Team, Inc. ("Shares") under the restricted stock award
described herein. Although the Shares are to be issued to the Key Employee, the
Shares are subject to forfeiture back to the Company as provided herein until
the conditions of such forfeiture expire. The expiration of such forfeiture
conditions is referred to herein a the "vesting of the shares." The unqualified
ownership of said Shares of stock shall vest in said Key Employee at the
following times and in the following amounts as long as the Key Employee's
employment has not been voluntarily terminated by the Key Employee or terminated
for Cause by the Company pursuant to Section 3.1 below:
<PAGE> 2
<TABLE>
<CAPTION>
Date of Vesting Amount Vested
--------------- -------------
<S> <C> <C>
July 30, 1999 1/3 or _____ Shares
July 30, 2000 1/3 or _____ Shares
July 30, 2001 1/3 or _____ Shares
</TABLE>
2.2 VESTING ON TERMINATION.
(a) TERMINATION BY THE COMPANY WITHOUT CAUSE. If the Board of
Directors of the Company should terminate the employment of Key
Employee for any reason other than for Cause within the meaning of
Section 3.1 hereof, all of the Shares awarded to Key Employee that have
not yet vested shall immediately vest in full.
(b) TERMINATION AS A RESULT OF DEATH OR INCAPACITY. Upon the
death of Key Employee, all of the Shares awarded to said Key Employee
that have not yet vested shall immediately vest in full.
(c) TERMINATION BY THE COMPANY WITH CAUSE. If they Key
employee terminates his employment with the Company or if the Board of
Directors of the Company should terminate the employment of Key
Employee for Cause within the meaning of Section 3.1 hereof, the Shares
that have not already vested prior to the date of Key Employee's
termination of employment shall not vest in Key Employee, shall
automatically be hereby assigned back to the Company by Key Employee,
and Key Employee shall have no further interest in or claim with
respect to such non-vested Shares. Key Employee hereby grants a power
of attorney to the Company to execute, process and deliver a customary
stock assignment to so assign such non-vested Shares back to the
Company. Said power of attorney is coupled with an interest and is
irrevocable under all circumstances.
2.3 STOCK CERTIFICATES , DIVIDENDS, AND VOTING OF RESTRICTED SHARES.
Shares granted pursuant to this Award shall be represented by a stock
certificate registered in the name of Key Employee. Key Employee shall have the
right to receive dividends with respect to the Shares, to vote the Shares, and
to enjoy all other stockholder rights, except that (i) Key Employee shall not be
entitled to delivery of the stock certificates representing said Shares until
the forfeiture restrictions set forth in Sections 2.1 and 2.2 hereof shall have
expired and the Shares therefore have vested, (ii) the Company shall retain
custody of the certificates for the Shares until they have vested, (iii) Key
Employee may not sell, transfer, pledge, exchange, hypothecate or otherwise
dispose of the Shares until the Shares have vested. As and when the Shares
granted to a Key Employee vest pursuant to this Article II, a stock certificate
for the number of Shares that have vested shall be delivered to said Key
Employee and none of the restrictions set forth in this Section 2.3 shall
thereafter apply to the vested Shares.
2.4 SHARES NOT REGISTERED UNDER SECURITIES LAWS. KEY EMPLOYEE
ACKNOWLEDGES THAT THE SHARES GRANTED PURSUANT TO THIS AWARD HAVE NOT BEEN
REGISTERED UNDER ANY SECURITIES LAWS
-2-
<PAGE> 3
AND THE TRANSFERABILITY OF THE SHARES IS RESTRICTED. THE SHARES MAY NOT BE SOLD,
ASSIGNED, OR TRANSFERRED, NOR WILL ANY ASSIGNEE VENDEE, TRANSFEREE, OR ENDORSEE
THEREOF BE RECOGNIZED AS HAVING ACQUIRED ANY SUCH SHARES BY THE COMPANY FOR ANY
PURPOSES, UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED WITH RESPECT TO SUCH SHARES SHALL THEN BE IN EFFECT AND SUCH TRANSFER
HAS BEEN QUALIFIED UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (ii) THE
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION SHALL BE
ESTABLISHED TO THE SATISFACTION OF COUNSEL FOR THE COMPANY. THIS RESTRICTION
CONTAINED IN THIS SECTION 2.4 SHALL APPLY EVEN AFTER THE SHARES HAVE VESTED. ALL
CERTIFICATES FOR VESTED SHARES DELIVERED TO KEY EMPLOYEE PURSUANT TO THIS AWARD
SHALL HAVE IMPRINTED THEREON A LEGEND SUBSTANTIALLY AS FOLLOWS:
The shares represented by this certificate have not
been registered under the Securities Act of 1933 ("Act") or any other
securities statute, and no reoffer, sale, transfer, pledge or other
disposition thereof may be made unless the shares are registered under
the Act and any other applicable statute, or, in the written opinion of
counsel reasonably satisfactory to the issuer, such transaction will
not require registration under the Act or any other securities statute.
Full statements of the designations, preferences,
limitations and relative rights of the shares of each class of
authorized stock of Team, the variations in the relative rights and
preferences of the shares of any series of Preferred Stock so far as
the same have been fixed and determined, and the authority of the Board
of Directors to fix and determine the relative rights and preferences
each series thereof, and of the denial of the preemptive rights of
shareholders to acquire unissued or treasury shares of Team, are set
forth in the Articles of Incorporation of the Team, as amended, which
are on file in the Office of the Secretary of State of the State of
Texas, copies of which may be obtained without charge on written
request to Team at its principal place of business or registered
office.
III. TERMINATION OF EMPLOYMENT OF KEY EMPLOYEE FOR CAUSE
3.1 TERMINATION OF FOR CAUSE. Termination by the Company of Key
Employee shall constitute termination for Cause for purposes of this Award if
termination of the employment of Key Employee results from any of the following
events:
(a) Key Employee shall be determined by the Board of Directors of the
Company to be guilty of fraud, dishonesty, theft, embezzlement,
improper use of Company property or similar acts of misconduct;
(b) Key Employee shall have been determined by the Board of Directors
of the Company to have failed or refused to perform, or to have
unsatisfactorily performed, the duties assigned to Key Employee;
-3-
<PAGE> 4
(c) Key Employee shall have been indicted of a felony or charged with a
misdemeanor involving moral turpitude or shall be determined by the
Board of Directors of the Company to have engaged in conduct such that
Key Employee's continued employment might bring discredit on the
Company.
All determinations by the Board of Directors of the Company shall be
made in the sole and absolute discretion of said Board of Directors.
IV. MISCELLANEOUS
4.1 NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in this Award
shall (i) confer upon Key Employee any right with respect to continuation of
employment with the Company or (ii) interfere in any way with the right of the
Company to terminate Key Employee's employment at any time.
4.2 OTHER LAWS; TAX WITHHOLDING. The Company shall not be obligated to
issue any Shares pursuant to any grant under this Award except: (i) where such
Shares can be legally issued in the opinion of counsel to the Company without
registration under the Securities Act of 1933, as amended, and applicable state
securities laws, and (ii) only after the listing of such Shares with the
American Stock Exchange. In connection with this Award, the Company shall have
the right to deduct from Key Employee's salary any taxes required by law to be
withheld and/or to require payments from Key Employee to enable the Company to
satisfy its tax withholding obligations.
4.3 NO RESTRICTION ON CORPORATE ACTION. Nothing contained in this Award
shall be construed to prevent the Company from taking any corporate action which
is deemed by the Company to be appropriate or in its best interest, whether or
not such action would have an adverse effect on this Award or any grant of
Shares made under this Award. Key Employee shall not have any claim against the
Company as a result of any such action.
4.4 GOVERNING LAW. This Award shall be construed in accordance with the
laws of the State of Texas.
<PAGE> 5
EXECUTED as of the date first above written.
TEAM, INC.
By:
---------------------------
Kenneth M. Tholan, President
--------------------------------
, Key Employee
-----------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
COMPANY JURISDICTION / STATE
OF INCORPORATION
Team, Inc. Texas
TeamCam Limited Trinidad, West Indies
Team Industrial Services, Ltd. United Kingdom
Teaminc. Europe The Netherlands
Team Investment, Inc. Delaware
Team Facilities & Services, L.P. Texas
Team Industrial Services, Inc. (formerly
Team Environmental Services, Inc.) Texas
Leak Repairs, Inc. Delaware
First American Capital Corporation Texas
Team Industrial Services (Cayman), Inc. Cayman Islands
Team Industrial Services Asia Pte. Ltd. Singapore
Climax Portable Machine Tools, Inc. Oregon
X-Ray Inspection Services, Inc. Louisiana
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES OF TEAM, INC. AND
SUBSIDIARIES FOR THE YEAR ENDED MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 1,035,000
<SECURITIES> 0
<RECEIVABLES> 11,023,000
<ALLOWANCES> 297,000
<INVENTORY> 8,566,000
<CURRENT-ASSETS> 21,635,000
<PP&E> 27,096,000
<DEPRECIATION> 13,600,000
<TOTAL-ASSETS> 47,877,000
<CURRENT-LIABILITIES> 5,787,000
<BONDS> 20,518,000<F1>
0
0
<COMMON> 2,464,000
<OTHER-SE> 18,880,000
<TOTAL-LIABILITY-AND-EQUITY> 47,877,000
<SALES> 0
<TOTAL-REVENUES> 54,632,000
<CGS> 0
<TOTAL-COSTS> 31,872,000
<OTHER-EXPENSES> 20,995,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 868,000
<INCOME-PRETAX> 897,000
<INCOME-TAX> 621,000
<INCOME-CONTINUING> 276,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276,000
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
<FN>
<F1>INCLUDES $1,657,000 FOR COMPENSATION ACCRUALS OF FORMER EMPLOYEES.
</FN>
</TABLE>
