TEAM, Inc. (NYSE:TISI) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 Entry into a Material Definitive Agreement

Reference is made to the disclosure provided in response to Item 1.01 of this Current Report on Form 8-K regarding the Sixth Amendment (as defined in such Item 1.01) , which disclosure is incorporated herein by reference.

On July 31, 2017, the Company delivered written notice to Merrill Lynch, Pierce, Fenner & Smith Incorporated, Raymond James & Associates, Inc. and SunTrust Robinson Humphrey, Inc. (collectively, the “Agents”) that is was terminating its ATM Equity Offering^SM Sales Agreement, dated November 28, 2016 (the “Sales Agreement”), to Section 9(a) thereof. The Sales Agreement is terminable by the Company or the Agents for any reason at any time without penalty upon three days’ written notice to the other party. Under the Sales Agreement, the Company was entitled to issue and sell, from time to time, through or to the Agents, shares of its Common Stock, having an aggregate offering price of up to $150 million in an “at-the-market” offering program (the “ATM Program”). From November 28, 2016, when the ATM Program was announced, until December 2016, approximately 168,000 shares of Common Stock were sold under the ATM Program, generating approximately $6 million in proceeds. No shares of Common Stock were sold under the ATM Program during 2017.

The foregoing description of the Sales Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Sales Agreement, a copy of which was filed as Exhibit 1.1 to a Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on November 28, 2016.

Credit Agreement Amendment

On July 31, 2017, the Company entered into that certain Sixth Amendment to Credit Agreement dated as of July 21, 2017 (but effective as of June 30, 2017) with Bank of America, N.A., as administrative agent, and the lenders party thereto (the “Sixth Amendment”) The Sixth Amendment amends certain portions of the Credit Facility (a copy of which is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 7, 2015), which was amended by that certain First Amendment to Credit Agreement dated December 2, 2015, that certain Second Amendment and Commitment Increase to Credit Agreement dated February 29, 2016, that certain Third Amendment to Credit Agreement dated August 17, 2016, that certain Fourth Amendment and Limited Waiver to Credit Agreement dated December 19, 2016, and that certain Fifth Amendment to Credit Agreement, dated May 5, 2017 (as amended, the “Credit Agreement”). The Sixth Amendment, among other things, changes the maximum total leverage ratio covenant through the remainder of 2017, reduces the aggregate revolving commitment to $300 million, subject to a borrowing availability test (based on eligible accounts, inventory and fixed assets) and further amends the financial covenants under the Credit Facility.

The financial covenants, as amended, require the Company, effective as of June30, 2017, to maintain a maximum ratio of consolidated funded debt to consolidated EBITDA (as defined the Credit Agreement) (the “Maximum Total Leverage Ratio”) and a maximum ratio of senior secured debt to consolidated EBITDA (the “Maximum Senior Secured Leverage Ratio”) as set forth in the tables below:

Additionally, effective June30, 2017, and as of the end of each fiscal quarter thereafter, the Company must maintain an interest coverage ratio of not less than 3.00 to 1.00. The Sixth Amendment eliminates the Maximum Total Leverage Ratio covenant until the quarter ended March31, 2018.

The Sixth Amendment provides for payment of an amendment consent fee to those lenders executing the Sixth Amendment.

The foregoing summary of the Sixth Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Sixth Amendment, which is filed as Exhibit 10.2 hereto and is incorporated herein by reference.

The Notes and the Indenture

Reference is made to the disclosure provided in response to Item 1.01 of this Current Report on Form 8-K, with respect to the issuance by the Company of the Notes to the Initial Purchasers, which disclosure is incorporated herein by reference.

Reference is made to the disclosure provided in response to Item 1.01 of this Current Report on Form 8-K, with respect to the issuance by the Company of the Notes to the Initial Purchasers, which disclosure is incorporated herein by reference.

On July31, 2017, the Company issued $230million principal amount of the Notes, to the Indenture. The Initial Purchaser of the Notes received an aggregate commission of approximately $6.9million.

Based on the initial conversion rate of the Notes of 46.0829 shares of Common Stock per $1,000 principal amount of the Notes, the maximum number of shares of common stock issuable upon conversion of the Notes is 10,599,067 shares of Common Stock. Because conversion in full of the Notes would result in the issue by the Company of more than 19.99% of its outstanding shares of Common

Stock, the Company is required by the listing rules of the New York Stock Exchange to obtain the approval of the holders of its outstanding shares of Common Stock before the Notes may be converted into more than approximately 5,964,858million shares of Common Stock.

Risk Factors Supplement

As part of the filing of this Current Report on Form 8-K, the Company intends to revise and supplement its risk factors, including those contained in its periodic reports filed with the Securities and Exchange Commission to the Exchange Act, including those under the heading, “Part I, Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December31, 2016, filed on March16, 2017 (the “2016 Form 10-K”) and those included under the heading “Risk Factors Supplement” in Item 1.01 of a Current Report on Form 8-K of the Company filed on July 24, 2017 (the “July 24, 2017 Form 8-K”). The risk factors below should be considered together with the other risk factors described in the 2016 Form 10-K and the July 24, 2017 Form 8-K. Capitalized terms not otherwise defined in this Item 1.01 have the meanings ascribed to them in the 2016 Form10-K and the July 24, 2017 Form 8-K.

The accounting method for convertible debt securities that may be, or may be required to be, settled in cash, such as the Notes, may have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the Notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the Notes to their face amount over the term of the Notes. We will report lower net income (or greater net loss) in our financial results because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the market price of our common stock and the trading price of the Notes.

Also, because the Notes could be convertible in full into more than 19.99% of our outstanding common stock, we have agreed to seek the approval of the holders of our outstanding shares of common stock at our next annual shareholders’ meeting for the issuance of more than 20% of our outstanding common stock upon conversion of the Notes. Unless and until the Company receives shareholder approval, holders may only surrender their Notes for conversion for cash or a combination of cash and common stock upon the satisfaction of certain conditions. Accordingly, these circumstances could require us to cash-settle a portion of the convertible feature of the Notes. Because of this cash settlement requirement, until such time that we receive stockholder approval, if at all, we may be required to record an embedded derivative liability for the conversion feature for all or a portion of the Notes to Accounting Standards Codification 815, Derivatives and Hedging, with changes in fair value of the embedded derivative liability reflected in our results of operations. The valuation of such derivative liability would be based on various inputs, including the price of our common stock. Changes in our stock price or changes to the inputs used to value the derivative liability could materially and adversely affect our financial results, including our net income (loss) as well as increase the volatility of our financial results from period to period.

In addition, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method if we have the ability and intent to settle in cash, the effect of which is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that we will be able to demonstrate the ability or intent to settle the Notes in cash in any future reporting period or that future accounting standards will continue to permit the use of the treasury stock method. If we are

unable to use the treasury stock method in accounting for the shares of common stock issuable upon conversion of the Notes, then we would utilize the if-converted method, which would require us to assume the Notes would be settled entirely in shares of common stock for purposes of calculating diluted earnings per share. In such case, our diluted earnings per share would be adversely affected.

TEAM INC Exhibit
EX-4.1 2 d428827dex41.htm EX-4.1 EX-4.1     TEAM,…
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About TEAM, Inc. (NYSE:TISI)

Team, Inc. is a provider of specialty industrial services, including inspection and assessment, required in maintaining high temperature and high pressure piping systems and vessels. The Company conducts its operations through three segments: Inspection and Heat Treating Services (IHT) Group, Mechanical Services (MS) Group and Quest Integrity (Quest Integrity) Group. The IHT Group offers inspection services and heat treating services. The MS Group offers both on-stream services and turnaround/project related services, such as leak repair services, fugitive emissions control services, hot tapping services, field machining services and technical bolting services, valve repair services, heat exchanger and maintenance services, isolation and test plug services, valve insertion services and project services. The Quest Integrity Group offers integrity management solutions to the energy industry in the form of quantitative inspection and engineering assessment services and products.