TEAM INC (Form: 10-K, Received: 08/25/2004 15:51:56)

Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

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, 2004

¨	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

TEAM, INC.

(Exact name of registrant as specified in its charter)


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)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class		Name of Each Exchange on which Registered
Common Stock, $.30 par value		American Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of August 13, 2004, 8,084,025 shares of the registrant’s common stock were outstanding, of which 5,850,453 were held by non-affiliates. The aggregate market value of common stock held by non-affiliates of the registrant (based upon the closing sales price of $14.43 per share on the American Stock Exchange, Inc. on such date) was $84,422,037.

DOCUMENTS INCORPORATED BY REFERENCE

Part III. Portions of the Definitive Proxy Statement for the 2004 Annual Meeting of Shareholders of Team, Inc. to be held September 23, 2004.

Index to Financial Statements

FORM 10-K INDEX


		Page
	PART I

Item 1.	Business	1

Item 2.	Properties	5

Item 3.	Legal Proceedings	6

Item 4.	Submission of Matters to a Vote of Security Holders	7

	PART II

Item 5.	Market for Team’s Common Equity and Related Stockholder Matters	8

Item 6.	Selected Financial Data	9

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 8.	Consolidated Financial Statements and Supplementary Data	15

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38

Item 9A.	Controls and Procedures	38

	PART III

Item 10.	Directors and Executive and Other Officers of Team	38

Item 11.	Executive Compensation	38

Item 12.	Security Ownership of Certain Beneficial Owners and Management	38

Item 13.	Certain Relationships and Related Transactions	38

Item 14.	Principal Accountant Fees and Services	38

	PART IV

Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	38

SIGNATURES		41

Index to Financial Statements

PART I

ITEM 1. BUSINESS

(a) General Description of Business

Team, Inc. (“Team” or the “Company”), incorporated in 1973, is a professional full service provider of specialized industrial services including on-stream leak repair, hot tapping, fugitive emissions control monitoring, field machining, technical bolting, field valve repair, field heat treating and non destructive testing/examination (“NDT-NDE”) inspection services. These services are provided throughout the United States in approximately 40 locations. All references to Team or the Company are intended to include its operating subsidiaries unless otherwise indicated.

The Company conducts operations through international locations in Singapore, Aruba, Canada, Trinidad and Singapore. Additionally, the Company licenses its proprietary leak repair and hot tapping techniques and materials to various companies outside the United States and receives a royalty based upon revenues earned by the licensee.

Team’s industrial service offerings have been significantly expanded through two recent acquisitions: 1) in April 2004, the Company acquired Thermal Solutions, Inc. (“Thermal”) a $15 million Denver, Colorado based field heat treating service company, and 2) in August 2004, Team acquired the business assets of Cooperheat-MQS, Inc., (“Cooperheat”) a Houston, Texas based company with two service offerings—field heat treating and NDT inspection services. At the time of the acquisition, Cooperheat was operating under Chapter 11 of the U.S. Bankruptcy Code and is generally believed to have been the number one or number two leading service provider in each of its service lines. Annual revenues for Cooperheat are expected to be approximately $80 million.

Additionally, through its wholly-owned subsidiary, Climax Portable Machine Tools, Inc. (“Climax”) of Newberg, Oregon, the Company is engaged in a separate business segment—equipment sales and rental. 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.

The Company operates in two reportable revenue generating 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, technical bolting, valve repair, heat treating and NDT inspection. The equipment sales and rentals segment is comprised of the Climax business. The following table sets forth the revenues (in thousands) from each segment in the three years ended May 31:


Segment	2004		2003		2002
Industrial Services	$	94,546	$	81,122	$	74,513
Equipment Sales and Rentals		13,123		10,754		10,568

Total	$	107,669	$	91,876	$	85,081

Industrial Services

The Company provides industrial services for over 2,000 customers in the petrochemical, refining, power, pipeline, pulp and paper, steel and other industries. Services include leak repair, hot tapping, fugitive emissions monitoring, and, more recently, field machining, technical bolting, field valve repair, field heat treating and NDT inspection.

Index to Financial Statements

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 record pertinent information about the faulty part of the system and transmit 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 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 the quality and timely performance of its services by its highly skilled 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 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 ^® 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 ^® 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.

Index to Financial Statements

Field Machining and Technical Bolting Services . 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. Technical bolting services are often provided to our customers as an adjunct to field machining during turnaround or maintenance activities. These services involve the use of hydraulic or pneumatic equipment with bolt tightening techniques to achieve reliable and leak-free connections and also include bolt disassembly using hot bolting or nut splitting techniques.

Field machining and technical bolting services are offered to the Company’s existing customer base through its extensive branch operations. Field machining is an off-stream operation performed during piping isolations, shutdowns, or plant turnarounds.

Inspection Services. Inspection services consist 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 use all the common methods of non-destructive testing, including radiography, ultrasound, magnetic particle and dye penetrate, as well as, higher end robotic and newly developed ultrasonic systems. The Company provides these services as part of 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 and to the pipeline industry. There are a large number of companies offering NDT-NDE inspection services, with no single company having a significant share of the overall market. This service offering has been significantly expanded with the acquisition of the assets of Cooperheat in August 2004. With this acquisition, Team believes it is now the largest NDT-NDE inspection service provider in the United States.

Field Valve Repair Services . In the spring of 2003, the Company launched Field Valve Repair Services as an adjunct to its field machining services. Through this offering, the Company performs on-site repairs to process and control valves, as well as providing preventive maintenance programs and valve data management programs. The targeted customers for these services are generally the same as for our field machining and technical bolting services.

Field Heat Treating Services. In April 2004, the Company commenced field heat treating services through the acquisition of Thermal, a privately-held company based in Denver, Colorado. These services, which include electric resistance and gas-fired combustion, are primarily utilized by industrial users to cure coatings, expand metal parts for assembly or disassembly, remove moisture from components and to provide preheat and post-weld heat treatments to relieve metal stresses. At the time of the acquisition, Thermal was the second largest provider of heat treatment services in the United States. With the acquisition of the business assets of Cooperheat in August 2004, the Company believes it is now clearly the predominant field heat treating service provider in the United States.

Marketing and Customers. Team’s industrial repair services are marketed principally by personnel based at the Company’s approximate 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 may also be billed based on the number of components monitored. Services are usually performed pursuant to purchase orders issued under written customer

Index to Financial Statements

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 a party to certain long-term contracts, which are enabling agreements only. 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, the Company has recently entered into multiple 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. While the Company’s management is optimistic about Team’s future, maintaining and expanding customer relationships and service volumes are key elements of the Company’s strategy. Weakness in the markets served by the Company could constrain demand. Although the Company has a diversified customer base, a substantial portion of its business is dependent upon the chemical and refining industry sectors. Competitive initiatives and/or poor service performance could also reduce the strength and breadth of current customer relationships and preference for the Company. Although management believes sufficient qualified personnel are available in most areas, no assurance can be made that such personnel will be available when needed.

Competition. Competition in the Company’s industrial services is primarily on the basis of service, quality, timeliness, and price. In general, competition stems from other outside service contractors and customers’ in-house maintenance departments. Management believes Team has a competitive advantage over most service contractors due to the quality, training and experience of its technicians, its nationwide service capability, and due to the broad range of services provided, as well as its technical support and manufacturing capabilities supporting the service network. There are two other service contractors who provide a similar range of service and broad geographical coverage as the Company. Other principal competitors are primarily single-location or single-service companies that compete within a certain geographical area.

Equipment Sales and Rentals

The Equipment Sales and Rentals business is comprised solely of the Climax subsidiary , a leading design-manufacturer of portable machine tools located in Newburg, Oregon. Climax’s 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, marine, heavy construction, and extractive industries, or to other service providers and contractors. In addition, Climax designs and manufactures customized machining tools for on-site machine repair, manufacturing, fabrication and construction applications.

Climax’s design and manufacturing operations are conducted in a 30,000 square feet facility in Newberg, Oregon. 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. 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 during any of the last three fiscal years.

General

Employees. As of May 31, 2004, the Company and its subsidiaries had approximately 988 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. The acquisition of Cooperheat in August 2004 has approximately doubled the number of employees of the Company.

Index to Financial Statements

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 $50,000 for general liability, and $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. One such potential claim was asserted in 2004 wherein the Company’s general liability insurance carrier has disputed the existence of coverage and is providing a defense on behalf of the Company subject to a reservation of rights. See Item 3, Legal Proceedings, below.

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 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 Newburg, Oregon, which is the manufacturing facility and corporate office of Climax. All of those facilities are pledged as security for the Company’s credit facility. (See Note 6 of Notes to Consolidated Financial Statements.) The Company and its subsidiaries also lease 56 office and/or plant and shop facilities at separate locations in 23 states and in Singapore, Aruba, Trinidad and Canada.

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

Index to Financial Statements

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

In December 2001, the Company and 18 other defendants were sued in a lawsuit styled Lyondell Chemical Company and Atlantic Richfield Company v. Ethyl Corporation et al in the United States District Court for the Eastern District of Texas, Beaumont Division. In April and May of 2004, the District Court granted motions for summary judgment filed by the Company and dismissed the Plaintiffs’ claims with prejudice with respect to claims against Team allegedly arising out of its ownership of the stock of French Limited and of Allstate Vacuum and Tanks, Inc (“Allstate”). The Company has reason to believe that the Plaintiffs will appeal the Court’s ruling in favor of the Company at the end of the case.

This lawsuit arises out of a previous lawsuit filed by the United States of America against the Plaintiffs, Lyondell and Arco Chemical, alleging that hazardous substances and/or pollutants or contaminants were deposited at the Turtle Bayou Site in Liberty County, Texas. Arco and Lyondell entered into a settlement with the United States which was embodied in a Consent Decree. Within three years after the Consent Decree was entered, Arco and Lyondell brought the referenced suit against approximately 18 parties seeking contribution for the costs of response for removal and/or remedial action at the Turtle Bayou Site. The co-defendants include, among others, Exxon-Mobil, El Paso Tennessee Pipeline Company, Du Pont, Ethyl Corporation, and Lubrizol. Later, El Paso added approximately nine additional defendants.

Plaintiffs allege that French Ltd., a vacuum truck company that the Company owned from 1978 to 1984, or its former parent, French Limited of Houston, Inc., had, during the time period of 1969 to 1976, transported hazardous substances to the Turtle Bayou Site.

In 1982, as a result of the contentions made by the Environmental Protection Agency (“EPA”), the Company informed George Whitten, the one who had sold French, Ltd. to the Company, that his failure to reveal French, Ltd.’s activities with respect to the illegal depositing of hazardous substances was a breach of the representations and warranties of the agreement by which the Company acquired French, Ltd. In November 1984, the Company sold French back to Whitten.

The Plaintiffs alleged that French, Ltd. and, therefore, the Company, should be held liable for French Limited and/or French Limited of Houston, Inc.’s allegedly wrongful deposits of some of the material that was deposited at the Site. Plaintiffs also allege that the Company should be held liable for some alleged disposal of hazardous waste by another former Company subsidiary, Allstate.

In addition to the claims originally put forward by the Plaintiffs, nine of the Defendants have filed cross-claims against the Company in which they contended they do not believe they should be held liable on Plaintiffs’ claims against them, but that if they are held liable then they seek contribution from the Company and other defendants. In addition, four of those same nine defendants which are related to the El Paso Corporation (the “El Paso Defendants”) seek contribution against the Company and others on a related claim by the United States Government on another location within the Turtle Bayou Site at which hazardous wastes were disposed. All defendants except the El Paso Defendants have agreed orally to dismiss their cross-claims against the Company subject to revival if the Plaintiffs appeal the summary judgments granted by the District Court. It appears that the El Paso defendants and the Company are close to an agreement with respect to a motion to dismiss similar to the one proposed with the other defendants; if the Company is not successful in reaching such an agreement, then the Company plans to file a motion for summary judgment requesting that the District Court apply its previously granted summary judgments against the El Paso Defendants.

The Company believes that the claims against it in this matter are without merit, as is supported by the rulings of the District Court.

Index to Financial Statements

In April 2003, Team and three other parties were named as defendants in a lawsuit styled Diamond Shamrock Refining Company, L.P. v. Cecorp, Inc. et al in the 148 ^th Judicial District Court of Nueces County, Texas. The suit seeks recovery for $40 million in property damages from an explosion and fire originating at a valve which the Company’s personnel were attempting to seal in order to prevent a leak. Liability is being contested and other parties appear to have primary responsibility for the fire and explosion. The Company believes it is insured against this loss with both primary and excess liability insurance, subject to any applicable deductible. However, coverage from the $1 million primary policy is disputed and a defense is being provided by the carrier subject to a reservation of rights.

In June 2004, Ultramar Diamond Shamrock Corporation made demand on Team Industrial Services, Inc. for indemnity from claims asserted against Ultramar Diamond Shamrock Corporation in Linda Alapisco, et al v. Ultramar Diamond Shamrock Corporation, et al , Cause No. L-030085, in the 156 ^th District Court of Live Oak County, Texas. This suit seeks unspecified damages for the 250 individuals identified in the petition for injuries resulting from alleged exposure to toxic chemicals released as a result of the explosion and fire at the Diamond Shamrock facility. This demand has been turned over to the general liability insurance carrier for a response. As of the date of this report, the carrier has not responded to the claim.

The Company’s umbrella policy has limits of coverage of $25,000,000 and should be more than sufficient to provide the Company a defense and indemnity as to all claims asserted.

The Company and certain subsidiaries are involved in various other lawsuits and are 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 materially adverse effect 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 2004.

Index to Financial Statements

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, 2004 and 2003, respectively.


	Sales Price
	High		Low
Fiscal 2004
Quarter Ended:
August 31	$	8.35	$	7.50
November 30		10.48		7.90
February 29		11.48		9.75
May 31		16.05		11.10

Fiscal 2003
Quarter Ended:
August 31	$	9.25	$	7.40
November 30		8.75		7.40
February 28		8.20		7.00
May 31		7.80		5.00

(b) Holders

There were 282 holders of record of Team’s common stock as of August 13, 2004, excluding beneficial owners of stock held in street name. Although exact information is unavailable, the Company estimates there are approximately 1,750 additional beneficial owners based upon information gathered in connection with proxy solicitation.

No dividends were declared or paid in fiscal 2004, 2003 or 2002. Pursuant to the Company’s Credit Agreement, the Company may not pay 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) Stock Repurchase Plan

In fiscal 2004, the Company repurchased 50,000 shares of its outstanding common stock on the open market at a weighted average price of $7.89 per share. As of May 31, 2004, the Company is authorized by its Board of Directors and lender to expend up to an additional $1.7 million on open market repurchases.

Index to Financial Statements

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, 2004 (amounts in thousands, except per share data):


	Fiscal Years Ended May 31,
	2004		2003		2002		2001		2000
Revenues	$	107,669	$	91,876	$	85,081	$	75,643	$	66,636

Net income	$	5,776	$	4,402	$	3,909	$	2,740	$	1,471

Net income per share: basic	$	0.75	$	0.57	$	0.51	$	0.34	$	0.18
Net Income per share: diluted	$	0.69	$	0.53	$	0.48	$	0.34	$	0.18

Weighted average shares outstanding: basic		7,709		7,707		7,664		8,015		8,238
Weighted average shares outstanding: diluted		8,429		8,369		8,229		8,122		8,283

Cash dividend declared, per common share	$	0.00	$	0.00	$	0.00	$	0.00	$	0.00

Balance Sheet data:	May 31,
	2004		2003		2002		2001		2000
Total assets	$	74,396	$	52,224	$	51,189	$	47,996	$	48,384
Long-term debt and other long-term liabilities	$	18,308	$	10,567	$	13,454	$	15,188	$	17,515
Stockholders’ equity	$	42,299	$	31,735	$	28,182	$	24,812	$	23,137
Working capital	$	27,712	$	19,713	$	18,693	$	16,801	$	14,909

Index to Financial Statements

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fiscal 2004 Compared to Fiscal 2003

Revenues in 2004 were $107.7 million compared to $91.9 million in 2003, an increase of 17.2%. Operating profits (earnings before interest and taxes, or “EBIT”) were $9.7 million in 2004 versus $7.7 million in 2003, an increase of 25.8%.

The following sets forth the components of revenue and operating profits for fiscal 2004 and 2003:


							Increase
	2004			2003			$			%
Revenues:

Total Industrial Services	$	94,546,000		$	81,122,000		$	13,424,000		16.5	%
Equipment Sales & Rentals		13,123,000			10,754,000			2,369,000		22.0	%

Total Revenues	$	107,669,000		$	91,876,000		$	15,793,000		17.2	%

Operating Profit:

Industrial Services	$	13,953,000		$	12,012,000		$	1,941,000		16.2	%
Equipment Sales & Rentals		1,220,000			603,000			617,000		102.3	%
Corporate		(5,432,000	)		(4,871,000	)		(561,000	)	11.5	%

Total Operating Profit (EBIT)	$	9,741,000		$	7,744,000		$	1,997,000		25.8	%

For the year, the Industrial Services Business Segment revenues increased 16.5% to $94.5 million. Segment operating profit increased 16.2% to $14.0 million. A significant contributor to revenue growth in industrial services in 2004 came from the full year impact of a new service line, field valve repair, which was introduced in the spring of 2003. This service line contributed $4.5 million of the 2004 growth, primarily associated with two major turnaround projects in the summer and fall of 2004. The segment also benefited from new and expanded fugitive emissions monitoring contracts in the West Coast region of the United States and from turnaround activity in the Gulf Coast and the Caribbean. Additionally, the acquisition of Thermal Solutions in April 2004 contributed $2.5 million to industrial services revenue, however, due to the seasonality of field heat treating, it did not contribute to 2004 operating profit for the industrial services segment. The only service line that did not experience revenue growth during the year was NDT inspection, which was down $1.8 million year over year, due to continued softness in pipeline construction activities.

Management believes that demand for the Company’s traditional services is, generally, a function of the population of high-temperature, high-pressure piping systems. Demand is also somewhat related, especially for leak repair and hot tapping, to the operating performance of our customers—particularly in the refining, pipeline, and petrochemical industries. Generally, as those customers’ margins improve, more funds are expended for the specialized industrial services offered by the Company.

The Equipment Sales and Rental Business segment (encompassing Climax Portable Machine Tool Company) grew revenues 22% for the year to $13.1 million—the highest revenue year in the history of Climax. Revenue growth for the year was primarily attributable to the shipment of special tool orders in the third and fourth quarters aggregating over $2 million. Operating profit increased 102% to $1.2 million versus $603 thousand in 2003. Included in operating profit in 2004 is a $235,000 gain from the sale of idle real estate. That is offset by a charge to other expense of $245,000 for estimated losses pertaining to a sales tax matter. A similar charge of $150,000 was recorded in 2003. Climax is domiciled in the state of Oregon, which is a state that imposes no tax on sales originating there. In fiscal 2003, management determined that Climax does have an obligation to collect and remit sales taxes in certain other jurisdictions, which it had not previously done. Climax is nearing completion of a process of entering into agreements with several states with respect to sales tax

Index to Financial Statements

obligations and collecting amounts due from its customers. The cumulative $395,000 charge represents management’s best current estimate of the probable loss that Climax will incur with respect to this matter. The ultimate outcome is subject to a great deal of variables and cannot be determined with a certainty.

With regard to consolidated operating results, overall gross margins were 39.6% of revenues in fiscal 2004 as compared to 40.5% in fiscal 2003. The decline primarily reflects the downturn in NDT Inspection revenues associated with pipeline and pulp & paper customer segments as well as lower profit margins from the Thermal Solutions revenues due to slow seasonal activity in the two months after the acquisition.

Selling, general and administrative expenses (“SG&A”) increased $3.4 million in 2004 versus 2003, an increase of 11.7%. The overall increase in SGA reflects significant increases in incentive compensation, safety training and legal expenses over the prior year. In spite of these elements of cost increase, as a percentage of revenue, SG&A was down—30.3% of revenues in fiscal 2004 versus 31.8% of revenues in fiscal 2003.

Non-cash compensation expense increased by $229,000 in 2004 versus 2003 due to the achievement of a stock-price hurdle of $10.50 per share, which resulted in the vesting of 66,667 options held by the chief executive officer and the recognition of the unamortized compensation expense associated with these options.

Fiscal 2003 Compared to Fiscal 2002

The following sets forth the components of revenue and operating profits for fiscal 2003 and 2002:


							Increase
	2003			2002			$			%
Revenues:

Industrial Services:
Traditional services	$	56,933,000		$	51,036,000		$	5,897,000		11.6	%
Newer services		24,189,000			23,477,000			712,000		3.0	%

Total Industrial Services	$	81,122,000		$	74,513,000		$	6,609,000		8.9	%
Equipment Sales & Rentals		10,754,000			10,568,000			186,000		1.8	%

Total Revenues	$	91,876,000		$	85,081,000		$	6,795,000		8.0	%

Operating Profit:

Industrial Services	$	12,012,000		$	11,470,000		$	542,000		4.7	%
Equipment Sales & Rentals		603,000			547,000			56,000		10.2	%
Corporate		(4,871,000	)		(4,779,000	)		(92,000	)	1.9	%

Total Operating Profit (EBIT)	$	7,744,000		$	7,238,000		$	506,000		7.0	%

For the year, the Industrial Services Business Segment revenues increased 8.9% to $81.1 million. Segment operating profit increased 4.7% to $12.0 million. All major service lines except NDT inspection services experienced growth during the year. NDT inspection revenues were down slightly due to significantly reduced pipeline and pulp & paper projects, which were nearly offset by continued growth in plant inspection services. A significant contributor to the growth in traditional service lines came from new multi-service, multi-location contracts that commenced in the fourth quarter of fiscal 2002.

The Equipment Sales and Rental Business segment (encompassing Climax Portable Machine Tool Company) grew revenues about 2% for the year to $10.8 million. The market for capital equipment continues to

Index to Financial Statements

be depressed in most of the world markets. Revenue growth in Asia offset flat to slightly depressed sales in the U.S. and Europe. Operating profit increased 10% to $603,000 versus $547,000 in 2002. In 2003, Climax provided a $150,000 charge to other expense for estimated losses pertaining to a sales tax matter. Climax is domiciled in the state of Oregon, which is a state that imposes no tax on sales originating there. In fiscal 2003, management determined that Climax had an obligation to collect and remit sales taxes in certain other jurisdictions, which it had not previously done. Climax is in the process of entering into agreements with several states with respect to sales tax obligations and is in the process of collecting amounts due from its customers. The $150,000 charge recorded in 2003 represents management’s best estimate at that time of the probable loss that Climax would incur with respect to this matter.

With regard to consolidated operating results, overall gross margins were 40.5% of revenues in fiscal 2003 as compared to 41.7% in fiscal 2002. The decline primarily reflects the downturn in NDT Inspection revenues associated with pipeline and pulp & paper customer segments as well as lower product margins at Climax due to an increase in lower margin international sales coupled with a strong margin comparison in fiscal 2002 due to a $700 thousand special order in the fourth quarter of fiscal 2002.

Selling, general and administrative expenses (“SG&A”) increased $1.8 million in 2003 versus 2002, an increase of 6.5%. The overall increase in SGA reflects a ramp-up of business development personnel in the industrial service segment ahead of related revenue growth and an increasing level of insurance and legal costs in fiscal 2003. In spite of these elements of cost increase, as a percentage of revenue, SG&A was down—31.8% of revenues in fiscal 2003 versus 32.5% of revenues in fiscal 2002.

Liquidity and Capital Resources

At May 31, 2004, the Company’s liquid working capital (cash and accounts receivable, less current liabilities) totaled $16.3 million, an increase of $7.4 million since May 31, 2003. The Company utilizes excess operating funds to automatically reduce the amount outstanding under the revolving credit facility. At May 31, 2004, the outstanding balance under the revolving credit facility was $14.0 million and approximately $6.3 million was available to borrow under the facility.

During fiscal 2004, the Company increased its total outstanding debt by $7.5 million as a result of the purchase of Thermal Solutions, Inc. In fiscal 2004, the Company also expended $395,000 to reacquire an additional 50,000 shares of its common stock on the open market pursuant to a stock repurchase plan.

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 flows 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.

At May 31, 2004, the Company had a $34 million bank credit facility that consisted of: (i) a $22,500,000 revolving loan, which matures September 30, 2005, (ii) $9,500,000 in term loans and (iii) a $2,000,000 mortgage loan. Amounts borrowed against the term loans are due in quarterly installments in the amount of $339,000 until the loans mature on September 30, 2005. Amounts borrowed against the mortgage loan are repaid in quarterly installments of $31,000 until its maturity date of September 30, 2008. Amounts outstanding under the credit facility bear interest at a marginal rate over either the LIBOR rate or the prime rate. At May 31, 2004, the Company’s marginal rate was 1.5% over the LIBOR rate. The weighted average rate on outstanding borrowings at May 31, 2004 is approximately 3.1%. The Company also pays a commitment fee of .25% per annum on the average amount of the unused availability under the revolving loan.

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, and dividends, among other things. At May 31, 2004 and 2003, the Company was in compliance with all credit facility covenants.

Index to Financial Statements

At May 31, 2004, the Company was contingently liable for $2.2 million in outstanding stand-by letters of credit and, at that date, approximately $6.3 million was available to borrow under the credit facility.

On August 11, 2004, in connection with the acquisition of the business asset of Cooperheat-MQS, Inc. (see note 15 to the Consolidated financial statements), the existing credit facility was replaced with a new $75 million facility. The new facility matures in August 2009 and consists of a revolving loan of $50 million and a $25 million term facility. Approximately $55 million (including the entire term loan) was borrowed on August 11, 2004 to finance the Cooperheat-MQS acquisition (approximately $36 million) and to refinance amounts outstanding on the existing Team facilities (approximately $19 million). The term facility requires amortization of $3 million in the first year, $4 million in year two and $6 million in each of years three through five. Amortization begins in November 2004. Interest on the facility is at LIBOR plus a margin which is variable depending upon the ratio of funded debt to EBITDA. Initially, the margin will be 225 basis points above the LIBOR rate. The new facility is secured by virtually all the Company’s assets, including those acquired in the Cooperheat-MQS transaction. The Company paid an underwriters fee of 1.625% of the aggregate amount of the facility.

Critical Accounting Policies

Goodwill —The Company has $15.1 million of recorded goodwill associated with business acquisitions made since 1999. Of that amount, approximately $12.2 million is associated with the industrial services segment and $2.9 million is associated with the equipment sales and rental business. Effective June 1, 2002, we have adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”, which requires that goodwill no longer be amortized but be reviewed for impairment at least annually. The Company performs its annual impairment testing as of May 31 of each year. The Company has evaluated the carrying value of goodwill using a cash-flow multiple calculation methodology and has determined that no adjustment is needed to the carrying value of goodwill during 2003 or 2004.

Revenue Recognition —The Company derives its revenues by providing a variety of industrial services including leak repair, hot tapping, emissions control services, field machining, technical bolting, field valve repair, field heat treating and inspection services. These revenues are based on time and materials and are generally short term in nature. In addition, the Company sells and rents portable machine tools through one of its subsidiaries. For all of these services, revenues are recognized when services are rendered or when product is shipped and risk of ownership passes to the customer.

Deferred Income Taxes —The Company records deferred income tax assets and liabilities related to temporary differences between the book and tax bases of assets and liabilities. The Company computes its deferred tax balances by multiplying these temporary differences by the current tax rates. If deferred tax assets exceed deferred tax liabilities, the Company must estimate whether those net deferred asset amounts will be realized in the future. A valuation allowance is then provided for the net deferred asset amounts that are not likely to be realized. As of May 31, 2004 management believes that it is more likely than not that the Company will have sufficient future taxable income to allow it to realize the benefits of the net deferred tax assets. Accordingly, no valuation allowance has been recorded.

Loss Contingencies —The Company is involved in various lawsuits and claims encountered in the normal course of business. When such a matter arises and periodically thereafter, management consults with its legal counsel and evaluates the merits of the claim based on the facts available at that time. Currently, the Company is involved with two significant matters, which are summarized in Legal Proceedings above. In management’s opinion, an adequate accrual has been made as of May 31, 2004 to provide for any losses that may arise from these contingencies.

Index to Financial Statements

Other Contractual Obligations and Commercial Commitments

The Company enters into capital leases related to certain computer and equipment and software, as well as operating leases related to facilities and transportation and other equipment. These operating leases are over terms ranging from one to five years with typical renewal options and escalation clauses.

The Company is occasionally required to post letters of credit generally issued by a bank as collateral under certain agreements. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that the Company has failed to meet its obligations under the letter of credit. If this were to occur, the Company would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. To date, the Company has not had any claims made against a letter of credit that resulted in a payment made be the issuer or the Company to the holder. The Company believes that it is unlikely that it will have to fund claims made under letters of credit in the foreseeable future.

At May 31, 2004, the Company’s contractual obligations are summarized as follows:


Year ending May 31,	Operating Leases		Debt Obligations		Post Retirement Benefit		Total
2005	$	3,114,000	$	1,482,000	$	245,000	$	4,841,000
2006		2,029,000		16,160,000		100,000		18,289,000
2007		1,006,000		125,000		39,000		1,170,000
2008		416,000		810,000		—		1,226,000
2009		62,000		—		—		62,000
Thereafter		—		—		—		—

Total	$	6,627,000	$	18,577,000	$	384,000	$	25,588,000

New Accounting Standards

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” The statement applies to legal obligations associated with the retirement of long-lived assets, except for certain obligations of lessees. SFAS 143 became effective for the Company in June 2003 and has not impacted the Company’s financial statements.

The company has reviewed other new accounting standards not identified above and does not believe any other new standards will have a material impact on the Company’s financial position or operating results.

Disclosure Regarding Forward-Looking Statements

Any 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 any 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 any forward-looking statements 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, which subjects the Company to the risk of loss associated with movements in market interest rates. At May 31, 2004, the Company has floating-rate obligations totaling $18.6 million outstanding under its credit facility (see Note 6 to the Company’s Consolidated Financial Statements). A 1% increase in interest rates could result in an annual increase in interest expense of $186,000.

Index to Financial Statements

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2004 and 2003, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended May 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Team, Inc. and subsidiaries as of May 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended May 31, 2004, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” as of June 1, 2002.

KPMG LLP

Houston, Texas

July 14, 2004, except as to note 15,

which is as of August 11, 2004

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	May 31,
	2004			2003
ASSETS
Current Assets:
Cash and cash equivalents	$	2,019,000		$	854,000
Receivables, net of allowance of $506 and $533		27,881,000			17,707,000
Inventories		9,928,000			9,498,000
Income tax receivable		—			16,000
Deferred Income taxes		924,000			783,000
Prepaid expenses and other current assets		515,000			559,000

Total Current Assets		41,267,000			29,417,000

Property, Plant and Equipment:
Land and buildings		6,893,000			7,293,000
Machinery and equipment		28,469,000			22,517,000

		35,362,000			29,810,000
Less accumulated depreciation and amortization		19,477,000			17,542,000

		15,885,000			12,268,000
Intangible assets, net of accumulated amortization of $42,000		1,208,000			—
Goodwill, net of accumulated amortization of $922,000		15,063,000			10,049,000
Other Assets, net		973,000			490,000

Total Assets	$	74,396,000		$	52,224,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt	$	1,482,000		$	1,482,000
Accounts payable		4,501,000			3,195,000
Other accrued liabilities		7,021,000			5,027,000
Current income taxes payable		551,000			—

Total Current Liabilities		13,555,000			9,704,000

Deferred income taxes		1,074,000			606,000
Long-term debt		17,095,000			9,577,000
Other long-term liabilities		139,000			384,000

Total Liabilities		31,863,000			20,271,000

Minority Interest		234,000			218,000
Commitments and Contingencies

Stockholders’ Equity:
Preferred stock, 500,000 shares authorized, none issued		—			—
Common stock, par value $.30 per share, 30,000,000 shares authorized; 9,070,250 and 8,587,512 shares issued		2,715,000			2,576,000
Additional paid-in capital		39,060,000			34,065,000
Retained earnings (deficit)		5,508,000			(268,000	)
Accumulated other comprehensive gain (loss)		48,000			(1,000	)
Treasury stock at cost, 1,018,308 and 968,308 shares		(5,032,000	)		(4,637,000	)

Total Stockholders’ Equity		42,299,000			31,735,000

Total Liabilities and Stockholders’ Equity	$	74,396,000		$	52,224,000

See notes to consolidated financial statements.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


	Fiscal Years Ended May 31,
	2004		2003		2002
Revenues	$	107,669,000	$	91,876,000	$	85,081,000
Operating expenses		64,985,000		54,684,000		49,616,000

Gross margin		42,684,000		37,192,000		35,465,000

Selling, general and administrative expenses
Non cash G&A compensation cost		344,000		115,000		368,000
Other SG&A		32,589,000		29,183,000		27,411,000
Goodwill amortization		—		—		275,000
Other expense (income)		10,000		150,000		173,000

Earnings before interest and taxes		9,741,000		7,744,000		7,238,000
Interest		519,000		601,000		892,000

Earnings before income taxes		9,222,000		7,143,000		6,346,000
Provision for income taxes		3,446,000		2,741,000		2,437,000

Net income	$	5,776,000	$	4,402,000	$	3,909,000

Net income per common share
—Basic	$	0.75	$	0.57	$	0.51

—Diluted	$	0.69	$	0.53	$	0.48

Weighted average number of shares outstanding
—Basic		7,709,000		7,707,000		7,664,000

—Diluted		8,429,000		8,369,000		8,229,000

See notes to consolidated financial statements.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Fiscal Years Ended May 31,
	2004			2003			2002
Net income	$	5,776,000		$	4,402,000		$	3,909,000
Cumulative effect of an accounting change		—			—			(56,000	)
Net income (losses) on interest rate swaps		43,000			49,000			(149,000	)
Reclassification adjustments related to interest rate swaps		—			—			113,000
Foreign currency translation adjustment		22,000			26,000			—
Tax (provision) benefit		(16,000	)		(19,000	)		35,000

Comprehensive income	$	5,825,000		$	4,458,000		$	3,852,000

See notes to consolidated financial statements.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Fiscal Years Ended May 31,
	2004			2003			2002
COMMON STOCK:
Balance at beginning of year	$	2,576,000		$	2,499,000		$	2,503,000
Shares issued		89,000			2,000			5,000
Shares retired		—			—			(71,000	)
Exercise of stock options		50,000			75,000			62,000

Balance at end of year	$	2,715,000		$	2,576,000		$	2,499,000

ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year	$	34,065,000		$	32,961,000		$	32,257,000
Shares issued		4,091,000			58,000			46,000
Shares retired		—			—			(741,000	)
Exercise of stock options		560,000			931,000			748,000
Value of options issued in exchange for earn-out		—			—			283,000
Non cash compensation		344,000			115,000			368,000

Balance at end of year	$	39,060,000		$	34,065,000		$	32,961,000

ACCUMULATED DEFICIT:
Balance at beginning of year	$	(268,000	)	$	(4,670,000	)	$	(8,579,000	)
Net income		5,776,000			4,402,000			3,909,000

Balance at end of year	$	5,508,000		$	(268,000	)	$	(4,670,000	)

ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of year	$	(1,000	)	$	(57,000	)	$	—
Unrealized gain (loss) on derivative instruments		27,000			30,000			(57,000	)
Foreign currency translation adjustment		22,000			26,000			—

Balance at end of year	$	48,000		$	(1,000	)	$	(57,000	)

TREASURY STOCK:
Balance at beginning of year	$	(4,637,000	)	$	(2,551,000	)	$	(1,369,000	)
Repurchase of common stock		(395,000	)		(2,086,000	)		(1,994,000	)
Shares retired		—			—			812,000

Balance at end of year	$	(5,032,000	)	$	(4,637,000	)	$	(2,551,000	)

TOTAL STOCKHOLDERS’ EQUITY	$	42,299,000		$	31,735,000		$	28,182,000

See notes to consolidated financial statements.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Fiscal Years Ended May 31,
	2004			2003			2002
Cash Flows From Operating Activities:
Net income	$	5,776,000		$	4,402,000		$	3,909,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,892,000			2,555,000			2,693,000
Provision for doubtful accounts		184,000			263,000			119,000
Gain on disposal of assets		(235,000	)		—			—
Equity in earnings of unconsolidated subsidiary and other		(65,000	)		(56,000	)		(17,000	)
Deferred income taxes		311,000			312,000			(47,000	)
Non cash G&A compensation cost		344,000			115,000			368,000
Changes in assets and liabilities, net of effects from business acquisitions:
(Increase) decrease:
Accounts receivable		(10,358,000	)		(720,000	)		(2,761,000	)
Inventories		(430,000	)		(696,000	)		(557,000	)
Prepaid expenses and other current assets		44,000			(41,000	)		(215,000	)
Income tax receivable		16,000			(16,000	)		—
Increase (decrease):
Accounts payable		1,306,000			242,000			996,000
Other accrued liabilities		2,053,000			827,000			882,000
Income taxes payable		786,000			(621,000	)		(89,000	)

Net cash provided by operating activities	$	2,624,000		$	6,566,000		$	5,281,000

Cash Flows From Investing Activities:
Capital expenditures		(3,330,000	)		(2,037,000	)		(2,043,000	)
Rental and demonstration equipment		(120,000	)		(560,000	)		(369,000	)
Proceeds from disposal of property and equipment		170,000			37,000			122,000
(Increase) decrease in other assets, net		(30,000	)		30,000			(102,000	)
Business acquisitions, net of cash acquired		(5,401,000	)		—			—

Net cash used in investing activities	$	(8,711,000	)	$	(2,530,000	)	$	(2,392,000	)

Cash Flows From Financing Activities:
(Payments) borrowings under debt agreements and other long-term obligations	$	7,273,000		$	(2,670,000	)	$	(1,852,000	)
Issuance of common stock		374,000			751,000			812,000
Repurchase of common stock		(395,000	)		(2,086,000	)		(1,994,000	)

Net cash provided by (used in) financing activities		7,252,000			(4,005,000	)		(3,034,000	)

Net increase (decrease) in cash and cash equivalents		1,165,000			31,000			(145,000	)
Cash and cash equivalents at beginning of year		854,000			823,000			968,000

Cash and cash equivalents at end of year	$	2,019,000		$	854,000		$	823,000

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	532,000		$	626,000		$	981,000

Income taxes	$	2,467,000		$	2,936,000		$	2,200,000

See notes to consolidated financial statements.

Index to Financial Statements

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 accounting principles generally accepted in the United States of America 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:


Classification		Life
Buildings		20-30 years
Machinery and equipment		2-10 years

Machinery and equipment includes rental and demonstration machining tools used in the equipment sales and rental business segment totaling $2,350,000 and $2,324,000 (before accumulated depreciation of $392,000 and $283,000) at May 31, 2004 and 2003, respectively. These self–constructed assets are periodically transferred to inventory and sold as used equipment. Total depreciation expense for the Company was $2,541,000, $2,229,000 and $2,138,000 for fiscal years ending May 31, 2004, 2003 and 2002, respectively.

Goodwill

SFAS No. 142 Accounting for Goodwill and Other Intangible Assets became effective for the Company as of June 1, 2002. According to SFAS No. 142, goodwill that arises from purchases after June 30, 2001 cannot be amortized. In addition, SFAS No. 142 requires that amortization of existing goodwill will cease on the first day of the adoption year. Accordingly, the Company stopped recording the amortization of goodwill as a charge to earnings effective as of the beginning of fiscal 2003.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth the pro-forma impact on the prior years had the provisions of the new standard been applied as of June 1, 2001:


	Fiscal Years Ended May 31,
	2004		2003		2002
Reported net income	$	5,776,000	$	4,402,000	$	3,909,000
Add back: Goodwill amortization		—		—		275,000

Adjusted net income	$	5,776,000	$	4,402,000	$	4,184,000

Basic earnings per share:
Reported net income	$	0.75	$	0.57	$	0.51
Goodwill amortization		—		—		0.04

Adjusted net income	$	0.75	$	0.57	$	0.55

Diluted earnings per share:
Reported net income	$	0.69	$	0.53	$	0.48
Goodwill amortization		—		—		0.03

Adjusted net income	$	0.69	$	0.53	$	0.51

The Company had six months from the date it initially applied SFAS No. 142 to test goodwill for impairment. Thereafter, goodwill must be tested for impairment at least annually and impairment losses, if any, will be presented in the operating section of the income statement. The Company has completed the required annual impairment test and has determined that there is no impairment of goodwill as of May 31, 2004.

Revenue Recognition

The Company derives its revenues by providing a variety of industrial services. These revenues are based on time and materials and are generally short term in nature. In addition, the Company sells and rents portable machine tools through one of its subsidiaries. For all of these services, revenues are recognized when services are rendered or when product is shipped and risk of ownership passes to the customer.

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.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2004 presentation.

Earnings Per Share

The Company has adopted Statement of Financial Accounting Standard (“SFAS”) No. 128, “Earnings per Share,” which specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”).

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There is no difference, for any of the years presented, in the amount of net income (numerator) used in the computation of basic and diluted earnings per share. With respect to the number of weighted average shares outstanding (denominator), diluted shares reflects only the pro forma exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period.

Options to purchase 70,500 and 112,000 shares of common stock were outstanding during the years ended May 31, 2004 and 2003, 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. In 2002, all outstanding options were “in the money” and therefore, no options were excluded from the computation of diluted EPS in that year.

Statement of Cash Flows

For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original 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 differential to be paid or received on interest rate swap agreements is accrued as interest rates change and is recognized over the life of the agreements as an increase or decrease in interest expense. The Company does not use these instruments for trading purposes. Instead, it uses them to hedge the impact of interest rate fluctuations on floating rate debt. See Note 6 regarding the fair value of the Company’s interest rate swap agreements.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, cash equivalents, accounts receivable, accounts payable and debt obligations. The carrying amount of cash, cash equivalents, trade accounts receivable and trade accounts payable are representative of their respective fair values due to the short-term maturity of these instruments. The fair values of the Company’s credit facility are representative of their carrying values based upon the variable rate terms and management’s opinion that the current rates offered to the Company with the same maturity and security structure are equivalent to that of the credit facility.

New Accounting Standards

The Company has reviewed other new accounting standards not identified above and does not believe any other new standard will have a material impact on the Company’s financial position or operating results.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-Based Compensation

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, generally no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and 148, 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 for 2004, 2003, and 2002, respectively: risk-free interest rate of 2.3%, 1.8%, and 3.8%; volatility factor of the expected market price of the Company’s common stock of 28.0%, 35.6%, and 42.8%; expected dividend yield percentage of 0.0% for each period; and a weighted average expected life of the option of three years for each period.

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.

The Company’s pro forma information, as if the fair value method described above had been adopted, is as follows:


	Fiscal Years Ended May 31,
	2004			2003			2002
Net income—as reported	$	5,776,000		$	4,402,000		$	3,909,000
Stock based employee compensation expense included in reported net income		344,000			115,000			368,000
Total stock-based employee compensation expense determined under fair value based method for all awards		(187,000	)		(165,000	)		(163,000	)

Pro forma net income	$	5,933,000		$	4,352,000		$	4,114,000

Earinings per share—Basic	$	0.75		$	0.57		$	0.51

Pro forma earnings per share—Basic	$	0.77		$	0.56		$	0.54

Earinings per share—diluted	$	0.69		$	0.53		$	0.48

Pro forma earnings per share—diluted	$	0.70		$	0.52		$	0.50

2. RECEIVABLES

Receivables consist of:


	May 31,
	2004			2003
Trade accounts receivable	$	28,332,000		$	18,180,000
Other receivables		55,000			60,000
Allowance for doubtful accounts		(506,000	)		(533,000	)

Total	$	27,881,000		$	17,707,000

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following summarizes the activity in the allowance for doubtful accounts:


	Fiscal Years Ended May 31,
	2004			2003			2002
Balance at beginning of year	$	533,000		$	511,000		$	392,000
Provision for doubtful accounts		452,000			263,000			119,000
Write off of bad debt		(479,000	)		(241,000	)		—

Balance at end of year	$	506,000		$	533,000		$	511,000

3. INVENTORIES

Inventories consist of:


	May 31,
	2004		2003
Raw materials	$	1,082,000	$	1,084,000
Finished goods and work in progress		8,846,000		8,414,000

Total	$	9,928,000	$	9,498,000

4. OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of:


	May 31,
	2004		2003
Payroll and other compensation expenses	$	3,608,000	$	2,771,000
Insurance accruals		1,519,000		1,261,000
Accrued interest		78,000		77,000
Current payments due to former officers		245,000		238,000
Other		1,571,000		680,000

Total	$	7,021,000	$	5,027,000

5. INCOME TAXES

The provision for income taxes attributable to pre-tax earnings are as follows:


	Fiscal Years Ended May 31,
	2004		2003		2002
Federal income taxes:
Current	$	2,634,000	$	2,093,000	$	2,013,000
Deferred		279,000		279,000		(37,000	)
State income taxes:
Current		316,000		336,000		468,000
Deferred		32,000		33,000		(7,000	)
Foreign income taxes		185,000		—		—

Total	$	3,446,000	$	2,741,000	$	2,437,000

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation between income taxes related to earnings before income taxes and income taxes computed by applying the statutory Federal income tax rate to such earnings follows:


	Fiscal Years Ended May 31,
	2004		2003			2002
Earnings before federal income taxes	$	9,222,000	$	7,143,000		$	6,346,000

Computed income taxes at statutory rate	$	3,136,000	$	2,429,000		$	2,158,000
Goodwill amortization		—		—			93,000
State income taxes		230,000		325,000			309,000
Other		80,000		(13,000	)		(123,000	)

Total	$	3,446,000	$	2,741,000		$	2,437,000

A summary of the significant components of the Company’s deferred tax assets and liabilities follows:


	May 31,
	2004			2003
Receivables		165,000			201,000
Accrued expenses and other liabilities		946,000			777,000
Inventory		182,000			222,000

Gross deferred assets		1,293,000			1,200,000

Property, plant and equipment	$	(1,220,000	)	$	(800,000	)
Other		(223,000	)		(223,000	)

Gross deferred liabilities		(1,443,000	)		(1,023,000	)

Net deferred taxes	$	(150,000	)	$	177,000

No valuation account is required for the deferred tax assets as management believes it is more likely than not that the Company will have sufficient taxable income in the future that will allow it to realize the benefits of the net deferred tax assets. Most of the assets represent temporary differences on certain accruals that will reverse over a period of less than 10 years.

6. LONG-TERM DEBT

Long-term debt consists of:


	May 31,
	2004		2003
Revolving loan	$	14,000,000	$	5,000,000
Term and mortgage notes		4,577,000		6,059,000

		18,577,000		11,059,000
Less current portion		1,482,000		1,482,000

Total	$	17,095,000	$	9,577,000

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Maturities of long-term debt are as follows:


Year ending May 31,
2005	$	1,482,000
2006		16,160,000
2007		125,000
2008		810,000
2009		—
Thereafter		—

	$	18,577,000

The Company has a $34 million bank credit facility that consists of: (i) a $22,500,000 revolving loan, which matures September 30, 2005, (ii) $9,500,000 in term loans for business acquisitions and (iii) a $2,000,000 mortgage loan. Amounts borrowed against the term loans are due in quarterly installments in the amount of $339,000 until the loans mature on September 30, 2005. Amounts borrowed against the mortgage loan are repaid in quarterly installments of $31,000 until its maturity date of September 30, 2008. Amounts outstanding under the credit facility bear interest at a marginal rate over either the LIBOR rate or the prime rate. At May 31, 2004, the Company’s marginal rate was 1.5% over the LIBOR rate. The weighted average rate on outstanding borrowings at May 31, 2004 is approximately 3.1%. The Company also pays a commitment fee of .25% per annum on the average amount of the unused availability under the revolving loan.

The Company entered into an interest rate swap agreement that expired in September, 2003 and which qualified as a cash flow hedge under SFAS No. 133. The agreement was entered into in 1998 to hedge the exposure of an increase in interest rates. Pursuant to this agreement, which covered approximately $2.1 million of outstanding debt, the Company exchanged a variable LIBOR rate for a fixed LIBOR rate of approximately 5.2%. 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 had a negative mark-to-market value of approximately $43,000 at May 31, 2003. The fair value of the interest rate swaps were estimated by discounting expected cash flows using quoted market interest rates. Two other swap agreements, covering approximately $3.5 million, expired on December 31, 2001. As of May 31, 2004 the Company had no outstanding swap agreements.

On August 11, 2004, in connection with the acquisition of the business assets of Cooperheat-MQS, Inc. (see Note 15), the existing credit facility was replaced with a new $75 million facility. The new facility matures in August 2009 and consists of a revolving loan of $50 million and a $25 million term facility. Approximately $55 million (including the entire term loan) was borrowed on August 11, 2004 to finance the Cooperheat-MQS acquisition (approximately $36 million) and to refinance amounts outstanding on the existing Team facilities (approximately $19 million). The term facility requires amortization of $3 million in the first year, $4 million in year two and $6 million in each of years three through five. Amortization begins in November 2004. Interest on

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the facility is at LIBOR plus a margin which is variable depending upon the ratio of funded debt to EBITDA. Initially, the margin will be 225 basis points above the LIBOR rate. The new facility is secured by virtually all the Company’s assets, including those acquired in the Cooperheat-MQS transaction. The Company paid an underwriters fee of 1.625% of the aggregate amount of the facility.

7. OTHER LONG-TERM LIABILITIES

Other liabilities consisted of:


	May 31,
	2004			2003
Post retirement payments	$	384,000		$	622,000
Less amounts due in one year		(245,000	)		(238,000	)

	$	139,000		$	384,000

Amounts due within one year of $245,000 and $238,000, respectively, are included in other accrued liabilities in the accompanying consolidated balance sheet.

Post Retirement Benefits:

The Company is obligated for post-retirement benefits to three former officers with payments due through 2007. Future maturities of amounts due under post retirement benefit agreements are as follows:


Year ending May 31,
2005	$	245,000
2006		100,000
2007		39,000

	$	384,000

8. OTHER EXPENSE (INCOME)

In 2004, net other expense of $10,000 consists of a $245,000 expense associated with special sales tax obligations offset by a $235,000 gain from the sale of idle real estate. Both matters involve the wholly owned subsidiary, Climax Portable Machine Tools, Inc. In regards to the sales tax matter, Climax is domiciled in the state of Oregon, a state that imposes no tax on sales originating there. In fiscal 2003, management determined that Climax does have an obligation to collect and remit sales taxes in certain other jurisdictions, which it had not previously done. Climax is nearing completion of a process of entering into agreements with several states with respect to sales tax obligations and is in the process of collecting amounts due from its customers. In fiscal 2003 the Company recorded a $150,000 charge related to this matter. The cumulative $395,000 charge represents management’s best current estimate of the probable loss that Climax will incur with respect to this matter.

In regards to the real estate sale, Climax sold idle real estate for a total consideration of $760,000, comprised of $128,000 in cash and a note receivable for $632,000. The note bears interest at 6% per annum and matures on May 1, 2007. Interest payments are due in quarterly installments and a principal payment of $32,000 is due annually. At May 31, 2004 the balance outstanding on the note was $601,000. The amount is recorded as an Other asset on the balance sheet.

In 2002, other expense of $173,000 consists of severance and related costs associated with a reduction in work force at Climax. All such amounts were paid during the year ended May 31, 2002.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS

Stock Options:

In addition to the options granted under the option plans discussed above, the Company’s chief executive officer was granted options to purchase 200,000 shares of common stock at a price of $3.625 per share upon joining the Company in 1998. Such grant was subject to a vesting schedule based on stock performance measures which provided that one third of the options vest upon the sustained achievement of average stock prices of $7.00, $10.50, and $14.00 per share. The first standard was met near the end of May 2002, when the price of Team’s stock was $9.15 per share. Consequently, at that time, the Company was required to recognize a non-cash G&A compensation charge associated with one third of the options totaling $368,000 (approximately $0.03 per share, net of tax).

In July 2002, the Board of Directors modified the vesting requirements of the remaining 133,333 performance based options held by the chief executive officer as well as 20,000 performance based options held by an officer of one of the Company’s subsidiaries. The modification causes the remaining options to vest on May 31, 2008 unless earlier vesting occurs, in the case of the chief executive officer, as a result of the achievement of the $10.50 and $14.00 stock-price hurdles described above. The modification allowed the Company to fix the amount of the future non-cash G&A compensation expense associated with the remaining options ($750,000) and to recognize the charge against earnings ratably over a six-year period of time ($125,000 per year), unless otherwise accelerated by the achievement of the performance hurdles. In April 2004 the $10.50 stock-price hurdle was achieved resulting in the accelerated vesting of 66,667 shares of the chief executive officer’s remaining 133,333 options. As a result, the Company accelerated the recognition of an additional $219,000 in non-cash G&A compensation expense on top of the scheduled $125,000 in fiscal 2004.

In August 2004, the final stock-price hurdle of $14.00 was achieved resulting in the accelerated vesting of the remaining 66,666 options. As a result, the Company will record the remaining $219,000 associated with the chief executive officer’s options in the 1 ^st quarter of fiscal 2005. The expense related to the 20,000 options held by the officer of the Company’s subsidiary will continue to be charged against earnings ratably over their remaining life at approximately $4,000 each quarter.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Transactions under all plans are summarized below: (For purposes of the summary, the chief executive officer’s performance options that vested in fiscal 2002 (67,000) and that were modified in 2003 (133,000) are included as fiscal 2002 and 2003 grants, respectively).


	Fiscal Years Ended May 31,
	2004					2003					2002
	No. of Options			Weighted Average Price		No. of Options			Weighted Average Price		No. of Options			Weighted Average Price
Shares under option, beginning of year		1,284,000		$	4.04		1,277,000		$	3.41		1,114,800		$	3.00
Changes during the year:
Granted		201,000		$	10.11		134,000		$	8.96		324,200		$	4.25
CEO Performance Options		—		$	—		133,000		$	3.63		67,000		$	3.63
Exercised		(187,000	)	$	3.34		(250,000	)	$	3.00		(209,000	)	$	3.88
Canceled		(12,000	)	$	7.12		(10,000	)	$	7.44		(20,000	)	$	3.63

Shares under option, end of year		1,286,000		$	5.06		1,284,000		$	4.04		1,277,000		$	3.41

Exercisable at end of year		993,000		$	4.20		1,074,000		$	3.77		980,000		$	3.27

Available for future grant		439,000					440,000					174,000

Weighted average grant-date fair value of options granted during year	$	2.14				$	2.36				$	1.29

For options outstanding at May 31, 2004, the range of exercise prices and remaining contractual lives are as follows:


Range of Prices	No. of Options	Weighted Average Price		Weighted Average Life (in years)
$1.94 to $2.75	180,000	$	2.26	4.2
$3.12 to $3.50	205,000	$	3.46	4.6
$3.56 to $4.00	485,000	$	3.71	4.8
$5.15 to $9.00	345,000	$	7.62	8.3
$10.80 to $13.92	71,000	$	13.61	9.9

	1,286,000	$	5.06	5.9

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 2004, 2003 and 2002, were $383,000, $363,000, and $319,000, respectively.

10. COMMITMENTS AND CONTINGENCIES

Loss Contingencies

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

summary judgment filed by the Company and dismissed the Plaintiffs’ claims with prejudice with respect to claims against Team allegedly arising out of its ownership of the stock of French Limited and of Allstate Vacuum and Tanks, Inc (“Allstate”). The Company has reason to believe that the Plaintiffs will appeal the Court’s ruling in favor of the Company at the end of the case.

In addition to the claims originally put forward by the Plaintiffs, nine of the Defendants have filed cross-claims against the Company in which they contended they do not believe they should be held liable on Plaintiffs’ claims against them, but that if they are held liable then they seek contribution from the Company and other defendants. In addition, the four of those same nine defendants which are related to the El Paso Corporation (the “El Paso Defendants”) seek contribution against the Company and others on a related claim by the United States Government on another location within the Turtle Bayou Site at which hazardous wastes were disposed. All defendants except the El Paso Defendants have agreed orally to dismiss their cross-claims against the Company subject to revival if the Plaintiffs appeal the summary judgments granted by the District Court. Management believes that the El Paso defendants and the Company are close to an agreement with respect to a motion to dismiss similar to the one proposed with the other defendants; if the Company is not successful in reaching such an agreement, then the Company plans to file a motion for summary judgment requesting that the District Court apply its previously granted summary judgments against the El Paso Defendants.

The Company believes that the claims against it in this matter are without merit, as is supported by the rulings of the District Court.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

contested and other parties appear to have primary responsibility for the fire and explosion. The Company is insured against this loss with both primary and excess liability insurance, subject to any applicable deductible.

In June 2004, Ultramar Diamond Shamrock Corporation made demand on Team Industrial Services, Inc. for indemnity from claims asserted against Ultramar Diamond Shamrock Corporation in Linda Alapisco, et al v. Ultramar Diamond Shamrock Corporation, et al , Cause No. L-030085, in the 156th District Court of Live Oak County, Texas. This suit seeks unspecified damages for the 250 individuals identified in the petition for injuries resulting from alleged exposure to toxic chemicals released as a result of the explosion and fire at the Diamond Shamrock facility. This demand has been turned over to American Safety for a response. As of the date of this report, American Safety has not responded to the claim.

The Company’s umbrella policy has limits of coverage of $25,000,000 and should be more than sufficient to provide the Company a defense and indemnity as to all claims asserted. However, coverage from the $1 million primary policy is disputed and a defense is being provided by the carrier subject to a reservation of rights.

See also Note 8 for a discussion of sales tax contingencies.

Lease Commitments

The Company’s operating leases 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 $3,428,000, $3,294,000 and $2,848,000 in 2004, 2003 and 2002, respectively. Minimum rental commitments for future periods are as follows:


Year ending May 31,	Operating Leases
2005	$	3,114,000
2006		2,029,000
2007		1,006,000
2008		416,000
2009		62,000

Total minimum payments	$	6,627,000

11. COMMON STOCK

During fiscal 2004, 2003, and 2002, the Company reacquired 50,000, 309,788, and 200,100 shares, respectively, pursuant to an approved, open market repurchase plan at an average price of $7.89, $6.73, and $5.93 per share, in 2004, 2003, and 2002, respectively. The shares acquired through open market purchases have not been formally retired and, accordingly, are carried as treasury stock. Additionally, in June 2001, the Company completed the reacquisition of 235,647 shares of its common stock for $812,000, including expenses, pursuant to a self-tender offer announced in April 2001. These shares were retired and, accordingly, the cost was charged to Common Stock (at par value of $.30 per share) and to Additional Paid-in Capital.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following summarizes the activity of shares outstanding for the years ended May 31, 2004, 2003 and 2002:


	Common Stock Issued		Treasury Stock		Shares Outstanding
No. of Shares, May 31, 2001	8,342,654		(459,420	)	7,883,234
Shares issued for director fees	15,150		—		15,150
Exercise of stock options	208,975		—		208,975
Shares repurchased	—		(434,747	)	(434,747	)
Shares retired	(235,647	)	235,647		—

No. of shares, May 31, 2002	8,331,132		(658,520	)	7,672,612
Shares issued for director fees	6,630		—		6,630
Exercise of stock options	249,750		—		249,750
Shares repurchased	—		(309,788	)	(309,788	)

No. of shares, May 31, 2003	8,587,512		(968,308	)	7,619,204
Shares issued for director fees	7,500		—		7,500
Shares issued for business acquisition	288,413		—		288,413
Exercise of stock options	186,825		—		186,825
Shares repurchased	—		(50,000	)	(50,000	)

No. of shares, May 31, 2004	9,070,250		(1,018,308	)	8,051,942

As of May 31, 2004, the Company is authorized by its Board of Directors and lender to expend up to an additional $1.7 million on open market repurchases of common stock.

12. INDUSTRY SEGMENT INFORMATION

SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” 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 interest and taxes. Inter-segment sales are eliminated in the operating measure used by the Company to evaluate segment performance, and this has been eliminated in the following schedule. Interest is not allocated to the segments.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Information about business segments for the fiscal years ended May 31, 2004, 2003 and 2002 is set forth below:

Fiscal Year ended May 31, 2004


	Industrial Services		Equipment Sales & Rentals		Corporate & Other			Total
Revenues	$	94,546,000	$	13,123,000	$	—		$	107,669,000

Earnings before interest and Taxes		13,953,000		1,220,000		(5,432,000	)		9,741,000
Interest		—		—		519,000			519,000

Earnings before income taxes	$	13,953,000		1,220,000		(5,951,000	)	$	9,222,000

Depreciation and amortization	$	1,774,000		623,000		495,000		$	2,892,000

Captial expenditures	$	2,917,000		408,000		5,000		$	3,330,000

Identifiable assets	$	56,131,000		13,056,000		5,209,000		$	74,396,000

Fiscal Year ended May 31, 2003


	Industrial Services		Equipment Sales & Rentals		Corporate & Other			Total
Revenues	$	81,122,000	$	10,754,000	$	—		$	91,876,000

Earnings before interest and taxes		12,012,000		603,000		(4,871,000	)		7,744,000
Interest		—		—		601,000			601,000

Earnings before income taxes	$	12,012,000		603,000		(5,472,000	)	$	7,143,000

Depreciation and amortization	$	1,539,000		605,000		411,000		$	2,555,000

Captial expenditures	$	1,619,000		303,000		115,000		$	2,037,000

Identifiable assets	$	36,560,000		11,386,000		4,278,000		$	52,224,000

Fiscal Year ended May 31, 2002


	Industrial Services		Equipment Sales & Rentals		Corporate & Other			Total
Revenues	$	74,513,000	$	10,568,000	$	—		$	85,081,000

Earnings before interest and taxes		11,470,000		547,000		(4,779,000	)		7,238,000
Interest		—		—		892,000			892,000

Earnings before income taxes	$	11,470,000	$	547,000	$	(5,671,000	)	$	6,346,000

Depreciation and amortization	$	1,644,000	$	684,000	$	365,000		$	2,693,000

Capital expenditures	$	1,829,000	$	120,000	$	94,000		$	2,043,000

Identifiable assets	$	35,430,000	$	12,247,000	$	3,512,000		$	51,189,000

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

13. ACQUISITIONS

On April 15, 2004, the Company completed the acquisition of all of the outstanding capital stock of Thermal Solutions, Inc., a Colorado corporation (“TSI”). Pursuant to the terms of a Stock Purchase Agreement (the “Stock Purchase Agreement”) dated and effective as of April 1, 2004 among Team, Team Industrial Services, Inc., a Texas corporation and an indirect wholly-owned subsidiary of Team (“Team Industrial”), TSI, the TSI shareholders and Michael J. Urban as the shareholder representative, TSI became a wholly-owned subsidiary of Team Industrial.

Team paid consideration of approximately $9 million in cash, which included $1.3 million for the repayment of TSI’s debt and a $1.7 million adjustment for working capital acquired in excess of the minimum amount specified in the Stock Purchase Agreement, and issued 288,413 shares of its common stock, $0.30 par value per share (the “Team Stock”), pursuant to the Stock Purchase Agreement. Of such amounts, $500,000 in cash and 189,019 shares of Team Stock were deposited into an escrow fund (the “Escrow Fund”) that may be used by Team to satisfy working capital and accounts receivable adjustments and its indemnification rights under the Stock Purchase Agreement. (Amounts remaining in the Escrow Fund and not subject to pending claims are to be distributed to the former TSI shareholders over a three year period ending in April 2007.) The Escrow Fund was established pursuant to the terms of an Escrow Agreement (the “Escrow Agreement”) dated April 15, 2004 by and among Team, Team Industrial, TSI, the TSI shareholders, the shareholder representative and Compass Bank. The amount of the consideration contemplated by the Stock Purchase Agreement was determined through arm’s-length negotiations among the parties.

The acquisition was 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 TSI was effective April 1, 2004, the consolidated results of operations for the Company for the year ended May 31, 2004, include the results for TSI for the period April 1, 2004 to May 31, 2004. The purchase price of TSI was allocated to the assets and liabilities of TSI based on its estimated fair value. The goodwill associated with the acquisition totaled approximately $5.0 million. Information regarding the allocation of the purchase price is set forth below:


Cash and borrowings	$	7,796,000
Common stock issued		4,120,000
Transaction costs		475,000

		12,391,000
Fair value of net assets acquired		6,581,000

Excess purchase price to be allocated to:
Goodwill		4,560,000
Covenant not to compete	$	1,250,000

The covenant not to compete is a general agreement made with the principals of Thermal not to compete with Team for a period of five years. The valuation of the covenant was determined by an independent third party. The covenant is being amortized on a straight line basis over the five year term of the agreement.

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The unaudited pro forma consolidated results of operations of the Company are shown below as if the acquisition occurred at the beginning of the fiscal period indicated. These results are not necessarily indicative of the results which would actually have occurred if the purchase had taken place at the beginning of the period, nor are they necessarily indicative of future results.


	Pro forma data (unaudited)
	Twelve months ended May 31,
	2004		2003
Net sales	$	121,104,000	$	108,123,000
Net income	$	5,997,000	$	4,681,000
Earnings per share
Basic	$	0.78	$	0.59
Diluted	$	0.71	$	0.54

14. QUARTERLY RESULTS OF OPERATIONS (Unaudited)

The Company’s consolidated results of operations by quarter for the fiscal years ended May 31, 2004, and 2003 are shown below.


	Fiscal 2004
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	24,918,000	$	25,807,000	$	25,137,000	$	31,807,000

Gross margin	$	10,112,000	$	10,219,000	$	9,951,000	$	12,402,000

Earnings before interest and taxes	$	2,363,000	$	2,590,000	$	1,711,000	$	3,077,000

Net income	$	1,362,000	$	1,552,000	$	980,000	$	1,882,000

Net income per share:
Basic	$	0.18	$	0.20	$	0.13	$	0.24

Diluted	$	0.17	$	0.19	$	0.12	$	0.22


	Fiscal 2003
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	22,008,000	$	23,160,000	$	21,777,000	$	24,931,000

Gross margin	$	9,031,000	$	9,607,000	$	8,451,000	$	10,103,000

Earnings before interest and taxes	$	2,017,000	$	2,367,000	$	1,018,000	$	2,342,000

Net income	$	1,148,000	$	1,364,000	$	538,000	$	1,352,000

Net income per share:
Basic	$	0.15	$	0.18	$	0.07	$	0.18

Diluted	$	0.14	$	0.16	$	0.06	$	0.17

15. Subsequent Events

On August 11, 2004 the Company announced that it had executed an Asset Purchase Agreement to purchase substantially all of the assets of International Industrial Services, Inc., a Delaware corporation (“IISI”), and Cooperheat-MQS, Inc., a Delaware corporation (“Cooperheat”), including the capital stock of certain subsidiaries of IISI and Cooperheat (together, “Cooperheat”).

Index to Financial Statements

TEAM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cooperheat is operating as debtor-in-possession in a Chapter 11 case pending in the United States Bankruptcy Court for the Southern District of Texas, Houston, Texas (the “Bankruptcy Court”) (Case Nos. 03-48272-H2-11 and 03-48273-H2-11). On August 6, 2004, the Bankruptcy Court entered an order approving the sale of the assets by Cooperheat to the Company pursuant to the Asset Purchase Agreement.

On August 11, 2004, substantially all of the assets of Cooperheat were sold to the Company pursuant to the Asset Purchase Agreement for cash consideration of $35 million, subject to a working capital adjustment, the assumption of certain liabilities including the assumption of $1.7 million in letters of credit and the issuance of warrants to purchase 100,000 shares of the common stock, $.30 par value per share, of Team. The warrants are exercisable at $65 cash per share and expire on August 11, 2007, unless sooner exercised.

The assets purchased from Cooperheat are associated with a non-destructive testing (NDT) inspection and field heat treating services business. The Company intends to integrate the purchased assets and associated business activity with its other industrial service activities.

The transactions contemplated by the Asset Purchase Agreement, as well as a restructuring of the Company’s current indebtedness to Bank of America, N.A. (“Bank of America”), were financed with funds provided under a Credit Agreement dated as of August 11, 2004 (the “Credit Agreement”) by and among the Company, the other lenders party thereto and Bank of America, as Administrative Agent, Swing Line lender and L/C issuer. The Credit Agreement permits borrowing of amounts up to an aggregate $75 million, and includes a letter of credit facility, a revolving credit facility and a term loan. Extensions of credit under the Credit Agreement have a maturity date five years from the date of inception, and the Company may elect an interest rate for each advance under the Credit Agreement at either (i) LIBOR plus a maximum margin of 2.25%, which may be reduced upon the satisfaction of certain financial conditions, or (ii) the higher of Bank of America’s prime rate or the federal funds rate plus 0.50%. The payment and performance of the Company’s obligations under the Credit Agreement are secured by substantially all of the assets and properties of the Company and its subsidiaries.

Cooperheat is a leading provider of non-destructive testing (NDT) inspection and field heat treating services throughout the U.S. and Canada, and its projected calendar year 2004 revenues are estimated to be approximately $80 million.

Index to Financial Statements

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.

ITEM 9A. CONTROLS AND PROCEDURES

The Company’s chief executive officer and its chief financial officer have evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act rules 13a-14(c) and 15d-14(c)) as of a date within 90 days of the filing date of this annual report and have concluded that such controls are effective.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.

PART III

The information contained in Items 10, 11, 12, 13 and 14 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, 2004, 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 15. 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.


		Page

Report of Independent Registered Public Accounting Firm		15

Consolidated Balance Sheets—May 31, 2004 and 2003		16

Consolidated Statements of Operations—Years ended May 31, 2004, 2003 and 2002		17

Consolidated Statements of Comprehensive Income—Years ended May 31, 2004, 2003 and 2002		18

Consolidated Statements of Stockholders’ Equity—Years ended May 31, 2004, 2003 and 2002		19

Consolidated Statements of Cash Flows—Years ended May 31, 2004, 2003 and 2002		20

Notes to Consolidated Financial Statements		21

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.

Index to Financial Statements

3. Exhibits


Exhibit Number
3.1*		Second Restated Articles of Incorporation of the Company, as amended through August 31, 1999, (filed as Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 1999).

3.2*		Bylaws of the Company (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-2, File No. 33-31663).

4.1*		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).

10.1*#		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).

10.2*		Team, Inc. Salary Deferral Plan (filed as Exhibit 99(a) to the Company’s Registration Statement on form S-8, File No. 333-74062).

10.3#		Team, Inc. Restated Non-Employee Directors’ Stock Option Plan as amended through June 24, 2004.

10.4*#		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).

10.5*#		First Amendment to Employment Agreement by and between Philip J. Hawk and Team, Inc. effective October 1, 2001 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002).

10.6*#		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).

10.7*#		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).

10.8*#		First Amendment to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002).

10.9*#		Second Amendment dated July 11, 2002 to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc (filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2002).

10.10*#		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).

10.11*#		Incentive Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002).

10.12*		Stock Purchase Agreement by and between Team, Inc. and Houston Post Oak Partners, Ltd. Dated June 9, 1998 (filed as a exhibit to the Company’s Current Report on Form 8-K filed June 8, 1998).

Index to Financial Statements


Exhibit Number
10.13#		1998 Incentive Stock Option Plan dated January 29, 1998 as amended through June 24, 2004.

10.14*#		Exchange Agreement by and among E. Patrick Manuel, B. Dal Miller and Team, Inc. dated July 5, 2001 (filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2002).

10.15*		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).

10.16*		Stock Purchase Agreement dated as of April 1, 2004, by and among Team, Inc., Team Industrial Services, Inc. (“Team Industrial”), Thermal Solutions, Inc. (“TSI”), the TSI shareholders named therein and Michael J. Urban as the shareholder representative (Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed April 16, 2004).

10.17*		Escrow Agreement dated April 15, 2004 by and among Team, Inc., Team Industrial, TSI, the TSI shareholders named therein, Michael J. Urban as the shareholder representative and Compass Bank (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 16, 2004).

10.18*		Amendment No. 9 dated as of April 15, 2004 among Registrant, Bank of America, N.A., successor by merger to NationsBank, N.A., and the financial institutions named therein (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 16, 2004).

10.19*		Asset Purchase Agreement dated July 16, 2004 by and among International Industrial Services, Inc., Cooperheat-MQS, Inc., Team Acquisition Corp. and Team, Inc. (Filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed, dated July 16, 2004, filed July 20, 2004).

10.20*		Credit Agreement dated August 11, 2004 among Team, Inc., each lender from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer. (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 12, 2004).

10.21#		Team, Inc. 2004 Restricted Stock Option and Award Plan dated June 24, 2004.

10.22#		Consulting Agreement between Team, Inc. and Emmett J. Lescroart dated July 30, 2004.

14.1*		Code of Ethics (filed as Exhibit 14.1 to the Company’s Annual Report on Form 10K for the fiscal year ended May 31, 2003).

21		Subsidiaries of the Company.

23.1		Consent of Independent Registered Public Accounting Firm—KPMG LLP

31.1		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	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 15(b) of Form 10-K.

(b) Reports on Form 8-K.

The Company filed three (3) reports on form 8-K during the fourth quarter. One covering a press release announcing its earnings for the quarter ended February 28, 2004, dated March 17, 2004, and two covering the purchase of Thermal Solutions, Inc., dated April 2, 2004 and April 16, 2004.

Index to Financial Statements

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 25, 2004.


Team, Inc.

By:		/s/ P HILIP J. H AWK
		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.


/s/ P HILIP J. H AWK (Philip J. Hawk)	Chief Executive Officer and Director	August 25, 2004

/s/ G EORGE W. H ARRISON (George W. Harrison)	Director	August 25, 2004

/s/ J ACK M. J OHNSON , J R . (Jack M. Johnson, Jr.)	Director	August 25, 2004

/s/ E. T HEODORE L ABORDE (E. Theodore Laborde)	Director	August 25, 2004

/s/ E. P ATRICK M ANUEL (E. Patrick Manuel)	Director	August 25, 2004

/s/ L OUIS A. W ATERS (Louis A. Waters)	Director	August 25, 2004

/s/ S IDNEY B. W ILLIAMS (Sidney B. Williams)	Director	August 25, 2004

/s/ T ED W. O WEN (Ted W. Owen)	Senior Vice President Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	August 25, 2004

Index to Financial Statements

EXHIBIT INDEX


Exhibit Number
3.1*		Second Restated Articles of Incorporation of the Company, as amended through August 31, 1999, (filed as Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 1999).

3.2*		Bylaws of the Company (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-2, File No. 33-31663).

4.1*		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).

10.1*#		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).

10.2*		Team, Inc. Salary Deferral Plan (filed as Exhibit 99(a) to the Company’s Registration Statement on form S-8, File No. 333-74062).

10.3#		Team, Inc. Restated Non-Employee Directors’ Stock Option Plan as amended through June 24, 2004.

10.4*#		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).

10.5*#		First Amendment to Employment Agreement by and between Philip J. Hawk and Team, Inc. effective October 1, 2001 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002).

10.6*#		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).

10.7*#		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).

10.8*#		First Amendment to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002).

10.9*#		Second Amendment dated July 11, 2002 to Price Vested Restricted Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc (filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2002).

10.10*#		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).

10.11*#		Incentive Stock Option Award Agreement by and between Philip J. Hawk and Team, Inc. dated October 1, 2001 (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002).

10.12*		Stock Purchase Agreement by and between Team, Inc. and Houston Post Oak Partners, Ltd. Dated June 9, 1998 (filed as a exhibit to the Company’s Current Report on Form 8-K filed June 8, 1998).

Index to Financial Statements


Exhibit Number
10.13#		1998 Incentive Stock Option Plan dated January 29, 1998 as amended through June 24, 2004.

10.14*#		Exchange Agreement by and among E. Patrick Manuel, B. Dal Miller and Team, Inc. dated July 5, 2001 (filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2002).

10.15*		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).

10.16*		Stock Purchase Agreement dated as of April 1, 2004, by and among Team, Inc., Team Industrial Services, Inc. (“Team Industrial”), Thermal Solutions, Inc. (“TSI”), the TSI shareholders named therein and Michael J. Urban as the shareholder representative (Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed April 16, 2004).

10.17*		Escrow Agreement dated April 15, 2004 by and among Team, Inc., Team Industrial, TSI, the TSI shareholders named therein, Michael J. Urban as the shareholder representative and Compass Bank (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 16, 2004).

10.18*		Amendment No. 9 dated as of April 15, 2004 among Registrant, Bank of America, N.A., successor by merger to NationsBank, N.A., and the financial institutions named therein (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 16, 2004).

10.19*		Asset Purchase Agreement dated July 16, 2004 by and among International Industrial Services, Inc., Cooperheat-MQS, Inc., Team Acquisition Corp. and Team, Inc. (Filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed, dated July 16, 2004, filed July 20, 2004).

10.20*		Credit Agreement dated August 11, 2004 among Team, Inc., each lender from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer. (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 12, 2004).

10.21#		Team, Inc. 2004 Restricted Stock Option and Award Plan dated June 24, 2004.

10.22#		Consulting Agreement between Team, Inc. and Emmett J. Lescroart dated July 30, 2004.

14.1*		Code of Ethics (filed as Exhibit 14.1 to the Company’s Annual Report on Form 10K for the fiscal year ended May 31, 2003).

21		Subsidiaries of the Company.

23.1		Consent of Independent Registered Public Accounting Firm– KPMG LLP

31.1		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	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 15(b) of Form 10-K.

Exhibit 10.3

TEAM, INC.

RESTATED NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN

(As amended through June 24, 2004)

The following Team, Inc. Restated Non-Employee Directors’ Stock Option Plan (the “Plan”) is effective as of December 16, 1991, and (as amended through June 24, 2004) reads as follows:

1. Purpose . The purpose of the Plan is to strengthen the ability of Team, Inc. (the “Company”) to attract and to retain the services of experienced and knowledgeable independent individuals as members of the Board of Directors of the Company, to extend to them the opportunity to acquire a proprietary interest in the Company so that they will apply their best efforts for the benefit of the Company, and to provide those individuals with an additional incentive to continue in their position, all being for the best interest of the Company and its stockholders. In furtherance of such purpose, Non-Employee Directors (as defined below) shall receive Options for their services as members of the Board, in addition to any other compensation which such Non-Employee Directors may be entitled to receive.

2. Definitions .

(a) “Act” means the Securities Exchange Act of 1934, as amended.

(b) “Affiliates” means any one or more corporations which are members of a “parent-subsidiary controlled group” as such term is defined in Section 1563(a)(1)(A) of the Code, except that “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears in Section 1563(a)(1)(A) of the Code.

(d) “Code” means the Internal Revenue Code of 1986, as amended.

(e) “Common Stock” means the Company’s $0.30 par value Common Stock.

(f) “Date of Grant” means the date on which an Option is granted under the Plan.

(g) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(h) “Exercise Price” means the value per share of Common Stock that is equal to one hundred percent (100%) of the Fair Market Value of a share of Common

Stock on the last date preceding the Date of Grant on which sales of the Common Stock occurred on the American Stock Exchange or other primary market or exchange on which the Common Stock traded.

(i) “Fair Market Value” means the mean of the opening and closing prices of the Common Stock reported on the composite tape or other reporting medium (for securities listed on the American Stock Exchange or other primary market or exchange on which the Common Stock is traded) as of the relevant date; provided, however, that if the Common Stock does not trade on the relevant date, such price shall be determined based upon the mean of the opening and closing prices of the Common Stock on the next preceding date on which trades occurred; and provided further, however, that should the primary market or exchange on which the Common Stock is traded adopt a continuous twenty-four hour trading policy, “Fair Market Value” for purposes of this Plan shall mean the price of the Common Stock on the last trade prior to 4:30 p.m., New York time, on any relevant date.

(j) “Ineligible Directors” means all members of the Board who are employees or officers of the Company or any of its Affiliates.

(k) “Non-Employee Director” means those members of the Board who are not employees of the Company or any of its Affiliates.

(l) “Option” means an option granted under the Plan. No Option shall be an “incentive stock option” (as defined in Section 422A of the Code).

(k) “Optionee” means a person to whom an Option, which is not expired, has been granted under the Plan.

(l) “Subsidiary” or “Subsidiaries” means any corporation whose capital stock is more than 80% owned by (i) the Company or (ii) any other Subsidiary of the Company.

(m) “Successor” means the legal representative of the estate of a deceased Optionee or the person or persons who acquire the right to exercise an Option by bequest or inheritance or by reason of the death of any Optionee.

(n) “Termination of Directorship” of an Optionee means the cessation of such Optionee’s relationship as a director on the Board.

3. Administration of Plan .

(a) Ineligible Directors . The Ineligible Directors shall administer the Plan and shall have such powers and authority as may be necessary for them to carry out their functions as described in the Plan. The Ineligible Directors shall have the authority and discretion to interpret the Plan and to make all other determinations necessary for Plan administration and to prescribe, amend and rescind any rules and

regulations relating to the Plan, provided that the Ineligible Directors shall not have the discretion or authority to disregard or change any of the terms and conditions under which Options are granted to Non-Employee Directors or may be exercised under the Plan. All interpretations, determinations and actions of the Ineligible Directors shall be final and binding on all parties.

(b) Grants . The Company shall automatically grant:

(i) To each Non-Employee Director, on the date of initial adoption of the Plan by the Board, an Option for that number of shares of Common Stock equal to the product obtained by multiplying five thousand (5,000) by a number of years, or any part of any year, of such Non-Employee Director’s prior service on the Board, with such product being a minimum of fifteen thousand (15,000) and a maximum of fifty thousand (50,000),

(ii) To each Non-Employee Director who is appointed or elected to the Board, on the date of such appointment or election to the Board, if such Non-Employee Director had not previously received a grant under this Plan, an Option for that number of shares of Common Stock equal to the product obtained by multiplying two thousand (2,000) by a number of years, or any part of any year, of such Non-Employee Director’s prior service on the Board, with such product being a maximum of twenty thousand (20,000), and

(iii) To each Non-Employee Director who is appointed, elected, reappointed or reelected to the Board, on the date of such Non-Employee Director’s appointment, reappointment, election or reelection to the Board, an Option for that number of shares of Common Stock equal to the product obtained by multiplying five thousand (5,000) by a number of years, or any part of any year, that such Non-Employee Director is appointed or elected to serve on the Board;

In the event any Option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, the shares subject to such Option, but not purchased thereunder shall again be available for Options to be granted under the Plan. In the event that the number of shares issuable pursuant to the Plan at the time of any grant hereunder is less than the number of shares to be issued pursuant to such grant, the Non-Employee Directors to whom the grant is to be made shall receive grants of Options for the aggregate number of shares of Common Stock remaining authorized under the Plan, prorated as among such Non-Employee Directors for the number of shares to which they are entitled in such grant hereunder. On any date or dates thereafter that Options become available for issuance under the Plan, whether by cancellation or expiration of previously issued Options or by an amendment to increase the number of shares authorized for issuance hereunder, any Non-Employee Directors who previously were not issued Options to which they were entitled pursuant hereto shall automatically be granted the number of Options to which they were previously entitled. In the event that the number of Options available for grant

pursuant to the preceding sentence shall not be sufficient to satisfy all required grants, Non-Employee Directors shall be granted Options in order of the dates on which such grants should have been made, with the earliest dates receiving grants first, and prorated as among Non-Employee Directors, if necessary, as stated above.

Any Non-Employee Director who is granted an Option hereunder shall have the right to decline the award thereof by giving written notice within forty-eight (48) hours of receipt of actual notice of such award. Upon due and timely delivery of any such notice as specified above, (x) the relevant Option shall be void and shall not have been deemed to have been granted for purposes of Section 16 of the Act and (y) the award shall be deemed to have been declined “immediately” for purposes of interpretations of the Securities and Exchange Commission under Section 16 of the Act.

(c) Vesting . All of the Options granted pursuant to subparagraphs (i) and (ii) of Paragraph 3(b) above shall vest immediately upon the Date of Grant. With respect to the Options granted pursuant to subparagraph (iii) of Paragraph 3(b), five thousand (5,000) shall vest immediately on the Date of Grant and five thousand (5,000) shall vest each anniversary thereafter until all of the Options granted thereunder have thus vested.

4. Common Stock Subject to Options . The aggregate number of shares of the Company’s Common Stock which may be issued upon exercise of Options granted under the Plan shall not exceed 610,000, subject to adjustment under the provisions of Paragraph 7. The shares of Common Stock to be issued upon the exercise of Options may be authorized but unissued shares, shares issued and reacquired by the Company or shares bought on the market for the purposes of the Plan. In the event any Option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, the shares subject to such Option but not purchased thereunder shall again be available for Options to be granted under the Plan.

5. Participants . Options may be granted under the Plan to any person who is a Non-Employee Director (as that term is defined above) of the Board.

6. Option Agreements . Any Option granted under this Plan shall be evidenced by an agreement (“Option Agreement”), which shall be approved as to form and substance by the Ineligible Directors. Each such Option Agreement shall be executed by an officer of the Company and the applicable Optionee. All Options and Option Agreements granted under the provisions of this Plan shall be subject to the following limitations and conditions:

(a) Option Price . The Option price per share with respect to each Option shall be the Exercise Price.

(b) Exercise Period of Option . Options may be exercised at any time during the period beginning on the date of vesting of the particular options to be exercised and ending ten (10) years after the Date of Grant, subject to earlier termination under paragraphs 6(g) and (h) below.

(c) Holding Period . No Common Stock issued pursuant to exercise of an Option granted pursuant to this Plan may be sold, transferred, assigned or otherwise disposed of within six (6) months following the Date of Grant.

(d) Vesting of Shareholder Rights . Neither an Optionee nor his Successor shall have any of the rights of a shareholder of the Company by reason of holding an Option, and such shareholder rights will not vest until the certificates evidencing the shares purchased are properly delivered to such Optionee or his Successor.

(e) Exercise of Option . Each Option or portion thereof shall be exercisable from time to time over a period commencing on the date of vesting in accordance with this Plan and ending upon the expiration or termination of the exercise period of the Option. The Exercise Price of an Option shall be payable upon the exercise of the Option in cash, by certified or cashier’s check, or, with the consent of the Ineligible Directors, by assigning and delivering to the Company shares of Common Stock owned by the Non-Employee Director that have been held by the Non-Employee Director for at least six (6) months prior to the date of exercise or, with the consent of the Ineligible Directors, a combination of cash and such shares. Any shares so assigned and delivered to the Company in payment or partial payment of the Exercise Price shall be valued at the Fair Market Value on the date of exercise. Exercise of an Option shall not be effective until the Company has received written notice of exercise. Such notice must specify the number of whole shares to be purchased and be accompanied by payment in full of the aggregate Exercise Price for the number of shares purchased. The Company shall not in any case be required to sell, issue, or deliver a fractional share with respect to any Option.

(f) Nontransferability of Option . No Option shall be transferable or assignable by an Optionee otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of ERISA, or the rules thereunder. Each Option shall be exercisable, during the Optionee’s lifetime, only by such Optionee. No Option shall be pledged or hypothecated in any way and no Option shall be subject to execution, attachment, or similar process except with the express consent of the Ineligible Directors.

(g) Termination of Directorship . Upon an Optionee’s Termination of Directorship, such Optionee’s Option privileges shall be limited to the shares which were immediately purchasable by such Optionee at the date of such Termination of Directorship, and such Option privileges shall expire unless exercised by such Optionee on or before the second annual anniversary date of the date of such Termination of Directorship. The granting of an Option to an eligible person does not alter in any way the rights of the Company, the Board or shareholders to remove such person as a director or officer at any time or for any reason allowable under the law or the Company’s Articles of Incorporation or Bylaws, nor does it confer upon such person any rights or privileges except as specifically provided for in the Plan.

(h) Death of Optionee . If an Optionee dies while such Optionee is a member of the Board, such Optionee’s Option to purchase the total number of shares covered by the applicable Option Agreement shall thereupon become fully exercisable and shall remain exercisable by the Optionee’s Successor until the close of business on the first annual anniversary date of the Optionee’s death, at which time they shall expire.

7. Adjustments .

(a) In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares, or dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Ineligible Directors in the number and kind of shares for the purchase of which Options may be granted under the Plan. In addition, the Ineligible Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding Options, or portions thereof then unexercised, shall be exercisable, to the end that the proportionate interest of the holder of the Option shall, to the extent practicable, be maintained as before the occurrence of such event. Such adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the Option price per share.

(b) In the event that the Board shall adopt resolutions recommending the dissolution or liquidation of the Company, any Option granted under the Plan shall terminate as of a date to be fixed by the Ineligible Directors, provided that not less than thirty (30) days’ written notice of the date so fixed shall be given to each Optionee and each such Optionee shall have the right during such period to exercise his Option as to all or any part of the shares covered thereby, including shares as to which such Option would not otherwise be exercisable by reason of an insufficient lapse of time.

(c) In the event of a Reorganization (as hereinafter defined) in which the Company is not the surviving or acquiring company, or in which the Company is or becomes a wholly owned Subsidiary of another company after the effective date of the Reorganization, then

(i) If there is no plan or agreement respecting the Reorganization (“Reorganization Agreement”) or if the Reorganization Agreement does not specifically provide for the change, conversion or exchange of the shares under outstanding and unexercised stock options for securities of another corporation, then the Ineligible Directors shall take such action, and the Options shall terminate, as provided in subparagraph (b) of this Paragraph 7; or

(ii) If there is a Reorganization Agreement and if the Reorganization Agreement specifically provides for the change, conversion, or exchange of the shares under outstanding and unexercised stock options for securities of another corporation, then the Ineligible Directors shall adjust the shares under such outstanding and unexercised stock options (and shall adjust the shares remaining under the Plan which are then available to be optioned under the Plan, if the Reorganization Agreement makes specific provision therefor) in a manner not inconsistent with the provisions of the Reorganization Agreement for the adjustment, change, conversion, or exchange of such stock and such Options.

(d) The term “Reorganization” as used in subparagraph (c) of this Paragraph 7 shall mean any statutory merger, statutory consolidation, sale of all or substantially all of the assets of the Company, or sale, pursuant to an agreement with the Company, of securities of the Company pursuant to which the Company is or becomes a wholly owned subsidiary of another company after the effective date of the Reorganization.

(e) Adjustments and determinations under this Paragraph 7 shall be made by the Ineligible Directors, whose decisions shall be final, binding, and conclusive.

8. Restrictions on Issuing Shares . The exercise of each Option shall be subject to the condition that if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Without limiting the foregoing, the Company will not be obligated to sell any Shares hereunder unless the Shares are at the time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and applicable state securities laws. The Optionee shall make such investment representations to the Company and shall consent to the imposition of such legends on the stock certificates as are necessary, in the opinion of the Company’s counsel, to secure to the Company an appropriate exemption from applicable securities laws.

9. Use of Proceeds . The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of Options granted under the Plan shall be added to the Company’s general funds and used for general corporate purposes.

10. Amendment, Suspension, and Termination of Plan .

(a) The Board shall have the power to amend, suspend or terminate the Plan at any time subject to the other paragraphs of this paragraph 10, and provided

that the provisions of paragraphs 3(b) and 3(c) of this Plan shall not be amended more than once every six months, other than to comport with changes in the Code, ERISA or the rules thereunder.

(b) The Board may not, without the relevant Optionee’s written consent, modify the terms and conditions of an Option previously granted under the Plan.

(c) No amendment, suspension or termination of the Plan shall, without the Optionee’s written consent, alter, terminate or impair any right or obligation under any Option previously granted under the Plan.

Exhibit 10.13

TEAM, INC.

1998 INCENTIVE STOCK OPTION PLAN

(as amended through June 24, 2004)

The following Team, Inc. 1998 Incentive Stock Option Plan (the “Plan”) has been adopted by the Board of Directors of Team, Inc. effective beginning on January 29, 1998 subject to approval by the shareholders of the Company no later than twelve months following the adoption by the Board.

1. Purpose . The Plan is intended to advance the interests of Team, Inc. (the “Company”), its shareholders, and its subsidiaries by encouraging and enabling selected key employees of the Company upon whose judgment, initiative and effort the Company is largely dependent for the successful conduct of its business, to acquire and/or increase and retain a proprietary interest in the Company by ownership of its stock.

2. Definitions .

(a) “Act” means the Securities Exchange Act of 1934, as amended.

(b) “Affiliates” means, except to the extent otherwise not permitted under Section 424(f) of the Code, any one or more corporations which are members of a “parent-subsidiary controlled group” as such term is defined in Section 1563(a)(1) of the Code, except that “at least 50 percent” shall be substituted for “at least 80 percent” each place it appears in Section 1563(a)(1) of the Code.

(d) “Code” means the Internal Revenue Code of 1986, as amended.

(e) “Committee” means the Compensation Committee, or such other committee as designated by the Board of Directors, vested with authority for administration of the Plan by the Board pursuant to Paragraph 3.

(f) “Common Stock” means the Company’s $0.30 par value common stock.

(g) “Date of Grant” means the date on which an Option is granted under the Plan.

(h) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(i) “Exercise Price” means the value per share of Common Stock that is equal to one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the last date preceding the Date of Grant on which sales of the Common Stock occurred on the American Stock Exchange or other primary market or exchange on which the Common Stock traded.

(j) “Fair Market Value” means the closing price of the Common Stock reported on the composite tape or other reporting medium (for securities listed on the American Stock Exchange or other primary market or exchange on which the Common Stock is traded) as of the relevant date; provided, however, that if the Common Stock does not trade on the relevant date, such price shall be determined based upon the closing price of the Common Stock on the next preceding date on which trades occurred; and provided further, however, that should the primary market or exchange on which the Common Stock is traded adopt a continuous twenty-four hour trading policy, “Fair Market Value” for purposes of this Plan shall mean the price of the Common Stock on the last trade prior to 4:30 p.m., New York time, on any relevant date.

(k) “Option” means an option granted under the Plan.

(l) “Optionee” means a person to whom an Option, which has not expired, has been granted under the Plan.

(n) “Term of Plan” means that period which commences January 29, 1998, and terminates on January 28, 2008, or such earlier date as the Board hereafter determines.

(o) “Termination of Employment” of an Optionee means the cessation of such Optionee’s relationship as an employee of the Company or Affiliate (for federal tax purposes).

3. Administration of Plan . The Plan shall be administered by the Committee of two or more members. The Committee shall report all action taken by it to the Board. Except when the Board determines otherwise, the Committee shall consist of the members of the Compensation Committee of the Board of Directors. All members of the Committee shall qualify as both “non-employee directors,” as defined in Rule 16b-3(b)(3) promulgated under the Act and “outside directors” within the meaning of Section 162(m) of the Code. The Committee shall have full and final authority in its discretion, subject to the provisions of the Plan, to determine the key employees to whom and the time or times at which Options shall be granted and the number of shares of Common Stock covered by each Option; to construe and interpret the Plan; to determine and interpret the terms and provisions of the respective option agreements, which need not be identical as between Optionees, including, but without limitation, terms covering the payment of the Option price; and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations shall be conclusively binding for all purposes and upon all persons.

4. Common Stock Subject to Options . The aggregate number of shares of the Company’s Common Stock which may be issued upon the exercise of Options granted under the Plan shall not exceed 1,500,000, subject to adjustment under the provisions of Paragraph 7. The shares of Common Stock to be issued upon the exercise of Options may be authorized but unissued shares, shares issued and reacquired by the Company or shares bought on the market for the purposes of the Plan. In the event any Option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, the shares subject to such Option but not purchased thereunder shall again be available for Options to be granted under the Plan.

5. Participants . Options may be granted under the Plan to any person who is a key employee of the Company or Affiliate selected by the Committee for participation in this Plan.

6. Option Agreements . Any Option granted under this Plan shall be evidenced by an agreement (“Option Agreement”), which shall be approved as to form and substance by the Committee. Each such Option Agreement shall be executed by an officer of the Company and the applicable Optionee. All Options and Option Agreements granted under the provisions of this Plan shall be subject to the following limitations and conditions:

(a) Option Price . The Option price per share with respect to each Option shall be the Exercise Price.

(b) Period of Option . The expiration date of each Option shall be fixed by the Committee at the Date of Grant, subject to subsequent extension from time to time by the Committee, but in no event shall the expiration date be fixed on or extended to a date which is later than ten years from the Date of Grant.

(c) Holding Period . No Common Stock issued pursuant to exercise of an Option granted pursuant to this Plan may, unless the Committee determines otherwise, be sold, transferred, assigned or otherwise disposed of within six months following the Date of Grant of the Option. However, for purposes of a qualifying disposition under Section 422 of the Code, such Common Stock should not be

disposed of within two years following such Date of Grant or one year following the issuance of such Common Stock.

(d) Shareholder Rights . Neither an Optionee nor his Successor shall have any of the rights of a shareholder of the Company by reason of holding an Option, and such shareholder rights will not exist until the certificates evidencing the shares of Common Stock purchased under the Option are properly delivered to such Optionee or his Successor.

(e) Exercise of Option . Each Option shall be exercisable from time to time over a period commencing on the Date of Grant and ending upon the expiration or termination of the Option; provided, however, the Committee may, by the provisions of any Option Agreement, postpone in whole or in part the vesting or exercisability of the Option and limit the number of shares purchasable thereunder in any period or periods of time during which the Option is exercisable. Payment of the Exercise Price for shares of Stock purchased under this Plan shall be made in full and in cash or by certified or cashier’s check made payable to the Company or a combination thereof. However, the Committee in its discretion may allow payment for shares of Stock purchased under any Option or limited part thereof to be made in whole or in part in Common Stock which has been owned by the Optionee for any period prescribed by the Committee prior to the exercise. In the event that Common Stock is utilized in consideration for the purchase upon the exercise of an Option, then such Common Stock shall be valued at the Fair Market Value on the date of exercise. Exercise of an Option shall not be effective until the Company has received written notice of exercise. Such notice must specify the number of whole shares to be purchased and be accompanied by payment in full of the aggregate Exercise Price for the number of shares purchased. The Company shall not in any case be required to sell, issue, or deliver a fractional share with respect to any Option.

(f) Nontransferability of Option . No Option shall be transferable or assignable by an Optionee, otherwise than by will or the laws of descent and distribution. Each Option shall be exercisable, during the Optionee’s lifetime, only by such Optionee. No Option shall be pledged or hypothecated in any way and no Option shall be subject to execution, attachment, or similar process.

(g) Termination of Employment . Except as provided in subparagraph (h) below, upon an Optionee’s Termination of Employment his Option privileges shall be limited to the shares which were immediately purchasable by him at the date of such termination, and such Option privileges shall be exercisable by such Optionee for three months after the date of such termination, at which time such Option shall expire. The Committee may, by the terms of the Option Agreement, provide for a longer period of six months instead of the three months provided in the preceding sentence for longer term employees. The granting of an Option to an eligible person does not alter in any way the Company’s existing rights to terminate such person’s employment at any time for any reason, nor does it confer upon such person any rights or privileges except as specifically provided for in the Plan.

(h) Death of Optionee . If an Optionee dies while in the employ of the Company, such Optionee’s Option to purchase the total number of the shares covered by the applicable Option Agreement shall thereupon become fully exercisable and shall remain exercisable by the Optionee’s Successor until the close of the business day on or immediately preceding the first annual anniversary date of the Optionee’s death, at which time such Option shall expire.

(i) Additional Limitations for Incentive Stock Options . Options to be granted under the Plan are intended to qualify as “incentive stock options” as defined in Section 422 of the Code. No Options shall be granted to any Participant who is not eligible to receive incentive stock options as provided in Section 422 of the Code. No Options shall be granted to any Participant if, immediately before the grant of an Option, such Participant owns more than 10% of the total combined voting power of all classes of stock of the Company or its Affiliates (as determined in accordance with the stock attribution rules contained in Section 424(d) of the Code). Provided, the preceding sentence shall not apply if at the time the Option is granted, the Option Price is increased to an amount equal to 110 percent of the Fair Market Value and such Option by its terms is not exercisable after the expiration of five years from the date such Option is granted. The aggregate Fair Market Value (determined as of the time the Option is granted) of the Stock with respect to which Options are exercisable for the first time by any Participant during any calendar year (under all incentive stock option plans qualified under Section 422 of the Code sponsored by the Company or any Affiliate) shall not exceed $100,000.00.

7. Adjustments .

(a) In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares, or dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Committee in the number and kind of shares for the purchase of which Options may be granted under the Plan. In addition, the Committee shall make appropriate adjustment in the number and kind of shares as to which outstanding Options, or portions thereof then unexercised, shall be exercisable, to the end that the proportionate interest of the holder of the Option shall, to the extent practicable, be maintained as before the occurrence of such event. Such adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the Option price per share.

such Optionee shall have the right during such period to exercise his Option as to all or any part of the shares covered thereby, including shares as to which such Option would not otherwise be exercisable by reason of an insufficient lapse of time.

(c) In the event of a Reorganization (as hereinafter defined) in which the Company is not the surviving or acquiring company, or in which the Company is or becomes a wholly owned subsidiary of another company after the effective date of the Reorganization, then

(i) If there is no plan or agreement respecting the Reorganization (“Reorganization Agreement”) or if the Reorganization Agreement does not specifically provide for the change, conversion or exchange of the shares under outstanding and unexercised stock options for securities of another corporation, then the Committee shall take such action, and the Options shall terminate, as provided in subparagraph (b) of this Paragraph 7; or

(ii) If there is a Reorganization Agreement and if the Reorganization Agreement specifically provides for the change, conversion, or exchange of the shares under outstanding and unexercised stock options for securities of another corporation, then the Committee shall adjust the shares under such outstanding and unexercised stock options (and shall adjust the shares remaining under the Plan which are then available to be optioned under the Plan, if the Reorganization Agreement makes specific provision therefor) in a manner not inconsistent with the provisions of the Reorganization Agreement for the adjustment, change, conversion, or exchange of such stock and such Options.

(e) Adjustments and determinations under this Paragraph 7 shall be made by the Committee, whose decisions shall be final, binding, and conclusive.

thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Without limiting the foregoing, the Company will not be obligated to sell any Shares hereunder unless the Shares are at the time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and applicable state securities laws. The Optionee shall make such investment representations to the Company and shall consent to the imposition of such legends on the stock certificates as are necessary, in the opinion of the Company’s counsel, to secure to the Company an appropriate exemption from applicable securities laws.

10. Amendment, Suspension, and Termination of Plan .

(a) The Board shall have complete discretionary authority and power to amend, suspend or terminate the Plan at any time, subject to the following provisions:

(b) An amendment increasing the number of shares of Common Stock provided in Paragraph 4 above, may not be made without shareholder approval.

(c) The Board may not, without the relevant Optionee’s written consent, modify the terms and conditions of an Option previously granted under the Plan.

(d) No amendment, suspension or termination of the Plan shall, without the relevant Optionee’s written consent, alter, terminate or impair any right or obligation under any Option previously granted under the Plan.

(e) Unless previously terminated, the Plan shall terminate with respect to the issuance of any new Options, and no more Options may be granted after January 28, 2008. The Plan shall continue in effect with respect to Options granted before termination of the Plan until such Options have been settled, terminated, or forfeited.

Exhibit 10.21

TEAM, INC.

2004 RESTRICTED STOCK OPTION AND AWARD PLAN

The following Team, Inc. 2004 Restricted Stock Option and Award Plan (the “Plan”) has been adopted by the Board of Directors of Team, Inc. to be effective as of June 24, 2004, subject to approval by the shareholders of Team, Inc. holding at least a majority of the shares voted at a meeting at which a quorum is present.

1. Purpose . The Plan is intended to advance the interests of Team, Inc. (the “Company”), its subsidiaries and its shareholders by encouraging and enabling selected employees, officers, directors, consultants and advisors of the Company or an Affiliate of the Company, upon whose judgment, initiative and effort the Company will depend for the successful conduct of its business, to acquire and/or increase and retain a proprietary interest in the Company by ownership of its stock.

2. Definitions .

(a) “Act” means the Securities Exchange Act of 1934, as amended.

(b) “Affiliate” means any one or more corporations which are members of a “parent-subsidiary controlled group” as such term is defined in Section 1563(a)(1)(A) of the Code, except that “at least 50 percent” shall be substituted for “at least 80 percent” each place it appears in Section 1563(a)(1)(A) of the Code.

(d) “Awardee” means a person to whom an Award has been granted under the Plan.

(e) “Board” means the Board of Directors of the Company.

(f) “Code” means the Internal Revenue Code of 1986, as amended.

(g) “Committee” means the Compensation Committee, or such other committee as designated by the Board of Directors, vested with authority for administration of the Plan by the Board pursuant to Section 3.

(h) “Common Stock” means the Company’s $0.30 par value Common Stock.

(i) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(j) “Option” means an option granted under the Plan.

(k) “Optionee” means a person to whom an Option, which has not expired, has been granted under the Plan.

(l) “Successor” means the legal representative of the estate of a deceased Optionee or Awardee or the person who acquires the right to exercise an Option or own an Award by bequest or inheritance or by reason of the death of any Optionee or Awardee.

(m) “Term of Plan” means that period which commences June 24, 2004, and terminates on June 23, 2014, or such earlier date as the Board hereafter determines.

(n) “Termination of Relationship” of an Optionee or Awardee means the cessation of such Optionee’s relationship with the Company that qualified him for an Option or an Award for any reason; provided however, that if an Optionee or Awardee is both a director and officer of the Company, it shall mean such date as such person ceases to be both an officer and director.

3. Administration of Plan . The Plan shall be administered by the Committee. Except as otherwise determined by the Board, the Committee shall consist of the members of the Compensation Committee of the Board of Directors. The Committee shall report all action taken by it to the Board. Except as provided below, members of the Committee shall not be eligible to receive Options or stock options, stock appreciation rights, awards or an allocation of stock under any plan of the Company or its Affiliates while they are serving as members of the Committee. Committee members who are non-employee directors may participate in a separate stock option plan and stock award plan provided that such plan is limited to non-employee directors and there is no discretion as to which directors can participate in the plan or the amount of options or awards that can be acquired by or allocated to them. The Committee shall have the responsibility, subject to the provisions of the Plan, to recommend to the Board the persons to whom, and the time at which, Options and Awards may be granted, and the number of shares of Common Stock covered by each Option or Award; to construe and interpret the Plan; to recommend the terms and provisions of the respective Option or Award agreements, which need not be identical, including, but without limitation, terms covering the payment of the Option price and conditions of the Award; and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All actions of the Committee are subject to approval or revision by the Board, and all Options and Awards recommended to be granted by the Committee shall be approved by the Board before issuance.

4. Common Stock Subject to Options and Awards . The aggregate number of shares of the Company’s Common Stock which may be issued upon the exercise of Options or under Awards granted under the Plan shall not exceed 100,000, subject to adjustment under the provisions of Paragraph 8 and subject to the right of the Board to increase the number of shares which may be issued hereunder by amendment to the Plan. The shares of Common Stock to be issued for Awards or upon the exercise of Options may be authorized but unissued shares, shares

issued and reacquired by the Company or shares bought on the market for the purposes of the Plan. In the event any Option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, or any Award shall not vest or the shares thereunder be forfeited, the shares subject to such Option or Award shall again be available for Options or Awards to be granted under the Plan.

5. Participants . Options and Awards may be granted under the Plan to any person who is an employee, officer, director, consultant or advisor of the Company.

6. Option Agreements . Any Option granted under this Plan shall be evidenced by an agreement (“Option Agreement”), which shall be approved as to form and substance by the Committee and the Board. Each such Option Agreement shall be executed by an officer of the Company and the applicable Optionee. All Options and Option Agreements granted under the Plan shall be subject to the following limitations and conditions:

(a) Option Price . The option price per share (“Option Price”) means the price at which Common Stock may be purchased under the Option and such price with respect to each Option shall be recommended by the Committee and approved by the Board.

(b) Period of Option . The expiration date of each Option shall be fixed by the Committee at the date of grant, subject to subsequent extension from time to time by the Committee, but in no event shall the expiration date be fixed on or extended to a date which is later than ten years from the date of grant.

(c) Shareholder Rights . Neither an Optionee nor his Successor shall have any of the rights of a shareholder of the Company by reason of holding an Option, and shareholder rights will only vest when the certificates evidencing the shares purchased under an Option are properly issued to such Optionee or his Successor.

(d) Exercise of Option . Each Option shall be exercisable at the times set forth in each Option Agreement. Payment of the Option Price for shares of stock purchased by exercise of an Option under this Plan shall be made in cash or by certified or cashier’s check made payable to the Company or a combination thereof. However, the Committee in its discretion may allow payment of the Option Price to be made in whole or in part in Common Stock owned by the Optionee or due to the Optionee upon exercise of the Option. In the event that Common Stock is utilized in payment of the Option Price, then such Common Stock shall be valued at the closing price reported in the principal public trading market for the Common Stock on the date of exercise. Exercise of an Option shall not be effective until the Company has received written notice of exercise. Such notice must specify the number of whole shares to be purchased and be accompanied by payment in full of the aggregate Option Price for the number of shares purchased. The Company shall not in any case be required to sell, issue, or deliver a fractional share with respect to any Option.

(e) Non-Transferability of Option . No Option shall be transferable or assignable by an Optionee, otherwise than by will or the laws of descent and distribution

or pursuant to a qualified domestic relations order as defined in the Code or Title I of ERISA, or the rules thereunder. Each Option shall be exercisable, during the Optionee’s lifetime, only by him. No Option shall be pledged or hypothecated in any way and no Option shall be subject to execution, attachment, or similar process except with the express consent of the Committee.

(f) Termination of Relationship with Company . Upon an Optionee’s Termination of Relationship as defined above, his Option rights shall be as set forth in his Option Agreement. The granting of an Option to an eligible person does not alter in any way the Company’s existing rights to terminate such person’s employment or other relationship with the Company at any time for any reason, nor does it confer upon such person any rights or privileges except as specifically provided for in the Plan or Option Agreement.

7. Award Agreements . Any Award granted under this Plan shall be evidenced by an agreement (“Award Agreement”) which shall be approved in form and substance by the Committee and the Board. Each Award Agreement shall be executed by an officer of the Company and the applicable Awardee. Awards shall be granted in accordance with the following:

(a) Terms and Conditions . Each Award shall have such terms and conditions as the Committee and Board shall provide in the Award Agreement in their discretion.

(b) Vesting . In the terms of an Award Agreement, the Committee and Board may include such vesting terms and conditions of an Award as they shall deem appropriate, and they may include terms of forfeiture of shares received under an Award under circumstances as may be set forth in the Award Agreement.

(c) Non-Transferability . An Award and any interest therein, shall not be transferable or assignable prior to full, unqualified ownership of the Common Stock granted under the Award vesting in the Awardee, and/or the expiration of any period of forfeiture, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of ERISA or the rules thereunder.

(d) Shareholder Rights . An Awardee shall not be a shareholder of any Common Stock under an Award or have any rights as a shareholder until certificates representing such stock are properly issued to such Awardee.

(e) Termination of Relationship with Company . The granting of an award shall not alter in any way the Company’s existing rights to alter or terminate the Company’s relationship with the Awardee except as may be specifically set forth in the Award Agreement.

8. Adjustments .

(a) In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares, or dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Committee in the number and kind of shares for the purchase of which Options may be granted under the Plan, and for Award shares not vested or still subject to forfeiture under an Award (“Conditional Award”). In addition, the Committee shall make appropriate adjustment in the number and kind of shares as to which outstanding Conditional Awards shall vest and Options, or portions thereof then unexercised, shall be exercisable, to the end that the proportionate interest of the holder of the Option or Award shall, to the extent practicable, be maintained as before the occurrence of such event. Such adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the Option Price per share.

(b) In the event that the Board shall adopt resolutions recommending the dissolution or liquidation of the Company, any Option granted under the Plan shall terminate as of a date to be fixed by the Committee, provided that not less than thirty (30) days’ written notice of the date so fixed shall be given to each Optionee and each such Optionee shall have the right during such period to exercise his Option as to all or any part of the shares covered thereby, including shares as to which such Option would not otherwise be exercisable by reason of an insufficient lapse of time. The Award Agreements shall provide for the effects on a Conditional Award of such an event.

(i) If there is no plan or agreement respecting the Reorganization (“Reorganization Agreement”) or if the Reorganization Agreement does not specifically provide for the change, conversion or exchange of the shares under outstanding Conditional Awards and unexercised Options for securities of another corporation, then the Committee shall take such action, and the Options shall terminate, as provided in subparagraph (b) of this Paragraph 8; or

(ii) If there is a Reorganization Agreement and if the Reorganization Agreement specifically provides for the change, conversion, or exchange of the shares under outstanding and unexercised Options or Conditional Awards for securities of another corporation, then the Committee shall adjust the shares under such outstanding and unexercised Options or Conditional Awards (and shall adjust the shares remaining under the Plan which are then available to be optioned or awarded under the Plan, if the Reorganization Agreement makes specific provision therefor) in a manner not inconsistent with the provisions of the

Reorganization Agreement for the adjustment, change, conversion, or exchange of such stock and such Options and Conditional Awards.

(d) The term “Reorganization” as used in subparagraph (c) of this Paragraph 8 shall mean any statutory merger, statutory consolidation, sale of all or substantially all of the assets of the Company, or sale, pursuant to an agreement with the Company, of securities of the Company pursuant to which the Company is or becomes a wholly owned subsidiary of another company after the effective date of the Reorganization.

(e) Adjustments and determinations under this Paragraph 8 shall be made by the Committee, subject to approval by the Board.

9. Restrictions on Issuing Shares . The exercise of each Option and granting of Awards shall be subject to the condition that if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, an Option exercise and Award grant shall not be effective unless such withholding, listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Without limiting the foregoing, the Company will not be obligated to sell any Shares under an Option or grant an Award unless the Shares are at that time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and applicable state securities laws. The Optionee and Awardee shall make such investment representations to the Company and shall consent to the imposition of such legends on the stock certificates as are necessary, in the opinion of the Company’s counsel, to secure to the Company an appropriate exemption from registration under applicable securities laws if such an exemption is necessary.

10. Use of Proceeds . The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of Options granted under the Plan shall be added to the Company’s general funds and used for general corporate purposes.

11. Amendment, Suspension, and Termination of Plan .

(a) The Board shall have complete discretionary authority and power to amend, suspend or terminate the Plan at any time, subject to the following provisions.

(b) The Board may not, without the relevant Optionee’s or Awardee’s written consent, modify the terms and conditions of an Option or Award previously granted under the Plan.

(c) Except as may be provided in Section 8, no amendment, suspension or termination of the Plan shall, without the relevant Optionee’s or Awardee’s written

consent, alter, terminate or impair any right or obligation under any Option or Award previously granted under the Plan.

(d) Unless previously terminated, the Plan shall terminate with respect to the issuance of any new Options or Awards on, and no more Options or Awards may be granted after, June 23, 2014. The Plan shall continue in effect with respect to Options and Awards granted before termination of the Plan until such Options and Awards have been settled, terminated, or forfeited.

Exhibit 10.22

July 30, 2004

Mr. Emmett J. Lescroart

280 Cherry Valley Rd.

Princeton N.J. 08540-7600

Re: Consulting Agreement

Dear Emmett:

The purpose of this letter is to set forth the terms and conditions by which you have agreed to serve as a consultant to Team, Inc. (“Team”) and those subsidiary corporations of Team, that engage in the business of rendering field heat treating services (the “Heat Treating Business”).

BACKGROUND

At the present time, the only Team subsidiary that is engaged in the Heat Treating Business is Thermal Solutions, Inc.; a company of which you were the Lead Director and a shareholder prior to its acquisition by Team. A new Team subsidiary by the name of TEAMCOOPERHEAT-MQS, INC., (herein, “Team-Cooperheat”) will purchase substantially all of the operating assets of Cooperheat-MQS, Inc., at a closing to be held on or about August 10, 2004. Team-Cooperheat will immediately thereafter commence to engage in the Heat Treating Business. The Team subsidiaries (the “Heat Treating Subsidiaries”) that thereafter engage in the Heat Treating Business will be classified for organizational purposes as the “Heat Treating Division”.

AGREEMENT

1. Engagement . You will throughout the term of your consulting engagement advise Team’s Chief Executive Officer, Team’s Chief Operating Officer and the officers of the Heat Treating Subsidiaries with respect to all aspects of managing and operating the Heat Treating Subsidiaries including but not limited to marketing, personnel, strategic planning, product and service development, quality control, and budgeting. In addition, you will be available at reasonable times to consult with and advise Team’s senior officers and directors with respect to the Heat Treating Subsidiaries.

2. Compensation-Expense Reimbursements . For the services that you will render pursuant to this consulting agreement you will be compensated and reimbursed as follows:

(a) Base Fee-Invoices . You will be paid nine hundred dollars ($900) for each day that you render consulting services pursuant to this consulting agreement. You will submit your invoices to Team for your Base Fees and for the expenses described in item 2(d) as promptly as practical after the close of each month. Your invoices will be processed by Team for payment promptly after receipt thereof.

(b) Discretionary Incentive Bonus . You will receive consideration for periodic performance bonuses based upon the quality of your performance as a consultant as determined in

the sole and absolute discretion of the Heat Treating Subsidiaries and/or pursuant to the provisions of any formal or informal bonus plan that is hereafter adopted by the Heat Treating Subsidiaries

(c) Options to Acquire Team Stock . Senior Management will recommend to the Team Board of Directors (“Board”) that effective as of the date of the closing (“Closing”) of the purchase by Team-Cooperheat-MQS, Inc., of the assets of Cooper heat- MQS, Inc., that you be granted an option (“Option”) pursuant to Team’s 2004 Restricted Stock Option Plan (the “Option Plan”) to purchase 20,000 shares of Team common stock. The exercise price for the option will be the closing price of Team’s common stock as of the date of the Closing. The Option will be subject to the approval of the Board on or before the date of the Closing and the approval of the Option Plan by the Team Shareholders at the 2004 Team annual shareholders’ meeting next month. We are confident that both approvals will be forthcoming. The Option shall have a ten year term but will automatically sooner terminate (i) on the first annual anniversary date of your death or (ii) on the second annual anniversary date of the date that you are no longer either a director of Team or a consultant pursuant to the provisions of this consulting agreement or (iii) in the event that you breach any of your covenants to Team in any agreement with Team including, without limitation the Stock Purchase Agreement dated April 1, 2004 between Team and the former Shareholders of Thermal Solutions, Inc., and others. The Option will be evidenced by a separate Option Agreement that will be dated as of the date of the Closing. The Option will become twenty five percent (25%) vested as of each of the four annual anniversary dates of the Closing. That is to say, the Option may be exercised with respect to 5,000 shares as of the first annual anniversary date of the Closing and for an additional 5,000 shares on each of the three subsequent annual anniversary dates of the Closing subject to the early termination provisions referred to above. The Option will be nontransferable except in the event of your death.

(d) Expense Reimbursements . You will be reimbursed for all such travel and other direct expenses that you reasonably incur in carrying out your duties under this consulting agreement.

3. Devotion of Time . You will not be required to maintain office hours nor to work for any predetermined number of hours or days nor to work at any specific location. The amount of time that you expend pursuant to this consulting agreement shall be determined from time to time by mutual agreement between you and senior management of the Heat Treating Subsidiaries.

4. Independent Contractor-Responsibility for Tax . You acknowledge and understand that you will be acting hereunder as an independent contractor and not as an officer or employee of Team or the Heat Treating Subsidiaries. Taxes will not be withheld and you acknowledge that except as specifically provided in this consulting agreement, you are not entitled to participate in any Team benefit plans, deferred compensation plans, health, life or disability plans or any other fringe benefits that employees of Team and/or its subsidiaries may be eligible to receive. You further agree that you will be responsible for making all federal, state and local tax deposits relating to your compensation pursuant to this consulting agreement and that you will hold Team and its subsidiaries harmless from any and all tax liability related thereto.

5. Limitation on Authority . You acknowledge that you are not authorized to bind Team or the Heat Treating Subsidiaries to any obligations or to execute any agreements or other documents on their behalf.

6. Term . The term of this consulting agreement is “at will” meaning that either party hereto may terminate this agreement without cause at any time upon written notice to the other. For purposes of fees and expense reimbursements pursuant to Items 2(a) and (d) respectively, this consulting agreement commenced as of July 1, 2004 and for all other purposes it will commence as of the date of the Closing.

7. No Effect On Board Membership or Other Agreements . This consulting agreement has no bearing whatsoever on your nomination as a director of Team that shall be voted upon at the September 2004 Shareholders’ meeting or upon any of the other agreements between you and Team.

8. Applicable Laws . This Agreement shall be interpreted, construed and governed by the laws of the State of Texas.

Please indicate your agreement with the provisions of this consulting agreement by signing in the place indicated below.


Very truly yours,

Team, Inc.

By:		/S/ Philip J. Hawk

I agree to the terms and conditions set forth above on this the 30th day of July, 2004.

/S/ Emmett Lescroart

EXHIBIT 21

SUBSIDIARIES OF REGISTRANT


COMPANY		JURISDICTION / STATE OF INCORPORATION
Team, Inc.		Texas
Teaminc. Europe		The Netherlands
Team Investment, Inc.		Delaware
Team Facilities & Services, L.P.		Texas
Team Industrial Services, Inc.		Texas
Team Industrial Services Trinidad Ltd.		Trinidad, West Indies
Thermal Solutions, Inc.		Colorado
Team Industrial Services of Canada, Inc.		Delaware
Team Industrial Services of Canada, ULC		Canada
Team Cooperheat-MQS, Inc.		Texas
Leak Repairs, Inc.		Delaware
First American Capital Corporation		Texas
Team Industrial Services Asia Pte. Ltd.		Singapore
Climax Portable Machine Tools, Inc.		Oregon
X-Ray Inspection Services, Inc.		Louisiana

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Team, Inc.:

We consent to the incorporation by reference in the registration statements (No. 33-74382, No. 33-88684, No. 333-30003,
No. 333-72329, No. 333-74060, No. 333-72331, No. 333-74070, No. 333-74062, No. 333-29997 and No. 333-74068) on Form S-8 of Team, Inc. of our report dated July 14, 2004, except as to note 15, which is as of August 11, 2004, relating to the consolidated balance sheets of Team, Inc. and subsidiaries as of May 31, 2004 and 2003, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended May 31, 2004, and all related financial statement schedules, which report appears in the May 31, 2004 annual report on Form 10-K of Team, Inc. The audit report covering the May 31, 2004 financial statements refers to the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” as of June 1, 2002.

KPMG LLP

Houston, Texas

August 25, 2004

Exhibit 31.1

I, Philip J. Hawk, certify that:

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

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

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

4. Team’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. Team’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: August 25, 2004

/s/ PHILIP J. HAWK

Philip J. Hawk

Chairman and Chief Executive Officer

Exhibit 31.2

I, Ted W. Owen, certify that:

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: August 25, 2004

/s/ Ted W. Owen

Ted W. Owen

Senior Vice President—Finance and Administration

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Team, Inc. (the Company) on Form 10-K for the period ending May 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Phillip J. Hawk, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

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

(2)

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

Philip J. Hawk

Chairman and Chief Executive Officer

August 25, 2004

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Team, Inc. (the Company) on Form 10-K for the period ending May 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Ted W. Owen, Senior Vice President – Finance and Administration of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

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

(2)

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

Ted W. Owen

Senior Vice President—Finance and Administration

August 25, 2004