TESO.10Q.Q2.2014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the Quarterly Period Ended June 30, 2014


o	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: 001-34090

Tesco Corporation

(Exact name of registrant as specified in its charter)



Alberta	76-0419312
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
3993 West Sam Houston Parkway North Suite 100 Houston, Texas	77043-1221
(Address of Principal Executive Offices)	(Zip Code)

713-359-7000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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



Large Accelerated Filer o	Accelerated Filer x	Non-Accelerated Filer o	Smaller Reporting Company ¨

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Number of shares of Common Stock outstanding as of July 31, 2014: 40,085,792

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		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Use of Proceeds	24
Item 5.	Other Information	24
Item 6.	Exhibits	25

Below is a list of defined terms that are used throughout this document:



TESCO’s Casing Drive System		= CDS™ or CDS
TESCO’s Multiple Control Line Running System		= MCLRS™ or MCLRS

A list of our trademarks and the countries in which they are registered is presented below:



Trademark		Country of Registration
TESCO^®		United States, Canada
Casing Drive System™		United States, Canada
CDS™		United States, Canada
Multiple Control Line Running System™		United States, Canada
MCLRS™		United States, Canada

When we refer to “TESCO”, “we”, “us”, “our”, “ours”, or “the Company”, we are describing Tesco Corporation and our subsidiaries.

Caution Regarding Forward-Looking Information; Risk Factors

This report for the quarter ended June 30, 2014 ("Quarterly Report on Form 10-Q") contains forward-looking statements within the meaning of Canadian and United States securities laws, including the United States Private Securities Litigation Reform Act of 1995. From time to time, our public filings, press releases, and other communications (such as conference calls and presentations) will contain forward-looking statements. Forward-looking information is often, but not always, identified by the use of words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “forecast,” “target,” “project,” “may,” “will,” “should,” “could,” “estimate,” “predict,” or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements with respect to expectations of our prospects, future revenue, earnings, activities, and technical results.

Forward-looking statements and information are based on current beliefs as well as assumptions made by, and information currently available to, management concerning anticipated financial performance, business prospects, strategies, and regulatory developments. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date they were issued and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that outcomes implied by forward-looking statements will not be achieved. We caution readers not to place undue reliance on these forward-looking statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates, and intentions expressed in such forward-looking statements.

These risks and uncertainties include, but are not limited to, the impact of: changes in oil and natural gas prices; worldwide and domestic economic conditions on drilling activity and demand for and pricing of our products and services; other risks inherent in the drilling services industry (e.g. operational risks, potential delays or changes in customers’ exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to levels of rental activities, uncertainty of estimates and projections of costs and expenses, risks in conducting foreign operations, the consolidation of our customers, and intense competition in our industry); and risks associated with our intellectual property and with the performance of our technology. These risks and uncertainties may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. When relying on our forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.

Copies of our Canadian public filings are available through SEDAR at www.sedar.com. Our U.S. public filings are available through www.tescocorp.com and on EDGAR at www.sec.gov.

Please see Part I, Item 1A—"Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 Annual Report on Form 10-K”) and Part II, Item 1A—"Risk Factors" of this Quarterly Report on Form 10-Q for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor to assess the impact such risk factors might have on our business or the extent to which any factor or combination of risk factors may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TESCO CORPORATION

Condensed Consolidated Balance Sheets

(in thousands)



	June 30, 2014		December 31, 2013
Assets	(unaudited)
Current assets
Cash and cash equivalents	$	99,957	$	97,277
Accounts receivable trade, net of allowance for doubtful accounts of $3,415 and $3,006, respectively	132,899		142,584
Inventories, net	114,150		97,363
Income taxes recoverable	9,140		7,343
Deferred income taxes	6,096		6,483
Prepaid and other current assets	26,251		30,388
Total current assets	388,493		381,438
Property, plant, and equipment, net	205,098		204,908
Goodwill	34,401		32,732
Deferred income taxes	10,899		11,823
Intangible and other assets, net	7,235		6,778
Total assets	$	646,126	$	637,679
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long term debt	$	75	$	385
Accounts payable	45,593		45,566
Deferred revenue	15,024		21,289
Warranty reserves	2,038		2,393
Income taxes payable	4,282		5,863
Accrued and other current liabilities	29,609		35,489
Total current liabilities	96,621		110,985
Long term debt	—		27
Other liabilities	855		199
Deferred income taxes	8,736		9,494
Total liabilities	106,212		120,705
Commitments and contingencies (Note 11)	—		—
Shareholders’ equity
Common shares; no par value; unlimited shares authorized; 40,323 and 39,680 shares issued and outstanding, respectively	233,860		224,666
Retained earnings	270,553		256,807
Accumulated other comprehensive income	35,501		35,501
Total shareholders’ equity	539,914		516,974
Total liabilities and shareholders’ equity	$	646,126	$	637,679

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TESCO CORPORATION

Condensed Consolidated Statements of Income (Unaudited)

(in thousands, except per share information)



	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenue
Products	$	65,147		$	48,359		$	107,977		$	96,952
Services	79,959			80,609			158,527			159,112
	145,106			128,968			266,504			256,064
Operating expenses
Cost of sales and services
Products	47,605			36,661			82,299			74,849
Services	63,123			62,210			124,322			126,093
	110,728			98,871			206,621			200,942
Selling, general and administrative	13,344			13,754			27,278			26,501
Gain on sale of Casing Drilling	—			20			—			(1,464		)
Research and engineering	2,500			2,492			4,966			4,521
Total operating expenses	126,572			115,137			238,865			230,500
Operating income	18,534			13,831			27,639			25,564
Other expense (income)
Interest expense	229			405			918			(64		)
Interest income	(23		)	(31		)	(84		)	(54		)
Foreign exchange (gain) loss	(976		)	1,635			2,363			2,064
Other expense (income)	1			(964		)	7			(1,791		)
Total other expense (income)	(769		)	1,045			3,204			155
Income before income taxes	19,303			12,786			24,435			25,409
Income tax provision	6,563			2,557			8,678			6,344
Net income	$	12,740		$	10,229		$	15,757		$	19,065
Earnings per share:
Basic	$	0.32		$	0.26		$	0.39		$	0.49
Diluted	$	0.31		$	0.26		$	0.39		$	0.48
Dividends per share:
Basic	$	0.05		$	—		$	0.05		$	—
Weighted average number of shares:
Basic	40,175			38,988			39,963			38,960
Diluted	40,798			39,520			40,648			39,472

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TESCO CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



	Six Months Ended June 30,
	2014			2013
Operating Activities
Net income	$	15,757		$	19,065
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization	20,089			20,229
Stock compensation expense	2,789			3,309
Bad debt expense	3,517			572
Deferred income taxes	(831		)	(25		)
Amortization of financial items	76			152
Gain on sale of operating assets	(1,721		)	(5,126		)
Changes in operating assets and liabilities:
Accounts receivable trade, net	6,168			7,707
Inventories	(14,777		)	(507		)
Prepaid and other current assets	4,376			3,445
Accounts payable and accrued liabilities	(13,065		)	(8,131		)
Income taxes recoverable	(3,378		)	(9,536		)
Other noncurrent assets and liabilities, net	1,146			(2,206		)
Net cash provided by operating activities	20,146			28,948
Investing Activities
Additions to property, plant and equipment	(19,250		)	(16,912		)
Cash paid for acquisitions, net of cash acquired	(5,000		)	—
Proceeds on sale of operating assets	3,344			5,174
Proceeds on sale of Casing Drilling, net of transaction costs	—			6,067
Other, net	(237		)	830
Net cash used for investing activities	(21,143		)	(4,841		)
Financing Activities
Issuances of debt	—			9,000
Repayments of debt	(337		)	(9,157		)
Proceeds from exercise of stock options	6,025			151
Dividend distribution	(2,011		)	—
Net cash provided by (used for) financing activities	3,677			(6		)
Change in cash and cash equivalents	2,680			24,101
Net cash and cash equivalents, beginning of period	97,277			22,014
Net cash and cash equivalents, end of period	$	99,957		$	46,115
Supplemental cash flow information
Cash payments for interest	$	230		$	288
Cash payments for income taxes	12,831			16,578
Cash received for income tax refunds	138			888
Property, plant and equipment accrued in accounts payable	282			783

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TESCO CORPORATION

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands)



	Common stock shares	Common shares		Retained earnings			Accumulated other comprehensive income		Total
For the six months ended June 30, 2014
Balances at January 1, 2014	39,680	$	224,666	$	256,807		$	35,501	$	516,974
Net income	—	—		15,757			—		15,757
Dividend distribution	—	—		(2,011		)	—		(2,011		)
Stock compensation related activity	643	9,194		—			—		9,194
Balances at June 30, 2014	40,323	$	233,860	$	270,553		$	35,501	$	539,914

For the six months ended June 30, 2013
Balances at January 1, 2013	38,928	$	213,460	$	220,547		$	35,501	$	469,508
Net income	—	—		19,065			—		19,065
Stock compensation related activity	98	2,874		—			—		2,874
Balances at June 30, 2013	39,026	$	216,334	$	239,612		$	35,501	$	491,447

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TESCO CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1—Nature of Operations and Basis of Preparation

Nature of Operations

We are a global leader in the design, manufacture, and service delivery of technology-based solutions for the upstream energy industry. We seek to change the way wells are drilled by delivering safer and more efficient solutions that add value by reducing the costs of drilling for, and producing, oil and natural gas. Our product and service offerings consist mainly of equipment sales and services to drilling contractors and oil and natural gas operating companies throughout the world.

Basis of Presentation

We prepared this Quarterly Report on Form 10-Q pursuant to instructions for quarterly reports required to be filed with the Securities and Exchange Commission (“SEC”). Because this is an interim period filing presented using a condensed format, it does not include all information and footnotes normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). You should read this report along with our Annual Report on Form 10-K for the year ended December 31, 2013, which contains a summary of our significant accounting policies and other disclosures. The condensed consolidated financial statements as of June 30, 2014 and for the quarters and six months ended June 30, 2014 and 2013 are unaudited. We derived the unaudited condensed consolidated balance sheet as of December 31, 2013 from the audited consolidated balance sheet filed in our 2013 Annual Report on Form 10-K. In our opinion, we have made adjustments, all of which were normal recurring adjustments unless otherwise disclosed herein, that we believe are necessary for a fair statement of the balance sheets, results of operations, and cash flows, as applicable.

These unaudited condensed consolidated financial statements include the accounts of all consolidated subsidiaries after the elimination of all significant intercompany accounts and transactions. All references to US$ or $ are to U.S. dollars and references to C$ are to Canadian dollars.

Fair Value of Financial Instruments

We classify and disclose assets and liabilities carried at fair value in one of the following three categories:

•Level 1 — quoted prices in active markets for identical assets and liabilities;

•Level 2 — observable market based inputs or unobservable inputs that are corroborated by market data


•	Level 3 — significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table summarizes the fair values and levels within the fair value hierarchy in which the fair value measurements fall for assets and liabilities measured on a recurring basis as of June 30, 2014 (in thousands):



			Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	99,957		$	99,957	$	—	$	—
Contingent earn-out obligations	$	1,382	$	—	$	—	$	1,382

Cash and cash equivalents approximated their fair value due to the short-term nature of the accounts.

The valuation of our contingent earn-out obligations (see further discussion in "Note 4") is determined using a probability weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows

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and a discount rate. The contingent earn-out obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.

The table below presents a reconciliation of the fair value of our contingent earn-out obligations that use significant unobservable inputs (Level 3) (in thousands).



Balance at beginning of year	$	—
Issuances	1,382
Settlements	—
Adjustments to fair value	—
Balance at end of period	$	1,382

We measure certain assets at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. We did not recognize any impairments, in the current quarter, on those assets required to be measured at fair value on a nonrecurring basis.

Note 2—Summary of Significant Accounting Policies

Significant Accounting Policies

There have been no material changes to our accounting policies as described in the notes to our audited consolidated financial statements included in our 2013 Annual Report on Form 10-K.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU No. 2014-09 provides a single, contract-based revenue recognition model to help improve financial reporting by providing clearer guidance on when an entity should recognize revenue, and by reducing the number of standards to which entities have to refer. The amendment supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. The updated accounting guidance will become effective for the Company’s annual and interim reporting periods beginning January 1, 2017. The adoption of this accounting pronouncement is not expected to have a material impact on our condensed consolidated financial statements.

Note 3—Sale of Casing Drilling

On June 4, 2012, the Company completed the sale of substantially all of the assets of the Casing Drilling segment to Schlumberger Oilfield Holdings Ltd. and Schlumberger Technology Corporation (together, the "Schlumberger Group") for a total cash consideration of approximately $46.6 million, including a working capital purchase price adjustment. During the three months ended March 31, 2013, the Company recognized a pre-tax gain of approximately $1.5 million primarily from the working capital purchase price adjustment, in addition to the $12.4 million pre-tax gain recognized in 2012. The total pre-tax gain from the sale was $13.8 million, net of transaction costs.

Note 4—Business Combinations

On May 7, 2014, we purchased substantially all of the operating assets of Tech Field Services, LLC (“TFS”) for total consideration of approximately $6.4 million, including $5.0 million of cash and $1.4 million of contingent earn-out obligations. TFS, established in 2006 in Magnolia, Texas, provides parts, maintenance, and repairs for multiple top drive manufacturers, including TESCO top drive units. In addition to its core AMSS business, TFS offers hydraulic top drive rental units to customers. The acquired assets include four top drive rental units, parts inventory, and various administrative assets. We allocated approximately $4.7 million of the purchase price to property, plant and equipment and intangible assets and approximately $1.7 million to goodwill.

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Note 5—Details of Certain Accounts

At June 30, 2014 and December 31, 2013, prepaid and other current assets consisted of the following (in thousands):



	June 30, 2014		December 31, 2013
Prepaid taxes other than income taxes	$	4,648	$	6,763
Deposits	6,446		3,910
Prepaid insurance	2,497		5,311
Other prepaid expenses	5,071		2,564
Restricted cash	2,946		2,708
Deferred job costs	3,258		2,284
Non-trade receivables	1,385		6,848
	$	26,251	$	30,388

At June 30, 2014 and December 31, 2013, accrued and other current liabilities consisted of the following (in thousands):



	June 30, 2014		December 31, 2013
Accrued payroll and benefits	$	17,648	$	19,317
Accrued taxes other than income taxes	4,526		7,331
Other current liabilities	7,435		8,841
	$	29,609	$	35,489

Note 6—Inventories

At June 30, 2014 and December 31, 2013, inventories, net of reserves for excess and obsolete inventories of $2.3 million and $2.1 million, respectively, by major classification were as follows (in thousands):



	June 30, 2014		December 31, 2013
Raw materials ⁽¹⁾	$	72,557	$	51,742
Work in progress	10,201		1,280
Finished goods ⁽¹⁾	31,392		44,341
	$	114,150	$	97,363

(1) In the first quarter of 2014, our Houston headquarters for North America became our base for global business unit supply chain sourcing. As such, we reclassified approximately $9.1 million of inventory from "Finished goods" to "Raw materials" during the first quarter of 2014.

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Note 7—Property, Plant and Equipment

At June 30, 2014 and December 31, 2013, property, plant, and equipment, at cost, by major classification were as follows (in thousands):



	June 30, 2014			December 31, 2013
Land, buildings, and leaseholds	$	26,151		$	27,048
Drilling equipment	354,060			331,901
Manufacturing equipment	11,742			11,340
Office equipment and other	30,175			30,590
Capital work in progress	13,528			16,681
	435,656			417,560
Less: Accumulated depreciation	(230,558		)	(212,652		)
	$	205,098		$	204,908

Depreciation and amortization expense for the three and six months ended June 30, 2014 and 2013 are included on our unaudited condensed consolidated statements of income as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Cost of sales and services	$	9,689	$	9,546	$	18,671	$	18,942
Selling, general and administrative expense	688		654		1,418		1,287
	$	10,377	$	10,200	$	20,089	$	20,229

Sale of Operating Assets

When top drive units from our rental fleet are sold, the sales proceeds are included in revenue and the net book value of the equipment sold is included in cost of sales and services. Proceeds from the sale of used top drives are included in proceeds from the sale of operating assets and the difference between revenue and the cost of sales and services is included in gain on sale of operating assets in the accompanying unaudited condensed consolidated statement of cash flows. During the three and six months ended June 30, 2014, two and three used top drives were sold from our rental fleet, respectively. The net book value of these top drives, $1.4 million and $1.5 million, respectively, was included in cost of sales and services on our unaudited condensed consolidated statements of income for the three and six months ended June 30, 2014.

Note 8—Warranties

Changes in our warranty reserves during the six months ended June 30, 2014 were as follows (in thousands):



	June 30, 2014
Balance as of January 1, 2014	$	2,393
Charged to expense, net	427
Deductions	$	(782	)
Balance as of June 30, 2014	$	2,038

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Note 9—Earnings per Share

Weighted Average Shares

The following table reconciles basic and diluted weighted average shares (in thousands):



	Three Months Ended June 30,		Six Months Ended June 30,
	2014	2013	2014	2013
Basic weighted average number of shares outstanding	40,175	38,988	39,963	38,960
Dilutive effect of stock-based compensation	623	532	685	512
Diluted weighted average number of shares outstanding	40,798	39,520	40,648	39,472
Anti-dilutive options excluded from calculation due to exercise prices	350	1,313	396	1,429

Note 10—Income Taxes

Tesco Corporation is an Alberta, Canada corporation. We conduct business and are taxed on profits earned in a number of jurisdictions around the world. Income taxes have been recorded based on the laws and rates in effect in the countries in which operations are conducted or in which we are considered a resident for income tax purposes.

Our income tax provision for the three and six months ended June 30, 2014 and 2013 was as follows (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014			2013
Current tax provision	$	6,892		$	2,268	$	9,509		$	6,369
Deferred tax provision	(329		)	289		(831		)	(25		)
Income tax provision	$	6,563		$	2,557	$	8,678		$	6,344

Our effective tax rate, which is income tax expense as a percentage of pre-tax earnings, was 34% and 36% for the three and six months ended June 30, 2014, respectively, compared to 20% and 25% for the same periods in 2013, respectively. The 14% and 11% increase for the three and six months ended June 30, 2014, as compared to the same periods in 2013, is primarily due to the fluctuating mix of pre-tax earnings in the various tax jurisdictions in which we operate around the world, the nondeductible nature of foreign exchange losses, and $1.4 million of favorable tax settlements in foreign jurisdictions in the three and six months ended June 30, 2013, compared to $0.4 million of unfavorable tax settlements in foreign jurisdictions in the six months ended June 30, 2014.

At December 31, 2013, we had an accrual for uncertain tax positions of $0.2 million. There was no change to this accrual during the three and six months ended June 30, 2014. The accrual for uncertain tax positions is included in Accrued and other current liabilities or Other liabilities in our consolidated balance sheet based on whether we anticipate the uncertainties to be resolved within the next 12 months. At June 30, 2014, the entire $0.2 million is included in "Other liabilities" in our consolidated balance sheet. The resolution of these uncertainties is not expected to have a material impact on our effective tax rate.

Certain state and foreign tax filings remain open to examination. We believe that any assessment on these filings would not have a material impact on our financial position, results of operations, or cash flows. We believe that appropriate provisions for all outstanding issues have been made for all jurisdictions and open years. However, audit outcomes and the timing of audit settlements are subject to significant uncertainty. Therefore, additional provisions on tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. We are currently under audit by the Internal Revenue Service in the United States for the years ended December 31, 2011 and 2012.

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Note 11—Long Term Debt

At June 30, 2014 and December 31, 2013, long term debt consisted of the following (in thousands):



	June 30, 2014			December 31, 2013
Capital leases	75			97
Other notes payable	—			315
Current portion of long term debt	(75		)	(385		)
Non-current portion of long term debt	$	—		$	27

As part of our acquisition of Premiere Casing Services - Egypt S.A.E ("Premiere") in 2011, we assumed $7.4 million of outstanding debt on the acquisition date of October 16, 2011. During 2013, we paid off substantially all of the outstanding balances related to Premiere's capital leases and all of the balances related to the notes payable. At June 30, 2014 the outstanding balance of Premiere's capital leases was $0.1 million.

We entered into a credit agreement on April 27, 2012, to provide a revolving line of credit of $125 million, including up to $20 million of swing line loans (collectively, the “Revolver”). The credit facility has a term of five years and all outstanding borrowings on the Revolver are due and payable on April 27, 2017. The credit facility bears interest at a margin above LIBOR, federal funds rate, or the prime rate for U.S. dollar loans as determined by JPMorgan Chase Bank, N.A. in New York. We are required to pay a commitment fee on available, but unused, amounts of the credit facility of 0.375-0.500 percent per annum and a letter of credit fee of 1.00-2.00 percent per annum on outstanding face amounts of letters of credit issued under the credit facility. Amounts available under the Revolver are reduced by letters of credit issued under our credit facility, not to exceed $50 million in aggregate. Amounts available under the swing line loans may also be reduced by letters of credit or by means of a credit to a general deposit account of the applicable borrower. The availability of future borrowings may also be limited in order to maintain certain financial ratios required under the covenants. The credit facility contains covenants that we consider usual and customary for an agreement of this type, including a leverage ratio, a minimum net worth, limitations on allowable amounts for the disposal of obsolete assets and annual capital expenditures, and a fixed charge coverage ratio. The credit facility prohibits incurring any additional indebtedness outside the existing credit facility in excess of $50 million and contains other restrictions, which are standard to the industry. All of our direct and indirect material subsidiaries in the United States, Canada, Argentina, Mexico, and Indonesia as well as one of our Cyprus subsidiaries are guarantors of any borrowings under the credit facility.

Under the Revolver at June 30, 2014, we had no outstanding borrowings, $3.3 million in letters of credit outstanding, and $121.7 million in available borrowing capacity. We were in compliance with our bank covenants at June 30, 2014.

Note 12—Commitments and Contingencies

Legal contingencies

In the normal course of our business, we are subject to legal proceedings brought by or against us and our subsidiaries. None of these proceedings involves a claim for damages exceeding ten percent of our current assets on a consolidated basis. The estimates below represent our best estimates based on consultation with internal and external legal counsel. There can be no assurance as to the eventual outcome or the amount of loss we may suffer as a result of these proceedings.

VARCO Litigation: Varco I/P, Inc. (“Varco”) filed suit against us in April 2005 in the U.S. District Court for the Western District of Louisiana, alleging that our CDS infringes certain of Varco’s U.S. patents. Varco seeks monetary damages and an injunction against further infringement. We filed a countersuit against Varco in June 2005 in the U.S. District Court for the Southern District of Texas, Houston Division seeking invalidation of the Varco patents in question. In July 2006, the Louisiana case was transferred to the federal district court in Houston, and as a result, the issues raised by Varco have been consolidated into a single proceeding in which we are the plaintiff. We also filed a request with the U.S. Patent and Trademark Office (“USPTO”) for reexamination of the patents on which Varco’s claim of infringement is based. The USPTO accepted the Varco patents for reexamination, and the district court stayed the patent litigation pending the outcome of the USPTO reexamination. In May 2009, the USPTO issued a final action rejecting all of the Varco patent claims that we had contested. Varco has appealed this decision with the USPTO and that reexamination appeal is pending. The outcome and amount of any future financial impacts from this litigation are indeterminable at this time.

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Weatherford Litigation: Weatherford International, Inc. and Weatherford/Lamb Inc. (together, “Weatherford”) filed suit against us in the U.S. District Court for the Eastern District of Texas, Marshall Division in December 2007 (the “Marshall Suit”), alleging that various of our technologies infringe 11 different patents held by Weatherford. Weatherford sought monetary damages and an injunction against further infringement. Our technologies referred to in the claim included the CDS, the Casing Drilling system and method, a float valve, and the locking mechanism for the controls of the tubular handling system. We filed a general denial seeking a judicial determination that we did not infringe the patents in question and/or that the patents are invalid.

In August 2008, we filed suit against several competitors in the U.S. District Court for the Southern District of Texas – Houston Division, including Weatherford (the “Houston Suit”). The Houston Suit claims infringement of two of our patents related to our CDS. On October 26, 2010, we entered into a settlement with Weatherford (the “Settlement”) dismissing both the Marshall Suit and the Houston Suit (as it relates to Weatherford) with prejudice. Among other provisions, the Settlement contains the following terms:


•	Non-exclusive irrevocable worldwide and royalty free cross licenses with respect to all the patents asserted by Weatherford in the Marshall Case and by us in the Houston Case, as well as certain other U.S. and foreign equivalents and counterparts; and


•	Weatherford has agreed to purchase for five years 67% of its worldwide top drive requirements from us, as long as we can meet production requirements, and to designate us as a preferred provider of after-market sales and service for top drives. The prices we charge Weatherford will be equal to or lower than the prices we charge to any other customer of similar volume of purchases and/or services.

We entered into a Final Settlement and License Agreement (the "Settlement Agreement") with Weatherford on January 11, 2011, effective as of October 26, 2010. As an additional condition of the Settlement Agreement, neither we nor Weatherford will pursue any cause of action that might adversely affect the validity or enforceability of each other's patents as listed in the exhibits to the Settlement Agreement, including any causes of action that may arise from the requests for review (“patent re-examinations”) we and Weatherford filed with the USPTO. However, the patent re-examinations already initiated continue with only the respective patent owner corresponding with the USPTO. Ongoing re-examination procedures include the patents owned by us and asserted in the Houston Suit. An oral hearing with the Board of Patent Appeals and Interferences (“BPAI”) at the USPTO occurred August 1, 2012. On November 27, 2012, the BPAI issued a decision in which all of the claims asserted in the Houston Suit were found to be valid in view of the prior art of record in the re-examination proceedings.

On November 11, 2010, we won a jury verdict against National Oilwell Varco, L.P. ("NOV"), Frank's Casing Crew and Rental Tools, Inc. ("Frank's") and Offshore Energy Services, Inc. ("OES") for infringing our U.S. Patent Nos. 7,140,443 and 7,377,324. In that verdict, the jury found that NOV's accused product, the CRT 350, infringes all valid patent claims in the asserted patents, and that NOV contributorily infringed all valid patent claims in the asserted patents. The jury also found that Frank's accused products, the (i) SuperTAWG, (ii) FA-1, and (iii) CRT 350, and OES's accused product, the CRT 350, infringe all valid patent claims in the asserted patents. Damages were stipulated by the parties and the verdict is subject to entry of judgment and appeal.

On December 6, 2012, the District Court ruled on summary judgment that all of the asserted patent claims were obvious in view of prior art based on pre-trial evidence. This ruling overturns the favorable jury verdict. The case remains with the District Court to determine whether there was any inequitable conduct with the USPTO or litigation misconduct in the case by TESCO. On March 10, 2014, the District Court determined that a bench trial on these remaining issues is not needed because a ruling can be made based on the evidence already presented. The timing of the ruling is not known at this time.

Other Contingencies

We are contingently liable under letters of credit and similar instruments that we enter into in connection with the importation of equipment to foreign countries and to secure our performance on certain contracts. At June 30, 2014 and December 31, 2013, our total exposure under outstanding letters of credit was $6.7 million and $6.5 million, respectively.

Note 13—Segment Information

Business Segments

Prior to the sale of the Casing Drilling business during the second quarter of 2012, our four business segments were: Top Drive, Tubular Services, Casing Drilling, and Research and Engineering. On June 4, 2012, the Company completed the sale of substantially all of the assets of the Casing Drilling segment, which consisted of the proprietary Casing Drilling technology. Our Top Drive segment is comprised of top drive sales, top drive rental services, and after-market sales and service. Our Tubular

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Services segment includes both our proprietary and conventional tubular services. Our Research and Engineering segment is comprised of our internal research and development activities related to our proprietary tubular services and top drive model development, as well as the Casing Drilling technology prior to the sale.

We measure the results of our business segments using, among other measures, each segment’s operating income, which includes certain corporate overhead allocations. Overhead costs include field administration and operations support. At a business segment level, we incur costs directly and indirectly associated with revenue. Direct costs include expenditures specifically incurred for the generation of revenue, such as personnel costs on location or transportation, maintenance and repair, and depreciation of our revenue-generating equipment.

Certain sales and marketing activities, financing activities, corporate general and administrative expenses, other (income) expense, and income taxes are not allocated to our business segments.

Goodwill is allocated to the business segment to which it specifically relates. Substantially all of our goodwill has been allocated to the Tubular Services segment, with a portion to the Top Drive segment for after-market sales and services.

Significant financial information relating to our business segments is presented below (in thousands):



	Three Months Ended June 30, 2014
	Top Drive		Tubular Services		Casing Drilling			Research & Engineering			Corporate and Other			Total
Revenue	$	86,279	$	58,795	$	32		$	—		$	—		$	145,106
Depreciation and amortization	2,688		6,526		—			17			1,146			10,377
Operating income (loss)	19,380		10,864		(37		)	(2,500		)	(9,173		)	18,534
Other expense														(769		)
Income before income taxes														$	19,303



	Three Months Ended June 30, 2013
	Top Drive		Tubular Services		Casing Drilling		Research & Engineering			Corporate and Other			Total
Revenue	$	76,040	$	52,735	$	193	$	—		$	—		$	128,968
Depreciation and amortization	2,953		6,105		—		24			1,118			10,200
Operating income (loss)	17,266		11,341		173		(2,492		)	(12,457		)	13,831
Other expense (income)													1,045
Income before income taxes													$	12,786



	Six Months Ended June 30, 2014
	Top Drive		Tubular Services		Casing Drilling			Research & Engineering			Corporate and Other			Total
Revenue	$	150,972	$	115,500	$	32		$	—		$	—		$	266,504
Depreciation and amortization	5,143		12,581		—			33			2,332			20,089
Operating income (loss)	30,113		21,729		(326		)	(4,966		)	(18,911		)	27,639
Other expense														3,204
Income before income taxes														$	24,435

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	Six Months Ended June 30, 2013
	Top Drive		Tubular Services		Casing Drilling		Research & Engineering			Corporate and Other			Total
Revenue	$	151,609	$	103,831	$	624	$	—		$	—		$	256,064
Depreciation and amortization	5,760		12,214		—		48			2,207			20,229
Operating income (loss)	32,225		18,768		2,050		(4,521		)	(22,958		)	25,564
Other expense													155
Income before income taxes													$	25,409

Geographic Areas

We attribute revenue to geographic regions based on the location of the customer. Generally, for service activities, this will be the region in which the service activity occurs. For equipment sales, this will be the geographical region in which the product is initially employed. Our revenue by geographic area for the three and six months ended June 30, 2014 and 2013 was as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Canada	$	17,039	$	8,940	$	28,294	$	19,999
United States	51,821		38,815		89,323		78,868
South America	24,086		19,165		46,003		35,711
Mexico	9,321		14,583		16,259		26,983
Asia Pacific	13,338		11,433		25,087		25,241
Europe, Africa, and Middle East	16,176		10,627		32,081		24,007
Russia	13,325		25,405		29,457		45,255
Total	$	145,106	$	128,968	$	266,504	$	256,064

The physical location of our net property, plant, and equipment by geographic area as of June 30, 2014 and December 31, 2013 was as follows (in thousands):



	Top Drive		Tubular Services		Overhead, Corporate, and Other		June 30, 2014
United States	$	17,089	$	28,253	$	11,885	$	57,227
Mexico	28,529		5,089		420		34,038
Europe, Africa, and Middle East	7,522		22,788		3,299		33,609
Asia Pacific	7,613		19,132		562		27,307
Russia	18,261		744		23		19,028
South America	10,678		9,686		964		21,328
Canada	2,283		4,979		5,299		12,561
Total	$	91,975	$	90,671	$	22,452	$	205,098

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	Top Drive		Tubular Services		Overhead, Corporate, and Other		December 31, 2013
United States	$	18,103	$	17,779	$	14,885	$	50,767
Mexico	33,113		2,659		185		35,957
Europe, Africa, and Middle East	6,284		23,820		6,705		36,809
Asia Pacific	7,835		19,145		1,852		28,832
Russia	16,995		550		156		17,701
South America	11,584		7,995		1,042		20,621
Canada	10,015		2,305		1,901		14,221
Total	$	103,929	$	74,253	$	26,726	$	204,908

Major customers and credit risk

Our accounts receivable are principally with major international and national oil and natural gas service and exploration and production companies and are subject to normal industry credit risks. We perform ongoing credit evaluations of customers and grant credit based upon past payment history, financial condition, and anticipated industry conditions. Customer payments are regularly monitored and a provision for doubtful accounts is established based upon specific situations and overall industry conditions. Many of our customers are located in international areas that are inherently subject to risks of economic, political, and civil instabilities, which may impact our ability to collect those accounts receivable. The main factors in determining the allowance needed for accounts receivable are customer bankruptcies, delinquency, and management’s estimate of ability to collect outstanding receivables based on the number of days outstanding and risks of economic, political, and civil instabilities. Bad debt expense is included in selling, general, and administrative expense in our consolidated statements of income.

In October 2013, we became aware that payments received by a third party agent in Malaysia on our behalf, for services we performed from November 2012 to January 2014, have not been made to us despite attempts to collect these payments. The net amount at issue was $6.1 million to be received by the agent from end customers for whom we performed services. Based on our negotiations to resolve this matter in the first quarter of 2014, we provided a $1.4 million reserve. In June 2014, this dispute was settled for total consideration of $4.3 million, of which $3.2 million, net of withholding tax held by KST, in cash was received in the second quarter 2014. The remaining amount is to be collected by March 2015. The total uncollectible amount was $1.8 million, of which $0.3 million was due to Schlumberger from KST. The remaining balance of $1.5 million was written off against the previously established reserve.

As of June 30, 2014, our total net investment in Venezuela was approximately $6.8 million, including net monetary assets of $3.7 million denominated in bolivar fuerte. We continue to experience delays in collecting payment on our receivables from our primary customer in Venezuela. These receivables are not disputed, and we have not historically had material write-offs relating to this customer. Due to the significant aging of these receivables, we recorded a $0.6 million reserve for these balances at June 30, 2014.

In 2013, the Venezuelan government authorized certain companies that operate in designated industry sectors to exchange a limited volume of bolivar for dollars at a bid rate established via weekly auctions under the Complementary System of Foreign Currency Acquirement (SICAD). In February 2014, the Venezuelan government announced plans to significantly expanded the use of the SICAD through the introduction of a second program intended to more closely resemble a market driven exchange rate, SICAD 2. In addition, the Venezuelan government officials indicated that the official rate of 6.3 bolivar per U.S. dollar available for exchange through the Commission for the Administration of Foreign Exchange (CADIVI) will increasingly be reserved for the settlement of U.S. dollar denominated transactions related to purchases of essential goods and services. Prior to 2014 we had remeasured our bolivar denominated net monetary assets into U.S dollars for reporting purposes at the CADIVI rate, which was 6.3 bolivars per U.S. dollar. As of March 30, 2014, we assessed the SICAD 1 exchange as being the legal mechanism most readily available to us to convert our bolivar denominated net monetary assets based on the goods and services we provide in-country. Consequently, we remeasured our bolivar denominated net monetary assets at March 30, 2014 into U.S. dollars at the SICAD 1 rate of 10.8 bolivars per U.S. dollar, which resulted in a $0.4 million foreign currency loss. During the three months ended June 30, 2014, we determined that the SICAD 2 more closely resembled the true market rate of exchange, and consequently, we remeasured our bolivar denominated net monetary assets as of June 30, 2014 into U.S. dollar at the SICAD 2 rate of 49.9 bolivar per U.S. dollar, which resulted in a $0.7 million foreign currency loss. Further devaluation of the bolivar fuerte in 2014 would negatively impact our financial results and operations in the remainder of the year.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements. Please see “Caution Regarding Forward-Looking Information; Risk Factors” above and “Risk Factors” in Part II, Item 1A below and in our 2013 Annual Report on Form 10-K, for a discussion of the uncertainties, risks, and assumptions associated with these statements.

Overview and Outlook

Prior to the sale of the Casing Drilling business during the second quarter of 2012, our business segments were:


•	Top Drive – top drive sales, top drive rental services, and after-market sales and services;


•	Tubular Services – proprietary and conventional tubular services;


•	Casing Drilling – proprietary Casing Drilling technology; and


•	Research and Engineering – internal research and development activities related to our proprietary tubular services and top drive model development, as well as the Casing Drilling technology prior to the sale.

On June 4, 2012, we completed the sale of substantially all of the assets of our Casing Drilling segment to the Schlumberger Group. For a detailed discussion of this matter, see Part I, Item 1—"Financial Statements", Note 3—Sale of Casing Drilling in this Quarterly Report on Form 10-Q.

Business Environment

One of the key indicators of our business is the number of active drilling rigs. During the first six months of 2014, North America experienced an improving market based on rig activity. In addition, with the increase in drilling rig efficiencies, well counts have increased. Certain countries in Latin America experienced a decline in rig activity due to various geopolitical and economic reasons. Current global macro economic conditions make any projections difficult. Below is a table that shows average rig count by region for the three and six months ended June 30, 2014 and 2013.



	Three Months Average Rig Count⁽¹⁾		Increase / (Decrease)				Six Months Average Rig Count⁽¹⁾		Increase / (Decrease)
	June 30,		Increase / (Decrease)				June 30,		Increase / (Decrease)
	2014	2013	2013 to 2014				2014	2013	2013 to 2014
U.S.	1,852	1,761	91		5	%	1,816	1,760	56		3	%
Canada	202	155	47		30	%	364	345	19		6	%
Latin America (includes Mexico)	402	425	(23	)	(5	)%	402	426	(24	)	(6	)%
Middle East (excludes Iran, Iraq and Sudan)	415	368	47		13	%	408	362	46		13	%
Asia Pacific (excludes China onshore)	249	252	(3	)	(1	)%	253	248	5		2	%
Europe (excludes Russia)	149	133	16		12	%	142	133	9		7	%
Africa	133	127	6		5	%	137	121	16		13	%
Worldwide	3,402	3,221	181		6	%	3,522	3,395	127		4	%

(1) Source: Baker Hughes Incorporated worldwide rig count; averages are monthly.

Summary of the Quarter Ended June 30, 2014 and Operational Performance

During the second quarter of 2014, our Top Drive segment had 35 top drive units sold compared to 24 units sold during the same period in 2013. Our Tubular Services segment revenue improved significantly in the second quarter of 2014 as compared to the second quarter of 2013. Our automated tubular services offering continues to gain market acceptance, and we remain committed to growing this segment as we believe that every rig with a top drive will eventually convert to running casing with

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an automated system, such as our CDS™ system. We also invested in new and enhanced product and service offerings in our Research and Engineering segment.

Outlook for 2014

The current outlook for the global economy varies widely, but we believe that most indicators point towards a general improvement during the remainder of 2014. Current global macro-economic conditions make any projections difficult and uncertain; however, in each of our revenue generating segments, we anticipate moderately improved activity for the remainder of 2014, as follows:

•

Top Drive - Based upon existing drilling and bidding levels and our product sales backlog, we expect our top drive order rate and rental activity to moderately improve for the remainder of 2014. Our Top Drive sales backlog was 51 units at June 30, 2014, compared to 10 units at June 30, 2013 and 32 units at December 31, 2013. We expect our international top drive sales, rental activity, and after-market sales and services to hold steady for the remainder of 2014.


•	Tubular Services - We expect our CDS™ automated and conventional casing running business to strengthen in our domestic and international markets for the remainder of 2014. We will continue to expand our automated casing service offerings, particularly in the major unconventional shale regions in North America, offshore in the Gulf of Mexico and select international locations.

Operating Results

Below is a summary of our operating results for the three and six months ended June 30, 2014 and 2013 (in thousands, except percentages):



	Three Months Ended June 30,						Increase / (Decrease)				Six Months Ended June 30,						Increase/(Decrease)
	2014			2013			2013 to 2014				2014			2013			2013 to 2014
Segment revenue
Top Drive	$	86,279		$	76,040		$	10,239		13%	$	150,972		$	151,609		$	(637	)	—%
Tubular Services	58,795			52,735			6,060			11%	115,500			103,831			11,669			11%
Casing Drilling	32			193			(161		)	(83)%	32			624			(592		)	(95)%
Consolidated revenue	$	145,106		$	128,968		$	16,138		13%	$	266,504		$	256,064		$	10,440		4%
Segment operating income (loss)
Top Drive	$	19,380		$	17,266		$	2,114		12%	$	30,113		$	32,225		$	(2,112	)	(7)%
Tubular Services	10,864			11,341			(477		)	(4)%	21,729			18,768			2,961			16%
Casing Drilling	(37		)	173			(210		)	(121)%	(326		)	2,050			(2,376		)	(116)%
Research & engineering	(2,500		)	(2,492		)	(8		)	—%	(4,966		)	(4,521		)	(445		)	(10)%
Corporate and other	(9,173		)	(12,457		)	3,284			26%	(18,911		)	(22,958		)	4,047			18%
Consolidated operating income	18,534			13,831			4,703			34%	27,639			25,564			2,075			8%
Other expense (income)	(769		)	1,045			(1,814		)	(174)%	3,204			155			3,049			1,967%
Income tax provision	6,563			2,557			4,006			157%	8,678			6,344			2,334			37%
Net income	$	12,740		$	10,229		$	2,511		25%	$	15,757		$	19,065		$	(3,308	)	(17)%

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Top Drive Segment

Our Top Drive business segment sells equipment and provides services to drilling contractors and oil and natural gas operating companies throughout the world. We primarily manufacture top drives that are used in drilling operations to rotate the drill string while suspended from the derrick above the rig floor. We also provide top drive rental services on a day-rate basis for land and offshore drilling rigs, and we provide after-market sales and support for our customers.

The following is a summary of our Top Drive operating results and metrics for the three and six months ended June 30, 2014 and 2013 (in thousands, except percentages, units, days, and rate):



	Three Months Ended June 30,				Increase / (Decrease)				Six Months Ended June 30,				Increase/(Decrease)
	2014		2013		2013 to 2014				2014		2013		2013 to 2014
Top Drive revenue
Sales	$	40,536	$	29,196	$	11,340		39%	$	65,860	$	61,963	$	3,897		6%
Rental services	26,726		30,748		(4,022		)	(13)%	51,426		60,484		(9,058		)	(15)%
After-market sales and services	19,017		16,096		2,921			18%	33,686		29,162		4,524			16%
	86,279		76,040		10,239			13%	150,972		$	151,609	$	(637	)	—%
Top Drive operating income	$	19,380	$	17,266	$	2,114		12%	$	30,113	$	32,225	$	(2,112	)	(7)%
Number of top drive sales:
New	33		21		12			57%	52		43		9			21%
Used or consignment	2		3		(1		)	(33)%	3		5		(2		)	(40)%
	35		24		11			46%	55		48		7			15%
End of period number of top drives in rental fleet	135		133		2			2%	135		133		2			2%
Rental operating days^(a)	5,389		6,164		(775		)	(13)%	10,473		11,991		(1,518		)	(13)%
Average daily operating rate	$	4,959	$	4,988	$	(29	)	(1)%	$	4,910	$	5,044	$	(134	)	(3)%

__________________________________

(a) Defined as a day that a unit in our rental fleet is under contract and operating; does not include stand-by days.

Top Drive operating results were largely driven by oil and natural gas drilling activity and new rig build activity. The average active rig count increased for the second quarter of 2014 and year-to-date by 6% and 4%, respectively, from the same periods in 2013.

Top Drive Sales Revenue — The increase in revenue for the three and six months ended June 30, 2014 compared to the same periods in 2013 is due primarily to an increase in the number of units sold in North America and Russia. The selling price per unit varies significantly depending on the model, whether the unit was previously operated in our rental fleet, and whether a power unit was included in the sale. Revenue related to the sale of used or consignment top drive units is $2.3 million and $2.7 million for the three months ended June 30, 2014 and 2013, respectively, and $3.1 million and $4.4 million for the six months ended June 30, 2014 and 2013, respectively.

Top Drive Rental Revenue — The decrease in revenue for the three and six months ended June 30, 2014 compared to the same periods in 2013 is due to decreased operating days, primarily in Russia, Indonesia, and Mexico.

Top Drive After-Market Sales and Services Revenue — The increase in revenue for the three and six months ended June 30, 2014 as compared to the same period in 2013 is due to increased demand in North America.

Top Drive Operating Income — The increase in operating income for the three months ended June 30, 2014 as compared to the same period in 2013 is primarily due to an increase in the number of top drives sold in North America and Russia. The decrease in operating income for the six months ended June 30, 2014 as compared to the same period in 2013 is due to decreased rental activity in Russia, Indonesia, and Mexico.

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Tubular Services Segment

Our Tubular Services business segment includes both automated and conventional services, which are typically offered as a “call out” service on a well-by-well basis. Our automated service offerings, in particular the CDS™, provide a safer and more automated method for running casing and, if required, reaming the casing into the hole, as compared to traditional methods. Our conventional Tubular Service business provides equipment and personnel for the installation of tubing and casing, including power tongs, pick-up/lay-down units, torque monitoring services, and connection testing services for new well construction and in work-over and re-entry operations. The following is a summary of our Tubular Services operating results and metrics for the three and six months ended June 30, 2014 and 2013 (in thousands, except percentages and number of jobs):



	Three Months Ended June 30,				Increase/ (Decrease)				Six Months Ended June 30,				Increase/(Decrease)
	2014		2013		2013 to 2014				2014		2013		2013 to 2014
Tubular Services revenue
Automated	$	48,588	$	43,115	$	5,473		13%	$	93,578	$	83,291	$	10,287	12%
Conventional	10,207		9,620		587			6%	21,922		20,540		1,382		7%
	$	58,795	$	52,735	$	6,060		11%	$	115,500	$	103,831	$	11,669	11%
Tubular Services operating income	$	10,864	$	11,341	$	(477	)	(4)%	$	21,729	$	18,768	$	2,961	16%
Number of automated jobs	1,075		975		100			10%	2,083		1,931		152		8%

The increase in Tubular Services revenue for the three and six months ended June 30, 2014 compared to the same periods in 2013 is due to increased demand in the Latin America region for our automated offerings, and in the Middle East for our conventional offerings. A significant amount of current U.S. drilling activity in shale formations requires directional and horizontal drilling techniques, which we believe are good applications for our automated service offerings. In addition, increased domestic and international demand for our tubular services, both automated and conventional, resulted in new jobs at more favorable pricing terms. The Tubular Services automated revenue during the three and six months ended June 30, 2014 also includes $5.6 million and $8.4 million, respectively, of revenue for CDS™ equipment sales, compared to $3.1 million and $5.8 million during the same periods in 2013.

The decrease in Tubular Services operating income for the three months ended June 30, 2014 as compared to the same period in 2013 is due to a $1.9 million reduction in operating expense based on a favorable determination received in June 2013 related to a customer dispute over contract term interpretations in a foreign jurisdiction in 2013 that was not repeated in 2014. The increase in operating income for the six months ended June 30, 2014 compared to the same period in 2013 is due primarily to higher revenue discussed above and related flow through to operating income in the Latin America and Middle East regions.

Casing Drilling Segment

On June 4, 2012, we completed the sale of substantially all of the assets of our Casing Drilling segment to the Schlumberger Group. The Casing Drilling business was based on the proprietary Casing Drilling technology, which used patented equipment and processes to allow an oil or gas well to be drilled using standard well casing pipe.

Below is a summary of the operating results of the segment for the three and six months ended June 30, 2014 and 2013 (in thousands, except percentages):



	Three Months Ended June 30,					Increase / (Decrease)				Six Months Ended June 30,					Increase/(Decrease)
	2014			2013		2013 to 2014				2014			2013		2013 to 2014
Casing Drilling revenue	$	32		$	193	$	(161	)	(83)%	$	32		$	624	$	(592	)	(95)%
Casing Drilling operating income (loss)	$	(37	)	$	173	$	(210	)	(121)%	$	(326	)	$	2,050	$	(2,376	)	(116)%

Casing Drilling operating income for the six months ended June 30, 2013 is primarily attributed to a working capital adjustment gain of approximately $1.5 million from the sale. For a detailed discussion of this matter, see Part I, Item 1—"Financial Statements", Note 3—Sale of Casing Drilling in this Quarterly Report on Form 10-Q.

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Research and Engineering Segment

Our Research and Engineering segment is comprised of our internal research and development activities related to our automated tubular services and top drive model development. The following is a summary of our research and engineering expense for the three and six months ended June 30, 2014 and 2013 (in thousands, except percentages):



	Three Months Ended June 30,				Increase / (Decrease)			Six Months Ended June 30,				Increase/(Decrease)
	2014		2013		2013 to 2014			2014		2013		2013 to 2014
Research and engineering expense	$	2,500	$	2,492	$	8	—%	$	4,966	$	4,521	$	445	10%

Research and engineering expenses increased during the three and six months ended June 30, 2014 as compared to the same periods in 2013 due to increased spending on automation and compact projects. We continue to invest in the development, commercialization, and enhancements of our proprietary technologies relating to our Top Drive and Tubular Services segments.

Corporate and Other Segment

Corporate and other expenses primarily consist of the corporate level general and administrative expenses and certain selling and marketing expenses. Below is a summary of our corporate and other expenses for the three and six months ended June 30, 2014 and 2013 (in thousands, except percentages):



	Three Months Ended June 30,				Increase / (Decrease)				Six Months Ended June 30,				Increase / (Decrease)
	2014		2013		2013 to 2014				2014		2013		2013 to 2014
Corporate and other expenses	$	9,173	$	12,457	$	(3,284	)	(26)%	$	18,911	$	22,958	$	(4,047	)	(18)%
Corporate and other expenses as a % of revenue	6%		10%		(4) pts				7%		9%		(2) pts

Corporate and other expenses were lower during the three and six months ended June 30, 2014, as compared to the same periods in 2013 due primarily to decreased legal fees.

Other Expense (Income)

Below is a summary of our other expense (income) for the three and six months ended June 30, 2014 and 2013 (in thousands, except percentages):



	Three Months Ended June 30,						Increase / (Decrease)					Six Months Ended June 30,						Increase/(Decrease)
	2014			2013			2013 to 2014					2014			2013			2013 to 2014
Other expense (income)
Interest expense	$	229		$	405		$	(176	)	(43	)%	$	918		$	(64	)	$	982		1,534	%
Interest income	(23		)	(31		)	8			26	%	(84		)	(54		)	(30		)	(56	)%
Foreign exchange loss (gain)	(976		)	1,635			(2,611		)	(160	)%	2,363			2,064			299			14	%
Other expense (income)	1			(964		)	965			(100	)%	7			(1,791		)	1,798			100	%
Total other expense (income)	$	(769	)	$	1,045		$	(1,814	)	(174	)%	$	3,204		$	155		$	3,049		1,967	%

Interest expense decreased in the three months ended June 30, 2014 primarily due to interest expense adjustments totaling $0.1 million in a North American jurisdiction in 2013, while the same period in 2014 had no adjustments. Interest expense increased in the six months ended June 30, 2014 primarily due to interest adjustments totaling $0.4 million in two Latin American jurisdictions in 2014, while the same period in 2013 includes a $0.7 million credit for an interest adjustment in one Latin American jurisdiction.

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Foreign exchange losses decreased during the three months ended June 30, 2014 as compared to the same period in 2013 due to fluctuations in the valuation of the U.S. dollar compared to the Venezuelan bolivar fuerte and Argentine peso, resulting in a gain of $0.7 million and $0.6 million, respectively, and partially offset by losses in the Canadian dollar and Mexican peso of $0.3 million and $0.1 million, respectively. Foreign exchange losses increased during the six months ended June 30, 2014 as compared to the same period in 2013 due to fluctuations in the valuation of the U.S. dollar compared to other currencies we transact in around the world. The largest foreign exchange losses during the six months ended June 30, 2014 were from the Argentine peso, the Russian ruble, and the Mexican peso in the amounts of $1.4 million, $0.5 million and $0.2 million, respectively.

Other expense increased in the three and six months ended June 30, 2014 primarily due to our participation in an amnesty program for a tax issue in a foreign jurisdiction in March and May 2013, for which there was no participation in 2014. For the three and six months ended June 30, 2013, there was a reversal of $0.9 million and $1.8 million, respectively, of other expense previously made for these issues.

Income Tax Provision



	Three Months Ended June 30,		Increase / (Decrease)	Six Months Ended June 30,		Increase / (Decrease)
	2014	2013	Increase / (Decrease)	2014	2013	Increase / (Decrease)
Effective income tax rate	34%	20%	14 pts	36%	25%	11 pts

We are an Alberta, Canada corporation. We conduct business and are taxed on profits earned in a number of jurisdictions around the world. Our income tax rate is based on the laws and rates in effect in the countries in which our operations are conducted or in which we are considered a resident for income tax purposes. Our effective tax rate, which is income tax expense as a percentage of pre-tax earnings, increased for the three and six months ended June 30, 2014 as compared to the same periods in 2013 due to the fluctuating mix of pre-tax earnings in the various tax jurisdictions in which we operate around the world, the nondeductible nature of foreign exchange losses, and $1.4 million of favorable tax settlements in foreign jurisdictions in the three and six months ended June 30, 2013, compared to $0.4 million of unfavorable tax settlements in foreign jurisdictions in the six months ended June 30, 2014.

Liquidity and Capital Resources

We rely on our cash and access to credit to fund our operations, growth initiatives, and acquisitions. Our primary sources of liquidity are cash flows generated from our operations, available cash and cash equivalents, and available borrowings under our Revolver. We use these sources of liquidity to fund our working capital requirements, capital expenditures, strategic investments and acquisitions. For 2014, we forecast capital expenditures to be between $35 million and $45 million based on expected demand for our products and services. We expect to be able to fund our activities for the remainder of 2014 with cash flows generated from our operations, and available cash and cash equivalents.

As of June 30, 2014, we had no outstanding borrowings under our Revolver, and we had availability to borrow $121.7 million under our Revolver. The availability of current borrowings is, and future borrowings may be, limited in order to maintain certain financial ratios required by restrictive covenants in our Revolver. We were in compliance with our bank covenants at June 30, 2014. For further discussion on our credit facility, see Part I, Item 1—“Financial Statements”, Note 10 of this Quarterly Report on Form 10-Q.

Our net cash position at June 30, 2014 and December 31, 2013 was as follows (in thousands):



	June 30, 2014			December 31, 2013
Cash	$	99,957		$	97,277
Current portion of long term debt	(75		)	(385		)
Long term debt	—			(27		)
Net cash	$	99,882		$	96,865

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We report our net cash position because we regularly review it as a measure of our performance. However, the measure presented in this Quarterly Report on Form 10-Q may not always be comparable to similarly titled measures reported by other companies due to differences in the components of the measurement we use.

Cash Flows

Our cash flows fluctuate with the level of spending by oil and natural gas companies for drilling activities. Certain sources and uses of cash, such as the level of discretionary capital expenditures and the issuance and repayment of debt, are within our control and are adjusted as necessary based on market conditions. The following is a discussion of our cash flows for the six months ended June 30, 2014 and 2013.

Operating Activities – Net cash provided by operating activities is our primary source of capital and liquidity. Net cash provided by operating activities was $20.1 million for the six months ended June 30, 2014 compared to net cash provided of $28.9 million for the same period in 2013. The decrease in net cash provided by operating activities was due primarily to cash outflows from increasing inventories and decreasing accrued and other current liabilities.

Investing Activities – Net cash used by investing activities was $21.1 million during the six months ended June 30, 2014 compared to $4.8 million during the same period of 2013. During the six months ended June 30, 2014 and 2013, we used $19.3 million and $16.9 million of cash, respectively, for capital expenditures, and sales of operating assets provided $3.3 million and $5.2 million of cash, respectively. During the six months ended June 30, 2014, we did not receive cash from the sale of the Casing Drilling segment to the Schlumberger Group compared to $6.1 million that we received during the same period in 2013. Further, we purchased substantially all of the operating assets of Tech Field Services, LLC during the six months ended June 30, 2014 for $5.0 million.

Financing Activities – Net cash provided by financing activities was $3.7 million during the six months ended June 30, 2014 compared to $0.0 million of net cash used for the same period in 2013.

Included in the net cash provided by financing operations was a cash dividend of $0.05 per share of Tesco Corporation common stock paid on June 2, 2014 to shareholders of record on May 22, 2014. Total dividend payments made during the quarter ended June 30, 2014 was $2.0 million. The Company expects continued growth in financial position and plans to continue dividend payments in the future.

The Company announced on May 6, 2014 that its Board of Directors authorized the repurchase of up to $100.0 million of the Company's common shares over a two year period. There were no repurchase of shares for the quarter ended June 30, 2014.

Manufacturing Purchase Commitments

Our manufacturing purchase commitments, which represent executed purchase orders that have been submitted to our respective vendors, have increased from $34.9 million as of December 31, 2013 to $49.7 million as of June 30, 2014. This increase of $14.8 million, or 42%, is driven primarily by greater manufacturing purchase needs to fulfill our increased top drive backlog of 51 units at June 30, 2014, compared to 32 units at December 31, 2013.

Off-Balance Sheet Arrangements

As of June 30, 2014, we have no off-balance sheet arrangements other than the manufacturing purchase commitments and letters of credit described above, and future interest payments on the aggregate unused commitments under our revolving credit facility and lease commitments as described in Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2013 Annual Report on Form 10-K.

Critical Accounting Estimates and Policies

Our accounting policies are described in the notes to our audited consolidated financial statements included in Part II, Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2013 Annual Report on Form 10−K. We prepare our unaudited condensed consolidated financial statements in conformity with U.S. GAAP. Our results of operations and financial condition, as reflected in our unaudited condensed consolidated financial statements and related notes, are subject to management’s evaluation and interpretation of business conditions, changing capital market conditions and other factors that could affect the ongoing viability of our business and customers. We believe that the most critical accounting policies in this regard are those described in our 2013 Annual Report on Form 10−K. While these issues require us to make judgments that are subjective, they are generally based on a significant amount of historical data and current market data. There have been

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no material changes or developments in authoritative accounting pronouncements or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be critical accounting policies and estimates as disclosed in our 2013 Annual Report on Form 10−K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

See Part I, Item 7A —“Quantitative and Qualitative Disclosures About Market Risk” in our 2013 Annual Report on Form 10-K for a detailed discussion of the risks affecting us. There have been no material changes to the market risks described in Part I, Item 7A —"Quantitative and Qualitative Disclosures About Market Risk" disclosed in our 2013 Annual Report on Form 10-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the SEC reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time period specified by the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As of June 30, 2014, our Chief Executive Officer and Chief Financial Officer participated with management in evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2014, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2014, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

In the normal course of our business, we are subject to legal proceedings brought by or against us and our subsidiaries. None of these proceedings involves a claim for damages exceeding ten percent of our current assets on a consolidated basis. See Part I, Item 1—“Financial Statements”, Note 12 of this Quarterly Report on Form 10-Q for a summary of certain ongoing legal proceedings. Such information is incorporated into this Part II, Item 1—"Legal Proceedings" by reference.

Item 1A. Risk Factors.

See Part I, Item 1A—"Risk Factors" in our 2013 Annual Report on Form 10-K for a detailed discussion of the risk factors affecting us. Except as set forth by this section, there have been no material changes to the risk factors described in Part I, Item 1A—"Risk Factors" disclosed in our 2013 Annual Report on Form 10-K.

Our operations are subject to political and economic instability, risk of government action, and cybersecurity incidents that could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.

We are exposed to risks inherent in doing business in each of the countries in which we operate. In places like Russia, Latin America, the Middle East and Asia Pacific, we may have difficulty or extra expense in navigating the local bureaucracies and legal systems. We may face challenges in enforcing contracts in local courts or be at a disadvantage when we have a dispute with a customer that is an agency of the state. We may be at a disadvantage to competitors that are not subject to the same international trade and business practice restrictions that U.S. and Canadian laws impose on us.

While diversification is desirable, it can expose us to risks related to cultural, political, and economic factors of foreign jurisdictions which are beyond our control. As a general rule, we have elected not to carry political risk insurance against these risks. Such risks include the following:


•	loss of revenue, property, and equipment as a result of hazards such as wars, insurrection, and other instances of political and economic instability;


•	the effects of currency fluctuations and exchange controls, such as devaluation of foreign currencies and other economic problems;


•	changes or interpretations in laws, regulations, and policies of foreign governments, including those associated with changes in the governing parties, nationalization, and expropriation;


•	protracted delays in securing government consents, permits, licenses, or other regulatory approvals necessary to conduct our operations; and


•	protracted delays in the collection of accounts receivable due to economic, political, and civil instabilities.

We are subject to foreign governmental regulations in some jurisdictions in which we operate that favor or require awarding contracts to local contractors or require foreign contractors to employ citizens of or purchase supplies from a certain jurisdiction. Such regulations may adversely affect our ability to compete in that jurisdiction. Our operations in some jurisdictions may be significantly affected by union activity and general labor unrest. In Argentina and Mexico, particularly, where we have significant operations, labor organizations have substantial support and have considerable political influence. In Argentina, the demands of labor organizations have increased in recent years and seem likely to continue as a result of the general labor unrest and dissatisfaction resulting from the disparity between the cost of living and salaries in Argentina as a result of the devaluation of the Argentine Peso. There can be no assurance that our operations in Argentina or Mexico will not face labor disruptions in the future or that any such disruptions will not have a material adverse effect on our financial condition or results of operations. Further, unionization efforts have been made from time to time in other jurisdictions in which we operate with varying degrees of success. Any such unionization could increase our costs or limit the flexibility in that market.

Due to unsettled political conditions in many oil-producing countries, our operations, revenue, and profits are subject to adverse consequences of war, the effects of terrorism, civil unrest, strikes, currency controls, and governmental actions. These and other risks described above could result in the loss of our personnel or assets, cause us to evacuate our personnel from certain countries, cause us to increase spending on security worldwide, disrupt financial and commercial markets, including the supply of and pricing for oil and natural gas, and generate greater political and economic instability in some of the geographic areas in which we operate. Areas where we operate that have significant risk include, but are not limited to: Argentina, Colombia, Egypt,

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Indonesia, Iraq, Mexico, Russia, and Venezuela. In addition, any possible reprisals as a consequence of military or other action, such as acts of terrorism in the United States or elsewhere, could have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition. The continuance of our sales to customers, and our operations, in Russia and the region are uncertain in light of recent events in Ukraine. Continued political instability, deteriorating macroeconomic conditions, the implementation of additional economic sanctions that restrict our ability to do business, and actual or threatened military action in the region could have a material adverse effect on our operations in the region and on the result of operations of our Top Drive segment.

Our operations are also subject to the risk of information technology disruptions. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information, and the corruption of data. We believe that we have implemented appropriate measures to mitigate potential risks to our technology and our operations from these information technology disruptions. However, given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to production downtimes, operational delays, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations.

Item 2. Use of Proceeds.

The Company announced on May 6, 2014 that its Board of Directors had authorized the repurchase of as much as USD $100 million of the Company's common shares over a two year period. The repurchase of the common shares shall be conducted as a normal course issuer bid ("NCIB"). In the first tranche of the program, the Board has authorized the purchase for cancellation of up to 501,317 issued and outstanding common shares ("Shares"), representing approximately 1.25% of the 40,105,423 Shares in the public float as of April 30, 2014, through the facilities of the Nasdaq Stock Market ("NASDAQ"). The Company's Board of Directors shall authorize additional tranches of repurchases on a quarterly basis subject to the NCIB limitation that the Company may repurchase no more than 5% of its outstanding Shares within any 12-month period.

During any of the Company's blackout periods, purchases under the NCIB may continue under an automatic securities purchase plan between the Company and its broker which was put in place during the NCIB. The first tranche of the program's repurchases began July 5, 2014 and continued until August 1, 2014. No purchases of shares under the NCIB were made prior to July 5, 2014.

The Company and its Board of Directors believe that this NCIB is in the best interests of its shareholders and the repurchases made under this NCIB will be made, in part, to offset the dilutive effect of Shares expected to be issued upon the exercise of stock options under the Company's stock option plan.

The actual number of Shares purchased, the timing of purchases and the price at which the Shares are bought will depend on future market conditions and on potential alternative uses for the Company's cash resources. Any purchases will be subject to trading restrictions and will be made by the Company at the prevailing market price of the Shares at the time of purchase.

In future quarters, a table containing information regarding the Company’s purchase of its common stock during the quarter shall be included, as applicable.

Item 5. Other Information.

At a meeting held on March 6, 2014, the Board of Directors of the Company approved an amendment and restatement to the Company’s Bylaws. The amendment and restatement of the Company’s Bylaws was later approved in its entirety by shareholder resolutions at the Annual General and Special Meeting held May 9, 2014. The amended and restated By-laws include changes to the procedures by which stockholders may recommend nominees to the Company’s board of directors, including the following:

Section 4.05 and Section 4.06 of the By-laws (including related definitions) contain an advance notice provision that must be complied with in order for any shareholder to propose business (other than pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended) or nominate directors at an annual or special meeting of the Company’s shareholders.

A shareholder seeking to propose business (other than pursuant to Rule 14a-8) or nominate directors at an annual meeting of shareholders must give advance written notice to the Company not more than ninety (90) days, and not less than sixty (60) days, prior to the anniversary date of the prior year’s annual meeting of shareholders; provided, however, that in the event that no annual meeting was held the previous year or if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after the one-year anniversary date, notice by the shareholder to be timely must be so delivered, or mailed and received,

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not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of (1) the sixtieth (60th) day prior to such annual meeting; or (2) the tenth (10th) day following the day on which the Corporation first publicly announces the date of such annual meeting. In addition, the By-laws provide that, solely in the case of the first annual meeting of shareholders held following the adoption of the By-laws, such notice must be so delivered, or mailed and received, not later than the close of business on the fourteenth calendar day following the effective date of the Bylaws.

A shareholder seeking to nominate a director for election at a special meeting of shareholders where the election of directors is properly on the agenda must give advance written notice to the Company not earlier than the close of business on the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of: (1) the sixtieth (60th) day prior to such special meeting; or (2) the tenth (10th) day following the day on which the Company first publicly announces the date of such special meeting.

The By-laws also contain certain specified requirements for the type of information required to be provided by any shareholder seeking to propose business or nominate directors at a meeting, including, but not limited to, a description of the business desired to be brought before the meeting, the text of such proposal, certain specified information about the proposing shareholder and, if applicable, any nominee for director, as well as such person’s affiliates and associates. The specific information required to be provided is more fully described in the By-laws, a copy of which was filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 5, 2014, which is incorporated herein by reference.

The amendments also included other changes unrelated to the procedures by which stockholders may recommend nominees to the Company’s board of directors, which are summarized in the Company’s Proxy Statement on Schedule 14A filed on April 7, 2014 and incorporated by reference herein.

Item 6. Exhibits.

The Exhibit Index set forth below is incorporated herein by reference.

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SIGNATURE

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.



		TESCO CORPORATION

	By:	/s/ JULIO M. QUINTANA
		Julio M. Quintana, President and Chief Executive Officer (Principal Executive Officer)
Date:	August 5, 2014

		TESCO CORPORATION

	By:	/s/ CHRISTOPHER L. BOONE
		Christopher L. Boone, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
Date:	August 5, 2014

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EXHIBIT INDEX




Exhibit No.		Description
3.1*		Articles of Amalgamation of Tesco Corporation, dated December 1, 1993 (incorporated by reference to Exhibit 4.1 to Tesco Corporation's Registration Statement on Form S-8 (File No. 333-139610) filed with the SEC on December 22, 2006)

3.2*		Amended and Restated By-laws of Tesco Corporation (incorporated by reference to Exhibit 3.1 to Tesco Corporation's Current Report on Form 8-K filed with the SEC on March 5, 2014)

10.1		Lease between TDC Clay, L.P. and Tesco Corporation, for the lease of the corporate headquarters in Houston, Texas, dated July 10, 2014

10.2*		First Amendment to the Second Amended and Restated Credit Agreement dated May 6, 2014 by and among Tesco Corporation. Tesco US Holding L.P. and Lenders (as named in the agreement) and JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.1 to Tesco Corporation's Current Report on Form 8-K filed with the SEC on May 12, 2014)

31.1		Rule 13a-14(a)/15d-14(a) Certification, executed by Julio M. Quintana, President and Chief Executive Officer of Tesco Corporation

31.2		Rule 13a-14(a)/15d-14(a) Certification, executed by Christopher L. Boone, Senior Vice President and Chief Financial Officer of Tesco Corporation

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Julio M. Quintana, President and Chief Executive Officer of Tesco Corporation and Christopher L. Boone, Senior Vice President and Chief Financial Officer of Tesco Corporation

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase

101.DEF**		XBRL Taxonomy Extension Definition Linkbase

101.LAB**		XBRL Taxonomy Extension Label Linkbase

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase


*	Incorporated by reference to the indicated filing


**	As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

Exh 10.1 Lease for Corporate HQ in Houston, TX

Exhibit 10.1

OFFICE LEASE AGREEMENT

BETWEEN

TDC CLAY, L.P., AS LANDLORD

AND

TESCO CORPORATION, AS TENANT

Westway Plaza

11330 CLAY ROAD, HOUSTON, TEXAS



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		Page
1.	DEFINITIONS	1
2.	LEASE GRANT/POSSESSION	5
3.	USE	6
4.	RENT	7
5.	SECURITY DEPOSIT	7
6.	SERVICES TO BE FURNISHED BY LANDLORD	8
7.	LEASEHOLD IMPROVEMENTS; TENANT’S PROPERTY	9
8.	SIGNAGE	9
9.	MAINTENANCE, REPAIRS AND ALTERATIONS	9
10.	USE OF ELECTRICAL SERVICES BY TENANT	11
11.	ASSIGNMENT AND SUBLETTING	11
12.	MECHANIC’S LEINS	13
13.	INSURANCE	13
14.	INDEMNITY	15
15.	DAMAGES FROM CERTAIN CAUSES	15
16.	CASUALTY DAMAGE	16
17.	CONDEMNATION	16
18.	EVENTS OF DEFAULT	17
19.	REMEDIES	18
20.	NO WAIVER	22
21.	PEACEFUL ENJOYMENT	22
22.	SUBSTITUTION	22
23.	HOLDING OVER	23



		Page
24.	SUBORDINATION TO MORTGAGE; ESTOPPEL CERTIFICATE	23
25.	NOTICE	24
26.	SURRENDER OF PREMISES	24
27.	RIGHTS RESERVED TO LANDLORD	24
28.	MISCELLANEAOUS	25
29.	NO OFFER	27
30.	ENTIRE AGREEMENT	27
31.	LIMITATION OF LIABILITY	27

EXHIBIT A - OUTLINE AND LOCATION OF PREMISES

EXHIBIT A-1 - LEGAL DESCRIPTION OF LAND

EXHIBIT B - RULES AND REGULATIONS

EXHIBIT C - PAYMENT OF BASIC COSTS

EXHIBIT D - WORK LETTER

EXHIBIT E - ADDITIONAL PROVISIONS

EXHIBIT F - COMMENCEMENT LETTER

EXHIBIT G - FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

OFFICE LEASE AGREEMENT

This Office Lease Agreement (the "Lease") is made and entered into as of the ____ day of July, 2014, between TDC CLAY, L.P., a Delaware limited partnership ("Landlord"), and TESCO CORPORATION, a Canadian corporation ("Tenant").

W I T N E S S E T H:

1.Definitions

The following are definitions of some of the defined terms used in this Lease. The definition of other defined terms are found throughout this Lease.

A."Building" shall mean the office building to be located at 11330 Clay Road, Houston, Texas 77041, and to be known as Westway Plaza.

B."Base Rent": Base Rent shall be paid according to the following schedule, subject to the provisions of Section 4 hereof. As used herein, "Lease Month" shall mean a period of time commencing on the same numeric day as the Commencement Date and ending on (but not including) the day in the next calendar month that is the same numeric date as the Commencement Date; provided, however, that the fourth (4th) Lease Month shall be extended by an additional fourteen (14) days, and if the fifth (5th) Lease Month does not commence on the first day of a calendar month, then the fifth (5th) Lease Month shall be extended to end on the last day of the first (1st) full calendar month following the expiration of the fourth (4th) Lease Month, Tenant shall pay Base Rent during the resulting partial calendar month (i.e. after the expiration of the fourth (4th) Lease Month) at the same rate payable for the fifth (5th) Lease Month (prorated based on the number of days in such partial calendar month), and the succeeding Lease Months shall commence on the first day of each calendar month thereafter.



Period	Annual Rate per Rentable Square Foot	Annual Base Rent	Monthly Installments of Base Rent
Lease Months 1 - 4	$0.00	$0.00	$0.00
Lease Months 5 - 16	$23.25	$616,357.56	$51,363.13
Lease Months 17 - 28	$23.72	$628,817.16	$52,401.43
Lease Months 29 - 40	$24.19	$641,276.88	$53,439.74
Lease Months 41 - 52	$24.67	$654,001.68	$54,500.14
Lease Months 53 - 64	$25.17	$667,256.76	$55,604.73



Period	Annual Rate per Rentable Square Foot	Annual Base Rent	Monthly Installments of Base Rent
Lease Months 65 - 76	$25.67	$680,511.72	$56,709.31
Lease Months 77 - 88	$26.18	$694,031.76	$57,835.98
Lease Months 89 - 100	$26.71	$708,082.08	$59,006.84
Lease Months 101 - 112	$27.24	$722,132.40	$60,177.70
Lease Months 113 - 124	$27.79	$736,712.88	$61,392.74

The Base Rent due for the fifth (5th) Lease Month of the Lease Term (hereinafter defined) and the Additional Rent due for the fifth (5th) Lease Month shall be paid by Tenant to Landlord contemporaneously with Tenant's execution hereof.

C."Additional Rent" shall mean Tenant's Pro Rata Share of Basic Costs (hereinafter defined), Tenant's Pro Rata Share of Taxes (hereinafter defined), and any other sums (exclusive of Base Rent) that are required to be paid to Landlord by Tenant hereunder, which sums are deemed to be Additional Rent under this Lease.

D."Basic Costs" is defined in Exhibit C attached hereto.

E."Taxes" is defined in Exhibit C attached hereto.

F."Security Deposit" shall mean the sum of $61,392.74. The Security Deposit shall be paid by Tenant to Landlord contemporaneously with Tenant's execution hereof.

G."Lease Term" shall mean a period of approximately 124 months commencing on the date upon which Landlord's Work in the Premises has been substantially completed, as such date is determined pursuant to the Work Letter attached hereto as Exhibit D (the "Commencement Date"). "Expiration Date" shall mean the last day of the Lease Term. Upon the determination of the actual Commencement Date and the actual Expiration Date, Landlord and Tenant shall each execute and deliver a Commencement Letter in the form of Exhibit F attached hereto (the "Commencement Letter") setting forth the Commencement Date and the Expiration Date.

H."Premises" shall mean the office space located on the third (3rd) floor of the Building and outlined on Exhibit A to this Lease. If the Premises include one or more floors in their entirety, all corridors and restroom facilities located on such full floor(s) shall be considered part of the Premises.

I."Rentable Area in the Premises" is estimated to be 26,510 square feet. Notwithstanding the foregoing, Landlord and Tenant acknowledge that the space planning for the Premises has not been finalized as of the date of this Lease, and that the rentable area of the Premises set forth above is an estimate and will be determined upon preparation of the final space plans for the Premises. Upon approval of the Tenant's Plans and Specifications (defined in Exhibit D) Landlord’s architect will determine the rentable area of the Premises and if the same is not 26,510 rentable square feet, then Landlord and Tenant shall enter into an amendment to this Lease to reflect the actual rentable area of the Premises, together with the corresponding adjustments in Base Rent, Tenant's Pro Rata Share and other applicable terms of this Lease based on the rentable area of the Premises; provided that in no event shall the rentable area of the Premises be less than 26,510 rentable square feet. For the purposes of determining the square footage of the Premises and the Building, the usable and the rentable areas will be determined in accordance with the ANSI/BOMA definition American National Standard Z65.1-2010 (Method A). Within thirty (30) days after the Commencement Date, Landlord’s architect shall field verify the actual rentable areas of the Building and the Premises based upon the BOMA Standard, and shall deliver a certification to Landlord and Tenant setting forth the field verified calculations.

J."Rentable Area in the Building" shall mean 312,000 square feet.

K."Tenant's Pro Rata Share" shall mean 8.5%.

L."Permitted Use" shall mean general office use and no other use or purpose.

M."Guarantor(s)" shall mean any party that agrees in writing to guarantee Tenant's obligations under the Lease. As of the date of this Lease there are no Guarantors.

N."Broker" shall mean, collectively, Transwestern, representing Landlord, and Avison Young, representing Tenant.

O."Business Day(s)" shall mean Mondays through Fridays exclusive of the normal business Holidays. For purposes hereof, "Holidays" shall mean New Year's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Friday following Thanksgiving Day, Christmas Day; provided that in the event any of the foregoing occur on a Saturday or a Sunday, then the term Holiday shall include any weekday that is the weekday commonly recognized by businesses to close for such Holiday.

P."Common Areas" shall mean those areas located within the Building or on the Property designated by Landlord, from time to time, for the common use or benefit of tenants generally and/or the public.

Q."Default Rate" shall mean the lower of (i) eighteen percent (18%) per annum, or (ii) the highest rate of interest from time-to-time permitted under applicable federal and state law.

R."Normal Business Hours" for the Building shall mean 7:00 a.m. to 6:00 p.m. Mondays through Fridays, and 8:00 a.m. to 1:00 p.m. on Saturdays, exclusive of holidays.

S."Property" shall mean the Building and the parcel(s) of land on which it is located, which land is described in Exhibit A-1 attached hereto, other improvements located on such land, adjacent parcels of land that Landlord operates jointly with the Building, and other buildings and improvements located on such adjacent parcels of land.

T."Notice Addresses" shall mean the following addresses for Tenant and Landlord, respectively:

Tenant:

Prior to Commencement Date:

Tesco Corporation

3993 W. Sam Houston Parkway N., Suite 100

Houston, Texas 77043

Attn: General Counsel

From and after Commencement Date:

Tesco Corporation

Westway Plaza

11330 Clay Road, Suite 350

Houston, Texas 77041

Attn: General Counsel

Landlord:

TDC Clay, L.P.

c/o Transwestern

1900 West Loop South, Suite 1300

Houston Texas, 77027

Attn: Property Manager

Payments of Rent only shall be made as follows:

TDC Clay, L.P.

c/o Transwestern

1900 West Loop South, Suite 1300

Houston Texas, 77027

Attn: Property Manager

or such other name and address as Landlord shall, from time to time, designate.

2.Lease Grant/Possession

A.Subject to and upon the terms herein set forth, Landlord leases to Tenant and Tenant leases from Landlord the Premises on an "as is" basis (except as otherwise expressly set forth herein), together with the right, in common with others, to use the Common Areas. By taking possession of the Premises, Tenant is deemed to have accepted the Premises and agreed that the Premises is in good order and satisfactory condition, with no representation or warranty by Landlord as to the condition of the Premises or the Building or suitability thereof for Tenant's use. Notwithstanding the above, taking of possession of the Premises by Tenant shall not be deemed an acceptance by Tenant of any latent defects in the Premises of which Tenant notifies Landlord in writing within thirty (30) days after occupancy, which latent defects Landlord agrees to correct within a reasonable time after notification thereof. Further, taking of possession of the Premises by Tenant shall not relieve Landlord of its obligations with respect to punch-list items, which shall be governed by Section 4 of Exhibit D attached hereto. NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, ARE MADE REGARDING THE CONDITION OR SUITABILITY OF THE PREMISES ON THE COMMENCEMENT DATE AND TENANT HAS NOT RELIED ON ANY SUCH REPRESENTATIONS OR WARRANTIES. FURTHER, TO THE EXTENT PERMITTED BY LAW, TENANT WAIVES ANY IMPLIED WARRANTY OF SUITABILITY, HABITABILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE PREMISES OR OTHER IMPLIED WARRANTIES THAT LANDLORD WILL MAINTAIN OR REPAIR THE PREMISES OR ITS APPURTENANCES EXCEPT AS MAY BE CLEARLY AND EXPRESSLY PROVIDED IN THIS LEASE.

B.Provided that such possession does not interfere with the construction of the Initial Tenant Improvements or the Building Shell Work, and subject to compliance with applicable laws and building codes governing Tenant's right to occupy or perform work in the Premises, Tenant may take possession of the Premises approximately four (4) weeks prior to the Commencement Date for the sole purpose of performing any improvements therein or installing furniture, equipment or other personal property of Tenant. Such possession shall be subject to all of the terms and conditions of the Lease, except that Tenant shall not be required to pay Rent with respect to the period of time prior to the Commencement Date during which Tenant performs such work. Tenant shall, however, be liable for the reasonable cost of any above-Building standard services (e.g., after hours HVAC) that are provided to Tenant during the period of Tenant's possession prior to the Commencement Date.

3.Use.

A.The Premises shall be used for the Permitted Use and for no other purpose. Tenant agrees not to use or permit the use of the Premises for any purpose which is illegal or dangerous, which creates a nuisance or which would increase the cost of insurance coverage with respect to the Building. Tenant will conduct its business and control its agents, servants, employees, customers, licensees, and invitees in such a manner as not to interfere with or disturb other tenants or Landlord in the management of the Property. Tenant will maintain the Premises in a clean and healthful condition, and comply with all laws, ordinances, orders, rules and regulations of any governmental entity with reference to the use, condition, configuration or occupancy of the Premises. Tenant shall not, and shall not allow its employees, agents, contractors or invitees, to bring into the Building or the Premises any dangerous or hazardous materials, except for customary office and cleaning supplies, provided Tenant uses, stores and disposes of the same in compliance with all applicable law. Tenant, at its expense, will comply with the rules and regulations of the Building attached hereto as Exhibit B and such other rules and regulations adopted and altered by Landlord from time-to-time and will cause all of its agents, employees, invitees and visitors to do so. All such changes to rules and regulations will be reasonable and shall be sent by Landlord to Tenant in writing. In the event of a conflict between the rules and regulations and the terms of this Lease, the terms of this Lease shall control. Landlord shall not knowingly enforce the rules and regulations against Tenant in a discriminatory manner.

B.Tenant represents, warrants, covenants and agrees that, except as otherwise provided herein, Tenant and its employees, agents, contractors and/or invitees (i) will not (a) use, introduce or maintain any hazardous or toxic chemical, material, substance or waste (collectively, "Hazardous Materials") in, on, under or about any portion of the Premises or the Building or (b) conduct any activity or activities in or on the Premises or the Building involving, directly or indirectly, the use, generation, treatment, storage, disposal or release of any Hazardous Materials and (ii) shall not be, nor permit the Premises to be, in violation of any applicable local, state or federal environmental laws, statutes or ordinances (or the rules and regulations promulgated thereunder) ("Environmental Laws"); provided that Tenant may use customary office and cleaning supplies so long as the same are used, stored and disposed of in compliance with, and in quantities not reportable under, all applicable Environmental Laws. Tenant indemnifies Landlord and its lenders and shall hold them harmless from and against any and all loss, cost, damage, liability and expense arising in connection with any breach by Tenant of any of the representations, warranties, covenants and agreements set forth herein. The provisions of this paragraph shall survive the expiration or earlier termination of the Lease.

4.Rent

A.Tenant covenants to pay to Landlord during the Lease Term, without any setoff or deduction except as otherwise expressly provided herein, the full amount of all Base Rent and Additional Rent due hereunder and the full amount of all such other sums of

money as shall become due under this Lease, all of which hereinafter may be collectively called "Rent." In addition, Tenant shall pay, as Additional Rent, all rent, sales and use taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid to Landlord by Tenant under this Lease. Such payments shall be paid concurrently with the payments of the Rent on which the tax is based. Base Rent and Additional Rent for each calendar year or portion thereof during the Lease Term, shall be due and payable in advance in monthly installments on the first day of each calendar month during the Lease Term, without demand. If the Lease Term commences on a day other than the first day of a month or terminates on a day other than the last day of a month, then the installments of Base Rent and Additional Rent for such month or months shall be prorated, based on the number of days in such month. All amounts received by Landlord from Tenant hereunder shall be applied first to the earliest accrued and unpaid Rent then outstanding. Tenant's covenant to pay Rent shall be independent of every other covenant set forth in this Lease.

B.To the extent allowed by law, all installments of Rent not paid when due shall bear interest at the Default Rate from the date due until paid, provided, Tenant shall be entitled to a grace period of three (3) Business Days after notice from Landlord with respect to the first two (2) late payments in any calendar year. In addition, if Tenant fails to pay any installment of Base Rent and Additional Rent or any other item of Rent when due and payable hereunder, a "Late Charge" equal to five percent (5%) of such unpaid amount will be due and payable immediately by Tenant to Landlord, provided, Tenant shall be entitled to a grace period of three (3) Business Days after notice from Landlord with respect to the first two (2) late payments in any calendar year.

C.The Basic Costs and Taxes payable hereunder shall be adjusted from time-to-time in accordance with the provisions of Exhibit C attached hereto.

5.Security Deposit.

The Security Deposit shall be held by Landlord without liability for interest and as security for the performance by Tenant of Tenant's covenants and obligations under this Lease, it being expressly understood that the Security Deposit shall not be considered an advance payment of Rent or a measure of Tenant's liability for damages in case of default by Tenant. Landlord shall not be required to keep the Security Deposit separate from its other accounts, shall have no fiduciary responsibilities or trust obligations whatsoever with regard to the Security Deposit. Landlord may, from time-to-time, without prejudice to any other remedy and without waiving such default, use the Security Deposit to the extent necessary to cure or attempt to cure, in whole or in part, any default of Tenant hereunder. Following any such application of the Security Deposit, Tenant shall pay to Landlord within five (5) Business Days after demand the amount so applied in order to restore the Security Deposit to its original amount. If Tenant is not in default at the termination of this Lease, the balance of the Security Deposit remaining after any such application shall be returned by Landlord to Tenant within sixty (60) days thereafter. If Landlord transfers its interest in the Premises during the term of this Lease, Landlord shall assign the Security Deposit to the transferee and thereafter shall have no further liability for the return of such Security Deposit.

6.Services to be Furnished by Landlord

A.Landlord shall furnish the following services: (i) heating and air conditioning during Normal Business Hours to provide a temperature condition required, in Landlord's reasonable judgment, for comfortable occupancy of the Premises under normal business operations; (ii) water for drinking, and, subject to Landlord's approval, water at Tenant's expense for any private restrooms and office kitchen requested by Tenant; (iii) janitorial service in the Premises and Common Areas five (5) days a week (excluding holidays); (iv) electricity to the Premises for general office use, in accordance with and subject to the terms and conditions of Section 10 of this Lease; and (v) passenger elevator service, 24 hours a day, 7 days a week; and freight elevator service on Business Days, upon request of Tenant and subject to scheduling and charges by Landlord.

B.If Tenant requests any other utilities or Building services in addition to those identified in Section 6A, or any of the above utilities or Building services in frequency, scope, quality or quantities substantially greater than the standards set by Landlord for the Building, then Landlord shall use reasonable efforts to attempt to furnish Tenant with such additional utilities or Building services. Landlord may impose a reasonable charge for such additional utilities or Building services, which shall be paid monthly by Tenant as Additional Rent on the same day that the monthly installment of Base Rent is due.

C.Except as otherwise expressly provided herein, the failure by Landlord to any extent to furnish, or the interruption or termination of utilities and Building services identified in Section 6A in whole or in part, resulting from adherence to laws, regulations and administrative orders, wear, use, repairs, improvements, alterations or any causes shall not render Landlord liable in any respect nor be construed as an actual or constructive eviction of Tenant, nor give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement hereof.

D.Notwithstanding anything to the contrary contained in this Section 6, if: (i) Landlord ceases to furnish any service described in Section 6A in the Premises and Common Areas necessary for use of the Premises for a period in excess of five (5) consecutive Business Days after Tenant notifies Landlord of such cessation (the "Interruption Notice"); (ii) such cessation does not arise as a result of an act or omission of Tenant; (iii) such cessation is not caused by a fire or other casualty (in which case Section 16 shall control); (iv) the restoration of such service is reasonably within the control of Landlord; and (v) as a result of such cessation, the Premises or a material portion thereof, is rendered untenantable and Tenant in fact ceases to use the Premises, or material portion thereof, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Base Rent payable hereunder during the period beginning on the sixth (6th) consecutive Business Day of such cessation and ending on the day when the service in question has been restored. In the event the entire Premises has not been rendered untenantable by the cessation in service, the amount of abatement that Tenant is entitled to receive shall be prorated based upon the percentage of the Premises so rendered untenantable and not used by Tenant.

7.Leasehold Improvements; Tenant's Property.

All fixtures, equipment, improvements and appurtenances attached to, or built into, the Premises at the commencement of or during the Lease Term, whether or not by, or at the expense of, Tenant ("Leasehold Improvements"), shall be and remain a part of the Premises; shall be the property of Landlord; and shall not be removed by Tenant except as expressly provided herein. All unattached and moveable partitions, trade fixtures, moveable equipment or furniture located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, which can be removed without structural damage to the Building or Premises, and all personalty brought into the Premises by Tenant ("Tenant's Property") shall be owned and insured by Tenant. Landlord may, nonetheless, upon the expiration or earlier termination of this Lease or Tenant's right to possession of the Premises, require Tenant to remove any Leasehold Improvements (the "Required Removables") at Tenant's sole cost. Upon the termination of the Lease Term or the sooner termination of Tenant's right to possession of the Premises, Tenant shall remove Tenant's Property, all electronic, phone and data cabling exclusively serving the Premises (whether such cabling is located within or outside of the Premises), and all Required Removables. Tenant shall, at its sole cost and expense, repair any damage caused by such removal. If Tenant fails to remove any of the foregoing items or to perform any required repairs and restoration, (i) Landlord, at Tenant's sole cost and expense, may remove the same (and repair any damage occasioned thereby) and dispose thereof or deliver such items to any other place of business of Tenant, or warehouse the same, and Tenant shall pay the cost of such removal, repair, delivery, or warehousing of such items within five (5) Business Days after demand from Landlord and (ii) such failure shall be deemed a holding over by Tenant under Section 23 hereof until such failure is rectified by Tenant or Landlord.

8.Signage.

Tenant shall not install any signage visible from the exterior of the Premises; all signage shall be in the standard graphics for the Building and no others shall be used or permitted without Landlord's prior written consent.

9.Maintenance, Repairs and Alterations.

A.Except to the extent such obligations are imposed upon Landlord hereunder, Tenant shall, at its sole cost and expense, maintain the Premises in good order, condition and repair throughout the entire Lease Term, ordinary wear and tear excepted. Tenant agrees to keep the areas visible from outside the Premises in a neat, clean and attractive condition at all times. Tenant shall, within thirty (30) days after Landlord's written demand therefor, reimburse Landlord for the cost of all repairs, replacements and alterations (collectively, "Repairs") in and to the Premises, Building and Property and the facilities and systems thereof, plus an administration charge of five percent (5%) of such cost, the need for which Repairs arises out of (1) Tenant's use or occupancy of the Premises, (2) the

installation, removal, use or operation of Tenant's Property or Required Removables, (3) the moving of Tenant's Property and Required Removables into or out of the Building, (4) any Alterations (hereinafter defined) or other work performed by Landlord pursuant to the Work Letter (subject to any construction allowance), or (5) the act, omission, misuse or negligence of Tenant, its agents, contractors, employees or invitees.

B.Tenant shall not make or allow to be made any alterations, additions or improvements to the Premises (collectively, "Alterations"), without first obtaining the written consent of Landlord. Prior to commencing any Alterations and as a condition to obtaining Landlord's consent, Tenant shall deliver to Landlord plans and specifications acceptable to Landlord; names and addresses of contractors reasonably acceptable to Landlord; copies of contracts; necessary permits and approvals; evidence of contractor's and subcontractor's insurance in accordance with Section 13 hereof; and a payment bond or other security, all in form and amount satisfactory to Landlord. Tenant shall be responsible for insuring that all such persons procure and maintain insurance coverage against such risks, in such amounts and with such companies as Landlord may reasonably require. All Alterations shall be constructed in a good and workmanlike manner using Building standard materials or other new materials of equal or greater quality. Landlord, to the extent reasonably necessary to avoid any disruption to the tenants and occupants of the Building, shall have the right to designate the time when any Alterations may be performed and to otherwise designate reasonable rules, regulations and procedures for the performance of work in the Building. Upon completion of the Alterations, Tenant shall deliver to Landlord "as-built" plans, contractor's affidavits and full and final waivers of lien and receipted bills covering all labor and materials. All Alterations shall comply with the insurance requirements and with applicable codes, ordinances, laws and regulations. Tenant shall reimburse Landlord upon demand for all reasonable sums, if any, expended by Landlord for third party examination of the architectural, mechanical, electrical and plumbing plans for any Alterations. In addition, if Landlord so requests, Landlord shall be entitled to oversee the construction of any Alterations that may affect the structure of the Building or any of the mechanical, electrical, plumbing or life safety systems of the Building. If Landlord elects to oversee such work, Landlord shall be entitled to receive a fee for such oversight in an amount equal to five percent (5%) of the cost of such Alterations affecting structure of the Building or any of the mechanical, electrical, plumbing or life safety systems of the Building. Landlord's approval of Tenant's plans and specifications for any Alterations performed for or on behalf of Tenant shall not be deemed to be representation by Landlord that such plans and specifications comply with applicable insurance requirements, building codes, ordinances, laws or regulations or that the Alterations constructed in accordance with such plans and specifications will be adequate for Tenant's use.

C. Landlord shall keep and maintain in good repair and working order and perform maintenance upon the: (i) structural elements (including the foundation) of the Building; (ii) mechanical (including HVAC), electrical, plumbing and fire/life safety systems, if any, serving the Building in general; (iii) Common Areas; (iv) roof of the Building; (v) exterior windows of the Building; and (vi) elevators serving the Building. Landlord shall promptly make repairs for which Landlord is responsible.

10.Use of Electrical Services by Tenant.

All electricity used by Tenant in the Premises shall be paid for by Tenant through inclusion in Basic Costs (except as provided below with respect to excess usage). Landlord shall have the right at any time and from time-to-time during the Lease Term to contract for electricity service from such providers of such services as Landlord shall elect (each being an "Electric Service Provider"). Tenant shall cooperate with Landlord, and the applicable Electric Service Provider, at all times and, as reasonably necessary, shall allow Landlord and such Electric Service Provider reasonable access to the Building's electric lines, feeders, risers, wiring, and any other machinery within the Premises. Tenant's use of electrical services furnished by Landlord shall not exceed in voltage, rated capacity, or overall load that which is standard for the Building. In the event Tenant shall request that it be allowed to consume electrical services in excess of Building standard, Landlord may refuse to consent to such usage or may consent upon such conditions as Landlord reasonably elects, and all such additional usage shall be paid for by Tenant as Additional Rent. Landlord, at any time during the Lease Term, shall have the right to separately meter electrical usage for the Premises or to measure electrical usage by survey or any other method that Landlord, in its reasonable judgment, deems appropriate.

11.Assignment and Subletting

A.Except in connection with a Permitted Transfer (defined in Section 11E below), Tenant shall not assign, sublease, transfer or encumber any interest in this Lease or allow any third party to use any portion of the Premises (collectively or individually, a "Transfer") without the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to a proposed sublease or assignment (other than a collateral assignment, in which case Landlord may withhold its consent in its sole and absolute discretion). Without limitation, it is agreed that Landlord's consent shall not be considered unreasonably withheld if: (1) the proposed transferee's financial condition is not adequate for the obligations such transferee is assuming in connection with the proposed Transfer; (2) the transferee's business or reputation is not suitable for the Building considering the business and reputation of the other tenants and the Building's prestige, or would result in a violation of another tenant's rights under its lease at the Building; (3) the transferee is a governmental agency or occupant of the Building; (4) Tenant is in default beyond any applicable notice and cure period; (5) any portion of the Building or the Premises would likely become subject to additional or different laws as a consequence of the proposed Transfer; or (6) Landlord or its leasing agent has received a proposal from or made a proposal to the proposed transferee to lease space in the Building within six (6) months prior to Tenant's delivery of written notice of the proposed Transfer to Landlord. Any attempted Transfer in violation of this Section 11, shall, exercisable in Landlord's sole and absolute discretion, be void. Consent by Landlord to one or more Transfers shall not operate as a waiver of Landlord's rights to approve any subsequent Transfers. If Landlord withholds its consent to any Transfer contrary to the provisions of this Section 11, Tenant's

sole remedy shall be to seek an injunction in equity to compel performance by Landlord to give its consent and Tenant expressly waives any right to damages in the event of such withholding by Landlord of its consent. In no event shall any Transfer or Permitted Transfer release or relieve Tenant from any obligation under this Lease or any liability hereunder.

B.If Tenant requests Landlord's consent to a Transfer, Tenant shall submit to Landlord (i) financial statements for the proposed transferee, (ii) a copy of the proposed assignment or sublease, and (iii) such other information as Landlord may reasonably request. After Landlord's receipt of the required information and documentation, Landlord shall either: (1) consent or reasonably refuse consent to the Transfer in writing; (2) in the event of a proposed assignment of this Lease, terminate this Lease effective the first to occur of ninety (90) days following written notice of such termination or the date that the proposed Transfer would have come into effect; and (3) in the event of a proposed subletting, terminate this Lease with respect to the portion of the Premises which Tenant proposes to sublease effective the first to occur of ninety (90) days following written notice of such termination or the date the proposed Transfer would have come into effect. Tenant shall reimburse Landlord for its actual reasonable costs and expenses (including, without limitation, reasonable attorney's fees) incurred by Landlord in connection with Landlord's review of such proposed Transfer or Permitted Transfer. Notwithstanding the above, Tenant, within five (5) Business Days after receipt of Landlord's notice of intent to terminate, may withdraw its request for consent to the Transfer. In that event, Landlord’s election to terminate the Lease shall be null and void and of no force and effect.

C.Tenant shall pay to Landlord fifty percent (50%) of all cash and other consideration which Tenant receives as a result of a Transfer that is in excess of the rent payable to Landlord hereunder for the portion of the Premises and Lease Term covered by the Transfer within ten (10) Business Days following receipt thereof by Tenant.

D.Except as provided below with respect to a Permitted Transfer, if Tenant is a corporation, limited liability company, partnership or similar entity, and the person, persons or entity which owns or controls a majority of the voting interests at the time changes for any reason (including but not limited to a merger, consolidation or reorganization), such change of ownership or control shall constitute a Transfer. The foregoing shall not apply so long as Tenant is an entity whose outstanding stock is listed on a nationally recognized security exchange, or if at least eighty percent (80%) of its voting stock is owned by another entity, the voting stock of which is so listed.

E.Tenant may assign its entire interest under this Lease or sublet the Premises (i) to any entity controlling or controlled by or under common control with Tenant or (ii) to any successor to Tenant by purchase, merger, consolidation or reorganization (hereinafter, collectively, referred to as "Permitted Transfer") without the consent of Landlord, provided: (1) Tenant is not in default under this Lease; (2) if such proposed transferee is a successor to Tenant by purchase, said proposed transferee shall acquire all or substantially all of the stock or assets of Tenant's business or, if such proposed transferee is a successor to Tenant by merger, consolidation or reorganization, the continuing or surviving entity

shall own all or substantially all of the assets of Tenant; (3) with respect to a Permitted Transfer to a proposed transferee described in clause (ii), such proposed transferee shall have a tangible net worth which is at least equal to the greater of Tenant's tangible net worth at the date of this Lease or Tenant's tangible net worth as of the day prior to the proposed purchase, merger, consolidation or reorganization as evidenced to Landlord's reasonable satisfaction; and (4) Tenant shall give Landlord written notice at least thirty (30) days prior to the effective date of the proposed purchase, merger, consolidation or reorganization.

12.Mechanic's Liens.

Tenant will not permit any mechanic's liens or other liens to be placed upon the Property. If a lien is attached to the Property, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, discharge the same. Any amount paid by Landlord for any of the aforesaid purposes including, but not limited to, reasonable attorneys' fees, shall be paid by Tenant to Landlord within thirty (30) days after demand as Additional Rent. Tenant shall within ten (10) Business Days of receiving such notice of lien or claim have such lien or claim released of record. Tenant's failure to comply with the provisions of the foregoing sentence shall be deemed an Event of Default entitling Landlord to exercise all of its remedies therefor without the requirement of any additional notice or cure period.

13.Insurance.

A.Landlord shall, at all times during the Lease Term, procure and maintain: (i) policies of insurance covering loss or damage to the Property in an amount equal to the full replacement cost of the Building, including leasehold improvements in the Premises, which shall provide protection against loss by fire and other special form casualties including earthquake and flood and such other property insurance as may be required by Landlord's mortgagee or as otherwise desired by Landlord, and (ii) commercial general liability insurance applicable to the Building and the Common Areas, providing a minimum limit of $3,000,000.00 per occurrence.

B.Tenant shall procure and maintain, at its expense, (i) causes of loss - special form property insurance in an amount equal to the full replacement cost of Tenant's Property located in the Premises; (ii) a policy or policies of commercial general liability and umbrella or excess liability insurance applying to Tenant's operations and use of the Premises, providing a minimum limit of $3,000,000.00 per occurrence and in the aggregate, naming Landlord, Landlord's Property manager and any lender whose loan is secured by a lien against the Building (as such lender shall be identified to Tenant by Landlord in writing) as additional insureds, (iii) automobile liability insurance covering owned, non-owned and hired vehicles in an amount not less than a combined single limit of $1,000,000.00 per accident, and (iv) workers' compensation insurance covering Tenant's employment of workers and anyone for whom Tenant may be liable for workers' compensation claims (workers' compensation insurance is required and no alternative

forms of insurance are permitted) and employer's liability insurance in an amount not less than $1,000,000.00 each accident, $1,000,000.00 disease-each employee and policy limit, with the insurance policies required under this clause (iv) to be endorsed to waive the insurance carriers' right of subrogation. Tenant shall maintain the foregoing insurance coverages in effect commencing on the earlier to occur of the Commencement Date and the date Tenant takes possession of the Premises, and continuing to the end of the Lease Term.

C.The insurance requirements set forth in this Section 13 are independent of the waiver, indemnification, and other obligations under this Lease and will not be construed or interpreted in any way to restrict, limit or modify the waiver, indemnification and other obligations or to in any way limit any party's liability under this Lease. In addition to the requirements set forth in Sections 13.B and 13.D, the insurance required of Tenant under this Lease must be issued by an insurance company with a rating of no less than A-VIII in the current Best's Insurance Guide or that is otherwise acceptable to Landlord, and admitted to engage in the business of insurance in the state in which the Building is located; be on a form that does not limit the coverage provided under such policy (i) to any additional insured by reason of such additional insured's negligent acts or omissions (sole or otherwise), or (ii) to claims for which a primary insured has agreed to indemnify the additional insured; be primary insurance for all claims under it and provide that any insurance carried by Landlord, Landlord's Property manager, and Landlord's lenders is strictly excess, secondary and noncontributing with any insurance carried by Tenant; and provide that insurance may not be cancelled, nonrenewed or the subject of change in coverage of available limits of coverage, except upon thirty (30) days' prior written notice to Landlord and Landlord's lenders. Tenant will deliver to Landlord a legally enforceable certificate of insurance on all policies procured by Tenant in compliance with Tenant's obligations under this Lease on or before the date Tenant first occupies any portion of the Premises, at least ten (10) days before the expiration date of any policy and upon the renewal of any policy. Landlord shall have the right to approve all deductibles and self-insured retentions under Tenant's policies, which approval shall not be unreasonably withheld, conditioned or delayed.

D.Notwithstanding anything to the contrary set forth herein, neither Landlord nor Tenant shall be liable (by way of subrogation or otherwise) to the other party (or to any insurance company insuring the other party) for any loss or damage to any of the property of Landlord or Tenant, as the case may be, with respect to their respective property, the Building, the Property or the Premises or any addition or improvements thereto, or any contents therein, to the extent covered by insurance carried or required to be carried by a party hereto EVEN THOUGH SUCH LOSS MIGHT HAVE BEEN OCCASIONED BY THE NEGLIGENCE OR WILLFUL ACTS OR OMISSIONS (BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF THE LANDLORD OR TENANT OR THEIR RESPECTIVE EMPLOYEES, AGENTS, CONTRACTORS OR INVITEES. Landlord and Tenant shall give each insurance company which issues policies of insurance, with respect to the items covered by this waiver, written notice of the terms of this mutual waiver, and shall have such insurance policies properly endorsed, if necessary, to prevent the invalidation of any of the coverage provided by such insurance policies by reason of such mutual waiver. For the purpose of the foregoing waiver, the amount of any deductible applicable to any loss or damage shall be deemed covered by, and recoverable by the insured under the insurance policy to which such deductible relates.

14.Indemnity.

To the extent not expressly prohibited by law, Landlord and Tenant each (in either case, the "Indemnitor") agree to hold harmless and indemnify the other and the other's agents, partners, shareholders, members, officers, directors, beneficiaries and employees, and any lender whose loan is secured by a lien against the Building (collectively, the "Indemnitees") from any losses, damages, judgments, claims, expenses, costs and liabilities imposed upon or incurred by or asserted against the Indemnitees, including without limitation reasonable attorneys' fees and expenses, for death or injury to, or damage to property of, third parties, other than the Indemnitees, that may arise from the negligence or willful misconduct of Indemnitor or any of Indemnitor's agents, members, partners or employees. Such third parties shall not be deemed third party beneficiaries of this Lease. If any action, suit or proceeding is brought against any of the Indemnitees by reason of the negligence or willful misconduct of Indemnitor or any of Indemnitor's agents, members, partners or employees, then Indemnitor will, at Indemnitor's expense and at the option of said Indemnitees, by counsel reasonably approved by said Indemnitees, resist and defend such action, suit or proceeding. In addition, to the extent not expressly prohibited by law, Tenant agrees to hold harmless and indemnify Landlord and Landlord's Indemnitees from any losses, damages, judgments, claims, expenses, costs and liabilities imposed upon or incurred by or asserted against Landlord or Landlord's Indemnitees, including reasonable attorneys' fees and expenses, for death or injury to, or damage to property of, third parties (other than Landlord's Indemnitees) that may arise from any act or occurrence in the Premises, EVEN IF SUCH DEATH OR INJURY OR DAMAGE RESULTS FROM THE NEGLIGENCE (BUT NOT THE SOLE NEGLIGENCE OR WILLFUL MISCONDUCT) OF LANDLORD OR LANDLORD'S INDEMNITEES.

15.Damages from Certain Causes.

To the extent not expressly prohibited by law, Landlord shall not be liable to Tenant or Tenant's employees, contractors, agents, invitees or customers, for any injury to person or damage to property sustained by Tenant or any such party or any other person claiming through Tenant resulting from any accident or occurrence in the Premises or any other portion of the Building caused by the Premises or any other portion of the Building becoming out of repair or by defect in or failure of equipment, pipes, or wiring, or by broken glass, or by the backing up of drains, or by gas, water, steam, electricity, or oil leaking, escaping or flowing into the Premises (except where due to Landlord's grossly negligent or willful failure to make repairs required to be made pursuant to other provisions of this Lease, after the expiration of a reasonable time after written notice to Landlord of the need for such repairs), EVEN IF SUCH DAMAGE RESULTS FROM THE NEGLIGENCE (BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF LANDLORD OR ITS PARTNERS OR THEIR RESPECTIVE PARTNERS, MEMBERS, AGENTS OR EMPLOYEES, nor shall Landlord be liable to Tenant for any loss or damage that may be occasioned by or through the acts or omissions of other tenants of the Building or of any other persons whomsoever, including, but not limited to riot, strike, insurrection, war, court order, requisition, order of any governmental body or authority, acts of God, fire or theft.

16.Casualty Damage.

If the Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Landlord. In case the Building shall be so damaged that substantial alteration or reconstruction of the Building shall, in Landlord's sole opinion, be required (whether or not the Premises shall have been damaged by such casualty) or in the event there is less than two (2) years of the Lease Term remaining or in the event Landlord's mortgagee should require that the insurance proceeds payable as a result of a casualty be applied to the payment of the mortgage debt or in the event of any material uninsured loss to the Building (other than an uninsured loss resulting from Landlord's failure to maintain the insurance required under this Lease), Landlord may, at its option, terminate this Lease by notifying Tenant in writing of such termination within ninety (90) days after the date of such casualty. In the event the Lease is terminated pursuant to this Section 16, Rent shall be prorated to the later of (i) the date of the damage or destruction, or (ii) the date Tenant vacates the Premises, and any pre-paid Rent or other prepaid amounts shall be refunded to Tenant. Landlord shall deliver to Tenant within ninety (90) days after the date of the damage, a reasonable estimate of the time required to repair and restore the Premises (the "Repair Estimate"). If Landlord does not thus elect to terminate this Lease pursuant to the foregoing and Tenant does not elect to terminate this Lease as set forth below, Landlord shall commence and proceed with reasonable diligence to restore the Building, and the improvements located within the Premises to substantially the same condition in which it was immediately prior to the happening of the casualty. If as a result of such fire or casualty the Premises or any part thereof have been damaged and the Repair Estimate states that repair and restoration thereof will not be completed within two hundred twenty-five (225) days after the date of the damage, Tenant may terminate this Lease by giving Landlord notice of termination within ten (10) days after the date Tenant receives the Repair Estimate. Notwithstanding the foregoing, Landlord's obligation to restore the Building, and the improvements located within the Premises shall not require Landlord to expend for such repair and restoration work more than the insurance proceeds actually received by Landlord as a result of the casualty (or which would have been received by Landlord if Landlord fails to maintain the insurance required under this Lease). When the repairs described in the preceding two sentences have been completed by Landlord, Tenant shall complete the restoration of all furniture, fixtures and equipment which are necessary to permit Tenant's reoccupancy of the Premises. Landlord shall not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from such damage or the repair thereof, except that Rent shall be abated from the date of the damage or destruction for any portion of the Premises that is unusable by Tenant, which abatement shall be in the same proportion that the Rentable Area of the Premises which is unusable by Tenant bears to the total Rentable Area of the Premises; provided that Tenant shall not be entitled to any abatement of Rent if the damage or destruction in the Premises is restored within five (5) Business Days after Landlord's receipt of written notice from Tenant of the occurrence of the damage or destruction.

17.Condemnation.

If the whole or any substantial part of the Premises or if the Building or any portion thereof which would leave the remainder of the Building unsuitable for use comparable to its use on the Commencement Date, or if the land on which the Building is located or any material portion thereof, shall be taken or condemned for any public or quasi‑public use under governmental law,

ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, then Landlord may, at its option, terminate this Lease and Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises or said portion of the Building or land shall occur. If the whole or any substantial part of the Premises shall be taken or condemned for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, then Tenant may, at its option terminate this Lease by delivering notice of termination to Landlord within ten (10) days after the taking, and Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall occur. If this Lease is not terminated, the rent for any portion of the Premises so taken or condemned shall be abated during the unexpired Lease Term effective when the physical taking of said portion of the Premises shall occur. All compensation awarded for any taking or condemnation, or sale proceeds in lieu thereof, shall be the property of Landlord, and Tenant shall have no claim thereto, the same being hereby expressly waived by Tenant, except for any portions of such award or proceeds which are specifically allocated by the condemning or purchasing party for the taking of or damage to trade fixtures of Tenant and moving costs, which Tenant specifically reserves to itself.

18.Events of Default.

A.Default by Tenant. The following events shall be deemed to be "Events of Default" under this Lease: (i) Tenant fails to pay any Rent when due; provided that the first (1^st) such failure during any consecutive twelve (12) month period during the Term shall not be an Event of Default if Tenant pays the amount due within five (5) days after Tenant's receipt of written notice from Landlord that such payment was not made when due, (ii) Tenant fails to perform any other provision of this Lease not described in this Section 18.A, and such failure is not cured within thirty (30) days (or immediately if the failure involves a hazardous condition) after notice from Landlord, however, other than with respect to a hazardous condition, if Tenant's failure to comply cannot reasonably be cured within thirty (30) days, Tenant shall be allowed additional time (not to exceed thirty (30) additional days) as is reasonably necessary to cure the failure so long as Tenant begins the cure within thirty (30) days and diligently pursues the cure to completion; (iii) Tenant fails to observe or perform any of the covenants with respect to (a) assignment and subletting as set forth in Section 11, (b) mechanic's liens as set forth in Section 12, (c) insurance as set forth in Section 13 or (d) delivering subordination agreements or estoppel certificates as set forth in Section 24, (iv) the leasehold interest of Tenant is levied upon or attached under process of law; (v) Tenant or any guarantor of this Lease dies or dissolves (except in connection with a Permitted Transfer); (vi) Tenant abandons or vacates the Premises; or (vii) any voluntary or involuntary proceedings are filed by or against Tenant or any guarantor of this Lease under any bankruptcy, insolvency or similar laws and, in the case of any involuntary proceedings, are not dismissed within sixty (60) days after filing.

B.Default by Landlord. Landlord shall be in default under this Lease if Landlord fails to perform any of its obligations hereunder and said failure continues for a

period of thirty (30) days after Tenant delivers written notice thereof to Landlord (to each of the addresses required by the Lease) and each mortgagee who has a lien against any portion of the Property and whose name and address has been provided to Tenant, provided that if such failure cannot reasonably be cured within said thirty (30) day period, Landlord shall not be in default hereunder if the curative action is commenced within said thirty (30) day period and is thereafter diligently pursued until cured. In no event shall (i) Tenant claim a constructive or actual eviction or that the Premises have become unsuitable hereunder or (ii) a constructive or actual eviction or breach of the implied warranty of suitability be deemed to have occurred under this Lease, prior to the expiration of the notice and cure periods provided under this Section 18.B. Any notice of a failure to perform by Landlord shall be sent to Landlord at the addresses and to the attention of the parties set forth in Section 1 of the Lease. Any notice of a failure to perform by Landlord not sent to Landlord at all addresses and/or to the attention of all parties required under this Section and to each mortgagee who is entitled to notice or not sent in compliance with Section 25 below shall be of no force or effect. Tenant's sole remedy for a default by Landlord under this Lease shall be an action for damages.

19.Remedies.

A.Upon the occurrence of any Event of Default by Tenant, Landlord shall have the following rights and remedies, in addition to those allowed by law or equity, any one or more of which may be exercised without further notice to or demand upon Tenant and which may be pursued successively or cumulatively as Landlord may elect:


(1)	Landlord may re-enter the Premises and attempt to cure any default of Tenant, in which event Tenant shall, upon demand, reimburse Landlord as Additional Rent for all reasonable costs and expenses which Landlord incurs to cure such default;


(2)	Landlord may terminate this Lease by giving to Tenant notice of Landlord's election to do so, in which event the Lease Term shall end, and all right, title and interest of Tenant hereunder shall expire, on the date stated in such notice;


(3)	Landlord may terminate the right of Tenant to possession of the Premises without terminating this Lease by giving notice to Tenant that Tenant's right to possession shall end on the date stated in such notice, whereupon the right of Tenant to possession of the Premises or any part thereof shall cease on the date stated in such notice; and


(4)	Landlord may enforce the provisions of this Lease by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, or for the enforcement of any other appropriate legal or

equitable remedy, including recovery of all moneys due or to become due from Tenant under any of the provisions of this Lease.

Landlord shall not be required to serve Tenant with any notices or demands as a prerequisite to its exercise of any of its rights or remedies under this Lease, other than those notices and demands specifically required under this Lease. In order to regain possession of the Premises and to deny Tenant access thereto, Landlord or its agent may, at the expense and liability of the Tenant, alter or change any or all locks or other security devices controlling access to the Premises without posting or giving notice of any kind to Tenant and Landlord shall have no obligation to provide Tenant a key to new locks installed in the Premises or grant Tenant access to the Premises. Tenant shall not be entitled to recover possession of the Premises, terminate this Lease, or recover any actual, incidental, consequential, punitive, statutory or other damages or award of attorneys' fees, by reason of Landlord's alteration or change of any lock or other security device and the resulting exclusion from the Premises of the Tenant or Tenant's agents, servants, employees, customers, licensees, invitees or any other persons from the Premises. Landlord may, without notice, remove and either dispose of or store, at Tenant's expense, any property belonging to Tenant that remains in the Premises after Landlord has regained possession thereof. Tenant acknowledges that the provisions of this subparagraph of this Lease supersede the Texas Property Code and Tenant further warrants and represents that it hereby knowingly waives any rights it may have thereunder. TENANT KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LAWSUIT BROUGHT BY LANDLORD TO RECOVER POSSESSION OF THE PREMISES FOLLOWING LANDLORD'S TERMINATION OF THIS LEASE OR THE RIGHT OF TENANT TO POSSESSION OF THE PREMISES PURSUANT TO THE TERMS OF THIS LEASE AND ON ANY CLAIM FOR DELINQUENT RENT WHICH LANDLORD MAY JOIN IN ITS LAWSUIT TO RECOVER POSSESSION. LANDLORD IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER.

B.If Landlord exercises either of the remedies provided in Sections 19A(2) or 19A(3), Tenant shall surrender possession and vacate the Premises and immediately deliver possession thereof to Landlord, and Landlord may re-enter and take complete and peaceful possession of the Premises, with process of law, and Landlord may remove all occupants and property therefrom, using such force as may be necessary to the extent allowed by law, without being deemed guilty in any manner of trespass, eviction or forcible entry and detainer and without relinquishing Landlord's right to Rent or any other right given to Landlord hereunder or by operation of law.

C.If Landlord terminates the right of Tenant to possession of the Premises without terminating this Lease, Landlord shall have the right to immediate recovery of all amounts then due hereunder. Such termination of possession shall not release Tenant, in whole or in part, from Tenant's obligation to pay Rent hereunder for the full Lease Term, and Landlord shall have the right, from time to time, to recover from Tenant, and Tenant shall remain liable for, all Rent accruing as it becomes due under this Lease during the period from the date of such notice of termination of possession to the stated end of the

Lease Term. In any such case, Landlord shall make reasonable efforts, in accordance with Section 19E hereof, to relet the Premises. In attempting to relet the Premises, Landlord may make repairs, alterations and additions in or to the Premises and redecorate the same to the extent reasonably deemed by Landlord necessary or desirable, and Tenant upon demand shall pay the reasonable cost of all of the foregoing together with Landlord's reasonable expenses of reletting. The rents from any such reletting shall be applied first to the payment of the expenses of reentry, redecoration, repair and alterations and the expenses of reletting (including reasonable attorneys' fees and brokers' fees and commissions) and second to the payment of Rent herein provided to be paid by Tenant. Any excess or residue shall operate only as an offsetting credit against the amount of Rent due and owing as the same thereafter becomes due and payable hereunder.

D.If this Lease is terminated by Landlord, Landlord shall be entitled to recover from Tenant all Rent accrued and unpaid for the period up to and including such termination date, as well as all other additional sums payable by Tenant, or for which Tenant is liable or for which Tenant has agreed to indemnify Landlord, which may be then owing and unpaid, and all reasonable costs and expenses, including court costs and reasonable attorneys' fees incurred by Landlord in the enforcement of its rights and remedies hereunder. In addition, Landlord shall be entitled to recover as damages for loss of the bargain and not as a penalty (1) the unamortized portion of any concessions offered by Landlord to Tenant in connection with this Lease, including without limitation Landlord's contribution to the cost of tenant improvements, if any, installed by either Landlord or Tenant pursuant to this Lease or any work letter in connection with this Lease, (2) the aggregate sum which at the time of such termination represents the excess, if any, of the present value of the aggregate Rent which would have been payable after the termination date had this Lease not been terminated, including, without limitation, the amount projected by Landlord to represent Additional Rent for the remainder of the Lease Term, over the then present value of the then aggregate fair rent value of the Premises for the balance of the Lease Term, such present worth to be computed in each case on the basis of a ten percent (10%) per annum discount from the respective dates upon which such Rent would have been payable hereunder had this Lease not been terminated, and (3) any damages in addition thereto, including without limitation reasonable attorneys' fees and court costs, which Landlord sustains as a result of the breach of any of the covenants of this Lease other than for the payment of Rent.

E.Landlord shall use commercially reasonable efforts to mitigate any damages resulting from an Event of Default by Tenant under this Lease. Landlord's obligation to mitigate damages after an Event of Default by Tenant under this Lease shall be satisfied in full if Landlord undertakes to lease the Premises to another tenant (a "Substitute Tenant") in accordance with the following criteria: (1) Landlord shall have no obligation to solicit or entertain negotiations with any other prospective tenants for the Premises until Landlord obtains full and complete possession of the Premises including, without limitation, the final and unappealable legal right to relet the Premises free of any claim of Tenant; (2) Landlord shall not be obligated to lease or show the Premises, on a priority basis, or offer the Premises to a prospective tenant when other premises in the Building suitable for that prospective tenant's use are (or soon will be) available; (3) Landlord shall not be obligated

to lease the Premises to a Substitute Tenant for a rent less than the current fair market rent then prevailing for similar uses in comparable buildings in the same market area as the Building, nor shall Landlord be obligated to enter into a new lease under other terms and conditions that are unacceptable to Landlord under Landlord's then current leasing policies for comparable space in the Building; (4) Landlord shall not be obligated to enter into a lease with a Substitute Tenant whose use would: (i) violate any restriction, covenant, or requirement contained in the lease of another tenant of the Building; (ii) adversely affect the reputation of the Building; or (iii) be incompatible with the operation of the Building; and (5) Landlord shall not be obligated to enter into a lease with any proposed Substitute Tenant which does not have, in Landlord's reasonable opinion, sufficient financial resources to operate the Premises in a first class manner and to fulfill all of the obligations in connection with the lease thereof as and when the same become due.

F.The receipt by Landlord of less than the full Rent due shall not be construed to be other than a payment on account of Rent then due, nor shall any statement on Tenant's check or any letter accompanying Tenant's check be deemed an accord and satisfaction, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of the Rent due or to pursue any other remedies provided in this Lease. The acceptance by Landlord of Rent hereunder shall not be construed to be a waiver of any breach by Tenant of any term, covenant or condition of this Lease. No act or omission by Landlord or its employees or agents during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord.

G.In the event of any litigation between Tenant and Landlord to enforce or interpret any provision of this Lease or to enforce any right of either party hereto, the unsuccessful party to such litigation shall pay to the successful party all costs and expenses, including reasonable attorney's fees, incurred therein. Success for the foregoing purposes shall be determined upon a party obtaining a verdict that is not appealed (or appealable). In the event of a settlement, the foregoing provisions of this Section 19.G shall not apply.

H. All property of Tenant removed from the Premises by Landlord pursuant to any provision of this Lease or applicable law may be handled, removed or stored by Landlord at the cost and expense of Tenant, and Landlord shall not be responsible in any event for the value, preservation or safekeeping thereof. Tenant shall pay Landlord for all expenses incurred by Landlord with respect to such removal and storage so long as the same is in Landlord's possession or under Landlord's control. All such property not removed from the Premises or retaken from storage by Tenant within thirty (30) days after the end of the Lease Term or termination of Tenant's right to possession of the Premises, however terminated, at Landlord's option, shall be conclusively deemed to have been conveyed by Tenant to Landlord without further payment or credit by Landlord to Tenant.

I. Except as set forth in Sections 3.B and 23 of this Lease, in no event shall Tenant be liable for consequential or special damages as a result of a breach or default under this Lease. Tenant acknowledges that the specific remedies set forth in this Section 19 above

constitute contractual damages available to Landlord upon an Event of a Default by Tenant hereunder and are not consequential or special damages.

20.No Waiver.

Failure of either party to declare any default immediately upon its occurrence, or delay in taking any action in connection with an event of default, shall not constitute a waiver of such default, nor shall it constitute an estoppel against the non-defaulting party, but the non-defaulting party shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Failure by non-defaulting party to enforce its rights with respect to any one default shall not constitute a waiver of its rights with respect to any subsequent default.

21.Peaceful Enjoyment.

Tenant shall, and may peacefully have, hold, and enjoy the Premises, subject to the other terms hereof, provided that Tenant pays the Rent and other sums herein recited to be paid by Tenant and timely performs all of Tenant's covenants and agreements herein contained.

22.Substitution.

Landlord at its sole discretion shall be entitled to cause Tenant to relocate from the Premises to a comparably-sized space, of comparable design and tenant improvements (the "Relocation Space") within the Building or adjacent buildings within the same Property at any time upon twelve (12) months' prior written notice to Tenant (the "Relocation Notice"). The reasonable costs actually incurred in connection with the physical relocation of the Tenant to the Relocation Space shall be at the expense of Landlord. Such a relocation shall not terminate or otherwise affect or modify this Lease except as set forth below and except that from and after the date of such relocation, "Premises" shall refer to the Relocation Space into which Tenant has been moved, rather than the original Premises as herein defined and the Base Rent shall be adjusted so that immediately following such relocation the Base Rent for the Relocation Space on a per square foot of rentable area basis shall be the same as the Base Rent immediately prior to such relocation for the original Premises on a per square foot of rentable area basis. Tenant's Pro Rata Share shall also be adjusted in accordance with the formula set forth in this Lease. In the event Landlord provides Tenant with a Relocation Notice pursuant to this Section 22, and provided that no Event of Default by Tenant then exists, Tenant may elect by written notice to Landlord (the "Relocation Election") within ten (10) days after Tenant's receipt of the Relocation Notice to either (a) relocate to the Relocation Space, in which event Tenant shall receive an abatement of twelve (12) full months of Rent payable by Tenant hereunder at the rate then in effect, commencing on the first day of the first calendar month following the actual relocation, or (b) terminate this Lease effective as of the date set forth in the Relocation Notice, in which case Tenant shall receive an abatement of the Rent payable by Tenant hereunder during the last twelve (12) full months immediately preceding such termination date. If Tenant is entitled to make the Relocation Election, but fails to timely do so, Tenant shall be deemed to have elected the foregoing option (a).

23.Holding Over.

If Tenant continues to occupy the Premises after the expiration or other termination of this Lease or the termination of Tenant's right of possession, such occupancy shall be that of a tenancy at sufferance. Tenant shall, throughout the entire holdover period, be subject to all the terms and provisions of this Lease and shall pay for its use and occupancy an amount (on a per month basis without reduction for any partial months during any such holdover) equal to one hundred fifty percent (150%) of the Base Rent and Additional Rent due under this Lease for the last full month of the term hereof during such holdover. No holding over by Tenant or payments of money by Tenant to Landlord after the expiration of the Lease Term shall be construed to extend the Lease Term or prevent Landlord from recovery of immediate possession of the Premises by summary proceedings or otherwise Tenant shall also be liable to Landlord for all direct and consequential damages which Landlord may suffer by reason of any holding over by Tenant; provided (a) if Tenant's holding over does not exceed sixty (60) days, Tenant shall not be liable to Landlord for consequential damages arising from Tenant's holdover, or (b) if Tenant's holding over does exceed sixty (60) days, Tenant shall not be liable to Landlord for consequential damages arising from Tenant's holdover, unless (i) Landlord gives written notice (the "Vacancy Notice") to Tenant stating (x) that Landlord has entered into a letter of intent, letter or memorandum of understanding or another similar instrument with a proposed tenant or a third party has accepted a proposal made by Landlord to lease all or part of the Premises and (y) the date Landlord requires Tenant to vacate the Premises (the "Vacancy Date"), which date shall be the later of thirty (30) days after Tenant's receipt of the Vacancy Notice and the expiration date of this Lease, and (ii) Tenant fails to vacate the Premises on or before the Vacancy Date.

24.Subordination to Mortgage; Estoppel Certificate.

Tenant accepts this Lease subject and subordinate to any ground lease, mortgage, deed of trust or other lien presently existing or hereafter arising upon the Premises, or upon the Building or the Property and to any renewals, modifications, refinancings and extensions thereof, but Tenant agrees that any such mortgagee shall have the right at any time to subordinate such mortgage, deed of trust or other lien to this Lease on such terms and subject to such conditions as such mortgagee may deem appropriate in its discretion; provided that the foregoing subordination in respect of any mortgage or deed of trust placed on the Premises, the Building or the Property after the date hereof shall not become effective until and unless the holder of such mortgage or deed of trust delivers to Tenant a subordination, non-disturbance and attornment agreement permitting Tenant, if Tenant is not then in default under, or in breach of any provision of, this Lease, to remain in occupancy of the Premises in the event of a foreclosure of any such mortgage or deed of trust. Tenant shall attorn to any purchaser of the Property or to the holder of any such mortgage or deed of trust in the event that any of the same succeed to the Landlord's interest under this Lease. The foregoing provisions of this Section shall be self‑operative and no further instrument of subordination or attornment shall be required. However, Landlord is hereby irrevocably vested with full power and authority to subordinate this Lease to any mortgage, deed of trust or other lien now existing or hereafter placed upon the Premises, or the Building or the Property and Tenant agrees within ten (10) days after written demand to execute such further instruments subordinating this Lease or attorning to the holder of any such liens as Landlord may request. Tenant agrees that it shall from time-to-time furnish within ten (10) days after so requested by Landlord, a certificate signed by Tenant certifying as to such matters as may be reasonably requested by Landlord. Any such certificate may be relied upon by any ground lessor, prospective purchaser, secured party,

mortgagee or any beneficiary under any mortgage, deed of trust on the Building or the Property or any part thereof or interest of Landlord therein. Tenant agrees to execute and deliver to Landlord a subordination, non-disturbance and attornment agreement in the form attached hereto as Exhibit G concurrently with the execution and delivery of this Lease.

25.Notice.

Any notice required or permitted to be given under this Lease or by law shall be deemed to have been given if it is written and delivered in person or mailed by Registered or Certified mail, postage prepaid, or sent by a nationally recognized overnight delivery service to the party who is to receive such notice at the address specified in Section 1 of this Lease (and, if no address is listed for Tenant, notices to Tenant shall be delivered to the Premises). When so mailed, the notice shall be deemed to have been given two (2) Business Days after the date it was mailed. When sent by overnight delivery service, the notice shall be deemed to have been given on the next Business Day after deposit with such overnight delivery service. The address specified in Section 1 of this Lease may be changed from time to time by giving written notice thereof to the other party.

26.Surrender of Premises.

Upon the termination of the Lease Term, or upon any termination of Tenant's right to possession of the Premises, Tenant will at once surrender possession of the Premises to Landlord in good condition and repair, ordinary wear and tear excepted. Tenant shall surrender to Landlord all keys to the Premises and make known to Landlord the combination of all combination locks which Tenant is required to leave on the Premises.

27.Rights Reserved to Landlord.

Landlord reserves the following rights, exercisable without notice, except as provided herein, and without liability to Tenant for damage or injury to property, person or business and without affecting an eviction or disturbance of Tenant's use or possession or giving rise to any claim for setoff or abatement of rent or affecting any of Tenant's obligations under this Lease: (1) upon thirty (30) days' prior notice to change the name or street address of the Building (provided that Landlord shall not change the street address unless required to do so by applicable law); (2) to install and maintain signs on the exterior and interior of the Building; (3) to designate and approve window coverings to present a uniform exterior appearance; (4) to retain at all times and to use in appropriate instances, pass keys to all locks within and to the Premises; (5) to approve the weight, size, or location of heavy equipment, or articles within the Premises; (6) to change the arrangement and location of entrances of passageways, doors and doorways, corridors, elevators, stairs, toilets and public parts of the Building or Property; (7) to regulate access to telephone, electrical and other utility closets in the Building and to require use of designated contractors for any work involving access to the same; (8) if Tenant has vacated the Premises during the last six (6) months of the Lease Term, to perform additions, alterations and improvements to the Premises in connection with a reletting or anticipated reletting thereof without being responsible or liable for the value or preservation of any then existing improvements to the Premises and without effectuating a surrender or entitling Tenant to any abatement of Rent; (9) to grant to anyone the exclusive right to conduct any business or undertaking in the Building provided Landlord's

exercise of its rights under this clause (9), shall not be deemed to prohibit Tenant from the operation of its business in the Premises; (10) to enter the Premises to inspect the same or to show the Premises to prospective purchasers, mortgagees, tenants (during the last twelve months of the Lease Term) or insurers, or to clean or make repairs, alterations or additions thereto, provided that, except for any entry in an emergency situation or to provide normal cleaning and janitorial service, Landlord shall provide Tenant with reasonable prior notice of any entry into the Premises; and (11) to temporarily close the Premises or the Building to perform repairs, alterations or additions in the Premises or the Building. In exercising its rights under this Section 27, Landlord shall make commercially reasonable efforts to avoid unreasonably interfering with Tenant's business operations in the Premises.

28.Miscellaneous.

A.If any term or provision of this Lease, or the application thereof, shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law.

B.Tenant agrees not to record this Lease or any short form or memorandum hereof.

C.This Lease and the rights and obligations of the parties hereto shall be interpreted, construed, and enforced in accordance with the laws of the state in which the Building is located.

D.The term "Force Majeure" shall mean strikes, riots, acts of God, shortages of labor or materials, war, acts of terrorism, governmental laws, regulations or restrictions, or any other cause whatsoever beyond the control of Landlord or Tenant, as the case may be. Whenever a period of time is herein prescribed for the taking of any action by Landlord or Tenant (other than the payment of Rent and all other such sums of money as shall become due hereunder), such party shall not be liable or responsible for, there shall be excluded from the computation of such period of time, any delays due to events of Force Majeure.

E.Except as expressly otherwise herein provided, with respect to all required acts of Landlord and Tenant, time is of the essence of this Lease.

F.Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations hereunder and in the Building and Property referred to herein, and in such event and upon such transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to such successor in interest of Landlord for the performance of such obligations.

G.If either party institutes a suit against the other for violation of or to enforce any covenant, term or condition of this Lease, the prevailing party shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorneys' fees.

H.Tenant hereby represents to Landlord that it has dealt directly with and only with the Broker as a broker in connection with this Lease. Landlord and Tenant hereby indemnify and hold each other harmless against any loss, claim, expense or liability with respect to any commissions or brokerage fees claimed by any broker or finder other than the Broker on account of the execution and/or renewal of this Lease due to any action of the indemnifying party.

I.If there is more than one Tenant, or if Tenant as such is comprised of more than one person or entity, the obligations hereunder imposed upon Tenant shall be joint and several obligations of all such parties. All notices, payments, and agreements given or made by, with or to any one of such persons or entities shall be deemed to have been given or made by, with or to all of them.

J.Tenant acknowledges that the financial capability of Tenant to perform its obligations hereunder is material to Landlord and that Landlord would not enter into this Lease but for its belief, based on its review of Tenant's financial statements, that Tenant is capable of performing such financial obligations. Tenant hereby represents, warrants and certifies to Landlord that its financial statements previously furnished to Landlord were at the time given true and correct in all material respects and that there have been no material subsequent changes thereto as of the date of this Lease. Tenant, within 15 days after request, shall provide Landlord with a current financial statement and such other information as Landlord may reasonably request in order to create a "business profile" of Tenant and determine Tenant's ability to fulfill its obligations under this Lease. Landlord, however, shall not require Tenant to provide such information unless Landlord requires the information in connection with a proposed financing or sale of the Property.

K.Notwithstanding anything to the contrary contained in this Lease, the expiration of the Lease Term, whether by lapse of time or otherwise, shall not relieve Tenant from Tenant's obligations accruing prior to the expiration of the Lease Term, and such obligations shall survive any such expiration or other termination of the Lease Term.

L.Landlord and Tenant understand, agree and acknowledge that (i) this Lease has been freely negotiated by both parties; and (ii) in any controversy, dispute or contest over the meaning, interpretation, validity, or enforceability of this Lease or any of its terms or conditions, there shall be no inference, presumption, or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof.

M.The headings and titles to the paragraphs of this Lease are for convenience only and shall have no effect upon the construction or interpretation of any part hereof. The term "including" shall be deemed to mean "including without limitation".

N. Landlord and Tenant agree that each provision of the Lease for determining charges, amounts and Additional Rent payments by Tenant (including without limitation, Section 4 of this Lease) is commercially reasonable, and as to each such charge or amount, constitutes a "method by which the charge is to be computed" for purposes of Section

93.012 (Assessment of Charges) of the Texas Property Code, as such section now exists or as it may be hereafter amended or succeeded.

O. TENANT HEREBY WAIVES ALL RIGHTS TO PROTEST THE APPRAISED VALUE OF THE PROPERTY OR TO APPEAL THE SAME AND ALL RIGHTS TO RECEIVE NOTICES OF REAPPRAISALS AS SET FORTH IN SECTIONS 41.413 AND 42.015 OF THE TEXAS TAX CODE.

P. It is the intent of Landlord and Tenant that the provisions of the Texas Deceptive Trade Practices-Consumer Protection Act, Subchapter E of Chapter 17 of the Texas Business and Commerce Code (the "DTPA") be inapplicable to this Lease and the transaction evidenced hereby. Accordingly, Tenant hereby represents and warrants to Landlord that the total consideration paid or to be paid by Tenant over the Term of this Lease exceeds $500,000.00.

Q. Landlord and Tenant acknowledge and agree that this Lease, including all exhibits a part hereof, is not a construction contract or an agreement collateral to or affecting a construction contract.

29.No Offer.

Landlord has delivered a copy of this Lease to Tenant for Tenant's review only, and the delivery hereof does not constitute an offer to Tenant or an option. This Lease shall not be effective until an original of this Lease executed by both Landlord and Tenant and an original Guaranty, if applicable, executed by each Guarantor is delivered to and accepted by Landlord, and this Lease has been approved by Landlord's mortgagee, if required.

30.Entire Agreement.

This Lease, including the Exhibits attached hereto, constitutes the entire agreement between the parties hereto with respect to the subject matter of this Lease and supersedes all prior agreements and understandings between the parties related to the Premises, including all lease proposals, letters of intent and similar documents. Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease. This Lease may be modified only by a written agreement signed by Landlord and Tenant. Landlord and Tenant expressly agree that there are and shall be no implied warranties of merchantability, habitability, suitability, fitness for a particular purpose or of any other kind arising out of this Lease, all of which are hereby waived by Tenant, and that there are no warranties which extend beyond those expressly set forth in this Lease.

31.Limitation of Liability.

Except as expressly set forth herein, the exclusive remedy of Tenant for failure of Landlord to perform any of its obligations under this Lease shall be an action for damages against Landlord. Any liability of Landlord under this Lease shall be limited solely to its interest in the Property, and in no event shall any personal liability be asserted against Landlord, its members, or

their respective members, partners, shareholders, officers, directors, agents or employees, in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord, its members, or their respective members, partners, shareholders, officers, directors, agents or employees. In no event shall Landlord be liable for consequential or special damages or any lost profits as a result of a breach or default under this Lease.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.



		LANDLORD: TDC CLay, L.P., a Delaware limited partnership By: TDC Clay GP, L.L.C., a Delaware limited liability company, its general partner By: /s/ Carleton Riser Name: Carleton Riser Title: Authorized Signer

		TENANT: TESCO CORPORATION, a Canadian corporation By: /s/ Julio M. Quintana Name: Julio M. Quintana Title: President

Exh 31.1 CEO Cert (2014 10-Q Q2)

Exhibit 31.1

Certification of the Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Julio M. Quintana, certify that:


1.	I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2014 of Tesco Corporation (the "Corporation");


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


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


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


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


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


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


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


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


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




Date: August 5, 2014	/s/ Julio M. Quintana
	Julio M. Quintana
	President and Chief Executive Officer

Exh 31.2 CFO Cert (2014 10-Q Q2)

Exhibit 31.2

Certification of the Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Christopher L. Boone, certify that:


1.	I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2014 of Tesco Corporation (the "Corporation");


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


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


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


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


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


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


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


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


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




Date: August 5, 2014	/s/ Christopher L. Boone
	Christopher L. Boone Senior Vice President and Chief Financial Officer

Exh 32 Sec 906 Cert (2014 10-Q Q2)

EXHIBIT 32

Section 1350 Certifications

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Tesco Corporation (the “Corporation”), does hereby certify that:

The Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (the “Form 10-Q”) of the Corporation fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Corporation.



Date: August 5, 2014	/s/ Julio M. Quintana
	Julio M. Quintana President and Chief Executive Officer

Date: August 5, 2014	/s/ Christopher L. Boone
	Christopher L. Boone Sr. Vice President and Chief Financial Officer

The foregoing certifications shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Corporation specifically incorporates it by reference.

A signed original of this written statement required by Section 906 has been provided to the Corporation, and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

teso-20140630.xml
Attachment: XBRL INSTANCE DOCUMENT

teso-20140630.xsd
Attachment: XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

teso-20140630_cal.xml
Attachment: XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

teso-20140630_def.xml
Attachment: XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

teso-20140630_lab.xml
Attachment: XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT

teso-20140630_pre.xml
Attachment: XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT