VIRTUSA CORP (Form: 10-Q, Received: 11/08/2017 11:15:56)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 September 30, 2017

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 001-33625

VIRTUSA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	7371	04-3512883
(State or Other Jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
Incorporation or Organization)	Classification Code Number)	Identification Number)

2000 West Park Drive

Westborough, Massachusetts 01581

(508) 389-7300

(Address, Including Zip Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

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 o

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of November 3, 2017:

Class		Number of Shares
Common Stock, par value $.01 per share		29,365,400

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Virtusa Corporation and Subsidiaries

		Page

PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at September 30, 2017 and March 31, 2017	3
	Consolidated Statements of Income (Loss) for the Three and Six Months Ended September 30, 2017 and 2016	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended September 30, 2017 and 2016	5
	Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2017 and 2016	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
PART II. OTHER INFORMATION		48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 6.	Exhibits	50
SIGNATURES		51
EXHIBIT INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

Virtusa Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

	September 30, 2017			March 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	162,257		$	144,908
Short-term investments	76,662			72,028
Accounts receivable, net of allowance of $2,666 and $1,805 at September 30, 2017 and March 31, 2017, respectively	138,443			135,453
Unbilled accounts receivable	65,153			66,122
Prepaid expenses	36,790			32,751
Restricted cash	941			174
Other current assets	26,455			28,806
Total current assets	506,701			480,242
Property and equipment, net	119,047			118,890
Investments accounted for using equity method	1,655			1,708
Long-term investments	15,120			20,057
Deferred income taxes	27,236			23,093
Goodwill	211,157			211,089
Intangible assets, net	54,119			58,361
Other long-term assets	9,316			9,980
Total assets	$	944,351		$	923,420
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	22,251		$	20,514
Accrued employee compensation and benefits	52,560			52,582
Deferred revenue	9,756			7,479
Accrued expenses and other	37,245			33,251
Current portion of long-term debt	—			8,870
Income taxes payable	3,780			3,066
Total current liabilities	125,592			125,762
Deferred income taxes	23,562			26,682
Long-term debt, less current portion	105,157			176,722
Long-term liabilities	9,733			9,238
Total liabilities	264,044			338,404
Commitments and contingencies	—			—
Series A Convertible Preferred Stock: par value $0.01 per share, 108,000 shares authorized, 108,000 shares issued and outstanding at September 30, 2017; no shares authorized or issued at March 31, 2017; redemption amount and liquidation preference of $108,000 and $0 at September 30, 2017 and March 31, 2017, respectively	106,914			—
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value: Authorized 5,000,000 shares at September 30, 2017 and March 31, 2017; zero shares issued and outstanding at September 30, 2017 and March 31, 2017	—			—
Common stock, $0.01 par value: Authorized 120,000,000 shares at September 30, 2017 and March 31, 2017; issued 32,151,093 and 31,762,214 shares at September 30, 2017 and March 31, 2017, respectively; outstanding 29,271,094 and 29,905,511 shares at September 30, 2017 and March 31, 2017, respectively	322			318
Treasury stock, 2,879,999 and 1,856,703 common shares, at cost, at September 30, 2017 and March 31, 2017, respectively	(39,652		)	(9,652		)
Additional paid-in capital	316,795			305,387
Retained earnings	247,366			240,728
Accumulated other comprehensive loss	(42,729		)	(39,749		)
Total Virtusa stockholders’ equity	482,102			497,032
Noncontrolling interest in subsidiaries	91,291			87,984
Total equity	573,393			585,016
Total liabilities and stockholders’ equity	$	944,351		$	923,420

See accompanying notes to unaudited consolidated financial statements

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Virtusa Corporation and Subsidiaries

Consolidated Statements of Income (Loss)

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	248,174		$	210,089		475,519			$	415,560
Costs of revenue	178,404			152,369			344,683			305,929
Gross profit	69,770			57,720			130,836			109,631
Operating expenses:
Selling, general and administrative expenses	59,491			54,183			114,487			107,943
Income from operations	10,279			3,537			16,349			1,688
Other income (expense):
Interest income	928			735			1,932			2,029
Interest expense	(1,413		)	(1,892		)	(3,071		)	(3,737		)
Foreign currency transaction gains (losses)	(1,480		)	2,030			(1,557		)	(1,550		)
Other, net	778			545			884			551
Total other income (expense)	(1,187		)	1,418			(1,812		)	(2,707		)
Income (loss) before income tax expense	9,092			4,955			14,537			(1,019		)
Income tax expense	1,500			499			2,298			35
Net income (loss)	$	7,592		$	4,456		$	12,239		$	(1,054	)
Less: net income attributable to noncontrolling interests, net of tax	2,824			1,242			3,813			1,988
Net income (loss) available to Virtusa stockholders	$	4,768		$	3,214		$	8,426		$	(3,042	)
Less: Series A Convertible Preferred Stock dividends and accretion	1,087			—			1,788			—
Net income (loss) available to Virtusa common stockholders	3,681			3,214			6,638			(3,042		)

Basic earnings (loss) per share	$	0.13		$	0.11		$	0.23		$	(0.10	)
Diluted earnings (loss) per share	$	0.12		$	0.11		$	0.22		$	(0.10	)

See accompanying notes to unaudited consolidated financial statements

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Virtusa Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

	Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016

Net income (loss)	$	7,592		$	4,456		$	12,239		$	(1,054	)
Other comprehensive income (loss):
Foreign currency translation adjustments	$	821		$	1,860		$	4,426		$	(3,202	)
Pension plan adjustment	47			292			92			316
Unrealized gain (loss) on available-for-sale securities, net of tax	(95		)	(394		)	204			(164		)
Unrealized gain (loss) on effective cash flow hedges, net of tax	(4,153		)	3,436			(8,208		)	4,589
Other comprehensive income (loss)	$	(3,380	)	$	5,194		$	(3,486	)	$	1,539
Comprehensive income	$	4,212		$	9,650		$	8,753		$	485
Less: comprehensive income attributable to noncontrolling interest, net of tax	2,045			2,636			3,307			1,540
Comprehensive income (loss) available to Virtusa stockholders	$	2,167		$	7,014		$	5,446		$	(1,055	)

See accompanying notes to unaudited consolidated financial statements

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Virtusa Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Six Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	12,239		$	(1,054	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	13,646			12,479
Share-based compensation expense	10,930			12,275
Provision for doubtful accounts	723			417
Gain on disposal of property and equipment	(49		)	(110		)
Foreign currency transaction losses, net	1,557			1,550
Amortization of discounts and premiums on investments	185			703
Amortization of debt issuance cost	565			565
Net change in operating assets and liabilities:
Accounts receivable and unbilled receivable	(4,492		)	8,380
Prepaid expenses and other current assets	(4,450		)	639
Other long-term assets	(815		)	4,724
Accounts payable	740			(2,346		)
Accrued employee compensation and benefits	(579		)	(12,427		)
Accrued expenses and other current liabilities	4,712			(1,667		)
Income taxes payable	(3,586		)	(7,654		)
Other long-term liabilities	(1,494		)	(5,516		)
Net cash provided by operating activities	29,832			10,958
Cash flows from investing activities:
Proceeds from sale of property and equipment	180			2,499
Purchase of short-term investments	(50,549		)	(46,513		)
Proceeds from sale or maturity of short-term investments	62,829			76,533
Purchase of long-term investments	(12,273		)	(23,113		)
Proceeds from sale or maturity of long-term investments	—			6,222
(Increase) decrease in restricted cash	(799		)	92,646
Business acquisition, net of cash acquired	(600		)	(3,460		)
Purchase of property and equipment	(8,195		)	(8,791		)
Net cash (used in) provided by investing activities	(9,407		)	96,023
Cash flows from financing activities:
Proceeds from exercise of common stock options	2,717			752
Proceeds from exercise of subsidiary stock options	196			340
Payment of debt	(81,000		)	(5,000		)
Payments of withholding taxes related to net share settlements of restricted stock	(2,431		)	(3,480		)
Series A Convertible Preferred Stock proceeds, net of issuance costs of $1,154	106,846			—
Repurchase of common stock	(30,000		)	—
Payment of contingent consideration related to acquisitions	—			(830		)
Acquisition of noncontrolling interest	—			(89,147		)
Principal payments on capital lease obligation	(124		)	(73		)
Payment of dividend on Series A Convertible Preferred Stock	(1,035		)	—
Net cash used in financing activities	(4,831		)	(97,438		)
Effect of exchange rate changes on cash and cash equivalents	1,755			368
Net increase in cash and cash equivalents	17,349			9,911
Cash and cash equivalents, beginning of period	144,908			148,986
Cash and cash equivalents, end of period	$	162,257		$	158,897

See accompanying notes to unaudited consolidated financial statements

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Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts)

(1) Nature of the Business

Virtusa Corporation (the “Company”, “Virtusa”, “we”, “us” or “our”) is a global provider of information technology (“IT”) consulting and outsourcing services that accelerate business outcomes for our clients. We support Forbes Global 2000 clients across large, consumer facing industries like Banking & Financial Services, Insurance, Healthcare, Communications, and Media & Entertainment, as they look to improve their business performance through accelerating revenue growth, delivering compelling consumer experiences, improving operational efficiencies, and lowering overall IT costs. We provide services across the entire spectrum of the IT services lifecycle, from strategy & consulting, to technology & user experience (“UX”) design, development of IT applications, systems integration, testing & business assurance, and maintenance and support services, including infrastructure and managed services. Our services leverage our distinctive consulting approach and unique platforming methodology to transform our clients’ businesses through the innovative use of technology and domain knowledge to solve critical business problems. Our services enable our clients to accelerate business outcomes by consolidating, rationalizing and modernizing their core customer-facing processes into one or more core systems. We deliver cost-effective solutions through a global delivery model, applying advanced methods such as Agile, an industry standard technique designed to accelerate application development. We also use our consulting methodology, which we refer to as Accelerated Solution Design (“ASD”), which is a collaborative decision-making and design process performed with the client, to ensure our solutions meet the client’s specifications and requirements. Our industry leading business transformational solutions combine deep domain expertise with our strengths in software engineering and business consulting to support our clients’ business imperative initiatives across business growth and IT operations.

Headquartered in Massachusetts, we have offices in the United States, Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, Austria, the United Arab Emirates, Hong Kong, Japan, Australia and New Zealand, with global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as near shore delivery centers in the United States.

(2) Unaudited Interim Financial Information

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles and Article 10 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, and should be read in conjunction with the Company’s audited consolidated financial statements (and notes thereto) for the fiscal year ended March 31, 2017 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May 26, 2017. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of the accompanying unaudited consolidated financial statements have been included, and all material adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire fiscal year.

Principles of Consolidation

The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of Virtusa Corporation and all of its subsidiaries that are directly or indirectly more than 50% owned or controlled. When the Company does not have a controlling interest in an entity, but exerts a significant influence on the entity, the Company applies the equity method of accounting. For those majority-owned subsidiaries that are not 100% owned by the Company, the interests of the minority owners are accounted for as noncontrolling interests.

The consolidated financial statements reflect the accounts of the Company and its direct and indirect subsidiaries: Virtusa Consulting Services Private Limited, Virtusa Software Services Private Limited, Virtusa Technologies (India) Private Limited, Polaris Consulting & Services Limited and Optimus Global Services Limited, each organized and located in India; Virtusa (Private) Limited, organized and located in Sri Lanka; Virtusa UK Limited and Polaris Consulting & Services Limited, each organized and located in the United Kingdom; Virtusa US LLC, Virtusa Securities Corporation, a Massachusetts securities corporation and Apparatus, Inc. organized and located in Indiana, each organized and located in the United States; Virtusa International, B.V., Virtusa C.V., Virtusa

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Netherlands Cooperatief U.A. and Polaris Software Lab B.V., each organized and located in the Netherlands; Virtusa Hungary Kft. and Polaris Consulting & Services, Kft., each organized and located in Hungary; Virtusa Germany GmbH and Polaris Software Lab GmbH, each organized and located in Germany; Virtusa Switzerland GmbH and Polaris Consulting & Services SA, each organized and located in Switzerland; Virtusa Singapore Private Limited and Polaris Consulting & Services Pte Limited, each organized and located in Singapore; Virtusa Malaysia Private Limited Company and Polaris Consulting & Services, SND BHD, each organized and located in Malaysia; Virtusa Austria GmbH, organized and located in Austria; Virtusa Philippines Inc., organized and located in the Philippines; TradeTech Consulting Scandinavia AB, organized and located in Sweden; Virtusa Canada, Inc. and Polaris Consulting & Services Inc, each organized and located in Canada; Polaris Consulting & Services Ireland Limited, organized and located in Ireland; Polaris Consulting & Services Japan K.K., organized and located in Japan; Polaris Consulting & Services Pty Ltd., organized and located in Australia; Polaris Consulting & Services FZ-LLC, organized and located in United Arab Emirates; and Polaris Software Lab (Shanghai) Limited, organized and located in China. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Management re-evaluates these estimates on an ongoing basis. The most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities, intangible assets, contingent consideration and valuation of financial instruments including derivative contracts and investments. Management bases its estimates on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated financial statements.

Fair Value of Financial Instruments

At September 30, 2017 and March 31, 2017, the carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits, other accrued expenses and long-term debt, approximate their fair values due to the nature of the items. See Note 5 of the notes to our financial statements for a discussion of the fair value of the Company’s other financial instruments.

Recent accounting pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2018. Early application is permitted but not before periods beginning on or after January 1, 2017. In March, April and May 2016, the FASB issued updates to the new revenue standard to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross versus net, identifying performance obligations, accounting for licenses of intellectual property, transition, contract modifications, collectability, non-cash consideration and presentation of sales and other similar taxes with the same effective date. The standard permits the use of either the retrospective or cumulative effect transition method. The Company plans to adopt the standard using the modified retrospective method when it becomes effective for the Company in the first quarter of fiscal 2019. The Company’s project team is finalizing its review of existing customer contracts and current accounting policies to identify and assess the potential differences that would result from applying the requirements of the new standard. The Company is also in the process of identifying and implementing changes to the Company’s processes to meet the reporting and disclosure requirements. Overall, the Company believes that its implementation efforts are progressing as planned to allow a timely implementation.

In January 2016, the FASB issued an update (ASU 2016-01) to the standard on financial instruments. The update significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The update also amends certain disclosure requirements. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Upon adoption, entities will be required to make a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. However, the specific guidance on equity securities without readily determinable fair value will apply prospectively to all equity investments that exist as of the date of adoption. Early adoption of certain sections of this update is

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permitted. Based on the Company’s current investment portfolio, the adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

In February 2016, the FASB issued as update (ASU 2016-02) to the standard on leases to increase transparency and comparability among organizations. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption of this new standard is permitted. Entities will be required to use a modified retrospective transition which provides for certain practical expedients. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued an update (ASU 2016-09) to the standard on Compensation- Stock Compensation, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Upon adoption, entities will be required to apply a modified retrospective, prospective or retrospective transition method depending on the specific section of the guidance being adopted. The Company adopted this guidance effective April 1, 2017 and the following describe the results of adoption:

· The Company prospectively recognized tax benefits of $872 and $1,150 in the income tax expense line item of its consolidated statements of income (loss) in the three and six months ended September 30, 2017 related to excess tax benefits on stock options;

· The Company changed its accounting policy from estimated forfeitures to actual forfeitures effective April 1, 2017. The cumulative impact of the change in the accounting policy did not have a material impact on the consolidated financial statements, therefore prior period amounts have not been restated;

· The Company elected to adopt cash flow presentation of excess tax benefits retrospectively where these benefits are classified along with other income tax cash flows as operating cash flows. Accordingly, prior period amounts in the consolidated statement of cash flows have been restated;

· The Company adopted cash flow presentation of taxes paid when an employer withholds shares for tax-withholding purposes retrospectively and classified as a financing activity in the Company’s statement of cash flows. Accordingly, prior period amounts have been restated;

· The remaining amendments to this standard, as noted above, are either not applicable, or do not change the Company’s current accounting practices and thus do not impact its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. This standard update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of this new standard will have on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This update is intended to reduce diversity in practice in how certain cash receipts and payments are classified in the statement of cash flows. This standard update addresses eight specific cash flow issues, including debt prepayment or extinguishment costs, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, and distributions from certain equity method investees. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires application using a retrospective transition method. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

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permitted in the first interim period. Upon adoption, the entities will be required to use a modified retrospective transition approach. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (Topic 230), which is intended to reduce diversity in practice on how changes in restricted cash are classified and presented in the statement of cash flows. This ASU requires amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The amendments in this update should be applied using a retrospective transition method to each period presented. The adoption of this guidance will impact the Company’s presentation of cash and cash equivalents. As of September 30, 2017 and March 31, 2017, the Company’s restricted cash was $975 and $178, respectively.

In January 2017, the FASB issued ASU 2017-01, an update on business combinations, which clarifies the definition of a business. The update requires a business to include at least an input and a substantive process that together significantly contribute to the ability to create outputs. The update also states that the definition of a business is not met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2018. Upon adoption, entities will be required to apply the update prospectively. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, an update on goodwill, which eliminates the need to calculate the implied fair value of goodwill when an impairment is indicated. The update states that goodwill impairment is measured as the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, a guidance on presentation of net periodic pension cost and net periodic postretirement benefit cost. The new standard requires that an employer disaggregate the service costs components of net benefit cost. The employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component, such as in other income and expense. The guidance is effective for fiscal years beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements. The Company’s current presentation of service cost components is consistent with the requirements of the new standard. Upon adoption of the new standard, the Company expects to present the other components within other (income) expense.

In March 2017, FASB issued ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in this update shorten the amortization period for certain callable debt securities that are held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which would be amortized to maturity. This ASU is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, which for us is the first quarter ending December 31, 2019. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, an update that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under ASC 718, Compensation — Stock Compensation. Under the amendments in ASU 2017-09, an entity should account for the effects of a modification unless all of the following criteria are met: 1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified — if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2) the vesting conditions of the modified award are the same as the conditions of the original award immediately before the original award is modified; 3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

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In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. These amendments are intended to better align a company’s risk management strategies and financial reporting for hedging relationships. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. In addition, the new guidance amends presentation and disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including the interim periods within those years. The guidance requires the use of a modified retrospective approach. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements and related disclosures.

(3) Earnings (loss) per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net income, less any dividends and accretion of issuance cost on the Series A Convertible Preferred Stock by the weighted average number of shares of common stock outstanding for the period. In computing diluted EPS, the Company adjusts the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the Series A Convertible Preferred Stock. Such add-back would also include any adjustments to equity in the period to accrete the Series A Convertible Preferred Stock to its redemption price. The Company adjusts the denominator used in the basic EPS computation, subject to anti-dilution requirements, to include the dilution from potential shares resulting from the issuance of restricted stock units, unvested restricted stock and stock options along with the conversion of the Series A Convertible Preferred Stock to common stock. The following table sets forth the computation of basic and diluted EPS for the periods set forth below:

The components of basic earnings (loss) per share are as follows:

	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016
Numerator:
Net income (loss) available to Virtusa stockholders	$	4,768	$	3,214	$	8,426	$	(3,042	)
Less: Series A Convertible Preferred Stock dividends and accretion	1,087		—		1,788		—
Net income (loss) available to Virtusa common stockholders	3,681		3,214		6,638		(3,042		)
Denominator:
Basic weighted average common shares outstanding	29,216,600		29,616,179		29,434,101		29,551,233

Basic earnings (loss) per share	$	0.13	$	0.11	$	0.23	$	(0.10	)

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The components of diluted earnings (loss) per share are as follows:

	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016
Numerator:
Net income (loss) available to Virtusa common stockholders	$	3,681	$	3,214	$	6,638	$	(3,042	)
Add: Series A Convertible Preferred Stock dividends and accretion	—		—		—		—
Net income (loss) available to Virtusa common stockholders	3,681		3,214		6,638		(3,042		)
Denominator:
Basic weighted average common shares outstanding	29,216,600		29,616,179		29,434,101		29,551,233
Dilutive effect of Series A Convertible Preferred Stock	—		—		—		—
Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units	603,981		503,151		601,764		—
Dilutive effect of stock appreciation rights	—		10,879		—		—
Weighted average shares-diluted	29,820,581		30,130,209		30,035,865		29,551,233

Diluted earnings (loss) per share	$	0.12	$	0.11	$	0.22	$	(0.10	)

During the three months ended September 30, 2017 and 2016, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase 58,720 and 658,176 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive. For the three months ended September 30, 2017, the 3,000,000 weighted average shares of the Series A Convertible Preferred Stock, on an as converted basis, were excluded from diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

During the six months ended September 30, 2017 and 2016, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase 172,491 and zero shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive. For the six months ended September 30, 2017, the 2,456,044 weighted average shares of the Series A Convertible Preferred Stock, on an as converted basis, were excluded from diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

(4) Investment Securities

At September 30, 2017 and March 31, 2017, all of the Company’s investment securities were classified as available-for-sale and were carried on its balance sheet at their fair market value. A fair market value hierarchy based on three levels of inputs was used to measure each security (See Note 5 of the notes to our financial statements for a discussion of the fair value of the Company’s other financial instruments.).

The following is a summary of investment securities at September 30, 2017:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current	$	34,164	$	1	$	(35	)	34,130
Non-current	13,316		1		(17		)	13,300
Preference shares:
Current	—		—		—
Non-current	1,742		—		(95		)	1,647
Agency and short-term notes:
Current	2,606		—		(4		)	2,602
Non-current	—		—		—			—
Mutual funds:
Current	23,146		425		—			23,571
Commercial paper:
Current	2,520		—		—			2,520
Equity Shares/ Options:
Non-current	16		157					173
Time deposits:
Current	13,839		—		—			13,839
Total available-for-sale securities	$	91,349	$	584	$	(151	)	$	91,782

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The following is a summary of investment securities at March 31, 2017:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current	$	36,722	$	7	$	(55	)	$	36,674
Non-current	17,511		3		(48		)	17,466
Preference shares:
Current	1,633		—		(75		)	1,558
Non-current	1,829		—		(101		)	1,728
Agency and short-term notes:
Current	1,816		—		(3		)	1,813
Non-current	803		—		(3		)	800
Mutual funds:
Current	17,934		371		—			18,305
Commercial paper:
Current	2,993		—		—			2,993
Equity Shares/ Options:
Non-current	17		46					63
Time deposits:
Current	10,685		—		—			10,685
Total available-for-sale securities	$	91,943	$	427	$	(285	)	$	92,085

The Company evaluates investments with unrealized losses to determine if the losses are other than temporary. The Company has determined that the gross unrealized losses at September 30, 2017 and March 31, 2017 are temporary. In making this determination, the Company considered the financial condition, credit ratings and near-term prospects of the issuers, the underlying collateral of the investments, and the magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position. Additionally, while the Company classifies the securities as available for sale, the Company does not currently intend to sell such investments and it is more likely than not the Company will not be required to sell such investments prior to the recovery of their carrying value.

Proceeds from sales of available-for-sale investment securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:

	Three Months Ended September 30,					Six Months Ended September 30,
	2017			2016		2017			2016

Proceeds from sales of available-for-sale investment securities	$	33,827		$	42,316	$	62,829		$	82,755
Gross gains	$	656		$	433	$	675		$	743
Gross losses	(1		)	—		(91		)	—
Net realized gains on sales of available-for-sale investment securities	$	655		$	433	$	584		$	743

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(5) Fair Value of Financial Instruments

The Company uses a framework for measuring fair value under U.S. generally accepted accounting principles and enhanced disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company’s financial assets and liabilities reflected in the consolidated financial statements at carrying value include marketable securities and other financial instruments which approximate fair value. Fair value for marketable securities is determined using a market approach based on quoted market prices at period end in active markets. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

· Level 1—Quoted prices in active markets for identical assets or liabilities.

· Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2017:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sales securities—current	$	—	$	76,662	$	—	$	76,662
Available-for-sales securities—non-current	—		15,120		—		15,120
Foreign currency derivative contracts	—		6,318		—		6,318
Interest Rate Swap Contracts	—		1,571		—		1,571
Total assets	$	—	$	99,671	$	—	$	99,671
Liabilities:
Foreign currency derivative contracts	$	—	$	698	$	—	698
Contingent consideration	—				100		100
Total liabilities	$	—	$	698	$	100	$	798

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2017:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Available-for-sales securities—current	$	—	$	72,028	$	—	$	72,028
Available-for-sales securities—non-current	—		20,057		—		20,057
Foreign currency derivative contracts	—		16,431		—		16,431
Interest Rate Swap Contracts	—		1,842		—		1,842
Total assets	$	—	$	110,358	$	—	$	110,358
Liabilities:
Foreign currency derivative contracts	$	—	$	—	$	—	—
Interest Rate Swap Contracts	—		—		—		—
Total liabilities	$	—	$	—	$	—	$	—

The Company determines the fair value of the contingent consideration related to the Company’s acquisition of a small consulting company based on the probability of attaining a specific contract renewal target. See Note 7 of the notes to our financial statements included herein for a description of this acquisition. The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities at September 30, 2017.

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	Level 3 Liabilities
Balance at April 1, 2017	$	—
Contingent consideration arising from acquisition (See Note 7)	100
Payments made during the period	—
Balance at September 30, 2017	$	100

(6) Derivative Financial Instruments

The Company evaluates its foreign exchange policy on an ongoing basis to assess its ability to address foreign exchange exposures on its consolidated balance sheets, statements of income and consolidated statement of cash flows from all foreign currencies, including most significantly the U.K. pound sterling, Indian rupee and Sri Lankan rupee. The Company enters into hedging programs with highly rated financial institutions in accordance with its foreign exchange policy (as approved by the Company’s audit committee and board of directors) which permits hedging of material, known foreign currency exposures. There is no margin required, no cash collateral posted or received by us related to our foreign exchange forward contracts. Currently, the Company maintains four hedging programs, each with varying contract types, duration and purposes. The Company’s “Cash Flow Program” is designed to mitigate the impact of volatility in the U.S. dollar equivalent of the Company’s Indian rupee denominated expenses over a rolling 18-month period. The Cash Flow Program transactions currently meet the criteria for hedge accounting as cash flow hedges. In addition, as part of the Polaris acquisition, the Company has assumed a cash flow program designed to mitigate the impact of the volatility of the translation of Polaris U.S. dollar denominated revenue into Indian rupees over a rolling 18 month period (“Polaris Cash Flow Program”). These cash flow hedges meet the criteria for hedge accounting as cash flow hedges. The Company’s “Balance Sheet Program” involves the use of 30-day derivative instruments designed to mitigate the monthly impact of foreign exchange gains/losses on certain intercompany balances and payments. The Company’s Balance Sheet Program is currently inactive. The Company’s “Economic Hedge Program” involves the purchase of derivative instruments with maturities of up to 92 days, and is designed to mitigate the impact of foreign exchange on U.K. pound sterling, the euro and Swedish krona denominated revenue and costs with respect to the quarter for which such instruments are purchased. The Balance Sheet Program and the Economic Hedge Program are treated as economic hedges as these programs do not meet the criteria for hedge accounting and all gains and losses are recognized in consolidated statement of income under the same line item as the underlying exposure being hedged.

The Company is exposed to credit losses in the event of non-performance by the counterparties on its financial instruments. All counterparties currently have investment grade credit ratings. The Company anticipates that these counterparties will be able to fully satisfy their obligations under the contracts. The Company has derivative contracts with five counterparties as of September 30, 2017.

The Company’s agreements with its counterparties contain provisions pursuant to which the Company could be declared in default of its derivative obligations. As of September 30, 2017, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions as of September 30, 2017, it could have been required to settle its obligations under these agreements at amounts which approximate the September 30, 2017 fair values reflected in the table below. During the three months ended September 30, 2017, the Company was not in default of any of its derivative obligations.

Changes in fair value of the designated cash flow hedges for our Cash Flow Program as well as the Polaris Cash Flow Program are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”), net of tax until the forecasted hedged transactions occur and are then recognized in the consolidated statements of income in the same line item as the item being hedged. The Company evaluates hedge effectiveness at the time a contract is entered into, as well as on an ongoing basis. If and when hedge relationships are discontinued, and should the forecasted transaction be deemed probable of not occurring by the end of the originally specified period or within an additional two-month period of time thereafter, any related derivative amounts recorded in equity are reclassified to earnings in other income (expense). There were no amounts reclassified to earnings as a result of hedge ineffectiveness for the six month ended September 30, 2017 and 2016.

Changes in the fair value of the hedges for the Balance Sheet Program and the Economic Hedge Program, if any, are recognized in the same line item as the underlying exposure being hedged and the ineffective portion of cash flow hedges, if any, is recognized as other income (expense). The Company values its derivatives based on market observable inputs including both forward and spot prices for currencies. Any significant change in the forward or spot prices for hedged currencies would have a significant impact on the value of the Company’s derivatives.

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The U.S. dollar notional value of all outstanding foreign currency derivative contracts was $117,758 and $153,435 at September 30, 2017 and March 31, 2017, respectively. Unrealized net gains related to these contracts which are expected to be reclassified from AOCI to earnings during the next 12 months were $5,668 at September 30, 2017. At September 30, 2017, the maximum outstanding term of any derivative instrument was 15 months.

The Company also uses interest rate swaps to mitigate the Company’s interest rate risk on the Company’s variable rate debt. The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the Credit Agreement by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. The Company will recognize these transactions in accordance with ASC 815 “Derivatives and Hedging,” and have designated the swaps as cash flow hedges.

The Interest Rate Swap Agreements have an effective date of July 31, 2017 and a maturity date of July 31, 2020. The swaps have an aggregate notional amount of $92,500 and, with the pre-payment of $81,000 of principal on our existing debt, hedge approximately 85% of the Company’s outstanding debt balance as of September 30, 2017. The notional amount of the swaps amortizes over the three swap periods. The Interest Rate Swap agreements require the Company to make monthly fixed interest rate payments based on the amortized notional amount at a blended weighted average rate of 1.025% and the Company will receive 1-month LIBOR on the same notional amounts.

The counterparties to the Interest Rate Swap Agreements could demand an early termination of the 2016 Swap Agreements if the Company is in default under the Credit Agreement, or any agreement that amends or replaces the Credit Agreement in which the counterparty is a member, and the Company is unable to cure the default. An event of default under the Credit Agreement includes customary events of default and failure to comply with financial covenants, including a maximum consolidated leverage ratio commencing on December 31, 2016, of not more than 3.25 to 1.00 for the first year of the Credit Agreement, of not more than 3.00 to 1.00 for the second year of the Credit Agreement, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter and a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00. As of September 30, 2017, the Company was in compliance with these covenants. The unrealized gain associated with the 2016 Swap Agreement was $1,571 and 1,842 at September 30, 2017 and March 31, 2017, respectively, which represents the estimated amount that the Company would receive from the counterparties in the event of an early termination.

The following table sets forth the fair value of derivative instruments included in the consolidated balance sheets at September 30, 2017 and March 31, 2017:

Derivatives designated as hedging instruments

	September 30, 2017		March 31, 2017
Foreign currency exchange contracts:
Other current assets	$	6,303	$	15,544
Other long-term assets	$	15	$	887
Accrued expenses and other	$	698	$	—
Long-term liabilities	$	—	$	—

	September 30, 2017		March 31, 2017
Interest rate swap contracts:
Other long-term assets	$	1,571	$	1,842

The following tables set forth the effect of the Company’s foreign currency exchange contracts and interest rate swap contracts on the consolidated financial statements of the Company for the three and six months ended September 30, 2017 and 2016:

	Amount of Gain or (Loss) Recognized in AOCI on Derivative (Effective Portion)
Derivatives Designated as Cash Flow	Three Months Ended September 30,					Six Months Ended September 30,
Hedging Relationships	2017		2016			2017			2016
Foreign currency exchange contracts	$	93	$	7,801		$	598		$	9,860
Interest rate swaps	$	37	$	(103	)	$	(237	)	$	(103	)

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Location of Gain Reclassified	Amount of Gain Reclassified from AOCI into Income (Effective Portion)
from AOCI into Income (Effective	Three Months Ended September 30,				Six Months Ended September 30,
Portion)	2017		2016		2017		2016
Revenue	$	2,919	$	949	$	5,511	$	1,477
Costs of revenue	$	1,987	$	1,173	$	4,052	$	1,371
Operating expenses	$	1,150	$	774	$	2,310	$	895
Interest expense	$	34	$	—	$	34	$	—

		Amount of Gain or (Loss) Recognized in Income on Derivatives
Derivatives not Designated	Location of Gain or (Loss)	Three Months Ended September 30,						Six Months Ended September 30,
as Hedging Instrument	Recognized in Income on Derivatives	2017			2016			2017			2016
Foreign currency exchange contracts	Foreign currency transaction gains (losses)	$	—		$	—		$	—		$	(180	)
	Revenue	$	(155	)	$	(26	)	$	(336	)	$	83
	Costs of revenue	$	89		$	14		$	231		$	(39	)
	Selling, general and administrative expenses	$	22		$	1		$	53		$	(13	)

(7) Acquisitions

On March 3, 2016, pursuant to a share purchase agreement (the “SPA”), dated as of November 5, 2015, by and among Virtusa Consulting Services Private Limited (“Virtusa India”), a subsidiary of the Company, Polaris Consulting & Services Limited (“Polaris”) and the Promoter Sellers named therein, as amended, the Company completed the purchase of 53,133,127 shares, or approximately 51.7% of the fully-diluted capitalization of Polaris from certain Polaris shareholders for approximately $168,257 (Indian rupees 11,391,365) in cash (the “Polaris SPA Transaction”). In addition, on April 6, 2016, Virtusa India completed an unconditional mandatory open offer with successful tender to purchase an additional 26% of the fully diluted outstanding shares of Polaris common stock from Polaris’ public shareholders. The mandatory open offer was conducted in accordance with requirements of the Securities and Exchange Board of India (“SEBI”) and the applicable Indian rules on takeovers. Virtusa India purchased 26,719,942 shares of Polaris common stock for an aggregate purchase price of approximately $89,147 (Indian rupees 5,935,260). Pursuant to the mandatory open offer, during the fiscal year ended March 31, 2016, the Company transferred $89,220 into an escrow account in accordance with the India takeover rules, which was recorded as restricted cash at March 31, 2016, and the mandatory open offer closed on April 6, 2016. On April 6, 2016, the restricted cash was released from the escrow account and used for settlement for the mandatory open offer.

Upon the closing of the mandatory offering, Virtusa’s ownership interest in Polaris increased from approximately 51.7% to 77.7% of Polaris’ fully diluted shares of common stock outstanding, and from approximately 52.9% to 78.8% of Polaris’ basic shares of common stock outstanding. Under applicable Indian rules on takeovers, Virtusa India was required to sell within one year of the settlement of the unconditional mandatory offer its shares of common stock in Polaris in excess of 75% of the basic outstanding shares of common stock of Polaris. In order to comply with the applicable Indian rules on takeovers, during the three months ended December 31, 2016, the Company sold 3.7% of its shares of Polaris common stock through a public offering. The sale offer closed on December 14, 2016, and the Company received approximately $7,645 in proceeds, net of $188 in brokerage fees and taxes. In addition to these costs, the Company incurred additional costs of $409 towards professional and legal fees and expense. The Company’s ownership interest in Polaris prior to the sale offer was 78.6% of the outstanding shares of common stock, and upon the closing of the sale offer, the Company’s ownership interest decreased from 78.6% to 74.9% of Polaris’ basic shares of common stock outstanding. As of September 30, 2017 the Company has 74.4% of ownership interest on Polaris basic shares of common stock. In accordance with ASC 810-10, changes in a parent’s ownership, while retaining its financial controlling interest, are accounted for as equity transactions.

On October 26, 2017, the Company announced its intention to commence through its Indian subsidiary, Virtusa India, a process that could lead to the delisting of its Indian subsidiary, Polaris, from all stock exchanges on which Polaris’ ordinary shares are listed.

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Under applicable Indian laws, Polaris can be delisted by the acquisition of ordinary shares of Polaris if such acquisition would result in the equity interest of Virtusa India and its affiliates in Polaris being at least equal to or higher than 90% of the total ordinary shares issued by Polaris and satisfaction of certain other applicable regulatory conditions (“Minimum Tender Condition”). Currently, Virtusa India holds approximately 74.4% of the total outstanding shares of Polaris.

The proposed delisting is subject to certain conditions, including the satisfaction of the Minimum Tender Condition, the approval of the Polaris shareholders (excluding shares held by Virtusa India) and regulatory approvals. If consummated, the purchase of the ordinary shares of Polaris will be carried out at a price to be determined through the reverse book building process in accordance with the applicable Securities and Exchange Board of India (“SEBI”) delisting regulations.

Virtusa India and its affiliates have the right not to purchase the offered shares if the final price discovered through the above process is not acceptable to Virtusa. In accordance with ASC 810-10, changes in a parent’s ownership, while retaining its financial controlling interest are accounted for as equity transactions. Therefore, should the Company decide to purchase additional shares through its Indian subsidiary, it would result in a reduction of minority interest and an increase to the Company’s equity.

On June 29, 2017, the Company acquired certain assets of a small consulting company located in India. The purchase price was approximately $750 payable in cash subject to a holdback payment of $50 after one year and a payment of $100 in earn-out consideration after two years based on certain achievement. The purchase price allocation was as follows: goodwill of $150 and customer relationships of $600.

(8) Series A Convertible Preferred Stock

On May 3, 2017, the Company and Orogen Viper LLC (the “Purchaser”), entered into an Investment Agreement (the “Investment Agreement”), pursuant to which the Company issued and sold to the Purchaser, and the Purchaser purchased from the Company, an aggregate of 70,000 shares of voting convertible preferred stock of the Company, designated as the Company’s 3.875% Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Voting Preferred Stock”), and 38,000 shares of a separate class of non-voting convertible preferred stock of the Company, designated as the Company’s 3.875% Series A-1 Convertible Preferred Stock, par value $0.01 per share (the “Series A-1 Preferred Stock” and, together with the Series A Voting Preferred Stock, the “Series A Convertible Preferred Stock”), in each case for a purchase price of $1,000 per share, representing $108,000 of gross proceeds to the Company.

The Investment Agreement provides the Purchaser the right, pursuant to the terms of the Series A Convertible Preferred Stock, to appoint a director to serve on our Board. Pursuant to the Investment Agreement, in connection with the closing of the transactions contemplated by the Investment Agreement (the “Closing”), our Board of Directors (the “Board”) increased the size of the Board from nine directors to ten directors and elected Vikram S. Pandit, the initial nominee designated by the Purchaser, to the Board, subject to replacement pursuant to the procedures described in the Investment Agreement. Such appointment right will terminate if the Purchaser and its affiliates fail to retain beneficial ownership of at least 50% of the number of shares of our common stock underlying the Series A Convertible Preferred Stock held by the Purchaser immediately following the Closing.

Following the conversion of the Series A Convertible Preferred Stock into shares of our common stock, so long as the Purchaser retains beneficial ownership of at least 50% of the number of shares of our common stock underlying the Series A Convertible Preferred Stock held by the Purchaser immediately following the Closing, we have agreed to include one nominee of the Purchaser for election as a director of the same class (whether Class I, Class II or Class III) as the other directors nominated by us for election at our next meeting of stockholders following such conversion, and to renominate such individual thereafter at each meeting of stockholders electing such class of directors. We are required to use our reasonable efforts to cause the election of such person.

Pursuant to the Investment Agreement, the Purchaser has agreed, subject to certain exceptions, that until the later of (1) the first date on which there is no Purchaser-affiliated director serving on our Board, and (2) May 3, 2019 (the “Standstill Period”), the Purchaser will not, among other things, subject to certain exceptions described in the Investment Agreement: (i) acquire any securities of the Company if, immediately after such acquisition, the Purchaser would collectively own in the aggregate more than 20.0% of the then outstanding common stock of the Company, (ii) propose or seek to effect any tender or exchange offer, merger or other business combination involving the Company or its securities, or make any public statement with respect to such transaction, (iii) make, or in any way participate in any “proxy contest” or other solicitation of proxies, (iv) seek election or appointment to, or representation on, our Board other than as set forth in the Investment Agreement or the Series A Certificate of Designations (as defined below), or seek the removal of any of our directors, or (v) conduct any referendum of stockholders of the Company or make or be the proponent of any stockholder proposal.

The Investment Agreement restricts the Purchaser’s ability to transfer the Series A Convertible Preferred Stock or shares of our common stock issued or issuable upon conversion of the Series A Convertible Preferred Stock, subject to certain exceptions specified in the Investment Agreement. In particular, prior to the earliest of (i) May 3, 2019, (ii) a change of control of the Company

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or entry into a definitive agreement for a transaction that, if consummated, would result in a change of control of the Company, and (iii) the later of May 3, 2018 and the first date on which there is no Purchaser-affiliated director serving on our Board, the Purchaser will be restricted from selling, offering, transferring, assigning, pledging, mortgaging, hypothecating, gifting or disposing the Series A Convertible Preferred Stock or shares of common stock issued or issuable upon conversion of the Series A Convertible Preferred Stock. Such restrictions also prohibit the Purchaser from entering into or engaging in any hedge, swap, short sale, derivative transaction or other agreement or arrangement that transfers any ownership of, or interests in, the shares of Series A Convertible Preferred Stock or shares of common stock issued or issuable upon conversion of the Series A Convertible Preferred Stock. These restrictions do not apply to, among others, transfers to affiliates or in connection with certain third-party tender offers.

Subject to certain limitations, the Investment Agreement provides the Purchaser with certain registration rights for the shares of common stock underlying the Series A Convertible Preferred Stock (including any shares issued or issuable as dividends on the Series A Convertible Preferred Stock) held by the Purchaser. The Investment Agreement contains other customary terms for private investments in public companies, including representations, warranties and covenants.

On May 3, 2017, we filed with the Secretary of State of the State of Delaware (i) a Certificate of the Powers, Designations, Preferences and Rights of the 3.875% Series A Preferred Stock (the “Series A Certificate of Designations”) and (ii) a Certificate of the Powers, Designations, Preferences and Rights of the 3.875% Series A-1 Preferred Stock (the “Series A-1 Certificate of Designations” and, together with the Series A Certificate of Designations, the “Certificates of Designations”). Generally, except with respect to certain voting rights, and a conversion trigger applicable to the Series A-1 Preferred Stock described below as the “HSR Conversion,” the rights, preferences and privileges of the Series A Preferred Stock and the Series A-1 Preferred Stock are substantially identical.

The Series A Convertible Preferred Stock has a liquidation preference of $1,000 per share. In addition, cumulative Series A Convertible Preferred Stock dividends accumulate on the Series A Convertible Preferred Stock at a rate of 3.875% per annum, and are payable quarterly in arrears. The payments on such dividends may be paid in cash or, at our option, in shares of our common stock. We may only pay such dividends in shares of common stock on or after August 1, 2018, subject to an aggregate share cap and so long as we have paid full cumulative dividends on the Series A Convertible Preferred Stock for all past dividend periods, and there is adequate current public information with respect to the Company and no volume limitations would apply to the resale of such shares, in each case under Rule 144 under the Securities Act of 1933.

The Series A Convertible Preferred Stock is convertible at the option of the holders at any time into shares of the Company’s common stock at an initial conversion rate of 27.77778 shares of the Company’s common stock per share of Series A Convertible Preferred Stock (which is equal to an initial conversion price of approximately $36.00 per share of the Company’s common stock), subject to certain customary anti-dilution adjustments. If at any time after May 3, 2020, the closing sale price of our common stock exceeds 150% of the then applicable conversion price of the Series A Convertible Preferred Stock for at least 20 trading days during a period of 30 consecutive trading days, the Company may cause some or all of the Series A Convertible Preferred Stock to be converted into shares of common stock at the then applicable conversion rate. Upon the conversion of the Series A Convertible Preferred Stock into common stock, we are required to pay all accumulated but unpaid dividends in additional shares of common stock valued at the then applicable conversion price on the date of such conversion.

Holders of Series A Convertible Preferred Stock are entitled to vote generally with the holders of common stock on an as-converted basis (including with respect to election of the members of our Board). Holders of Series A Convertible Preferred Stock are also entitled to certain limited special approval rights, including with respect to amendments to the Company’s organizational documents that have an adverse effect on the Series A Convertible Preferred Stock, certain issuances of senior or pari passu securities, certain purchases, redemptions or other acquisitions of junior securities or payments, dividends or distributions thereon. In addition, so long as any shares of Series A Convertible Preferred Stock are outstanding and the Purchaser and its affiliates collectively beneficially own at least a majority of the shares of Series A Convertible Preferred Stock beneficially owned by such holders immediately following the Closing, the holders of Series A Convertible Preferred Stock, voting as a separate class by majority vote, are entitled to elect one director to serve on our Board.

Holders of Series A-1 Preferred Stock generally have no voting rights except as required by law and with respect to amendments to the Company’s organizational documents that have an adverse effect on the Series A-1 Preferred Stock. At such time as any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 applicable to the acquisition of shares of Preferred Stock expires or is terminated, all shares of the Series A-1 Preferred Stock then issued and outstanding shall immediately and automatically convert on a one for one basis to shares of Series A Preferred Stock (the “HSR Conversion”). Upon such HSR Conversion (which occurred in May 2017), all accumulated but unpaid dividends on such shares of Series A-1 Preferred Stock immediately prior to such HSR Conversion will be converted into an equivalent amount of accumulated but unpaid dividends on shares of Series A Preferred Stock immediately following such HSR Conversion.

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With certain exceptions, upon a Fundamental Change (as defined in the Certificates of Designations), the holders of the Series A Convertible Preferred Stock may require that the Company repurchase for cash all or any whole number of shares of Series A Convertible Preferred Stock at a per-share repurchase price equal to 100% of the liquidation preference of such shares, plus accumulated and unpaid dividends. If we fail to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of the date that the Company is required to effect such repurchase, during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum. The definition of Fundamental Change includes a sale of substantially all the Company’s assets, a change of control of the Company by way of a tender offer, merger or similar event, the adoption of a plan relating to the Company’s liquidation or dissolution and certain delistings of our common stock, except in certain cases described in the Certificates of Designations in which the consideration received or to be received by the Company’s common stockholders in a sale or change of control transaction consists primarily of publicly listed and traded securities.

Holders of Series A Convertible Preferred Stock that are converted in connection with a Make-Whole Fundamental Change, as defined in the Certificates of Designations, are, under certain circumstances, entitled to an increase in the conversion rate for such shares of Series A Convertible Preferred Stock based on the effective date of such event and the applicable price attributable to the event as set forth in a table contained in the Certificates of Designations. The definition of Make-Whole Fundamental Change includes a sale of substantially all the Company’s assets, a change of control of the Company by way of a tender offer, merger or similar event, the adoption of a plan relating to the Company’s liquidation or dissolution and certain delistings of our common stock.

If any shares of Series A Convertible Preferred Stock have not been converted into common stock prior to May 3, 2024, the Company will be required to repurchase such shares at a repurchase price equal to the liquidation preference of the repurchased shares plus the amount of accumulated and unpaid dividends thereon. If we fail to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of May 3, 2024 during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum.

In connection with the issuance of the Series A Convertible Preferred Stock, the Company incurred direct and incremental expenses of $1,154, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. These issuance costs are recorded as a reduction to the proceeds received from issuance of Series A Convertible Preferred Stock. These direct and incremental expenses reduced the Series A Convertible Preferred Stock, and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, May 3, 2024. During the three and six months ended September 30, 2017, the Company recorded $41 and $68, respectively, as an accretion to the Series A Convertible Preferred Stock. Holders of Series A Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 3.875% per annum, payable quarterly in arrears. During the six months ended September 30, 2017, the Company has paid $1,035 as cash dividend on Series A Convertible Preferred Stock. As of September 30, 2017, the Company had declared and accrued dividends of $686 associated with the Series A Convertible Preferred Stock.

(9) Goodwill and Intangible Assets

Goodwill:

The Company has one operating segment. The following are details of the changes in goodwill balance at September 30, 2017:

	Amount
Balance at April 1, 2017	$	211,089
Goodwill arising from acquisitions	150
Foreign currency translation adjustments	(82		)
Balance at September 30, 2017	$	211,157

The acquisition costs and goodwill balance deductible for our business acquisitions for tax purposes are $74,128. The acquisition costs and goodwill balance not deductible for tax purposes are $148,917 and relate to the Company’s TradeTech acquisition (closed on January 2, 2014) and the Polaris acquisition.

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The Company performed the annual assessment of its goodwill during the fourth quarter of the fiscal year ended March 31, 2017 and determined that the estimated fair value of the Company’s reporting unit exceeded its carrying value and therefore goodwill was not impaired. The Company will continue to complete goodwill impairment assessments at least annually during the fourth quarter of each ensuing fiscal year. The Company will continue to evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets, including intangible assets, may warrant revision or that the carrying value of these assets may be impaired. Any write-downs are treated as permanent reductions in the carrying amount of the assets.

Intangible Assets:

The following are details of the Company’s intangible asset carrying amounts acquired and amortization at September 30, 2017.

	Weighted Average Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizable intangible assets:
Customer relationships	10.8	$	83,256	$	30,098	$	53,158
Trademark	2.1	2,948		2,286		662
Technology	5.0	500		201		299
	10.5	$	86,704	$	32,585	$	54,119

The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

(10) Income Taxes

The Company applies an estimated annual effective tax rate to its year-to-date operating results to determine the interim provision (benefit) for income tax expense. The Company’s effective tax rate was 16.5% and 15.8% for the three and six months ended September 30, 2017, as compared to an effective tax rate of 10.1% and (3.4)% for the three and six months ended September 30, 2016. The Company’s reported effective tax rate is impacted by jurisdictional mix of profits and losses in which the Company operates, statutory tax rates in effect, unusual or infrequent discrete items requiring a provision during the period and certain exemptions or tax holidays applicable to the Company. The Company’s aggregate income tax rate in foreign jurisdictions is lower than its income tax rate in the United States due primarily to lower rates in jurisdictions in which the Company operates and applicable tax holiday benefits of the Company, obtained primarily in India and Sri Lanka.

The Company created two export oriented units in India, one in Bangalore during the fiscal year ended March 31, 2011 and a second unit in Hyderabad (Special Economic Zone or “SEZ”) during the fiscal year ended March 31, 2010 for which no income tax exemptions were availed. The Indian subsidiaries also operate two development centers in areas designated as a SEZ, under the SEZ Act of 2005. In particular, the Company was approved as an SEZ Co-developer and has built a campus on a 6.3 acre parcel of land in Hyderabad, India that has been designated as an SEZ. As an SEZ Co-developer, the Company is entitled to certain tax benefits for any consecutive period of 10 years during the 15 year period starting in fiscal year 2008. The Company has elected to claim SEZ Co-developer income tax benefits starting in fiscal year ended March 31, 2013. In addition, the Company has leased facilities in SEZ designated locations in Hyderabad and Chennai, India. The Company’s profits from the Hyderabad and Chennai SEZ operations are eligible for certain income tax exemptions for a period of up to 15 years beginning in fiscal March 31, 2009. The Company’s India profits ineligible for SEZ benefits are subject to corporate income tax at the current rate of 34.6%. In the fiscal years ended March 31, 2013 and March 31, 2014, the Company leased a facility in an SEZ designated location in Bangalore and Pune, India each of which is eligible for tax holidays for up to 15 years beginning in the fiscal years ended March 31, 2013 and March 31, 2014 respectively. During the fiscal year ended March 31, 2016, the Company established a new unit in Hyderabad, in an SEZ designated area, for which it is eligible for tax holiday for up to 15 years. Based on the latest changes in tax laws, book profits of SEZ units are subject to MAT, commencing April 1, 2011, which will continue to negatively impact the Company’s cash flows.

In addition, the Company’s Sri Lankan subsidiary, Virtusa (Private) Limited, is operating under a 12-year income tax holiday arrangement that is set to expire on March 31, 2019 and required Virtusa (Private) Limited to retain certain job creation and investment criteria through the expiration of the holiday period. During the fiscal year ended March 31, 2017, the Company believed it has fulfilled its hiring and investment commitments and is eligible for tax holiday through March 2019. The current agreement provides income tax exemption for all export business income. On October 31, 2016, the Company received confirmation from the

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Board of Investments that it had satisfied investment criteria through March 31, 2016 and is eligible for holiday benefits. At September 30, 2017, the Company believes it is eligible for continued benefits for the entire 12 year tax holiday.

In connection with the Company’s adoption of ASU 2016-09 (Stock Compensation), during the six months ended September 30, 2017, the Company has accounted on a prospective basis in the Consolidated Statements of Income (Loss) for the income tax expense or benefit for the tax effects of differences recognized on or after the effective date of the equity-based payment awards between the deduction for an award for tax purposes and the cumulative compensation costs of that award recognized for financial reporting purposes. During the three and six months ended September 30, 2017, the Company recorded a tax benefit of $872 and $1,150 in the Company’s income tax expense. The Company also presented the excess tax benefits (deficiencies) as operating activities in the Consolidated Statements of Cash Flows on a retrospective basis and prior period has been restated.

A valuation allowance is required if, based on available evidence, it is more likely than not, that all or some portion of the asset will not be realized due to the inability of the Company to generate sufficient taxable income. Net loss in the United States has decreased during the six months ended September 30, 2017 compared with the six months ended September 30, 2016. The Company has a significant deferred tax asset in the United States at September 30, 2017. We continue to monitor all positive and negative evidence related to this asset. At September 30, 2017, the Company determined that an additional valuation allowance was not required.

Unrecognized tax benefits represent uncertain tax positions for which the Company has established reserves. At September 30, 2017 and March 31, 2017, the total liability for unrecognized tax benefits was $7,588 and $7,612, respectively. Unrecognized tax benefits may be adjusted upon the closing of the statute of limitations for income tax returns filed in various jurisdictions. During the six months ended September 30, 2017, the unrecognized tax benefits decreased by $24 and increased by $28 during the six months ended September 30, 2016. The decrease in unrecognized tax benefits in the six months period ending September 30, 2017 was predominantly due to the release of a prior period foreign tax position, offset by increases for incremental interest accrued on existing uncertain tax positions. The increase in unrecognized tax benefits in the six months period ending September 30, 2016 was predominantly due to increases for incremental interest accrued on existing uncertain tax positions.

Undistributed Earnings of Foreign Subsidiaries

A substantial amount of the Company’s income before provision for income tax is from operations earned in its Indian and Sri Lankan subsidiaries and is subject to tax holiday. The Company intends to use accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and, accordingly, undistributed income is considered to be indefinitely reinvested. The Company does not provide for U.S. income taxes on foreign earnings. At September 30, 2017, the Company had $412,167 of unremitted earnings from foreign subsidiaries and approximately $174,907 of cash, cash equivalents, short-term and long-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested. If required, such cash and investments could be repatriated to the United States. However, under current law, any repatriation would be subject to United States federal income tax less applicable foreign tax credits. Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable.

(11) Concentration of Revenue and Assets

Total revenue is attributed to geographic areas based on the location of the client. Long-lived assets represent property, plant and equipment, intangible assets and goodwill, net of accumulated depreciation and amortization, and are attributed to geographic area based on their location. Geographic information is summarized as follows:

	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016
Client revenue:
United States of America	$	150,765	$	130,428	$	290,465	$	258,430
United Kingdom	47,881		39,146		90,013		76,418
Rest of World	49,528		40,515		95,041		80,712
Consolidated revenue	$	248,174	$	210,089	$	475,519	$	415,560

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	September 30, 2017		March 31, 2017
Long-lived assets, net of accumulated depreciation and amortization:
United States of America	$	89,769	$	91,500
India	267,992		271,346
Rest of World	26,562		25,494
Consolidated long-lived assets, net	$	384,323	$	388,340

Revenue from significant clients as a percentage of the Company’s consolidated revenue was as follows:

	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016
Customer 1	19.6	%	16.5	%	18.8	%	16.1	%

(12) Debt

On February 25, 2016, in connection with the Polaris SPA Transaction, the Company entered into a credit agreement (the “Credit Agreement”) dated as of February 25, 2016, by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Credit Agreement provides for a $100,000 revolving credit facility and a $200,000 delayed-draw term loan (together, the “Credit Facility”). To finance the Polaris SPA Transaction, on February 25, 2016, the Company drew down the full $200,000 of the term loan. Interest under these facilities accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense (“EBITDA”). The Company was required under the terms of the Credit Agreement to make quarterly principal payments on the term loan, however, the prepayment of the $81,000 from the proceeds from the Orogen Viper LLC investment (See Note 8 of the notes to our financial statements), has satisfied this obligation and no further principal payments are required. The Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years ending February 24, 2021. At September 30, 2017, the interest rate on the Credit Facility was 3.49% and there were no borrowings under the revolving credit facility.

The Credit Agreement has financial covenants that require that the Company maintain a Total Leverage Ratio, commencing on December 31, 2016, of not more than 3.25 to 1.00 for the first year of the Credit Facility, of not more than 3.00 to 1.00 for the second year of the Credit Facility, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter (the “Reference Period”). In addition, for a period, expected to be at least one year from the completion of the Company’s closing of the Polaris SPA Transaction, until the occurrence of certain events described in the Credit Agreement, at any time when the Total Leverage Ratio exceeds 1.50 to 1.00 as of the last day of a quarter, the Company must maintain at least $30,000 in unrestricted cash, cash equivalents and certain permitted investments under the Credit Facility held in bank deposits in the U.S., and $20,000 in unrestricted cash and certain permitted investments under the Credit Facility and long-term securities investments held in accordance with the Company’s current investment policy. The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio, commencing on September 30, 2017, of not less than 1.25 to 1.00, as of the last day of any Reference Period. For purposes of these covenants, “Total Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of Funded Debt to Adjusted EBITDA for the reference period ended on such date. “Funded Debt” refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees and “Adjusted EBITDA” is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection with the Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring losses or expenses, and (vii) all other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period, subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated

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interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

The Credit Facility is secured by substantially all of the Company’s assets, including all intellectual property and all securities in domestic subsidiaries (other than certain domestic subsidiaries where the material assets of such subsidiaries are equity in foreign subsidiaries), subject to customary exceptions and exclusions from the collateral. All obligations under the Credit Agreement are unconditionally guaranteed by substantially all of the Company’s material direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.

At September 30, 2017, the Company is in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the Credit Agreement to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the revolving credit facility at September 30, 2017 and through the date of this filing.

Current portion of long-term debt

The following summarizes our short-term debt balances as of:

	September 30, 2017		March 31, 2017
Notes outstanding under the revolving credit facility	$	—	$	—
Term loan- current maturities	—		10,000
Less: deferred financing costs — current	—		(1,130		)
Total	$	—	$	8,870

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Long-term debt, less current portion

The following summarizes our long-term debt balance as of:

	September 30, 2017			March 31, 2017
Term loan	$	109,000		$	190,000
Less:
Current maturities	—			(10,000		)
Deferred financing costs, long-term	(3,843		)	(3,278		)
Total	$	105,157		$	176,722

In accordance with the recently adopted FASB ASU 2015-03, the Company has presented debt issuance costs in the balance sheet as a direct deduction from the carrying value of that debt liability.

In July 2016, the Company entered into 12-month forward starting interest rate swap transactions to mitigate Company’s interest rate risk on Company’s variable rate debt (collectively, “The Interest Rate Swap Agreements”). The Company’s objective is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on the Credit Agreement by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. The Company will recognize these transactions in accordance with ASC 815 “Derivatives and Hedging,” and have designated the swaps as cash flow hedges.

The three Interest Rate Swap Agreements have an effective date of July 31, 2017 and a maturity date of July 31, 2020. As of September 30, 2017, the swaps have an aggregate notional amount of $92,500 and, with the pre-payment of $81,000 of principal on our existing debt, hedge approximately 85% of our outstanding debt balance. The notional amount of the swaps amortizes over the three swap periods. The Interest Rate Swap Agreements require the Company to make monthly fixed interest rate payments based on the amortized notional amount at a blended weighted average rate of 1.025% and the Company will receive 1-month LIBOR on the same notional amounts. The unrealized gain associated with the 2016 Swap Agreement was $1,571 at September 30, 2017, which represents the estimated amount that the Company would receive from the counterparties in the event of an early termination.

Beginning in fiscal 2009, the Company’s U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse or continuing involvement, certain of its European-based accounts receivable balances from one client to such third party financial institution. During the six months ended September 30, 2017, $10,954 of receivables were sold under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the three and six months ended September 30, 2017. No amounts were due as of September 30, 2017, but the Company may elect to use this program again in future periods. However, the Company cannot provide any assurances that this or any other financing facilities will be available or utilized in the future.

(13) Pensions and post-retirement benefits

The Company has noncontributory defined benefit plans covering its employees in India and Sri Lanka as mandated by the Indian and Sri Lankan governments. The following tables provide information regarding pension expense recognized:

	Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016
Components of net periodic pension cost
Service cost	$	733		$	462		$	1,100		$	666
Interest cost	331			204			496			283
Expected return on plan assets	(347		)	(206		)	(520		)	(302		)
Amortization actuarial loss	77			41			116			82
Amortization past service cost	5			2			7			5
Net periodic pension cost	$	799		$	503		1,199			$	734

The Company expects to contribute approximately $2,267 in cash to the gratuity plans during the fiscal year ending March 31, 2018. During the six months ended September 30, 2017, the Company made cash contributions of $1,637 towards the plans for the fiscal year 2018.

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(14) Restructuring

During the three months ended September 30, 2017, the Company implemented certain cost saving and restructuring initiatives related to a workforce reduction. During the three months ended September 30, 2017, the Company incurred $757, primarily related to termination benefits, which have been included in s elling, general and administrative expenses in the consolidated statements of income. The Company expects to incur additional restructuring costs of approximately $700 in the second half of fiscal year 2018. The Company expects to complete these initiatives by March 31, 2018.

The following table summarizes the above restructuring charges during the period ending September 30, 2017:

	September 30, 2017
Balance at April 1, 2017	$	—
Provisions	757
Cash Payments	313
Balance at September 30, 2017	$	444

(15) Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) by component were as follows for the three and six months ended September 30, 2017 and 2016:

	Three Months Ended September 30,						Six Months Ended September 30,
Accumulated Other Comprehensive Income (Loss)	2017			2016			2017			2016
Investment securities
Beginning balance	$	280		$	205		$	57		$	23
Other comprehensive income (loss) (OCI) before reclassifications net of tax of $(32), $(101), $84 and $(36)	(23		)	(268		)	186			(175		)
Reclassifications from OCI to other income, net of tax of $(40), $(67), $0 and $3	(72		)	(126		)	18			11
(Less) : Noncontrolling interests, net of tax $19, $35, $(22) and $10	35			67			(41		)	19
Comprehensive income (loss) on investment securities, net of tax of $(53), $(133), $62 and $(23)	(60		)	(327		)	163			(145		)
Closing Balance	$	220		$	(122	)	$	220		$	(122	)
Currency Translation Adjustments
Beginning balance	$	(47,296	)	$	(49,029	)	$	(50,415	)	$	(45,211	)
OCI before reclassifications	821			1,860			4,426			(3,202		)
(Less): Noncontrolling interests, net of tax	340			(1,051		)	(146		)	193
Comprehensive income (loss) on currency translation adjustment	1,161			809			4,280			(3,009		)
Closing Balance	$	(46,135	)	$	(48,220	)	$	(46,135	)	$	(48,220	)
Cash Flow Hedges
Beginning balance	$	8,023		$	5,733		$	11,789		$	3,934
OCI before reclassifications net of tax of $153, $2,138, $403, and $2,402	(22		)	5,560			(42		)	7,355
Reclassifications from OCI to
- Revenue, net of tax of $(1,010) $(328), $(1,907) and $(511)	(1,909		)	(621		)	(3,604		)	(966		)
- Costs of revenue, net of tax of $(594), $(267), $(1,160) and $(281)	(1,393		)	(906		)	(2,892		)	(1,090		)
- Selling, general and administrative expenses, net of tax of $(342), $(177), $(661) and $(185)	(808		)	(597		)	(1,649		)	(710		)
- Interest expenses, net of tax of $(14), $0, $(14) and $0	(21		)	—			(21		)	—
(Less): Noncontrolling interests, net of tax $214, $(189), $367 and $152	404			(358		)	693			288
Comprehensive income (loss) on cash flow hedges, net of tax of $(1,593), $1,177, $(2,972) and $1,577	(3,749		)	3,078			(7,515		)	4,877
Closing Balance	$	4,274		$	8,811		$	4,274		$	8,811
Benefit plans
Beginning balance	$	(1,135	)	$	(861	)	$	(1,180	)	$	(885	)
OCI before reclassifications net of tax of $0 for all periods	$	—		$	247		$	—		$	247
Reclassifications from OCI for prior service credit (cost) to:
- Costs of revenue, net of tax of $0 for all periods	2			2			4			4
- Selling, general and administrative expenses, net of tax of $0 for all periods	—			—			—			1
Reclassifications from OCI for net actuarial gain (loss) amortization to:
- Costs of revenue, net of tax of $0 for all periods	27			26			53			52
- Selling, general and administrative expenses, net of tax of $0 for all periods	12			15			24			30
Other adjustments	6			2			11			(18		)
(Less): Noncontrolling interests, net of tax	—			(52		)	—			(52		)
Comprehensive income (loss) on benefit plans, net of tax of $0 for all periods	47			240			92			264
Closing Balance	$	(1,088	)	$	(621	)	$	(1,088	)	$	(621	)
Accumulated other comprehensive (loss) at September 30, 2017	$	(42,729	)	$	(40,152	)	$	(42,729	)	$	(40,152	)

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(16) Subsequent Events

Virtusa India and its affiliates have the right not to purchase the offered shares if the final price discovered through the above process is not acceptable to Virtusa.

On October 20, 2017, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the Indian rupee against the U.S. dollar and U.K. pound sterling. The U.S dollar contracts have an aggregate notional amount of approximately 1,751,130 Indian rupees (approximately $26,011) and have an average settlement rate of 67.20 Indian rupees. The U.K. pound sterling contracts have an aggregate notional amount of approximately 942,915 Indian rupees (approximately £10,498) and have an average settlement rate of 89.62 Indian rupees. These contracts will expire at various dates during the 17 month period ending on March 29, 2019. The Company will be obligated to settle these contracts based upon the Reserve Bank of India published Indian rupee exchange rates. Based on the U.S. dollar to U.K. pound sterling spot rate on October 20, 2017 of $1.32, the blended weighted average Indian rupee rate associated with both the U.S. dollar and U.K. pound sterling contracts would be approximately 67.61 Indian rupees per U.S. dollar.

On October 16, 2017, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the U.K. pound sterling (“GBP”) against the U.S. dollar, the Swedish Krona (“SEK”) against the U.S. dollar and the Euro against the U.S. dollar, each of which will expire on various dates during the period ending December 29, 2017. The GBP contracts have an aggregate notional amount of approximately £ 3,064 (approximately $4,060), the SEK contracts have an aggregate notional amount of approximately SEK 2,690 (approximately $383) and the Euro contracts have an aggregate notional amount of approximately EUR

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1,442 (approximately $1,703). The weighted average U.S. dollar settlement rate associated with the GBP contracts is $1.33, the weighted average U.S dollar settlement rate associated with the SEK contracts is approximately $0.14, and the weighted average U.S. dollar settlement rate associated with the Euro contracts is approximately $1.18.

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

The following discussion of the financial condition and results of operations of Virtusa Corporation should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017 (the “Annual Report”), which has been filed with the Securities and Exchange Commission, or SEC.

Forward looking statements

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seek,” “intends,” “plans,” “estimates,” “projects,” “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements, such as statements regarding anticipated future revenue, contract percentage completions, capital expenditures, the effect of new accounting pronouncements, management’s plans and objectives and other statements regarding matters that are not historical facts, involve predictions. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including those factors set forth in Item 1A. “Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended March 31, 2017 and those factors referred to or discussed in or incorporated by reference into the section titled “Risk Factors” included in Item 1A of Part II of this Quarterly Report on Form 10-Q. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Business overview

Virtusa Corporation (the “Company”, “Virtusa”, “we”, “us” or “our”) is a global provider of information technology (“IT”) consulting and outsourcing services that accelerate business outcomes for our clients. We support Forbes Global 2000 clients across large, consumer facing industries like banking and financial services, insurance, healthcare, communications, and media and entertainment, as they look to improve their business performance through accelerating revenue growth, delivering compelling consumer experiences, improving operational efficiencies, and lowering overall IT costs. We provide services across the entire spectrum of the IT services lifecycle, from strategy and consulting, to technology and user experience (“UX”) design, development of IT applications, systems integration, testing and business assurance, and maintenance and support services, including infrastructure and managed services. Our services leverage our distinctive consulting approach and unique platforming methodology to transform our clients’ businesses through the innovative use of technology and domain knowledge to solve critical business problems. Our services enable our clients to accelerate business outcomes by consolidating, rationalizing and modernizing their core customer-facing processes into one or more core systems. We deliver cost-effective solutions through a global delivery model, applying advanced methods such as Agile, an industry standard technique designed to accelerate application development. We also use our consulting methodology, which we refer to as accelerated solution design (“ASD”), which is a collaborative decision-making and design process performed with the client, to ensure our solutions meet the client’s specifications and requirements. Our industry leading business transformational solutions combine deep domain expertise with our strengths in software engineering and business consulting to support our clients’ business imperative initiatives across business growth and IT operations. Headquartered in Massachusetts, we have offices in the United States, Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, Austria, the United Arab Emirates, Hong Kong, Japan, Australia and New Zealand, with global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as near shore delivery centers in the United States. At September 30, 2017, we had 18,452 employees, or team members, inclusive of our Polaris team members.

On May 3, 2017, we entered into an investment agreement with The Orogen Group (“Orogen”) pursuant to which Orogen purchased 108,000 shares of the Company’s newly issued Series A Convertible Preferred Stock, initially convertible into 3,000,000 shares of common stock, for an aggregate purchase price of $108 million with an initial conversion price of $36.00 (the “Orogen Preferred Stock Financing”). In connection with the investment, Vikram S. Pandit, the former CEO of Citigroup, was appointed to Virtusa’s Board of Directors. Orogen is a new operating company that was created by Vikram Pandit and Atairos Group, Inc., an independent private company focused on supporting growth-oriented businesses, to leverage the opportunities created by the evolution of the financial services landscape and to identify and invest in financial services companies and related businesses with proven business models.

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In connection with the investment, we repaid $81 million of our outstanding senior term loan, and our board of directors approved the repurchase of approximately $30 million of our common stock.

On March 3, 2016, pursuant to a share purchase agreement dated as of November 5, 2015, by and among Virtusa Consulting Services Private Limited (“Virtusa India”), a subsidiary of the Company, Polaris Consulting & Services Limited (“Polaris”) and the promoter sellers named therein, as amended on February 25, 2016 (the “SPA”), the Company completed the purchase of 53,133,127 shares, or approximately 51.7% of the fully-diluted capitalization of Polaris from certain Polaris shareholders for approximately $168.3 million in cash (the “Polaris SPA Transaction”). The primary strategic purpose and goal of Virtusa’s acquisition of Polaris was, and is, as follows:

· The combination of Virtusa and Polaris creates a unique, fully integrated provider of comprehensive solutions and services across the banking and financial services industry,

· The combination meaningfully expands our addressable market, and

· The transaction enhances our ability to pursue larger consulting and outsourcing contracts.

In addition, on April 6, 2016, as part of the Polaris acquisition, Virtusa India completed an unconditional mandatory open offer (the “Mandatory Tender Offer”) with successful tender to purchase an additional 26% of the fully diluted outstanding shares of Polaris from Polaris’ public shareholders. The Mandatory Tender Offer was conducted in accordance with requirements of the Securities and Exchange Board of India (“SEBI”) and the applicable Indian rules on takeovers. Virtusa India purchased 26,719,942 shares of Polaris common stock for approximately $3.32 per share for an aggregate purchase price of approximately $89.1 million (Indian rupees 5,935 million). Upon the closing of the Mandatory Tender Offer, Virtusa India’s ownership interest in Polaris increased from approximately 51.7% to 77.7% of Polaris’ fully diluted shares outstanding, and from approximately 52.9% to 78.8% of Polaris’ basic shares outstanding. Under applicable Indian rules on takeovers, Virtusa India was required to sell within one year of the settlement of the unconditional mandatory offer its shares of common stock in Polaris in excess of 75% of the basic outstanding shares of common stock of Polaris. In order to comply with the applicable Indian rules on takeovers, during the three months ended December 31, 2016, the Company sold 3.7% of its shares of Polaris common stock through a public offering. The sale offer closed on December 14, 2016, and the Company received approximately $7.6 million in proceeds, net of $0.2 million in brokerage fees and taxes. In addition to these costs, the Company incurred additional costs of $0.4 million towards professional and legal fees and expense. The Company’s ownership interest in Polaris prior to the sale offer was 78.6% of the outstanding shares of common stock, and upon the closing of the sale offer, the Company’s ownership interest decreased from 78.6% to 74.9% of Polaris’ basic shares of common stock outstanding.

To finance the Polaris acquisition, on February 25, 2016, the Company entered into a credit agreement (the “Credit Agreement”) by and among the Company, its guarantor subsidiaries a party thereto, the lenders a party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Credit Agreement replaced the Company’s existing $25.0 million credit agreement with JP Morgan Chase Bank, N.A. and provides for a $100.0 million revolving credit facility and a $200.0 million delayed-draw term loan (together, the “Credit Facility”). In connection with the Polaris acquisition, on February 25, 2016, the Company drew down the full $200.0 million of the term loan. Interest under these facilities accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense (“EBITDA”). We were required under the terms of the Credit Agreement to make quarterly principal payments on the term loan. On May 3, 2017, in connection with the Orogen Preferred Stock Financing, we amended our Credit Agreement primarily to issue the Series A Convertible Preferred Stock and pay certain dividends with respect to the Series A Convertible Preferred Stock and we repaid $81.0 million of our term loan under the Credit Facility. As a result of this pre-payment, the Company has no additional obligated principal payments until the amount due at maturity. Interest payments will continue per the terms of the Credit Agreement. The Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years, ending February 24, 2021.

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In connection with, and as part of the Polaris acquisition, on November 5, 2015, the Company entered into an amendment with Citigroup Technology, Inc. (“Citi”) and Polaris, which became effective upon the closing of the Polaris SPA Transaction, pursuant to which, (i) Citi agreed to appoint the Company and Polaris as a preferred vendor for Global Technology Resource Strategy (“GTRS”) for the provision of IT services to Citi on an enterprise wide basis (“GTRS Preferred Vendor”), (ii) the Company agreed to certain productivity savings and associated reduced spend commitments for a period of two years, which, if not achieved, would require the Company to provide certain minimum discounts to Citi, (iii) the parties amended Polaris’ master services agreement with Citi such that the Company would also be deemed a contracting party and the Company would assume, and agree to perform, or cause Polaris to perform, all applicable obligations under the master services agreement, as amended by the amendment (the “Citi/Virtusa MSA”), and (iv) Virtusa agreed to terminate Virtusa’s existing master services agreement with Citi, and have the Citi/Virtusa MSA be the sole surviving agreement.

We believe, based on our preliminary estimates, that if we acquire at least 90% of the Polaris shares and complete the delisting, the delisting will be accretive to our earnings per share.

Financial overview

In the three months ended September 30, 2017, our revenue increased by 18.1% to $ 248.2 million, compared to $210.1 million in the three months ended September 30, 2016. In the six months ended September 30, 2017, our revenue increased by 14.4% to $475.5 million, compared to $415.6 million in the six months ended September 30, 2016.

In the three months ended September 30, 2017, net income available to Virtusa common stockholders increased by 14.5% to $3.7 million, as compared to a net income of $3.2 million in the three months ended September 30, 2016. Net income increased by 318.2% to $6.6 million in the six months ended September 30, 2017, compared to a net loss of $3.0 million in the six months ended September 30, 2016.

The increase in revenue for the three and six months ended September 30, 2017, as compared to the three and six months ended September 30, 2016, primarily resulted from:

· Broad based growth, particularly in our top ten clients

· Revenue growth primarily in banking, and media information and other (“M&I”) partially offset by a decrease in financial services and insurance revenue

· Revenue increases are partially offset by the depreciation in the U.K. pound sterling, which is reflected in the factors listed above

The key drivers of our increase in our net income for the three and six months ended September 30, 2017, as compared to the three and six months ended September 30, 2016, were as follows:

· Higher revenue, particularly in our top ten clients, including accelerated growth in banking revenue

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· Increase in gross profit due to higher revenue, and higher gross margin driven by higher utilization; partially offset by the impact of lower margins from higher onsite effort and subcontractor costs;

· Decrease in operating expense as a percentage of revenue;

partially offset by

· Depreciation in the U.K. pound sterling (“GBP”) which impacted our U.K. based revenues when consolidating into U.S. dollar and costs of revenue when converting Indian rupee denominated costs into GBP under our transfer pricing model

· Increase in net income attributable to noncontrolling interest

High repeat business and client concentration are common in our industry. During the three months ended September 30, 2017 and 2016, 98% and 82%, respectively, of our revenue was derived from clients who had been using our services for more than one year. During the six months ended September 30, 2017 and 2016, 97% and 83%, respectively, of our revenue was derived from clients who had been using our services for more than one year. Accordingly, our global account management and service delivery teams focus on expanding client relationships and converting new engagements to long-term relationships to generate repeat revenue and expand revenue streams from existing clients. We also have a dedicated business development team focused on generating engagements with new clients to continue to expand our client base and, over time, reduce client concentration.

We derive our revenue from two types of service offerings: application outsourcing, which is recurring in nature; and consulting, including technology implementation, which is non-recurring in nature. For the three months ended September 30, 2017, our application outsourcing and consulting revenue represented 56% and 44%, respectively of our total revenue as compared to 58% and 42%, respectively, for the three months ended September 30, 2016. For the six months ended September 30, 2017, our application outsourcing and consulting revenue represented 57% and 43%, respectively, of our total revenue as compared to 58% and 42%, respectively, for the six months ended September 30, 2016.

In the three months ended September 30, 2017, our North America revenue increased by 18.9%, or $25.8 million, to $162.5 million, or 65.5% of total revenue, from $136.6 million, or 65.0% of total revenue in the three months ended September 30, 2016. In the six months ended September 30, 2017, our North America revenue increased by 14.3%, or $38.5 million, to $308.6 million, or 64.9% of total revenue, from $270.1 million, or 65.0% of total revenue in the six months ended September 30, 2016. The increase in revenue for the three and six months ended September 30, 2017 is primarily due to revenue growth in our banking and M&I clients, partially offset by a decrease in our financial services and insurance clients.

In the three months ended September 30, 2017, our European revenue increased by 21.3%, or $10.0 million, to $57.2 million, or 23.1% of total revenue, from $47.2 million, or 22.5% of total revenue in the three months ended September 30, 2016. In the six months ended September 30, 2017, our European revenue increased by 18.2%, or $17.0 million, to $110.6 million, or 23.3% of total revenue, from $93.6 million, or 22.5% of total revenue in the six months ended September 30, 2016. The increase in revenue for the three and six months ended September 30, 2017 is primarily due to an increase in revenue from European banking clients, partially offset by depreciation of the U.K. pound sterling.

Our gross profit increased by $ 12.1 million to $69.8 million for the three months ended September 30, 2017, as compared to $57.7 million in the three months ended September 30, 2016. Our gross profit increased by $21.2 million to $130.8 million for the six months ended September 30, 2017 as compared to $109.6 million in the six months ended September 30, 2016. The increase in gross profit during the three and six months ended September 30, 2017, as compared to the three and six months ended September 30, 2016, was primarily due to higher revenue and higher utilization offset by depreciation in the U.K. pound sterling. As a percentage of revenue, gross margin was 28.1% and 27.5% in the three months ended September 30, 2017 and 2016, respectively. During the six months ended September 30, 2017 and 2016, gross margin, as a percentage of revenue, was 27.5% and 26.4%, respectively.

We perform our services under both time-and-materials and fixed-price contracts. Revenue from fixed-price contracts represented 39% and 45% of total revenue, and revenue from time-and-materials contracts represented 61% and 55% of total revenue for the three months ended September 30, 2017 and 2016, respectively . Revenue from fixed-price contracts represented 38% and 43% of total revenue and revenue from time-and-materials contracts represented 62% and 57% for the six months ended September 30, 2017 and 2016, respectively. The revenue earned from fixed-price contracts in the three and six months ended September 30, 2017 primarily reflects our client preferences.

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As an IT services company, our revenue growth is highly dependent on our ability to attract, develop, motivate and retain skilled IT professionals. We monitor our overall attrition rates and patterns to align our people management strategy with our growth objectives. At September 30, 2017, our attrition rate for the trailing 12 months, which reflects voluntary and involuntary attrition was approximately 21.2%, of which 2.5% relates to implementation of certain cost saving and restructuring initiatives. Our attrition rate at September 30, 2017 reflects a higher rate of attrition as compared to the corresponding prior year period. The majority of our attrition occurs in India and Sri Lanka, and is weighted towards the more junior members of our staff. In response to higher attrition and as part of our retention strategies, we have experienced increases in compensation and benefit costs, which may continue in the future. However, we try to absorb such cost increases through price increases or cost management strategies such as managing discretionary costs, the mix of professional staff and utilization levels and achieving other operating efficiencies. If our attrition rate increases or is sustained at higher levels, our growth may slow and our cost of attracting and retaining IT professionals could increase.

We engage in a foreign currency hedging strategy using foreign currency forward contracts designed to hedge fluctuations in the Indian rupee against the U.S. dollar and U.K. pound sterling, as well as the euro, Swedish krona and the U.K. pound sterling against the U.S. dollar, when consolidated into U.S. dollars and intercompany balances. In addition, as part of the Polaris acquisition, the Company has assumed a cash flow program designed to mitigate the impact of the volatility of the translation of Polaris U.S. dollar denominated revenue into Indian rupees to reduce the effect of change in these foreign currency exchange rates on our foreign operations. There is no assurance that these hedging programs or hedging contracts will be effective. Because these foreign currency forward contracts are designed to reduce volatility in the Indian rupee, U.K. pound sterling, euro and Swedish krona exchange rates, they not only reduce the negative impact of a stronger Indian rupee, weaker U.K. pound sterling, weaker euro and weaker Swedish krona, but also could reduce the positive impact of a weaker Indian rupee on our Indian rupee expenses or reduce the impact of a stronger U.K. pound sterling, stronger euro or stronger Swedish krona on our U.K. pound sterling, euro and Swedish krona denominated revenues. In addition, to the extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on the aggregate amount of hedges placed earlier and in larger amounts than expected.

Application of critical accounting estimates and risks

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, in particular those related to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities, contingent consideration both upon and subsequent to acquisitions and valuation of financial instruments including derivative contracts and investments. Actual amounts could differ significantly from these estimates. Our management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenue and expenses that are not readily apparent from other sources. Additional information about these critical accounting policies may be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in the Annual Report.

Results of operations

Three months ended September 30, 2017 compared to the three months ended September 30, 2016

The following table presents an overview of our results of operations for the three months ended September 30, 2017 and 2016:

	Three Months Ended September 30,					$			%
(dollars in thousands)	2017			2016		Change			Change
Revenue	$	248,174		$	210,089	$	38,085		18.1	%
Costs of revenue	178,404			152,369		26,035			17.1	%
Gross profit	69,770			57,720		12,050			20.9	%
Operating expenses	59,491			54,183		5,308			9.8	%
Income from operations	10,279			3,537		6,742			190.6	%
Other income (expense)	(1,187		)	1,418		(2,605		)	(183.7	)%
Income before income tax expense	9,092			4,955		4,137			83.5	%
Income tax expense	1,500			499		1,001			200.6	%
Net income	7,592			4,456		3,136			70.4	%
Less: net income attributable to noncontrolling interests, net of tax	2,824			1,242		1,582			127.4	%
Net income available to Virtusa stockholders	4,768			3,214		1,554			48.4	%
Less: Series A Convertible Preferred Stock dividends and accretion	1,087			—		1,087			—
Net income available to Virtusa common stockholders	$	3,681		$	3,214	$	467		14.5	%

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Revenue

Revenue increased by 18.1%, or $38.1 million, from $210.1 million during the three months ended September 30, 2016 to $248.2 million in the three months ended September 30, 2017. The increase in revenue was primarily driven by revenue growth in our banking and M&I clients, partially offset by a decrease in our financial services and insurance clients and by the depreciation in the U.K. pound sterling. Revenue from North American clients in the three months ended September 30, 2017 increased by $25.8 million, or 18.9%, as compared to the three months ended September 30, 2016, primarily due to revenue growth in our banking and M&I clients, partially offset by a decrease in our financial services and insurance clients. Revenue from European clients increased by $10.0 million, or 21.3%, as compared to the three months ended September 30, 2016, primarily due to an increase in revenue from European banking clients, partially offset by the depreciation of the U.K. pound sterling. We had 198 active clients at September 30, 2017, as compared to 187 active clients at September 30, 2016.

Cost of Revenue

Costs of revenue increased from $152.4 million in the three months ended September 30, 2016 to $178.4 million in the three months ended September 30, 2017, an increase of $26.0 million, or 17.1%, which reflects a higher cost of $0.6 million due to the appreciation of the Indian rupee. The increase in cost of revenue was primarily due to an increase in the number of IT professionals and related compensation and benefit costs of $21.2 million. The increased costs of revenue are also due to an increase in subcontractor costs of $3.9 million and an increase in travel expenses of $1.3 million. At September 30, 2017, we had 16,787 IT professionals as compared to 15,447 at September 30, 2016.

As a percentage of revenue, cost of revenue decreased from 72 .5% for the three months ended September 30, 2016 to 71.9% for three months ended September 30, 2017.

Gross Profit

Our gross profit increased by $12.1 million, or 20.9%, to $69.8 million for the three months ended September 30, 2017, as compared to $ 57.7 million for the three months ended September 30, 2016, primarily due to an increase in revenue and higher utilization; partially offset by lower margins from higher onsite effort, increased subcontractor costs and the depreciation of the U.K. pound sterling. As a percentage of revenue, our gross profit was 28.1% and 27.5% in the three months ended September 30, 2017 and 2016, respectively.

Operating expenses

Operating expenses increased from $54 .2 million in the three months ended September 30, 2016 to $59.5 million in the three months ended September 30, 2017, an increase of $5.3 million, or 9.8%, which reflects a higher cost of $0.3 million due to the appreciation of the Indian rupee. The increase in operating expenses was primarily due to an increase of $4.0 million in compensation related expenses and an increase in subcontractor costs of $1.0 million. As a percentage of revenue, our operating expenses decreased from 25.8% in the three months ended September 30, 2016 to 24.0% in the three months ended September 30, 2017, primarily due to certain acquisition and integration related expenses incurred during the three months ended September 30, 2016.

Income from operations

Income from operations increased by 190.6%, from $3.5 million in the three months ended September 30, 2016 to $10.3 million income in the three months ended September 30, 2017. As a percentage of revenue, income from operations increased from 1.7% in the three months ended September 30, 2016 to 4.1% in the three months ended September 30, 2017.

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Other income (expense)

Other income (expense) decreased by $2.6 million from income of $1.4 million in the three months ended September 30, 2016 to an expense of $(1.2) million in the three months ended September 30, 2017, primarily due to foreign currency transaction losses due to the depreciation of our Indian rupee denominated intercompany note when converted into U.S. dollars.

Income tax expense

Income tax expense increased by $1.0 million, from $0.5 million in the three months ended September 30, 2016 to $1.5 million in the three months ended September 30, 2017. Our effective tax rate increased from 10.1% for the three months ended September 30, 2016 to 16.5% for the three months ended September 30, 2017. The increase in the tax expense and effective tax rate for the three months ended September 30, 2017 was primarily due to an increase in income from operations, geographical mix of profits and certain foreign currency translation losses with no corresponding tax benefit offset by stock compensation deductions.

Noncontrolling interests

In connection with the Polaris acquisition, for the three months ended September 30, 2017, we recorded a noncontrolling interest of $ 2.8 million, representing a 25.6% share of profits of Polaris held by parties other than Virtusa.

Net income (loss) available to Virtusa stockholders

Net income available to Virtusa stockholders increased by 48.4%, from $3.2 million in the three months ended September 30, 2016 to $4.8 million in the three months ended September 30, 2017 driven by higher operating income, primarily due to higher gross margin, lower operating expense as percentage of revenue and partially offset by foreign currency transaction losses.

Series A Convertible Preferred Stock dividends and accretion

In connection with the Orogen Preferred Stock Financing, we accrued dividends and accreted issuance costs of $1.1 million at a rate of 3.875% per annum during the three months ended September 30, 2017.

Net income (loss) available to Virtusa common stockholders

Net income available to Virtusa common stockholders increased by 14.5%, from $3.2 million in the three months ended September 30, 2016 to $3.7 million in the three months ended September 30, 2017.

Six months ended September 30, 2017 compared to the six months ended September 30, 2016

The following table presents an overview of our results of operations for the six months ended September 30, 2017 and 2016:

	Six Months Ended September 30,						$		%
(dollars in thousands)	2017			2016			Change		Change
Revenue	$	475,519		$	415,560		$	59,959	14.4	%
Costs of revenue	344,683			305,929			38,754		12.7	%
Gross profit	130,836			109,631			21,205		19.3	%
Operating expenses	114,487			107,943			6,544		6.1	%
Income from operations	16,349			1,688			14,661		868.5	%
Other expense	(1,812		)	(2,707		)	895		33.1	%
Income (loss) before income tax expense	14,537			(1,019		)	15,556		1,526.6	%
Income tax expense	2,298			35			2,263		6,465.7	%
Net income (loss)	12,239			(1,054		)	13,293		1,261.2	%
Less: net income attributable to noncontrolling interests, net of tax	3,813			1,988			1,825		91.8	%
Net income (loss) available to Virtusa stockholders	8,426			(3,042		)	11,468		377.0	%
Less: Series A Convertible Preferred Stock dividends and accretion	1,788			—			1,788		—
Net income (loss) available to Virtusa common stockholders	$	6,638		$	(3,042	)	$	9,680	318.2	%

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Revenue

Revenue increased by 14.4%, or $60.0 million, from $415.6 million during the six months ended September 30, 2016 to $475.5 million in the six months ended September 30, 2017. The increase in revenue was primarily driven by revenue growth in our banking and M&I clients, partially offset by a decrease in our financial services and insurance clients and by the depreciation in the U.K. pound sterling. Revenue from North American clients in the six months ended September 30, 2017 increased by $38.5 million, or 14.3%, as compared to the six months ended September 30, 2016, primarily due to revenue growth in our banking and M&I clients, partially offset by a decrease in our financial services and insurance clients. Revenue from European clients increased by $17.0 million, or 18.2%, as compared to the six months ended September 30, 2016, primarily due to an increase in revenue from European banking clients, partially offset by the depreciation of the U.K. pound sterling. We had 198 active clients at September 30, 2017, as compared to 187 active clients at September 30, 2016.

Cost of Revenue

Costs of revenue increased from $305.9 million in the six months ended September 30, 2016 to $344.7 million in the six months ended September 30, 2017, an increase of $38.8 million, or 12.7%, which reflects a higher cost of $0.3 million due to the appreciation of the Indian rupee. The increase in cost of revenue was primarily due to an increase in the number of IT professionals and related compensation and benefit costs of $28.0 million. The increased costs of revenue are also due to an increase in subcontractor costs of $8.9 million and an increase in travel expenses of $2.2 million. At September 30, 2017, we had 16,787 IT professionals as compared to 15,447 at September 30, 2016.

As a percentage of revenue, cost of revenue decreased from 73 .6% for the six months ended September 30, 2016 to 72.5% for six months ended September 30, 2017.

Gross Profit

Our gross profit increased by $21.2 million, or 19.3%, to $130.8 million for the six months ended September 30, 2017, as compared to $ 109.6 million for the six months ended September 30, 2016, primarily due to an increase in revenue and higher utilization; partially offset by lower margins from higher onsite effort, increased subcontractor costs, depreciation of the U.K. pound sterling and higher utilization. As a percentage of revenue, our gross profit was 27.5% and 26.4% in the six months ended September 30, 2017 and 2016, respectively.

Operating expenses

Operating expenses increased from $107 .9 million in the six months ended September 30, 2016 to $114.5 million in the six months ended September 30, 2017, an increase of $6.5 million, or 6.1%, which reflects a higher cost of $0.2 million due to the appreciation of the Indian rupee. The increase in operating expenses was primarily due to an increase of $5.7 million in compensation related expenses and an increase in facilities expense of $0.3 million. As a percentage of revenue, our operating expenses decreased from 26.0% in the six months ended September 30, 2016 to 24.1% in the six months ended September 30, 2017, primarily due to certain acquisition and integration related expense incurred during the six months ended September 30, 2016.

Income from operations

Income from operations increased by 868.5%, from a $1.7 million in the six months ended September 30, 2016 to $16.3 million income in the six months ended September 30, 2017. As a percentage of revenue, income from operations increased from 0.4% in the six months ended September 30, 2016 to 3.4% in the six months ended September 30, 2017.

Other expense

Other expense decreased by $0.9 million from $2.7 million in the six months ended September 30, 2016 to $1.8 million in the six months ended September 30, 2017, primarily due to a decrease in interest expense.

Income tax expense

Income tax expense increased by $2.2 million from $0.1 million in the six months ended September 30, 2016 to $2.3 million in the six months ended September 30, 2017. Our effective tax rate increased from a tax benefit of (3.4)% for the six months ended September 30, 2016 to a tax expense of 15.8% for the six months ended September 30, 2017. The increase in the tax expense and effective tax rate for the six months ended September 30, 2017 was primarily due to an increase in income from operations, change in

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geographical mix of profits and certain foreign currency translation losses with no corresponding tax benefit offset by stock compensation deductions.

Noncontrolling interests

In connection with the Polaris acquisition, for the six months ended September 30, 2017, we recorded a noncontrolling interest of $ 3.8 million, representing a 25.6% share of profits of Polaris held by parties other than Virtusa.

Net income (loss) available to Virtusa stockholders

Net income available to Virtusa stockholders increased by 377.0%, from a net loss of $(3.0) million in the six months ended September 30, 2016 to a net income of $8.4 million in the six months ended September 30, 2017 driven by higher operating income primarily due to higher gross margin and lower operating expense as percentage of revenue.

Series A Convertible Preferred Stock dividends and accretion

In connection with the Orogen Preferred Stock Financing, we accrued dividends and accreted issuance costs of $1.8 million at a rate of 3.875% per annum during the six months ended September 30, 2017.

Net income (loss) available to Virtusa common stockholders

Net income available to Virtusa common stockholders increased by 318.2%, from a net loss of $(3.0) million in the six months ended September 30, 2016 to a net income of $6.6 million in the six months ended September 30, 2017.

Non-GAAP Measures

We include certain non-GAAP financial measures as defined by Regulation G by the Securities and Exchange Commission. These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures should be read in conjunction with our financial statements prepared in accordance with GAAP.

We consider the total measure of cash, cash equivalents, short-term and long-term investments to be an important indicator of our overall liquidity. All of our investments are classified as available-for-sale, including our long-term investments which consist of fixed income securities, including government agency bonds and municipal and corporate bonds, which meet the credit rating and diversification requirements of our investment policy as approved by our audit committee and board of directors.

We believe the following financial measures will provide additional insights to measure the operational performance of our business.

· We present the following consolidated statements of income (loss) measures that exclude, when applicable, acquisition-related charges, restructuring charges, stock-based compensation expense, foreign currency transaction gains and losses and the tax impact of dividends received from foreign subsidiaries to provide further insights into the comparison of our operating results among the periods:

· Non-GAAP income from operations: income (loss) from operations, as reported on our consolidated statements of income (loss), excluding stock-based compensation expense, and acquisition-related charges and restructuring charges

· Non-GAAP operating margin: non-GAAP income from operations as a percentage of reported revenues

· Non-GAAP net income available to Virtusa common stockholders: net income (loss) available to Virtusa common stockholders, as reported on our consolidated statements of income (loss), excluding stock-based compensation, acquisition-related charges, restructuring charges, foreign currency transaction gains and losses, the tax impact of the above items, and the tax impact of dividends received from foreign subsidiaries

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· Non-GAAP diluted earnings per share: diluted earnings (loss) per share, as reported on our consolidated statements of income (loss) available to Virtusa common stockholders, excluding stock-based compensation, acquisition-related charges, restructuring charges, foreign currency transaction gains and losses, the tax impact of the above items, and the per share tax impact of dividends received from foreign subsidiaries. Non-GAAP diluted earnings per share is also subject to dilutive and anti-dilutive requirements of the if-converted method related to our Series A Convertible Preferred Stock that could result in a difference between GAAP to non-GAAP diluted weighted average shares outstanding.

The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three and six months ended September 30, 2017 and 2016:

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
	(in thousands, except						(in thousands, except
	per share amounts)						per share amounts)
GAAP income (loss) from operation	$	10,279		$	3,537		$	16,349		$	1,688
Add: Stock-based compensation expense	6,142			6,142			10,930			12,275
Add: Acquisition-related charges and restructuring charges (1)	3,351			3,247			5,860			6,672
Non-GAAP income from operations	$	19,772		$	12,926		$	33,139		$	20,635
GAAP operating margin	4.1		%	1.7		%	3.4		%	0.4		%
Effect of above adjustments to income from operations	3.9		%	4.5		%	3.6		%	4.6		%
Non-GAAP operating margin	8.0		%	6.2		%	7.0		%	5.0		%
GAAP net income (loss) available to Virtusa common stockholders	$	3,681		$	3,214		$	6,638		$	(3,042	)
Add: Stock-based compensation expense	6,142			6,142			10,930			12,275
Add: Acquisition-related charges and restructuring charges (1)	3,351			3,247			5,860			6,672
Add: Foreign currency transaction (gains) losses (2)	1,480			(2,030		)	1,557			1,550
Tax adjustments (3)	(4,066		)	(1,802		)	(6,588		)	(3,199		)
Less: Noncontrolling interest, net of tax (4)	(313		)	(357		)	(679		)	(556		)
Non-GAAP net income available to Virtusa common stockholders	$	10,275		$	8,414		$	17,718		$	13,700
GAAP diluted earnings (loss) per share (6)	$	0.12		$	0.11		$	0.22		$	(0.10	)
Effect of stock-based compensation expense (7)	0.19			0.19			0.35			0.40
Effect of acquisition-related charges and restructuring charges (1) (7)	0.10			0.11			0.18			0.22
Effect of foreign currency transaction (gains) losses (2) (7)	0.05			(0.07		)	0.05			0.05
Tax adjustments (3) (7)	(0.13		)	(0.06		)	(0.21		)	(0.10		)
Effect of noncontrolling interest (4) (7)	(0.01		)	(0.01		)	(0.02		)	(0.02		)
Effect of dividend on Series A Convertible Preferred Stock (6) (7)	0.03			—			0.03			—
Non-GAAP diluted earnings per share (5) (7)	0.35			0.27			0.60			0.45

(1) Acquisition-related charges include, when applicable, amortization of purchased intangibles, external deal costs, acquisition-related retention bonuses, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs including integration expenses consisting of outside professional and consulting services and direct and incremental travel costs. Restructuring charges, when applicable, include termination benefits, as well as certain professional fees related to the restructuring. The following table provides the details of the acquisition-related charges and restructuring charges:

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	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016
Amortization of intangibles	$	2,594	$	2,373	$	5,103	$	4,743
Acquisition and integration costs	—		874		—		1,929
Restructuring charges	757		—		757		—
Total	$	3,351	$	3,247	$	5,860	$	6,672

(2) Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes.

(3) Tax adjustments reflect the estimated tax effect of the non-GAAP adjustments using the tax rates at which these adjustments are expected to be realized for the respective periods.

(4) Noncontrolling interest represents the minority shareholders interest of Polaris

(5) Non-GAAP diluted earnings per share is subject to rounding

(6) During the three and six months ended September 30, 2017, the weighted average shares outstanding of Series A Convertible Preferred Stock of 3,000,000 and 2,456,044, respectively, were excluded from the calculations of GAAP diluted earnings per share as their effect would have been anti-dilutive using the if-converted method.

The following table provides the non-GAAP net income available to Virtusa common stockholders and non-GAAP dilutive weighted average shares outstanding using if-converted method to calculate the non-GAAP diluted earnings per share for the three and six months ended September 30, 2017 and 2016:

	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016
Non-GAAP net income available to Virtusa common stockholders	$	10,275	$	8,414	$	17,718	$	13,700
Add: Dividends and accretion on Series A Convertible Preferred Stock	1,087		—		1,087		—
Non-GAAP net income available to Virtusa common stockholders and assumed conversion	$	11,362	$	8,414	$	18,805	$	13,700

GAAP dilutive weighted average shares outstanding	29,820,581		30,130,209		30,035,865		29,551,233
Add: Series A Convertible Preferred Stock as converted	3,000,000		—		1,500,000		—
Non-GAAP dilutive weighted average shares outstanding	32,820,581		30,130,209		31,535,865		29,551,233

(7) To the extent the Series A Convertible Preferred Stock is dilutive using the if-converted method, the Series A Convertible Preferred Stock is included in the weighted average shares outstanding to determine non-GAAP diluted earnings per share.

Liquidity and capital resources

We have financed our operations primarily from sales of shares of common stock, cash from operations, debt financing and from sales of shares of Series A Convertible Preferred Stock.

During the three months ended September 30, 2017, we implemented certain cost saving and restructuring initiatives. During the three months ended September 30, 2017, the Company incurred costs of $0.8 million primarily related to termination benefits, out of which we paid $0.3 million during the three months ended September 30, 2017. In addition, the Company expects to incur additional restructuring costs of approximately $0.7 million in the second half of fiscal year 2018.

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On May 3, 2017, we entered into an investment agreement with The Orogen Group (“Orogen”) pursuant to which, Orogen purchased 108,000 shares of the Company’s newly issued Series A Convertible Preferred Stock, initially convertible into 3,000,000 shares of common stock, for an aggregate purchase price of $108 million with an initial conversion price of $36.00 (the “Orogen Preferred Stock Financing”). In connection with the investment, Vikram S. Pandit, the former CEO of Citigroup, was appointed to Virtusa’s Board of Directors. Orogen is a new operating company that was created by Vikram Pandit and Atairos Group, Inc., an independent private company focused on supporting growth-oriented businesses, to leverage the opportunities created by the evolution of the financial services landscape and to identify and invest in financial services companies and related businesses with proven business models.

Under the terms of the investment, the Series A Convertible Preferred Stock has a 3.875% dividend per annum, payable quarterly in additional shares of common stock and/or cash at our option. If any shares of Series A Convertible Preferred Stock have not been converted into common stock prior to May 3, 2024, the Company will be required to repurchase such shares at a repurchase price equal to the liquidation preference of the repurchased shares plus the amount of accumulated and unpaid dividends thereon. If we fail to effect such repurchase, the dividend rate on the Series A Convertible Preferred Stock will increase by 1% per annum and an additional 1% per annum on each anniversary of May 3, 2024 during the period in which such failure to effect the repurchase is continuing, except that the dividend rate will not increase to more than 6.875% per annum. The shares purchased consist of voting Series A Preferred Stock and a separate class of non-voting Series A-1 Preferred Stock, the latter of which automatically converted into shares of voting Series A Preferred Stock on a one-to-one basis upon the expiration or termination of the applicable waiting period (which occurred in May 2017) under the Hart-Scott-Rodino Antitrust Improvements Act. In connection with the investment, we repaid $81 million of our outstanding senior term loan, and our board of directors approved the repurchase of approximately $30 million of our common stock. During the six months ended September 30, 2017, we repurchased $30 million of our common stock.

On March 3, 2016, Virtusa Consulting Services Private Limited (“Virtusa India”), a subsidiary of Virtusa Corporation (“Virtusa” or the “Company”), purchased 53,133,127 shares, or approximately 51.7%, of the fully-diluted capitalization of Polaris Consulting & Services Limited (“Polaris”) from certain Polaris shareholders for approximately $168.3 million in cash (the “Polaris SPA Transaction”) pursuant to a definitive share purchase agreement (“SPA”) by and among Virtusa India, the Polaris founding shareholders, promoters, and certain other Polaris minority stockholders, which was entered into on November 5, 2015. On April 6, 2016, Virtusa India completed its purchase of an additional 26% of the fully diluted outstanding shares of Polaris from public shareholders for approximately $89.1 million in cash under a mandatory tender open offer as required under applicable India takeover rules. Pursuant to the mandatory offer, during the fiscal year ended March 31, 2016, the Company transferred $89.2 million into an escrow account in accordance with the India takeover rules, which is recorded as restricted cash at March 31, 2016. On April 6, 2016, the restricted cash was released from the escrow account and used for settlement for the mandatory open offer.

In order to comply with the applicable Indian rules on takeovers, during the three months ended December 31, 2016, the Company sold 3.7% of its shares of Polaris common stock through a public sale offer. The sale offer closed on December 14, 2016 and the Company received approximately $7.6 million in proceeds, net of $0.2 million in brokerage fees and taxes. In addition to these costs, the Company incurred additional professional and legal costs of $0.4 million. The Company’s ownership interest in Polaris prior to the sale offer was 78.6% and upon the closing of the sale offer, the Company’s ownership interest decreased from 78.6% to 74.9% of Polaris’ basic shares of common stock outstanding.

To finance the Polaris acquisition, on February 25, 2016, the Company entered into a credit agreement (the “Credit Agreement”) by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Credit Agreement provides for a $100.0 million revolving credit facility and a $200.0 million delayed-draw term loan (together, the “Credit Facility”). In connection with the Polaris acquisition, on February 25, 2016, the Company drew down the full $200.0 million of the term loan. Interest under these facilities accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense (“EBITDA”). We are required under the terms of the Credit Agreement to make quarterly principal payments on the term loan. The Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years, ending February 24, 2021. On May 3, 2017, in connection with the Orogen Preferred Stock Financing, we amended our Credit Agreement primarily to issue the Series A Convertible Preferred Stock and pay certain dividends with respect to the Series A Convertible Preferred Stock and we repaid principal payment of $81.0 million of our term loan. As a result of this pre-payment, the Company has no additional obligated principal payments until the amount due at maturity. Interest payments will continue per the terms of the Credit Agreement.

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The Credit Agreement has financial covenants that require that the Company maintain a Total Leverage Ratio, commencing on December 31, 2016, of not more than 3.25 to 1.00 for the first year of the Credit Facility, of not more than 3.00 to 1.00 for the second year of the Credit Facility, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter (the “Reference Period”). In addition, for a period, expected to be at least one year from the completion of the Company’s closing of the Polaris SPA Transaction, until the occurrence of certain events described in the Credit Agreement, at any time when the Total Leverage Ratio exceeds 1.50 to 1.00 as of the last day of a quarter, the Company must maintain at least $30.0 million in unrestricted cash, cash equivalents and certain permitted investments under the Credit Facility held in bank deposits in the U.S., and $20.0 million in unrestricted cash and certain permitted investments under the Credit Facility and long-term securities investments held in accordance with the Company’s current investment policy. The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio, commencing on September 30, 2017, of not less than 1.25 to 1.00, as of the last day of any Reference Period. For purposes of these covenants, “Total Leverage Ratio” means, as of the last day of any fiscal quarter, the ratio of Funded Debt to Adjusted EBITDA for the reference period ended on such date. “Funded Debt” refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees and “Adjusted EBITDA” is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection with the Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring losses or expenses, and (vii) all other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period, subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

As of September 30, 2017, we are in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the credit agreement to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the revolving credit facility as of September 30, 2017 and through the date of this filing.

We believe, based on our preliminary estimates, that if we acquire at least 90% of the Polaris shares and complete the delisting, the delisting will be accretive to our earnings per share.

In July 2016, we entered into 12-month forward starting interest rate swap transactions to mitigate our interest rate risk on our variable rate debt (collectively, “The Interest Rate Swap Agreements”). Our objective is to limit the variability of cash flows

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associated with changes in LIBOR interest rate payments due on the Credit Agreement by using pay-fixed, receive-variable interest rate swaps to offset the future variable rate interest payments. We will recognize these transactions in accordance with ASC 815 “Derivatives and Hedging,” and have designated the swaps as cash flow hedges.

The Interest Rate Swap Agreements have an effective date of July 31, 2017 and a maturity date of July 31, 2020. The notional amount of the swaps amortizes over the three swap periods. The swaps have an aggregate notional amount of $92.5 million and with the pre-payment of $81 million of principal on our existing debt, hedge approximately 85% of our outstanding debt balance as of September, 30, 2017. The notional amount of the swaps amortizes over the three swap periods. The Interest Rate Swap Agreements require us to make monthly fixed interest rate payments based on the amortized notional amount at a blended weighted average rate of 1.025% and we will receive 1-month LIBOR on the same notional amounts.

The counterparties to the Interest Rate Swap Agreements could demand an early termination of the 2016 Swap Agreements if we are in default under the Credit Agreement, or any agreement that amends or replaces the Credit Agreement in which the counterparty is a member, and we are unable to cure the default. An event of default under the Credit Agreement includes customary events of default and failure to comply with financial covenants, including a maximum consolidated leverage ratio commencing on December 31, 2016, of not more than 3.25 to 1.00 for the first year of the Credit Agreement, of not more than 3.00 to 1.00 for the second year of the Credit Agreement, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter and a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00. As of September 30, 2017, we were in compliance with these covenants. The unrealized gain associated with the 2016 Swap Agreement was $1.6 million as of September 30, 2017, which represents the estimated amount that we would receive from the counterparties in the event of an early termination.

At September 30, 2017, a significant portion of our cash, cash equivalents, short-term and long-term investments was held by our foreign subsidiaries. We continually monitor our cash needs and employ tax planning and financing strategies to ensure cash is available in the appropriate jurisdictions to meet operating needs. The cash held by our foreign subsidiaries is considered indefinitely reinvested in local operations. If required, it could be repatriated to the United States. However, under current law, any repatriation would be subject to United States federal income tax less applicable foreign tax credits.

Beginning in fiscal 2009, our U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse, certain of its Europe-based accounts receivable balances from one client to the financial institution. During the six months ended September 30, 2017, we sold $11.0 million of receivables under the terms of the financing agreement. Fees paid pursuant to this agreement were not material during the three and six months ended September 30, 2017. No amounts were due under the financing agreement at September 30, 2017, but we may elect to use this program again in future periods. However, we cannot provide any assurances that this or any other financing facilities will be available or utilized in the future

Cash flows

The following table summarizes our cash flows for the periods presented:

	Six Months Ended September 30,
(in thousands)	2017			2016
Net cash provided by operating activities	$	29,832		$	10,958
Net cash (used in) provided by investing activities	(9,407		)	96,023
Net cash used in financing activities	(4,831		)	(97,438		)
Effect of exchange rate changes on cash	1,755			368
Net increase in cash and cash equivalents	17,349			9,911
Cash and cash equivalents, beginning of period	144,908			148,986
Cash and cash equivalents, end of period	$	162,257		$	158,897

Operating activities

Net cash provided by operating activities increased in the six months ended September 30, 2017 compared to the six months ended September 30, 2016, primarily driven by an increase in net income during the six months ended September 30, 2017 compared to the six months ended September 30, 2016.

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Investing activities

Net cash (used in) provided by investing activities decreased in the six months ended September 30, 2017 compared to six months ended September 30, 2016. The decrease in net cash (used in) provided by investing activities is primarily due to the decrease in restricted cash related to the Polaris mandatory offering during the six months ended September 30, 2016.

Financing activities

Net cash used in financing activities decreased in the six months ended September 30, 2017 compared to six months ended September 30, 2016. The decrease in net cash used in financing activities is primarily due to the acquisition of noncontrolling interest during the six months ended September 30, 2016. During the six months ended September 30, 2017, the proceeds from issuance of Series A Convertible Preferred Stock is offset by the principal payment of our debt and repurchase of our common stock.

Off-balance sheet arrangements

We do not have investments in special purpose entities or undisclosed borrowings or debt.

We have entered into foreign currency derivative contracts with the objective of limiting our exposure to changes in the Indian rupee, the U.K. pound sterling, the euro and the Swedish Krona as described below and in “Quantitative and Qualitative Disclosures about Market Risk.”

We maintain a foreign currency cash flow hedging program designed to further mitigate the risks of volatility in the Indian rupee against the U.S. dollar and U.K. pound sterling as described below in “Quantitative and Qualitative Disclosures about Market Risk.” From time to time, we may also purchase multiple foreign currency forward contracts designed to hedge fluctuation in foreign currencies, such as the U.K. pound sterling, euro and Swedish Krona against the U.S. dollar to minimize the impact of foreign currency fluctuations on foreign currency denominated revenue and expenses. Other than these foreign currency derivative contracts, we have not entered into off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of or requirements for capital resources.

Recent accounting pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2018. Early application is permitted but not before periods beginning on or after January 1, 2017. In March, April and May 2016, the FASB issued updates to the new revenue standard to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross versus net, identifying performance obligations, accounting for licenses of intellectual property, transition, contract modifications, collectability, non cash consideration and presentation of sales and other similar taxes with the same effective date. The standard permits the use of either the retrospective or cumulative effect transition method. We plan to adopt the standard using the modified retrospective method when it becomes effective in our first quarter of fiscal 2019. Our project team is finalizing its review of existing customer contracts and current accounting policies to identify and assess the potential differences that would result from applying the requirements of the new standard. We are also in the process of identifying and implementing changes to our processes to meet the reporting and disclosure requirements. Overall, we believe that its implementation efforts are progressing as planned to allow a timely implementation.

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total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption of this new standard is permitted. Entities will be required to use a modified retrospective transition which provides for certain practical expedients. We are currently evaluating the effect the new standard will have on the consolidated financial statements and related disclosures.

In March 2016, the FASB issued an update (ASU 2016-09) to the standard on Compensation—Stock Compensation, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Upon adoption, entities will be required to apply a modified retrospective, prospective or retrospective transition method depending on the specific section of the guidance being adopted. We adopted this guidance effective April 1, 2017 and the following describe the results of adoption:

· We prospectively recognized tax benefits of $0.9 million and $1.1 million in the income tax expense line item of our consolidated statements of income (loss) in the three and six months ended September 30, 2017 related to excess tax benefits on stock options;

· We changed our accounting policy from estimated forfeitures to actual forfeitures effective April 1, 2017. The cumulative impact of the change in the accounting policy did not have a material impact on our consolidated financial statements, therefore the prior period amounts have not been restated;

· We elected to adopt cash flow presentation of excess tax benefits retrospectively where these benefits are classified along with other income tax cash flows as operating cash flows. Accordingly, prior period amounts in our consolidated statement of cash flows have been restated;

· We adopted cash flow presentation of taxes paid when an employer withholds shares for tax-withholding purposes retrospectively and classified as a financing activity in the our statement of cash flows. Accordingly, prior period amounts have been restated;

· The remaining amendments to this standard, as noted above, are either not applicable, or do not change our current accounting practices and thus do not impact its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments. This standard update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effect of this new standard will have on its consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, an update to the standard on income taxes. This new standard requires the recognition of current and deferred income taxes when an intra-entity transfer of assets other than inventory occurs. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2017. Early adoption is permitted in the first interim period. Upon adoption, the entities will be required to use a modified retrospective transition approach. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

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transition method to each period presented. The adoption of this guidance will impact our presentation of cash and cash equivalents. As of September 30, 2017 and March 31, 2017, our restricted cash was $1.0 million and $0.2 million, respectively.

In January 2017, the FASB issued ASU 2017-04, an update on goodwill, which eliminates the need to calculate the implied fair value of goodwill when an impairment is indicated. The update states that goodwill impairment is measured as the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, a guidance on presentation of net periodic pension cost and net periodic postretirement benefit cost. The new standard requires that an employer disaggregate the service costs components of net benefit cost. The employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component, such as in other income and expense. The guidance is effective for fiscal years beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements. The Company’s current presentation of service cost components is consistent with the requirements of the new standard. Upon adoption of the new standard, we expect to present the other components within other (income) expense.

In March 2017, FASB issued ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in this update shorten the amortization period for certain callable debt securities that are held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which would be amortized to maturity. This ASU is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018, which for us is the first quarter ending December 31, 2019. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

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Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. These amendments are intended to better align a company’s risk management strategies and financial reporting for hedging relationships. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. In addition, the new guidance amends presentation and disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including the interim periods within those years. The guidance requires the use of a modified retrospective approach. The Company is currently evaluating the effect the new standard will have on our consolidated financial statements and related disclosures.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks, and the ways we manage them, are summarized in Item 7A of the Annual Report. There have been no material changes in the six months ended September 30, 2017 to such risks or to our management of such risks except for the additional factors noted below.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk in the ordinary course of business. We have historically entered into, and in the future we may enter into, foreign currency derivative contracts to minimize the impact of foreign currency fluctuations on both foreign currency denominated assets and forecasted expenses. The purpose of this foreign exchange policy is to protect us from the risk that the recognition of and eventual cash flows related to Indian rupee denominated expenses might be affected by changes in exchange rates. Some of these contracts meet the criteria for hedge accounting as cash flow hedges (See Note 6 of the notes to our financial statements included herein for a description of recent hedging activities).

We evaluate our foreign exchange policy on an ongoing basis to assess our ability to address foreign exchange exposures on our balance sheet, statement of income and operating cash flows from all foreign currencies, including most significantly the U.K. pound sterling, the Indian rupee, and the Sri Lankan rupee.

We have two 18 month rolling programs comprised of a series foreign exchange forward contracts that are designated as cash flow hedges. One program is designed to mitigate the impact of volatility in the U.S. dollar equivalent of our Indian rupee denominated expenses. The second program was assumed as part of the Polaris acquisition and is intended to mitigate the volatility of the U.S. dollar denominated revenue that is translated into Indian rupees. While these hedges are achieving the designed objective, upon consolidation they may cause volatility in revenue. The U.S. dollar equivalent notional value of all outstanding foreign currency derivative contracts at September 30, 2017 was $117.8 million. There is no assurance that these hedging programs or hedging contracts will be effective. As these foreign currency hedging programs are designed to reduce volatility in the Indian rupee, they not only reduce the negative impact of a stronger Indian rupee but also reduce the positive impact of a weaker Indian rupee on our Indian rupee expenses. In addition, to the extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on the aggregate amount of hedges placed earlier than expected.

The U.K. pound sterling, Swedish krona and the euro exchange fluctuations can have an unpredictable impact on our U.K. pound sterling, Swedish krona and the euro revenues generated, and costs incurred. In response to this volatility, we have entered into hedging transactions designed to hedge our forecasted revenue and expenses denominated in the U.K. pound sterling, the Swedish krona as well as the euro. These derivative contracts have maximum duration of 92 days and do not meet the criteria for hedge accounting. Such hedges may not be effective in mitigating this currency volatility. These hedges are designed to reduce the negative impact of a weaker U.K. pound sterling, Swedish krona or the euro, however they also reduce the positive impact of a stronger U.K. pound sterling, Swedish krona or the euro on the respective revenues.

Interest Rate Risk

In connection with the Polaris acquisition, on February 25, 2016, we drew down the full $200.0 million of the term loan under the Credit Facility. Interest under this facility accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company’s ratio of debt to EBITDA. The Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants—see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”. The term of the Credit Agreement ends on February 24, 2021. We do not believe we are exposed to material direct risks associated with changes in interest rates other than with respect to our Credit Facility, our cash and cash equivalents, short-term investments and long-term investments. To mitigate the Company’s exposure to movements in the one-month London Inter-Bank Offer Rate (LIBOR) rate on future outstanding debt, the Company entered into the Interest Rate Swap Agreements to convert a portion of the Company’s outstanding debt from a floating to a fixed rate of interest (See Note 12 of the notes to our financial statements included herein for a detail description of our debt).

At September 30, 2017, we had $254.0 million in cash and cash equivalents, short-term investments and long-term investments, the interest income from which is affected by changes in interest rates. Our invested securities primarily consist of government sponsored entity bonds, money market mutual funds, commercial paper, corporate debts, preference shares and municipal bonds. Our investments in debt securities are classified as “available-for-sale” and are recorded at fair value. Our “available-for-sale” investments are sensitive to changes in interest rates. Interest rate changes would result in a change in the net fair value of these financial instruments due to the difference between the market interest rate at the period end and the market interest rate at the date of purchase of the financial instrument.

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Information provided by the sensitivity analysis does not necessarily represent the actual changes that would occur under normal market conditions.

Concentration of Credit Risk

Financial instruments which potentially expose us to concentrations of credit risk primarily consist of cash and cash equivalents, short-term investments and long-term investments, accounts receivable, derivative contracts, other financial assets and unbilled accounts receivable. We place our operating cash, investments and derivatives in highly-rated financial institutions. We adhere to a formal investment policy with the primary objective of preservation of principal, which contains minimum credit rating and diversification requirements. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties and, accordingly, do not require collateral. Credit losses and write-offs of accounts receivable balances have historically not been material to our financial statements and have not exceeded our expectations.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

At September 30, 2017, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in (i) enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period and (ii) ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, as filed with the Securities and Exchange Commission, on May 26, 2017 (the “Annual Report”), which could materially affect our business, financial condition or future results.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds; Purchases of Equity Securities By the Issuer and Affiliated Purchasers

Under the terms of our 2007 Stock Option and Incentive Plan (“2007 Plan”) and 2015 Stock Option and Incentive Plan (“2015 Plan”), we have issued shares of restricted stock to our employees. On the date that these restricted shares vest, we automatically withhold, via a net exercise provision pursuant to our applicable restricted stock agreements and the 2007 Plan and 2015 Plan, as the case may be, the number of vested shares (based on the closing price of our common stock on such vesting date) equal to tax liability owed by such grantee. The shares withheld from the grantees under the 2007 Plan or the 2015 Plan, as the case may be, to settle their tax liability are reallocated to the number of shares available for issuance under the 2015 Plan. For the three months period ended September 30, 2017, we withheld an aggregate of 28,087 shares of restricted stock at a price of $36.14 per share.

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On May 3, 2017, our board of directors authorized a share repurchase program of up to $30 million of shares of our common stock on or prior to May 3, 2018. A summary of our stock repurchase activity under this program for the three months ended September 30, 2017 is set forth in the table below:

Issuer Purchases of Equity Securities

Period:	Total Number of Shares Purchased (#)	Average Price Paid per Share ($)(1)		Total Number of Shares Purchased as Part of Publicly Announced Program (#)	Remaining Dollar Value that may yet be Purchased Under Our Program ($)
July 2017	—	$	—	—	$	2,704,311
August 2017	—	—		—	2,704,311
September 2017	75,590	35.45		75,590	25,506
Total	75,590	$	35.45	75,590	$	25,506

(1) Excludes applicable commissions.

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Item 6. Exhibits.

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:

Exhibit No.		Description

10.1*		Lease by and between the Registrant and 132 Turnpike Road LLC dated as of October 23, 2017

31.1*		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of principal financial and accounting officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.

32.2**		Certification of principal financial and accounting officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.

99.1+		Amended and Restated Executive Agreement by and between the Company and Samir Dhir dated as of August 1, 2017 (previously filed as Exhibit 99.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33625) filed on August 8, 2017 and incorporated by reference herein).

101*		The following financial statements from Virtusa Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, as filed with the SEC on November 8, 2017, formatted in XBRL (eXtensible Business Reporting Language), as follows:

	(i)	Consolidated Balance Sheets at September 30, 2017 (Unaudited) and March 31, 2017
	(ii)	Consolidated Statements of Income (loss) for the Three and Six Months Ended September 30, 2017 and September 30, 2016 (Unaudited)
	(iii)	Consolidated Statements of Comprehensive Income (loss) for the Three and Six Months Ended September 30, 2017 and September 30, 2016 (Unaudited)
	(iv)	Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2017 and September 30, 2016 (Unaudited)
	(v)	Notes to Condensed Consolidated Financial Statements (Unaudited)

+ Indicates a management contract or compensation plan, contract or arrangement.

* Filed herewith.

** Furnished herewith. This certification shall not be deemed filed for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Virtusa Corporation

Date: November 8, 2017	By:	/s/ Kris Canekeratne

		Kris Canekeratne,
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: November 8, 2017	By:	/s/ Ranjan Kalia

		Ranjan Kalia,
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.1

OFFICE LEASE

SOUTHBOROUGH PLACE

132 TURNPIKE ROAD

SOUTHBOROUGH, MASSACHUSETTS

BY AND BETWEEN

132 TURNPIKE ROAD LLC

As Landlord

AND

Virtusa Corporation

As Tenant

Table of Contents by Articles and Sections

ARTICLE 1		Reference Data and Definitions	1

1.1	Reference Data and Authority		1
1.2	General Provisions		4
1.3	Terms Defined		4

ARTICLE 2		Premises	8

2.1	Premises		8
2.2	Appurtenances; Parking		8

ARTICLE 3		Term	8

3.1	Term Commencement		8
3.2	Termination		8
3.3	Option to Extend		8

ARTICLE 4		Rent	9

4.1	Basic Rent		9
4.2	Late Payment of Rent		10

ARTICLE 5		Use of Premises	10

5.1	Use Restricted		10
5.2	Character of Operations		10
5.3	Intentionally Omitted		11
5.4	Solicitation of Business		11
5.5	Intentionally Omitted		11
5.6	Intentionally Omitted		11

ARTICLE 6		Taxes; Operating Expenses; Estimated Cost of Electrical Services	11

6.1	Operating Expenses Defined		11
6.2	Expenses		15
6.3	Taxes		15
6.4	Annual Statement of Additional Rent Due		15
6.5	Accounting		16
6.6	Abatement of Taxes		16
6.7	Tenant Audit		16

ARTICLE 7		Improvements, Repairs, Additions, Replacements	17

7.1	Preparation of the Premises		17
7.2	Condition; Landlord’s Performance		18
7.3	Tenant’s Delays; Remedies for Tenant’s Delay		18
7.4	Tenant’s Early Access to the Premises		19
7.5	Alterations and Improvements		19
7.6	Intentionally Omitted		20
7.7	Intentionally Omitted		20

ARTICLE 8		Building Services	20

8.1	Basic Services		20
8.2	Other Janitors		20
8.3	Additional Services		20

8.4	Electricity		21
8.5	Access		21

ARTICLE 9		Tenant’s Particular Covenants	21

9.1	Occupancy of the Premises		21
9.2	Safety		21
9.3	Equipment		22
9.4	Pay Taxes		22
9.5	Intentionally Omitted		22
9.6	Intentionally Omitted		22
9.7	Maintenance and Repair		22

ARTICLE 10		Requirements of Public Authority	23

10.1	Legal Requirements		23
10.2	Environmental Legal Requirements		23

ARTICLE 11		Covenant Against Liens	24

11.1	Mechanics Liens		24
11.2	Right to Discharge		24

ARTICLE 12		Access to Premises	24

12.1	Access		24

ARTICLE 13		Assignment and Subleasing	25

13.1	Subleasing and Assignment		25

ARTICLE 14		Indemnity	27

14.1	Tenant’s Indemnity		27
14.2	Landlord’s Liability		28

ARTICLE 15		Insurance	28

15.1	Liability Insurance		28
15.2	Tenant’s Risk		28
15.3	Landlord’s Insurance		29

ARTICLE 16		Waiver of Subrogation	30

16.1	Waiver of Subrogation		30

ARTICLE 17		Damage or Destruction	30

17.1	Landlord’s Right of Termination		30
17.2	Restoration; Tenant’s Right of Termination		30
17.3	Abatement of Rent		31

ARTICLE 18		Eminent Domain	32

18.1	Eminent Domain		32

ARTICLE 19		Quiet Enjoyment; Subordination	33

19.1	Landlord’s Covenant		33
19.2	Subordination		33
19.3	Intentionally Omitted		33

ARTICLE 20		Defaults; Events of Default	33

20.1	Tenant’s Default		33

20.2	Landlord’s Remedies		35
20.3	Intentionally Omitted		38
20.4	Remedying Defaults		38
20.5	Remedies Cumulative		38
20.6	Enforcement Costs		38
20.7	Landlord’s Default		38
20.8	Independent Covenants		39

ARTICLE 21		HOLDING OVER; SURRENDER	39

21.1	Holding Over		39
21.2	Surrender of Premises		40

ARTICLE 22		Waivers	40

22.1	No Waivers		40

ARTICLE 23		Security Deposit	40

23.1	Intentionally Omitted		40

ARTICLE 24		General Provisions	41

24.1	Force Majeure		41
24.2	Notices and Communications		41
24.3	Certificates, Estoppel Letter		41
24.4	Rules and Regulations		42
24.5	Financial Statements		42
24.6	Recording		42
24.7	Waiver of Jury Trial		42
24.8	Reservation		43
24.9	Prohibited Persons and Transactions		43
24.10	Governing Law		43
24.11	Partial Invalidity		44
24.12	Interpretation; Consents		44
24.13	Parties		44
24.14	Waiver of Trial by Jury		44
24.15	Time of the Essence		44

ARTICLE 25		Miscellaneous	44

25.1	Relocation		44
25.2	Brokerage		44
25.3	Signage		45
25.4	Intentionally Omitted		45
25.5	Right of First Offer		45
25.6	Entire Agreement		46

iii

SOUTHBOROUGH PLACE

132 TURNPIKE ROAD

SOUTHBOROUGH, MASSACHUSETTS

OFFICE LEASE

STANDARD FORM

THIS LEASE is between the Landlord and the Tenant named below, and is for the Premises in the Building described below.

W I T N E S S E T H :

ARTICLE 1

Reference Data and Definitions

1.1 Reference Data and Authority

DATE OF LEASE:		October 23, 2017

LANDLORD:		132 TURNPIKE ROAD LLC A Massachusetts Limited Liability Company

LANDLORD’S REPRESENTATIVE:		William Depietri Capital Group Properties LLC

LANDLORD’S PAYMENT ADDRESS:		259 Turnpike Road, Suite 100 Southborough, MA 01772

LANDLORD’S NOTICE ADDRESS:		259 Turnpike Road, Suite 100 Southborough, MA 01772

TENANT:		Virtusa Corporation

TENANT’S NOTICE ADDRESS: Prior to the Term Commencement Date		2000 West Park Drive Westborough, MA 01581

		With a copy to: Paul D. Tutun, Executive Vice President and General Counsel 2000 West Park Drive Westborough, MA 01581

TENANT’S NOTICE ADDRESS: After the Term Commencement Date		132 Turnpike Road, Suite 300 Southborough, MA 01772

		With a copy to: Paul D. Tutun, Executive Vice President and General Counsel 132 Turnpike Road, Suite 300 Southborough, MA 01772

TENANT’S REPRESENTATIVE:		Eric Brown

TENANT’S REPRESENTATIVE’S TELEPHONE NUMBER:		508-389-7233

LAND:		The land located at 132 Turnpike Road, Southborough, MA.

BUILDING:		The building located on the Land.

PREMISES:		Suite 300 of the Building, as more particularly shown on Exhibit A.

RENTABLE AREA OF THE BUILDING:		72,223 Rentable Square Feet.

TERM:		Ten (10) years five (5) months.

RENTABLE AREA OF PREMISES:		12,120 Rentable Square Feet.

TERM COMMENCEMENT DATE:		Date of substantial completion of Landlord’s Work and delivery of Premises to Tenant vacant and broom-clean, with all Building systems in good working order, including the HVAC system (see Section 3.1).

BASIC RENT COMMENCEMENT DATE:		150 days after Term Commencement Date

EARLY ACCESS:		At least twenty-one (21) days prior to Term Commencement Date

STATED EXPIRATION DATE:		End of 10th Lease Year

OPTION TO EXTEND:		Tenant shall have one (1) five (5) year option to extend the Term of this Lease in accordance with the terms of Section 3.3.

TENANT’S SHARE:		16.78%

BASIC RENT:

See Rent Schedule Below:

LEASE YEAR	RATE PER SQ. FT.		ANNUAL RENT		MONTHLY RENT
1st 150 days of Term	FREE RENT		FREE RENT		FREE RENT
1	$	23.00	$	278,760.00	$	23,230.00
2	$	23.75	$	287,850.00	$	23,987.50
3	$	24.50	$	296,940.00	$	24,745.00
4	$	25.25	$	306,030.00	$	25,502.50
5	$	26.00	$	315,120.00	$	26,260.00
6	$	26.75	$	324,210.00	$	27,017.50
7	$	27.50	$	333,300.00	$	27,775.00
8	$	28.25	$	342,390.00	$	28,532.50
9	$	29.00	$	351,480.00	$	29,290.00
10	$	29.75	$	360,570.00	$	30,047.50

BASE YEAR:		Calendar year 2018.

REIMBURSABLE TAXES:		Tenant’s Share of Taxes above the amount incurred in the Base Year.

REIMBURSABLE OPERATING EXPENSES:		Tenant’s Share of Operating Expenses above the amount incurred in the Base Year.

SECURITY DEPOSIT:		$50,000; reduced to 25,000.00 after 5th Lease Year

CONSTRUCTION SECURITY DEPOSIT:		N/A

AMOUNT DUE UPON EXECUTION:		$73,230.00

GUARANTOR:		N/A

PERMITTED USES:		General office uses consistent with a first-

		class office building.

INSURANCE AMOUNT:		$1,000,000 per occurrence - General Liability, Bodily Injury & Property Damage

BROKER:		CBRE-NE and Transwestern

AUTHORITY:		Tenant agrees that on the Date of Lease Tenant shall deliver the following items to
Landlord:

Certificate of Legal Existence and Good Standing issued by the Massachusetts Secretary of State’s Office (dated not more than 30 days before the Date of Lease), providing that Tenant legally exists and is in good standing as a foreign corporation in the Commonwealth of Massachusetts.

1.2 General Provisions

For all purposes of the Lease, the following shall apply:

(a) The words herein , hereof , hereunder and other words of similar import refer to the Lease as a whole and not to any particular article, section or other subdivision of this Lease.

(b) A pronoun in one gender includes and applies to the other gender as well.

(c) Each definition stated in Section 1.1 or 1.3 of this Lease applies equally to the singular and the plural forms of the term or expression defined.

(d) Any reference to a document defined in Section 1.3 of this Lease is to such document as originally executed, or, if modified, amended or supplemented in accordance with the provisions of this Lease, to such document as so modified, amended or supplemented and in effect at the relevant time of reference thereto.

(e) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles.

1.3 Terms Defined

Additional Rent . All Taxes, Operating Expenses, costs, expenses and other charges (other than Basic Rent), due from Tenant to Landlord under this Lease or reasonably incurred by Landlord as a result of an Event of Default.

Additional Services . Services provided to Tenant at Tenant’s request, which are not described in Exhibit B .

Affiliate . With respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, the term control when used with respect to any specified Person means the power to direct the management and policies of such Person, directly

or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms controlling and controlled by have meanings correlative to the foregoing.

Authorizations . The Authorization for Additional Work form, included herein as Exhibit H, plus all franchises, licenses, permits and other governmental consents issued by Governmental Authorities pursuant to Legal Requirements which are or may be required for the use and occupancy of the Premises and the conduct or continuation of the Permitted Use in the Premises.

Base Operating Expenses : The Operating Expenses for the Base Year.

Base Taxes : Taxes for the Base Year.

Basic Services . The services described in Exhibit B .

Building Standard Tenant Finishes . The standards set by Landlord for the quality of work done in the Building.

Business Day . A day which is not a Saturday, Sunday or Holiday.

Common Areas . All areas of the Land and the Building (i) devoted to the common use of tenants in the Building, or (ii) necessary for the provision of services to the Building, including but not limited to the parking areas, atrium, common corridors, elevator foyers, air shafts, elevator shafts and elevators, stairwells and stairs, rest rooms, mechanical rooms, janitor closets, vending areas and other similar facilities.

Early Access Date . Tenant shall have the right to access the Premises, free of charge, twenty-one (21) days prior to the Term Commencement Date for the purpose of setting up furniture, fixtures and telephone/data equipment.

Event of Default . This term is defined in ARTICLE 20.

Force Majeure . Collectively and individually, strikes, lockouts or other labor trouble, fire or other casualty, acts of God and other unusually adverse weather conditions, governmental actions, inability to obtain services, labor or materials or reasonable substitutes therefor, acts of terrorism or bioterrorism, civil commotion, or any other cause, whether similar or dissimilar, beyond the reasonable control of the party required to perform an obligation, provided, however, that lack of money by Tenant shall not be deemed such a cause.

General Contractor . JBJ Construction Corp., a corporation with a place of business at 259 Turnpike Road, Suite 100, Southborough, Massachusetts 01772.

Governmental Authority . United States of America, the Commonwealth of Massachusetts, the municipality where the Land is located and any political subdivision thereof and any agency, department, commission, board, bureau or instrumentality of any of them.

Hazardous Substance . “Oil”, “hazardous materials”, “hazardous wastes” and “hazardous substances” as those terms are defined under the Comprehensive Environmental Response,

Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. , as amended, Massachusetts General Laws, Chapters 21C and 21E, as amended, and the regulations from time to time adopted under those laws.

Holiday . New Years’ Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

Improvements . All (i) structures located in and forming a part of the Premises, including but not limited to, walls, ceilings, doors and floor covering, (ii) pipes, wires, conduits, controls and fixtures relating to utilities located in and serving only the Premises, (iii) built-in casework, including but not limited to, benches, tables, cabinets and storage facilities, connected to a utility or affixed to the Premises or the Building, and (iv) fixtures, equipment and personal property of any kind installed on the Premises in such a manner that they become affixed to and part of the Premises or the Building under applicable law and that cannot be removed without material damage to the Premises or the Building.

Insurance Requirements . All terms of any policy of insurance maintained by Landlord or Tenant and applicable to (or affecting any condition, operation, use or occupancy of) the Building or the Premises or any part or parts of either; and all requirements of the issuer of any such policy and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to (or affecting any condition, operation, or occupancy of) the Building or the Premises or any part or parts of either.

Landlord’s Work . As defined in Section 7.1(a).

Lease Year . Each period of one (1) year during the Term commencing on the Basic Rent Commencement Date, or on any anniversary of the Basic Rent Commencement Date, or, if the Basic Rent Commencement Date does not fall on the first day of a calendar month, then the First Lease Year shall consist of the partial calendar month following the Basic Rent Commencement Date and the succeeding twelve (12) full calendar months, and each succeeding Lease Year shall consist of a one (1) year period commencing on the first day of the calendar month following the calendar month in which the Basic Rent Commencement Date fell.

Legal Requirements . All statutes, codes, ordinances (and all rules and regulations thereunder), all executive orders and other administrative orders, judgments, decrees, injunctions and other judicial orders of or by any Governmental Authority which may at any time be applicable to parts or appurtenances of the Premises, Building, the Land or to any condition or use thereof and the provisions of all Authorizations.

Market Rent . The rental rate which shall be computed as of the applicable date at the then current rentals being charged to new tenants for comparable quality office space located within ten (10) miles of the Building, taking into account and giving effect to, without limitation, such considerations as size, location of the Building and the Premises, length of the term, level and quality of building construction, space improvements, tenant allowances and rent concessions.

Normal Business Hours . Monday - Friday- 7:00 AM- 6:00 PM

Occupancy Arrangement . The act of subletting or assigning all or a portion of the Premises by the Tenant to a subtenant.

Operating Expenses . As defined in Section 6.1.

Option Term . This term is defined in Section 3.3.

Permitted Exceptions . Any liens or encumbrances on the Land in the nature of (ii) liens for taxes assessed but not yet due and payable, (ii) easements, reservations, restrictions and rights of way encumbering or affecting the Land on the date of this Lease that do not limit the use of the Property as general business offices, (iii) the rights of Landlord, Tenant and any other Person to whom Landlord has granted such rights to use the Common Areas, and (iv) mortgages of record now or in the future encumbering the Land.

Person . An individual, a corporation, a limited liability company, a voluntary association, a partnership, a trust, an unincorporated organization or a government or any agency, instrumentality or political subdivision thereof.

Property . The Land, the Building and the Premises.

Rentable Area of the Premises . The number of rentable square feet stated in Section 1.1.

Services . Basic Services and Additional Services.

Substantial Completion Date . This term is defined in Section 7.1.

Taxes . All taxes, special or general assessments, water rents, rates and charges, sewer rents and other impositions and charges imposed by Governmental Authorities of every kind and nature whatsoever, extraordinary as well as ordinary and each and every installment thereof which shall or may during the term of this Lease be charged, levied, laid, assessed, imposed, become due and payable or become liens upon or for or with respect to the Land or any part thereof or the Building or the Premises, appurtenances or equipment owned by Landlord thereon or therein or any part thereof or on this Lease under or by virtue of all present or future Legal Requirements and are taxed based on a percentage, fraction or capitalized value of the Rent (whether in lieu of or in addition to the taxes hereinbefore described). Taxes shall not include inheritance, estate, excise, succession, transfer, gift, franchise, income, gross receipt, or profit taxes except to the extent such are in lieu of or in substitution for Taxes as now imposed on the Building, the Land, the Premises or this Lease.

Tenant’s Delay . This term is defined in Section 7.3.

Term . The period of time set forth in Section 1.1, plus any exercised Option Term.

Working Drawings . The drawings for the construction of the Premises as prepared as set forth in ARTICLE 7.

ARTICLE 2

Premises

2.1 Premises .

Landlord hereby leases and lets to Tenant, and Tenant hereby takes from Landlord, upon and subject to the terms, conditions, covenants and provisions of this Lease, the Premises subject to the Permitted Exceptions.

2.2 Appurtenances; Parking .

Tenant may use the Common Areas appurtenant to the Premises for the purposes for which they were designed. Tenant has the nonexclusive right to use the parking area on the Land free of charge, provided, however, that Tenant must require all occupants and employees of the Premises to park their vehicles in a portion of the parking area designated for such purpose. Prior to the Term Commencement Date, Landlord shall mark two (2) parking spaces near the Building’s main entrance as being for the exclusive use of Tenant. Such signs shall remain for the Term and Tenant shall have the exclusive right to use such spaces. At all times during the Term, the number of parking spaces on the Property for the exclusive use of tenants of the Building shall be at least 3.5 spaces per each 1,000 rentable square feet of space in the Building.

ARTICLE 3

Term

3.1 Term Commencement .

The Term shall commence on the Term Commencement Date, which is targeted for March 1, 2018. If the Term does not commence by March 1, 2018 because any reason other than a Tenant Delay (as defined in Article 7) and as a result, Tenant is required to pay holdover rent to its existing Westborough, MA landlord, Landlord shall reimburse Tenant for that portion of the holdover rent that exceeds Tenant’s base rent at the end of its lease term (i.e., if the holdover rent is 150% of base rent, Landlord shall be responsible for the additional 50%) or Landlord shall allow Tenant to offset such portion of the holdover rent against Rent due under the Lease.

3.2 Termination .

The Term shall end, unless sooner terminated as provided in this Lease, on the Lease Termination Date.

3.3 Option to Extend .

Provided that, at the time of such exercise (i) this Lease is in full force and effect, (ii) no Event of Default shall have occurred and be continuing (either at the time of exercise or at the commencement of the Option Term), and (iii) there shall not then be in effect any sublease with respect to any portion of the Premises (any of which conditions described in clause (i) — (iii) may be waived by Landlord at any time at Landlord’s sole discretion), Tenant has the option to

extend the Term, for the number of additional periods as set forth in Section 1.1 (each, an “Option Term”) by giving Landlord notice of its intent to exercise the option for the next succeeding Option Term not less than nine (9) months before the end of the then current Term. All of the terms and provisions of the Lease shall be applicable during such Option Term(s) except for the following:

(a) Tenant shall have no option to extend the Term of the Lease beyond the Option Term(s) set forth in Section 1.1; and

(b) Basic Rent during each Option Term shall be the Market Rent for the Premises.

If Tenant exercises an Option to Extend, then Landlord shall within six (6) to nine (9) months before expiration of the Term, designate the Market Rent and shall furnish reasonably sufficient data to Tenant in support of such designation. If Tenant disagrees with Landlord’s designation of the Market Rent, then Tenant shall have the right, by written notice given within twenty-one (21) days after Tenant has been notified of Landlord’s designation, to submit such Market Rent to arbitration as follows: Market Rent shall be determined by impartial arbitrators, one to be chosen, hired, and paid by Landlord, one to be chosen, hired, and paid by Tenant and a third to be selected, if necessary, as provided below. The unanimous written decision of the two first chosen without selection and participation of a third arbitrator, or otherwise the written decision of a majority of the three arbitrators, shall be conclusive and binding upon Landlord and Tenant. Landlord and Tenant shall each notify the other of its chosen arbitrator within twenty-one (21) days following the call for arbitration and, unless such two arbitrators shall have reached a unanimous decision within thirty (30) days after their designation, then they shall notify the then President of the Massachusetts Real Estate Bar Association and request him or her to select an impartial third arbitrator to determine Market Rent. Each of the arbitrators shall be a qualified real estate appraiser having at least ten (10) years of experience appraising office space within ten (10) miles of the Building. If necessary, the third arbitrator and the first two chosen shall hear the parties and their evidence and render their decision within thirty (30) days following the conclusion of such hearing and notify Landlord and Tenant thereof. Landlord and Tenant shall bear the expense of the third arbitrator (if any) equally. If the dispute between the parties as to Market Rent has not been resolved before the commencement of Tenant’s obligation to pay Basic Rent based upon such Market Rent during the Option Term, then Tenant shall pay the Market Rent as designated by Landlord, until either the agreement of the parties as to the Market Rent or the decision of the arbitrators, as the case may be, at which time Tenant shall pay any underpayment of rent to Landlord, or Landlord shall refund any overpayment of Basic Rent to Tenant.

ARTICLE 4

Rent

4.1 Basic Rent .

Tenant shall pay Landlord for the Premises, without offset, abatement, deduction or demand, the Basic Rent. Basic Rent shall be paid in equal monthly installments in advance on the first day of each calendar month during the Term. The first installment of Basic Rent shall

be paid upon execution of this Lease. Subsequent installments of Basic Rent shall be paid on the first day of every calendar month after the Rent Commencement Date. Basic Rent for partial months at the beginning or end of the Term shall be prorated. Landlord shall provide to Tenant such information as Tenant may reasonably require to pay rent by ACH transaction.

No payment by Tenant or acceptance by Landlord of a lesser amount than is due from Tenant to Landlord shall be treated otherwise than as a payment on account. The acceptance of a check by Landlord for a lesser amount with any endorsement or statement thereon, or any statement in any letter accompanying such check, indicating that any such lesser amount is payment in full, shall be of no effect, and Landlord may accept such check without prejudice to any other rights or remedies Landlord may have against Tenant.

4.2 Late Payment of Rent .

If any installment of Basic Rent or Additional Rent is not received in full within five (5) days of its due date, then, in addition to any other rights or remedies of the Landlord, Tenant shall pay Landlord on demand as Additional Rent for each month that rental payments are not timely made the lesser of ten percent (10%) or the highest amount permitted by law, of each unpaid portion of such monthly installment as liquidated damages arising out of such late payment.

ARTICLE 5

Use of Premises

5.1 Use Restricted .

The Premises may be used for the Permitted Uses and for no other purpose. If any Authorization is required for the proper and lawful conduct of the Permitted Uses at the Premises, Tenant shall, at Tenant’s sole cost, risk, and expense, duly procure and thereafter maintain such Authorization and submit the same to inspection by Landlord. Tenant, at Tenant’s sole risk, cost, and expense, shall at all times comply with the terms and conditions of each such Authorization. Landlord confirms no Authorizations are required for the Permitted Use.

5.2 Character of Operations .

Tenant agrees (i) not to conduct, or advertise as being conducted, at the Premises an auction, fire, bankruptcy, going out of business or similar sale, (ii) not to operate any store which is commonly known as a “bargain store”, “wholesale store”, “surplus store” or similar type retail operation, (iii) that no loudspeakers, televisions, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside the Premises, (iv) intentionally omitted, (v) that Tenant will not cause or permit objectionable odors to emanate from the Premises, (vi) that Tenant shall use its best efforts to load or unload its merchandise, supplies or other property prior to Normal Business Hours, and (vii) that Tenant will use the loading and unloading facilities for delivery of product(s) in the area designated by Landlord. Tenant may load or unload its merchandise during Normal Business Hours provided that, in the opinion of Landlord, the same does not interfere with the operation of stores and businesses in the Building or access to the Building by customers and other invitees. Tenant will prevent the parking or standing outside

the Premises of trucks, trailers or other vehicles or equipment except when actually engaged in such loading or unloading. Tenant shall not erect any aerial outside the Premises without the prior written approval of Landlord and Landlord may remove any such aerial without such permission without prior notice to, and at the sole cost and expense of Tenant.

Landlord agrees not to allow any other tenant in the Building to use its demised premises for any purpose other than the Permitted Use.

5.3 Intentionally Omitted .

5.4 Solicitation of Business .

Tenant agrees not to solicit business in the Common Areas (or to permit its employees or agents from doing so) nor place any handbills or other advertising material in or on automobiles parked in the parking areas or in other Common Areas, or otherwise distribute handbills or other advertising matters within the Common Areas.

5.5 Intentionally Omitted .

5.6 Intentionally Omitted .

ARTICLE 6

Taxes; Operating Expenses; Estimated Cost of Electrical Services

6.1 Operating Expenses Defined .

(i) “Operating Expenses” shall mean all of the expenses and costs incurred by Landlord in connection with the ownership, operation, repair, maintenance, protection and management of the Building and the Land and the provision of Basic Services, shall include, by way of example and not of limitation, the following:

(a) Wages, salaries, fees and other compensation and payments, payroll taxes, contributions to any social security, unemployment insurance, welfare, pension or similar fund and payments for other fringe benefits made to or on behalf of those employees of Landlord solely engaged in or performing services in connection with the operation, repair, maintenance, protection and management of the Property, including: window cleaners; porters; janitors; miscellaneous; mechanics; electricians; plumbers; landscapers; building facilities manager; property manager; and clerical and administrative personnel. Landlord may contract for any of the foregoing to be performed by unrelated independent contractors, in which event all reasonable sums paid to such unrelated independent contractors shall be included within Operating Expenses.

(b) The cost of employee uniforms, and the cleaning, pressing, repair and replacement thereof.

(c) Costs of cleaning the Property, including the facade, concourse, windows and sidewalks, costs for cleaning and removing snow and rubbish from the Property and the costs of all labor, supplies, equipment and materials incidental to such cleaning.

(d) Premiums and other charges incurred by Landlord with respect to all insurance relating to the Property and the operation and maintenance thereof, including, without limitation: all risk of physical damage or fire and extended coverage insurance; public liability insurance; elevator insurance; worker’s compensation and employer’s liability insurance; boiler and machinery insurance; sprinkler leakage insurance; loss of rents insurance; and health, accident and group life insurance for employees performing services solely related to the Property; self-insurance retentions; and insurance service fees.

(e) The cost of electricity utilized in the Common Areas.

(f) Costs incurred for operation, service, maintenance, inspection and repairs of the Property, and the heating, air-conditioning, ventilating, plumbing, outdoor underground heating coils, electrical and elevator systems of the Building and the costs of labor, materials, supplies and equipment used in connection with all of the aforesaid items.

(g) Sales and excise taxes and the like upon any of the expenses that constitute Operating Expenses.

(h) Management fees (and costs and expenses customarily reimbursable to a managing agent) of the managing agent for the Building not to exceed 5% of gross rents.

(i) The cost of tools, equipment, and supplies and any replacement thereof.

(j) Intentionally omitted.

(k) Intentionally omitted.

(l) Intentionally omitted.

(m) Intentionally omitted.

(n) Intentionally omitted.

(o) Auditing and accounting fees incurred in connection with the Property.

(p) Capital Expenditures (as defined in Section 6.1 (ii)(a) hereof) incurred by Landlord to comply with governmental Requirements enacted after the date of this Lease, whether federal, state or municipal.

(q) Intentionally omitted.

(r) Capital Expenditures consisting of any energy or cost saving devices designed to reduce Operating Expenses, but only to the extent of the actual savings realized therefrom.

(s) All costs and expenses relating to the maintenance, operation and repair of any facilities adjacent to the Property and used in the operation of the Property, but only to the extent used in the operation of the Property.

(t) Costs of employing independent contractors performing services, including, but not limited to, cleaning, janitorial, window-washing, rubbish removal, security, landscaping, snow and ice removal services, electrical, painting, plumbing, elevator, heating, ventilation and air conditioning maintenance and repair.

(u) Reasonable legal fees with respect to the Property other than (a) those legal fees incurred in the negotiation of tenant leases or otherwise relating to the relationship between Landlord and individual tenants, (b) those legal fees incurred in the financing or refinancing of the Property, (c) those legal fees incurred in enforcing any obligation of any tenant in the Building, and (d) those legal fees relating to the internal structure of Landlord and the relationship among themselves or with third parties of the persons who constitute Landlord, the relationship of Landlord and third parties having an interest in Landlord or with partners or shareholders of any persons having an interest in Landlord.

(v) Landlord’s reasonable casualty insurance deductible.

(w) Any and all other expenditures of Landlord (other than Capital Expenditures) which arise directly in the operation, repair, maintenance or protection of the Property and which are properly expensed in accordance with generally accepted accounting principles consistently applied.

(ii)

(a) If Landlord shall purchase any item of capital equipment, or incur any expenditures which under generally accepted accounting practices for a rental office building such as the Property are capitalized (collectively, the “Capital Expenditures”), then the costs for same shall be amortized on a straight-line basis beginning in the year of installation and continuing for the useful life thereof.

(b) The amount of amortization for such costs shall be included in Operating Expenses for each Lease Year to which the amortization relates.

(c) If Landlord shall lease such items of capital equipment, then the rental paid pursuant to such lease shall be included in Operating Expenses for each Lease Year in which it is incurred.

(iii) In determining Operating Expenses for any Lease Year during which less than ninety-five percent (95%) of the Rentable Area of the Building shall have been occupied by tenants during such year, those components of the actual Operating Expenses that vary with occupancy for such year shall be increased to the amount which would have been incurred for such Lease Year had such occupancy of the Building been ninety-five percent (95%) throughout such Lease Year, as reasonably determined by Landlord.

(iv) Exclusions. Notwithstanding any other provision of this Section 6.01 “Operating Expenses” shall not include expenditures for any of the following:

(a) The cost to prepare space for occupancy by other tenants.

(b) Repairs or other work occasioned by fire, windstorm or other casualty or hazard or eminent domain, to the extent that Landlord shall receive proceeds of such insurance or condemnation.

(c) Repairs or rebuilding necessitated by any taking to the extent that Landlord has received condemnation proceeds for such repairs or rebuilding.

(d) Depreciation and amortization of the Building.

(e) Debt service payments on any indebtedness applicable to the Property, including any mortgage debt, ground rents payable under any ground lease, other encumbrances upon the Building, any related unsecured financing and any penalties, late charges, legal and accounting expenses and other costs to Landlord relating thereto.

(f) Electricity separately metered to tenants in the Building.

(g) Capital Expenditures except as set forth in Section 6.1(i)(p) and (r).

(h) marketing costs, including real estate broker leasing commissions, and attorneys’ fees in connection with the negotiation and preparation of letters of intent, leases, subleases and/or assignments, and attorneys’ fees and other costs and expenditures incurred in connection with disputes with present or prospective tenants or other occupants of the Building;

(i) compensation for officers and executives of Landlord above the grade of building manager;

(j) advertising and promotional expenditures, and costs of other tenants’ signs.

(k) costs of items as to which Landlord receives reimbursement from a third party (including another tenant of the Building);

(l) costs incurred in performing work or furnishing services to or for individual tenants (including, without limitation, Tenant) but only if and to the extent that the same is in excess of that which Landlord furnishes generally (with no additional expense) to the tenants of the Building;

(m) costs specifically charged to tenants, including, without limitation, overtime HVAC and tenant electricity;

(n) costs incurred to place the Building in compliance with any laws in effect on the date hereof with which the Building does not comply (including, without limitation, costs incurred with respect to removal or encapsulation or other treatment of asbestos and asbestos containing material as defined under present or future laws relating to the environment), unless attributable to the acts or omissions of Tenant or its licensees;

(o) Landlord’s general corporate overhead and general and administrative expenses of the Landlord entity;

(p) overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in the Building to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;

(q) costs resulting from failure of Landlord to fulfill its legal or contractual obligations, including, without limitation, interest and penalties due to the failure to pay taxes and damages resulting from landlord defaults under leases of space in the Building, so long as Tenant has paid its corresponding obligations and is not otherwise directly or indirectly responsible for such failure;

(r) professional dues or lobbying costs of Landlord; and

(s) the cost of acquisition or leasing, restoring, removing or replacing of art work (including, without limitation, sculptures, paintings and other objects of art) for the Building’s common areas (provided that, this exclusion shall not be deemed to exclude from Operating Expenses the cost of the routine maintenance thereof).

6.2 Expenses .

Tenant agrees to pay Landlord as Additional Rent, during each calendar year after the Base Year, including any partial calendar year, Tenant’s Share of the excess of Operating Expenses incurred by Landlord during such year over Base Year Operating Expenses.

6.3 Taxes .

In addition to the foregoing, Tenant agrees to pay Landlord as Additional Rent, during each calendar year after the Base Year, including any partial calendar year, Tenant’s Share of the excess of Taxes incurred by Landlord during such year over Base Year Taxes. Landlord confirms that the Property is fully assessed for Taxes and is not the subject of any abatement program and that Landlord is not currently appealing or contesting Taxes.

6.4 Annual Statement of Additional Rent Due .

Within ninety (90) days of the end of a Calendar Year, Landlord shall render to Tenant a statement (hereinafter referred to as the “Annual Statement of Additional Rent”) setting forth (a) Base Year Operating Expenses and Base Year Taxes, (b) Actual Operating Expenses and Actual Taxes for the then previous Calendar Year, and (c) a reconciliation comparing Actual Taxes and Actual Operating Expenses for the then previous Calendar Year to those of the Base Year. If the sum of Actual Operating Expenses and Actual Taxes for such year exceeds the sum of Base Year Operating Expenses and Base Year Taxes, the Annual Statement of Additional Rent shall also include an invoice for such excess. Unless disputed in writing by Tenant within ninety (90) days from date of invoice (as hereinafter specified in Section 6.7) following receipt of said Annual Statement of Additional Rent, the same shall be deemed accepted and the amount (if any) set forth in such invoice shall be due with no option for dispute thereafter, except as otherwise provided herein. Landlord shall have the option to correct any Annual Statement of Additional Rent for a period not exceeding six (6) months after its delivery to Tenant in case of accounting error or omission occurs.

6.5 Accounting .

Landlord shall have the right from time to time to change the periods of accounting hereunder to any other annual period rather than a Calendar Year, and upon any such change, all items referred to in this Article 6 shall be appropriately apportioned. In all statements rendered under Section 6.4, amounts for periods partially within and partially without the accounting periods shall be appropriately apportioned, and any items which are not determinable at the time of a statement shall be included therein on the basis of Landlord’s estimate and with respect thereof Landlord shall render promptly after determination a supplemental statement and appropriate adjustment shall be made according thereto.

6.6 Abatement of Taxes .

Landlord may at any time and from time to time make application to the appropriate Governmental Authority for an abatement of Taxes. Landlord shall make such an application at any time tenants occupying more than 75% of the Rentable Area of the Building under written leases with Landlord directly request in writing that the Landlord do so. If (i) an application for abatement of taxes is successful and (ii) Tenant has made any payment in respect of Taxes pursuant to this Article 6 for the period with respect to which the abatement was granted, Landlord shall (a) deduct from the amount of the abatement all expenses incurred by it in connection with the application (b) pay to Tenant Tenant’s share (adjusted for any period for which Tenant has made a partial payment) of abatement, with interest, if any, paid by the Governmental Authority on such abatement and (c) retain the balance, if any.

6.7 Tenant Audit .

Any Annual Statement of Additional Rent shall be binding and conclusive upon Tenant unless within ninety (90) days after the giving by Landlord of such accounting, Tenant shall notify Landlord that Tenant disputes the correctness of such accounting, specifying the particular respect to which the accounting is claimed to be incorrect. Tenant may, at Tenant’s sole cost and expense, undertake an audit of Landlord’s books as are directly relevant to Operating Expenses or Taxes for the calendar year in question, provided, and on condition that (i) there is no Event of Default under this Lease, (ii) Tenant has made all payments of Operating Expenses and Taxes invoiced by Landlord as of the date of the audit, (iii) the audit is performed by an independent certified public accounting firm reasonably approved by Landlord and whose fee or other compensation is fixed by contract and is no manner computed or determined based upon the results of the audit, (iv) intentionally omitted, and (v) such audit is commenced and completed and the results thereof delivered to Landlord within ninety (90) days following the date Landlord makes its books available to Tenant. If such audit reveals an over payment on account of Operating Expenses or Taxes by Tenant, Landlord shall credit such overpayment against the next installment of rent coming due until such credit is exhausted, or, if this Lease has expired, Landlord shall pay Tenant such over payment within thirty (30) days after its receipt of such audit. In addition, if such audit reveals an overpayment in excess of 5% of what Tenant should have paid on account of Operating Expenses or Taxes for any calendar year, Landlord shall also pay the commercially reasonable costs of Tenant’s audit within thirty (30) days after Landlord’s receipt of Tenant’s third party invoice therefor. If Tenant fails to timely deliver a dispute notice to Landlord or fails to complete its audit and deliver the result of the audit to Landlord within the

applicable ninety (90) day period, then in either of such events, Landlord’s Annual Statement of Additional Rent shall be binding and conclusive upon Tenant for all purposes of this Lease.

ARTICLE 7

Improvements, Repairs, Additions, Replacements

7.1 Preparation of the Premises .

(a) Tenant has prepared the initial draft floor plan for the Premises, (the “Floor Plan”), which is attached hereto as Exhibit A-1 . A copy of the Floor Plan has been provided to Landlord in CAD format. Landlord shall reimburse Tenant’s architect up to $0.10 per square foot for the Floor Plan within thirty (30) days of the date of the Tenant’s delivery to Landlord of such architect’s invoice. Within 30 days after the date hereof, Landlord shall prepare and submit to tenant, Working Drawings for the interior finish of the Premises. The Working Drawings shall be based on the Floor Plan and the Building Standard Tenant Finishes attached hereto as Exhibit C (“Building Standard Finishes”) and otherwise with information provided to Landlord by Tenant, including, without limitation, any non-structural changes to the Floor Plan requested by Tenant. Upon completion, the Working Drawings shall be submitted to Tenant for Tenant’s approval, which shall not be unreasonably withheld or delayed. Failure by Tenant to approve any submission or resubmission of the Working Drawings within ten (10) days after submission or any resubmission shall constitute approval thereof. Any disapproval shall be accompanied by a specific statement of the reasons therefor. The work to be performed by Landlord pursuant to the Working Drawings is referred to as “Landlord Work”.

(b) Upon both parties’ approval of the Work Drawings, if Tenant has selected any item that is not a Building Standard Finish (each such item, an “Above Building Standard Finish”), Landlord shall advise Tenant of the increase in the cost therefor as charged by General Contractor (with no additional mark up by Landlord) over the cost of the Building Standard Finish for such item and Tenant shall either pay Landlord the amount of actual increase or elect to proceed with the Building Standard Finish for such item. Landlord shall not be required to commence Landlord’s Work until Tenant has paid Landlord for the increase in the costs of Landlord’s Work due to all Above Building Standard Finishes selected by Tenant. Promptly after approval of the Working Drawings by Tenant and the payment by Tenant to Landlord of any of the cost of any Above Building Standard Finish items, Landlord at its sole expense (except for the above Building Standard Finishes), shall engage the General Contractor to commence and exercise all reasonable efforts to complete Landlord’s Work on or before March 1, 2018.

(c) The Landlord’s Work shall be deemed substantially complete on the first day on which Landlord’s Work has been substantially completed in accordance with the Working Drawings except for (i) minor items of work (and, if applicable, adjustment of equipment and fixtures) which can be completed after occupancy has been taken without causing undue interference with Tenant’s use of the Premises for the Permitted Use (i.e. so called “punch list” items) and (ii) items which, in accordance with good construction practice, should be performed after the performance of any tenant improvement work to be performed by Tenant, as confirmed by a certificate of substantial completion from General Contractor and a certificate of occupancy

for the Premises from the applicable Governmental Authority (the “Substantial Completion Date”). On the Substantial Completion Date, Landlord’s and Tenant’s Representatives shall jointly inspect the Premises and agree upon the punchlist. Subject to Tenant Delays and Force Majeure, Landlord will exercise commercially reasonable efforts to complete the “punch list” items within forty-five (45) days after the Substantial Completion Date, and Tenant shall afford Landlord access to the Premises for such purposes.

(d) Landlord shall not charge any project management or supervisory, labor or other fees to Tenant as part of Landlord’s Work. Landlord’s Work shall include separately demising the Premises from balance of the 3rd floor of the Building and separating all base Building MEP systems and installing a sub-meter for the measurement of electricity consumed in the Premises.

7.2 Condition; Landlord’s Performance .

Tenant shall give Landlord written notice, not later than one (1) calendar month after the Term Commencement Date, of any respects in which Landlord has not performed Landlord’s Work fully, properly and in accordance with the terms of this Lease. Except as identified in any such notice from Tenant to Landlord, Tenant shall have no right to make any claim that Landlord has failed to perform any of Landlord’s Work fully, properly and in accordance with the terms of this Lease or to require Landlord to perform any further of Landlord’s Work. Except for Landlord’s Work, the Premises are being leased in their present condition, AS IS, WITHOUT REPRESENTATION OR WARRANTY by Landlord. Tenant acknowledges that it has inspected the Premises and the Common Areas and has found the same satisfactory.

7.3 Tenant’s Delays; Remedies for Tenant’s Delay .

(a) If a delay shall occur in the Substantial Completion Date as the result of:

(i) any unreasonable delay by Tenant in approving the Working Drawings;

(ii) any request by Tenant that Landlord delay the commencement or completion of Landlord’s Work for any reason;

(iii) any change by Tenant in any of the Working Drawings after initial approval thereof by Tenant;

(iv) any other act or omission of Tenant or its officers, agents, employees or contractors;

(v) intentionally omitted; or

(vi) intentionally omitted.

then Tenant shall, from time to time and within ten (10) days after demand therefor, pay to Landlord Basic Rent and Additional Rent for each day that the Substantial Completion Date is postponed as a result of such delay.

(b) The delays referred to in paragraph (a) herein are referred to collectively and individually as “Tenant’s Delay.”

7.4 Tenant’s Early Access to the Premises .

Landlord shall keep Tenant informed as to the progress of Landlord’s Work. Commencing on the Early Access Date, Tenant and Tenant’s agents, at Tenant’s sole risk, may enter the Premises in order to do such work as may be required to make the Premises ready for Tenant’s use and occupancy thereof. In making such entry, Tenant and Tenant’s agents, contractors, workmen, mechanics, suppliers and invitees, shall work in harmony with Landlord and the General Contractor and with other tenants and occupants of the Building and Tenant shall deliver evidence of insurance required by this Lease. If at any time such entry shall cause or threaten to interfere with Landlord’s Work, Landlord shall have the right to immediately withdraw such permission for Early Access. Any such entry into and occupation of the Premises shall be deemed to be under all of the terms, covenants, conditions and provisions of this Lease except the covenant to pay Basic Rent and Additional Rent. Except for its negligence or willful misconduct, Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant’s work and installations made in the Premises or to properties placed therein prior to the Term Commencement Date, the same being at Tenant’s sole risk.

7.5 Alterations and Improvements .

Other than cosmetic Improvements such as painting or carpeting, Tenant shall not make Improvements, alterations or additions to the Premises except in accordance with plans and specifications therefore first approved in writing by Landlord. The Tenant must use the Landlord’s General Contractor for any/ all alterations and improvements (other for than cosmetic improvements, provided the contractors performing cosmetic improvements shall be subject to Landlord’s reasonable approval). All work performed by Tenant must be of a quality equal to or better than the Building Standard Tenant Finishes. Tenant shall not hang shades, curtains, signs, awnings or other materials, attach any materials to or make any change in the appearance of any glass visible from outside of the Premises, add any window treatments of any kind, without Landlord’s prior written consent. Without limitation, Landlord shall not be deemed unreasonable for withholding approval of any Improvements, alterations or additions which would (a) delay completion of the Premises or the Building, or (b) require unusual expense to readapt the Premises to normal use upon termination of this Lease. All Improvements, alterations and additions shall become part of the Premises.

With respect to all Improvements, alterations and additions (including cosmetic Improvements such as painting or carpeting), Tenant shall (i) secure all Authorizations necessary therefor, including, if applicable, the Authorization For Additional Work form, included herein as Exhibit H ; (ii) deliver to Landlord a statement of the names of all its contractors and subcontractors and the estimated cost of all labor and material to be furnished by them; and (iii) cause each contractor to carry (x) workmen’s compensation insurance in statutory amounts, and (y) commercial general liability insurance with limits as Landlord may reasonably require, but in no event less than $1,000,000.00, covering all of Tenant’s contractors and subcontractors, and naming Landlord as an additional insured (all such insurance to be written in companies reasonably approved by Landlord), and to deliver to Landlord certificates of all such insurance.

Tenant agrees to pay promptly when due the entire cost of any work done in the Premises by Tenant, its agents, employees or independent contractors, and not to cause or permit any liens to attach to the Premises and immediately to discharge or bond against any such liens which may so attach. All construction work done by Tenant, its agents, employees or independent contractors shall be done in a good and workmanlike manner and in compliance with all Legal Requirements and Insurance Requirements. Landlord may inspect the work at its option.

7.6 Intentionally Omitted .

7.7 Intentionally Omitted .

ARTICLE 8

Building Services

8.1 Basic Services .

Landlord shall furnish, or cause to be furnished, during the Term the Basic Services. The cost of the Basic Services shall be included in Operating Expenses.

8.2 Other Janitors .

Any person employed by Tenant, with Landlord’s consent, to do janitorial work, either inside or outside the Premises, shall be subject to and under the control and direction of the superintendent of the Building (but not as agent, employee, or servant of said superintendent or of Landlord).

8.3 Additional Services .

Tenant shall pay Landlord a reasonable charge for any Additional Services provided by Landlord at Tenant’s request. All charges for Additional Services shall be due and payable within thirty (30) days of the date Tenant receives Landlord’s invoice therefor.

Tenant shall have the right to receive HVAC on Saturdays, excluding Holidays, from 8:00 AM to 1:00 PM up to five (5) times per calendar year free of any charge, by providing forty-eight (48) hours previous written notice to Landlord for such HVAC service, otherwise, Tenant shall have the right to receive HVAC Service during hours other than Normal Business Hours by paying Landlord’s then standard charge for additional HVAC service as an Additional Service, as follows:

Extended Hours HVAC

Tenant shall have extended hours available for HVAC. Extended hours shall be defined as 6:00 PM - 7:00 AM Monday through Friday, and any time on Saturday, Sunday or Holidays.

The billable rates for air-conditioning shall be:

$75.00 per hour per HVAC unit with a four (4) hour minimum.

The billable rates for heat shall be:

$75.00 per hour per HVAC unit with a four (4) hour minimum.

8.4 Electricity .

Landlord shall furnish electricity to the Premises for HVAC and an average of six (6) watts of electric current (connected load) per Rentable Square Foot for lights and plugs. Electricity used by Tenant in the Premises shall be paid for by Tenant by separate invoice billed by the applicable utility company or the Landlord (without markup) and payable directly by Tenant. Tenant shall not, without prior written notice to Landlord in each instance (i) connect to the Building electric distribution system anything other than normal office equipment, (ii) connect to the Building electric distribution system any fixtures, appliances or equipment which operate on a voltage in excess of 120 volts nominal, or (iii) make any alteration or addition to the electric system of the Premises. Tenant’s use of electrical energy in the Premises shall not at any time exceed the capacity of any of the electrical conductors or equipment in or otherwise serving the Premises.

8.5 Access .

Tenant shall have access to the Premises twenty-four (24) hours per day, seven (7) days per week. Landlord shall provide Building access cards to all of Tenant’s employees in the Premises at no charge.

ARTICLE 9

Tenant’s Particular Covenants

9.1 Occupancy of the Premises .

Tenant shall not (i) injure or deface the Premises or the Building, (ii) install any sign in or on any window, demising wall, or Common Area without Landlord’s approval, (iii) permit in the Premises any flammable fluids or chemicals not reasonably related to the Permitted Uses, or (iv) perform any act or allow any act or practice which may injure the Premises or any other part of the Property, or cause offensive odors or discharges or loud noise to constitute a nuisance or menace or any threat of health to any other occupant of the Building or to the neighborhood, or be detrimental to the operation, or appearance of the Building.

9.2 Safety .

Tenant shall keep the Premises equipped with all safety appliances required by Legal Requirements or Insurance Requirements because of any use made by Tenant. Tenant shall procure all Authorizations so required because of such use and, if requested by Landlord, shall do any non-structural work so required because of such particular use, it being understood that the foregoing provision shall not be construed to broaden in any way the Permitted Uses.

9.3 Equipment .

Tenant shall not place a load upon any portion of the Premises or the Buildings exceeding the floor load per square foot of area which such floor was designed to carry and which is allowed by Legal Requirements. Machines and mechanical equipment used by the Tenant in the Premises shall be placed and maintained by Tenant at Tenant’s expense so as to absorb and reasonably minimize air borne or structure born vibration, noise and annoyance. Any moving of machinery and mechanical equipment shall be at Tenant’s sole risk, and Tenant shall indemnify and save Landlord harmless from and against any liability, loss, claim, or damage resulting from such moving. All of the furnishings, fixtures, machinery, equipment, effects and property of every kind, nature and description belonging to Tenant and to any persons claiming by, through or under Tenant which, during the term of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises, shall be at the sole risk and hazard of Tenant.

9.4 Pay Taxes .

Tenant shall pay promptly when due all Taxes upon its personal property (including, without limitation, fixtures and equipment) in the Premises.

9.5 Intentionally Omitted .

9.6 Intentionally Omitted .

9.7 Maintenance and Repair .

(a) Landlord Repairs .

Except as otherwise provided in this Lease and exclusive of any supplemental HVAC systems installed by or at the request of Tenant, Landlord agrees to keep in good order, condition and repair the roof, the Building systems (HVAC, life safety, vertical transportation and utilities) and the structural elements of the Building, except that Landlord shall in no event be responsible to Tenant for the repair of the doors to the Premises that are in excess of standard building finish, or any condition in the Premises or the Building caused by any act or neglect of Tenant, its invitees or contractors. Landlord shall also keep and maintain all Common Areas (including all parking areas) in a good and clean order, condition and repair, properly lighted, free of snow and ice and accumulation of dirt and rubbish, and shall keep and maintain all landscaped areas on the Property in a neat and orderly condition.

(b) Tenant Repairs .

Tenant shall keep and maintain the Premises in good order, condition and repair, excepting only those repairs for which Landlord is responsible under the terms of this Lease, reasonable wear and tear of the Premises, and damage by fire or other casualty or as a consequence of the exercise of the power of eminent domain; and Tenant shall surrender the Premises, at the end of the Term, in such condition; provided , however , Tenant shall not have any obligation to remove Landlord’s Work. Without limitation, Tenant shall comply with all Legal Requirements and Insurance Requirements applicable to Tenant’s use and occupancy from

time to time in effect for the Premises; provided , however , Tenant shall not be required to perform any structural work in connection therewith. Subject to the waiver of subrogation contained herein, Tenant shall be responsible for the cost of repairs which may be made necessary by reason of damage to the Building caused by any act or neglect of Tenant, or its employees, contractors or invitees.

ARTICLE 10

Requirements of Public Authority

10.1 Legal Requirements .

Tenant shall, at its own cost and expense, promptly observe and comply with all Legal Requirements pertaining to its use of the Premises; provided , however , Tenant shall not be required to perform any structural work in connection therewith. Tenant shall pay all costs, expenses, liabilities, losses, damages, fines, penalties, claims and demands, that may in any manner arise out of or be imposed because of the failure of Tenant to comply with the covenants of this Article 10.

10.2 Environmental Legal Requirements .

(a) Hazardous Materials.

(i) Tenant may use materials such as adhesives, lubricants, ink, solvents and cleaning fluids of the kind and in amounts and in the manner customarily found and used in business offices in order to conduct its business at the Premises and to maintain and operate the business machines and equipment located in the Premises provided that such materials are used, stored and disposed of by Tenant strictly in accordance with all applicable Legal Requirements. Except for the foregoing, Tenant shall not use, store, handle, treat, transport, release or dispose of any other Hazardous Materials in, on or about the Premises or the Property without Landlord’s prior written consent, which Landlord may withhold or condition in Landlord’s sole discretion.

(ii) Any handling, treatment, transportation, storage, disposal or use of Hazardous Materials by Tenant in or about the Premises or the Property and Tenant’s use of the Premises shall comply with all applicable Legal Requirements. Tenant shall, within ten (10) Business Days of Landlord’s written request therefor, disclose in writing all Hazardous Materials that are being used by Tenant in the Premises, the nature of such use and the manner of storage and disposal. Without Landlord’s prior written consent, Tenant shall not conduct any sampling or investigation of soil or groundwater on the Property to determine the presence of any Hazardous Materials therein.

(iii) Tenant shall indemnify, defend upon demand with counsel reasonably acceptable to Landlord, and hold Landlord harmless from and against,

any liabilities, losses claims, damages, interest, penalties, fines, attorneys’ fees, experts’ fees, court costs, remediation costs, and other expenses which result from the use, storage, handling, treatment, transportation, release, threat of release or disposal of Hazardous Materials in or about the Premises or the Property by Tenant or Tenant’s agents, employees, contractors or invitees. The provisions of this subparagraph (iii) shall survive the expiration or earlier termination of this Lease.

(iv) Tenant shall give written notice to Landlord as soon as reasonably practicable of any communication received by Tenant from any governmental authority concerning Hazardous Materials which relates to the Premises or the Property.

ARTICLE 11

Covenant Against Liens

11.1 Mechanics Liens .

Landlord’s right, title and interest in the Property shall not be subject to or liable for liens of mechanics or materialmen for work done on behalf of Tenant in connection with improvements to the Premises. Notwithstanding such restriction, if because of any act or omission of Tenant, any mechanic’s lien or other lien, charge or order for payment of money shall be filed against any portion of the Property, Tenant shall, at its own cost and expense, cause the same to be discharged of record or bonded within thirty (30) days after the filing thereof.

11.2 Right to Discharge .

Without otherwise limiting any other remedy of Landlord for default hereunder, if Tenant shall fail to cause such liens to be discharged of record or bonded within the aforesaid thirty (30) day period or to satisfy such liens within (30) days after any judgment in favor of such lien holders from which no further appeal might be taken then Landlord shall have the right to cause the same to be discharged. All amounts paid by Landlord to cause such liens to be discharged shall constitute Additional Rent.

ARTICLE 12

Access to Premises

12.1 Access .

The Landlord and its duly authorized agents shall have the right at all reasonable times and upon reasonable notice to enter upon the Premises for the purpose of inspection or repair, provided that the right of access under this Section shall be immediate and without notice if any emergency is deemed to exist by the Landlord. Landlord shall also have after giving prior notice, the right to make access available at all reasonable hours to existing or prospective mortgagees, purchasers, or tenants of the Property.

Notwithstanding the foregoing, no such entry by Landlord shall interfere with Tenant’s use of the Premises and all repairs, with the exception of emergencies, shall be performed outside of Normal Business Hours.

ARTICLE 13

Assignment and Subleasing

13.1 Subleasing and Assignment .

(a) Prohibition .

(i) Tenant covenants and agrees that neither this Lease nor the term and estate hereby granted, nor any interest herein or therein, will be assigned, mortgaged, pledged, encumbered or otherwise transferred, whether voluntarily, involuntarily, by operation of law or otherwise, and that neither the Premises nor any part thereof will be encumbered in any manner by reason of any act or omission on the part of Tenant, or used or occupied or permitted to be used or occupied, by anyone other than Tenant, or for any use or purpose other than a Permitted Uses, or be sublet (which term, without limitation, shall include granting of concessions, licenses and the like) in whole or in part, without, in each case, the prior written consent of Landlord, which content shall not be unreasonably withheld or delayed. In no event may Tenant place any signs advertising the sublease of the Premises or assignment of the Lease upon the Premises, the Building or anywhere else on the Property. The provisions of this paragraph (i) shall apply to a transfer (by one or more transfers) of a controlling portion of or interest in the stock or partnership or membership interests or other evidences of equity interests of Tenant as if such transfer were an assignment of this Lease; provided that if equity interests in Tenant at any time are or become traded on a public stock exchange, the transfer of equity interests in Tenant on a public stock exchange shall not be deemed an assignment within the meaning of this Article.

(ii) The provisions of paragraph (i) shall not apply to either (x) transactions with an entity into or with which Tenant is merged or consolidated, or to which all or substantially all of Tenant’s assets are transferred, or (y) transactions with any entity which controls or is controlled by Tenant or is under common control with Tenant; provided and only on condition that in any such event:

· in the case of an assignment, the successor to Tenant has a net worth, computed in accordance with generally accepted accounting principles consistently applied, at least equal to the net worth of Tenant herein named on the Date of Lease,

· proof satisfactory to Landlord of such net worth shall have been delivered to Landlord at least ten (10) days prior to the effective date of any such transaction, and

· the transferee agrees directly with Landlord, by written instrument in form satisfactory to Landlord in its reasonable discretion, to be bound by all the obligations of Tenant hereunder, including, without limitation, the covenant against further assignment and subletting.

(iii) If Tenant intends to enter into an Occupancy Arrangement, Tenant shall so notify Landlord in writing, stating the name of (and a financial statement with respect to) the Person whom Tenant intends to enter into such Arrangement, the exact terms of the Arrangement and a precise description of the portion of the Premises intended to be subject thereto. Within thirty (30) days of receipt of such writing, Landlord shall either (i) consent to such Occupancy Arrangement, or (ii) refuse to consent to the Occupancy Arrangement.

If the Landlord consents to such Occupancy Arrangement, Tenant shall (i) enter into such Arrangement on the exact terms described to Landlord within sixty (60) days of Landlord’s consent or comply again with their terms of this Section, (ii) remain liable for the payment and performance of the terms and covenants of this Lease and (iii) pay Landlord five hundred dollars ($500.00) processing fee upon execution of such Occupancy Arrangement. If Tenant enters into such an Occupancy Arrangement, Tenant shall pay to Landlord when received the excess, if any, of amounts received in respect of such Occupancy Arrangement over the Rent, after deducting from such excess, all reasonable costs incurred by Tenant in connection with such Arrangement, including, without limitation, brokerage fees, commercially reasonable tenant improvements costs and allowances, advertising and marketing costs, and legal fees. Tenant must provide Landlord, in writing, a summary or estimates of such reasonable costs or said costs shall be deemed non-deductible from such excess. Any Occupancy Arrangement will expressly incorporate the terms of this Lease and be subject to the terms of this Lease.

(b) Acceptance of Rent . Should this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anyone other than Tenant, whether or not in violation of the terms and conditions of the Lease, Landlord may, at any time and from time to time, collect rent and other charges from the assignee, subtenant or occupant, and apply the net amount collected to the rent and other charges herein reserved, but no such assignment, subletting, occupancy, collection or modification of any provisions of this Lease shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant as a tenant or a release of Tenant from the further performance of covenants on the part of Tenant to be performed hereunder. Any consent by Landlord to a particular assignment, subletting or occupancy or other

act for which Landlord’s consent is required under this Article shall not in any way diminish the prohibition stated in this Article as to any further such assignment, subletting or occupancy or other act or the continuing liability of the original named Tenant. No assignment or subletting hereunder shall relieve Tenant from its obligations hereunder, and Tenant shall remain fully and primarily liable therefor. Landlord may revoke any consent by Landlord to a particular assignment, subletting or occupancy if the assignment or sublease does not provide that the assignee, subtenant or other occupant agrees to be independently bound by and upon all of the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be kept and performed. Tenant shall promptly reimburse Landlord for all reasonable third-party costs, including attorneys’ fees, incurred by Landlord in connection with any request from Tenant regarding assignment or subletting or any other act that is subject to this Article.

(c) Excess Payments . If Tenant assigns this Lease or sublets the Premises or any portion thereof, Tenant shall pay to Landlord as Additional Rent fifty percent (50%) of the amount, if any, by which (i) any and all compensation received by Tenant as a result of such assignment or subletting, net of reasonable expenses actually incurred by Tenant in connection with such assignment or subletting for brokerage commissions, advertising and marketing costs, improvement expenses and tenant allowances, exceeds (ii) in the case of an assignment, the Basic Rent and Additional Rent under this Lease, and in the case of subletting, the portion of the Basic Rent and Additional Rent allocable to the portion of the Premises subject to such subletting. Such payments shall be made on the date the corresponding payments under this Lease are due. Notwithstanding the foregoing, the provisions of this Section shall impose no obligation on Landlord to consent to an assignment of this Lease or a subletting of all or a portion of the Premises.

(d) Intentionally Omitted .

ARTICLE 14

Indemnity

14.1 Tenant’s Indemnity .

Subject to the waiver of subrogation contained herein, Tenant shall defend with counsel first approved by Landlord (counsel appointed by Tenant’s insurance carrier shall be deemed approved by Landlord and for any other circumstances such approval shall not be unreasonably withheld or delayed), save harmless, and indemnify Landlord and Landlord’s managing agent, beneficiaries, partners, subsidiaries, officers, directors, agents, trustees and employees (“Landlord Parties”) from any liability for injury, loss, accident or damage to any person or property, and from any claims, actions, proceedings and expenses and costs in connection therewith (including without limitation reasonable counsel fees) (i) arising from or claimed to have arisen from (a) the omission, fault, willful act, negligence or other misconduct of Tenant or Tenant’s contractors, licensees, agents, servants, independent contractors or employees, or (b) any use made or thing done or occurring on the Premises not due to the omission, fault, willful act, negligence or other misconduct of Landlord, or (ii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease. The provisions of this Section 14.1 shall survive the expiration or earlier termination of this Lease.

14.2 Landlord’s Liability .

To the extent permitted by law, except for its willful misconduct or gross negligence, Landlord shall not be responsible or liable for any damage or injury to any property, fixtures, buildings or improvements, or to any person or persons, at any time in the Premises, including any damage or injury to Tenant or to any of Tenant’s officers, agents, servants, employees, contractors, invitees, customers or sublessee.

ARTICLE 15

Insurance

15.1 Liability and Property Insurance .

Tenant agrees to maintain in full force from the date upon which Tenant first enters the Premises for any reason, throughout the Term of this Lease, and thereafter so long as Tenant is in occupancy of any part of the Premises, (a) a policy of commercial general liability insurance (including a broad form contractual liability endorsement), in at least the amounts of the Initial General Liability Insurance specified in Section 1.1 or such greater amounts as Landlord in its reasonable discretion shall from time to time request (but not more than once every four (4) years), under which Tenant is named as an insured and Landlord, and, at Landlord’s request, Landlord’s property manager, any Mortgagee, and such other persons as Landlord reasonably may request are named as additional insureds, and under which the insurer agrees to indemnify and hold Landlord and such other additional named insureds harmless from and against all cost, expense and/or liability arising out of or based upon any and all claims, accidents, injuries and damages set forth in Section 14.1 and (b) special form (formerly known as “all risk”) property insurance on a “replacement cost” basis, insuring Landlord’s Work, Tenant’s personal property and any Improvements, alterations and additions located from time to time in the Premises, made by Tenant pursuant to Section 7.5 with a deductible of not more than $25,000. Tenant may satisfy such insurance requirements by including the Premises in a so-called “blanket” and/or “umbrella” insurance policy. Tenant’s insurance shall be primary to, and not contributory with any insurance carried by Landlord, whose insurance shall be considered excess only. Each policy required hereunder shall be non-cancelable and non-amendable with respect to Landlord and Landlord’s said designees without prior notice, shall be written on an “occurrence” basis, and a duplicate original or certificates thereof satisfactory to Landlord, shall be delivered to Landlord. An acceptable form of certificate of insurance is attached hereto as Exhibit J . The policies of insurance required to be maintained by Tenant hereunder shall be issued by companies domiciled in the United States and qualified and licensed to conduct business in the Commonwealth of Massachusetts, and shall be rated A:VII or better in the most current issue of Best’s Insurance Reports.

15.2 Tenant’s Risk .

Tenant agrees to use and occupy the Premises and to use such other portions of the Property as Tenant is herein given the right to use at Tenant’s own risk. Landlord shall not be liable to Tenant, its employees, agents, invitees or contractors for any damage, injury, loss, compensation, or claim (including, but not limited to, claims for the interruption of or loss to

Tenant’s business) based on, arising out of or resulting from any cause whatsoever, including, but not limited to, repairs to any portion of the Premises or the Property, any fire, robbery, theft, mysterious disappearance and/or any other crime or casualty, the actions of any other tenants of the Building or of any other person or persons, or any leakage in any part or portion of the Premises or the Building, or from water, rain or snow that may leak into, or flow from any part of the Premises or the Building, or from drains, pipes or plumbing fixtures in the Building, unless due to the gross negligence or willful misconduct of Landlord or Landlord’s agents, contractors or employees. Any goods, property or personal effects stored or placed in or about the Premises shall be at the sole risk of Tenant, and neither Landlord nor Landlord’s insurers shall in any manner be held responsible therefor. Landlord shall not be responsible or liable to Tenant, or to those claiming by, through or under Tenant, for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connecting with the Premises or any part of the Property or otherwise. Notwithstanding the foregoing, Landlord shall not be released from liability for any injury, loss, damages or liability to the extent arising from any gross negligence or willful misconduct of Landlord, its servants, employees or agents acting within the scope of their authority on or about the Premises; provided, however, that in no event shall Landlord, its servants, employees or agents have any liability to Tenant based on any loss with respect to or interruption in the operation of Tenant’s business. The provisions of this Section 15.2 shall be applicable from and after the execution of this Lease and until the end of the Term of this Lease, and during such further period as Tenant may use or be in occupancy of any part of the Premises or of the Building.

15.3 Landlord’s Insurance .

Landlord shall maintain commercial general liability insurance covering the Common Areas and Landlord shall maintain “special form” property insurance in an amount equal to 100% of the replacement cost of the Building, with a deductible of not more than $25,000 and the premium for such policies shall be included in Operating Expenses.

Notwithstanding the foregoing, the parties agree that Tenant shall cause Landlord’s Work and its Improvements, alterations and additions to the Premises to be insured for the benefit of Landlord and Tenant as their respective interests may appear, against loss or damage by fire and customary extended coverage in an amount equal to (i) the replacement value thereof, if insurance in such amount is available, or (ii) the amount necessary to avoid the effect of co-insurance provisions of the applicable policies. Landlord shall, at Tenant’s cost and expense, cooperate fully with Tenant and execute any and all consents and other instruments and take all other actions necessary to obtain the largest possible recovery. Landlord shall not carry any insurance concurrent in coverage and contributing in the event of loss with any insurance required to be furnished by Tenant hereunder if the effect of such separate insurance would be to reduce the protection or the payment to be made under Tenant’s insurance.

ARTICLE 16

Waiver of Subrogation

16.1 Waiver of Subrogation .

Notwithstanding anything herein to the contrary, Landlord and Tenant each hereby waives any and all rights of recovery, claim, action, or cause of action against the other, its agents, employees, licensees, or invitees for any loss or damage to or at the Premises or the Property or any personal property of such party therein or thereon by reason of fire, the elements, or any other cause which would be insured against under the terms of the policies each party is required to maintain hereunder, to the extent of such insurance, regardless of cause or origin, including omission of the other party hereto, its agents, employees, licensees, or invitees. Landlord and Tenant covenant that no insurer shall hold any right of subrogation against either of such parties with respect thereto. The parties hereto agree that any and all such insurance policies required to be carried by either shall be endorsed with a subrogation clause, substantially as follows: “This insurance shall not be invalidated should the insured waive, in writing prior to a loss, any and all right of recovery against any party for loss occurring to the Property described therein,” and shall provide that such party’s insurer waives any right of recovery against the other party in connection with any such loss or damage.

ARTICLE 17

Damage or Destruction

17.1 Landlord’s Right of Termination .

If the Premises or the Building are substantially damaged by fire or casualty (the term “substantially damaged” meaning damage of such a character that the same cannot, in the ordinary course, reasonably be expected to be repaired within one hundred eighty (180) days from the time that repair work would commence), then Landlord shall have the right to terminate this Lease (even if Landlord’s entire interest in the Premises may have been divested) by giving notice of its election so to do within ninety (90) days after the occurrence of such casualty, whereupon this Lease shall terminate thirty (30) days after the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof.

17.2 Restoration .

(a) If the Premises or the Building are damaged by fire or other casualty, and this Lease is not terminated pursuant to Section 17.1 or Section 17.2(c), Landlord shall thereafter use reasonable efforts to restore the Building and the Premises to its condition existing prior to such casualty for Tenant’s use and occupation (excluding Tenant’s Restoration Work, as defined below), provided that Landlord’s obligation shall be limited to the amount of insurance proceeds available therefor (and Tenant agrees to pay to Landlord the proceeds of its casualty policy attributable to Landlord’s Work for such purposes), and Landlord shall not be obligated to commence restoration until Landlord has received the insurance proceeds, including the insurance proceeds attributable to Landlord’s Work (“Landlord’s Restoration Work”). Landlord’s Restoration Work shall not include, and Tenant shall be solely responsible for, the repair and restoring, at Tenant’s sole cost and expense, of any Improvements or alterations performed by Tenant after the Term Commencement Date and Tenant’s personal property (“Tenant’s Restoration Work”).

(b) Landlord shall not carry any insurance on Landlord’s Work, Tenant’s personal property or on the Improvements installed by Tenant after the Term Commencement Date that constitute part of Tenant’s Restoration Work and shall not be obligated to repair or replace Tenant’s personal property or any Improvements installed by Tenant after the Term Commencement Date. Tenant shall look solely to its insurance for recovery of any damage to or loss of Tenant’s personal property and any Improvements installed by Tenant after the Term Commencement Date. Tenant shall notify Landlord promptly of any casualty in the Premises. Tenant shall promptly permit Landlord access to the Premises for the purpose of performing Landlord’s Restoration Work.

(c) If (i) the damage is so extensive that the Premises cannot reasonably be expected to be ready for re-occupancy by Tenant within one hundred eighty (180) days after the commencement of Landlord’s Restoration Work, or (ii) if the Premises is not delivered to Tenant, vacant and broom clean with Landlord’s Restoration Work substantially complete within one hundred eighty (180) days after the commencement of Landlord’s Restoration Work, Tenant may terminate this Lease by notice to Landlord given, as applicable, within sixty (60) days after the occurrence of the casualty in the case of a casualty which cannot reasonably expected to be restored within one hundred eighty (180) days after the commencement of Landlord’s Restoration Work, or after the expiration of such 180-day period but prior to the date Landlord notifies Tenant that Landlord’s Restoration Work is substantially complete and the Premises is ready for re-occupancy by Tenant.

(d) If this Lease is terminated by Landlord pursuant to Section 17.1 or by Tenant pursuant to Section 17.2(c)(i), Tenant shall pay to Landlord from Tenant’s insurance proceeds received by Tenant on account thereof, the unamortized balance (on a straight line basis) of Landlord’s Work.

17.3 Abatement of Rent .

If the Premises or the Building are damaged by fire or other casualty, Basic Rent shall abate proportionately for the period from the date of such fire or other casualty until the earlier of (a) the date that Landlord substantially completes Landlord’s Restoration Work (provided that if Landlord would have completed Landlord’s Restoration Work at an earlier date but for Tenant having failed to cooperate with Landlord in effecting such work or collecting insurance proceeds, then the Premises shall be deemed to have been repaired and restored on such earlier date and the abatement shall cease), or (b) the date Tenant or any subtenant reoccupies any portion of the Premises (in which case the Basic Rent allocable to such reoccupied portion shall be payable by Tenant from the date of such occupancy).

ARTICLE 18

Eminent Domain

18.1 Eminent Domain .

(a) If the Premises or access thereto or the parking area shall be affected by any exercise of the power of eminent domain, Basic Rent and Additional Rent payable by Tenant shall be justly and equitably abated and reduced according to the nature and extent of the loss of use thereof suffered by Tenant and if such taking materially affects Tenant’s use of the Premises, and Tenant may terminate this Lease by giving written notice thereof to Landlord in the time periods set forth in Section 18(b) for Landlord’s exercise of its termination right. In no event shall Landlord have any liability for damages to Tenant for inconvenience, annoyance or interruption of business arising from such exercise of the power of eminent domain.

(b) If any part of the Building is taken by any exercise of the right of eminent domain, then Landlord shall have the right to terminate this Lease (even if Landlord’s entire interest in the Premises may have been divested) by giving notice of Landlord’s election to do so within ninety (90) days after the occurrence of the effective date of such taking, whereupon this Lease shall terminate on the date Landlord must surrender possession of the Property to the condemning authority with the same force and effect as if such date were the date originally established as the Stated Expiration Date.

(c) If this Lease shall not be terminated pursuant to paragraph (b), Landlord shall thereafter use due diligence to restore the Premises (excluding any Improvements, alterations or additions made by Tenant pursuant to Section 7.5) to proper condition for Tenant’s use and occupation, provided that Landlord’s obligation shall be limited to the amount of compensation recoverable by Landlord from the taking authority. If, for any reason, such restoration shall not be substantially completed within six (6) months after the expiration of the ninety (90) day period referred to in sub-paragraph (b), then Tenant shall have the right to terminate this Lease by giving notice to Landlord thereof within thirty (30) days after the expiration of such period. Upon the giving of such notice, this Lease shall cease and come to an end thirty (30) days after the giving of such notice, without further liability or obligation on the part of either party unless, within such thirty (30) day period, Landlord substantially completes such restoration. Such right of termination shall be Tenant’s sole and exclusive remedy at law or in equity for Landlord’s failure so to complete such restoration.

(d) Landlord shall have and hereby reserves and excepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Property and the leasehold interest hereby created, and to compensation accrued or hereafter to accrue by reason of such taking, and by way of confirming the foregoing, Tenant hereby grants and assigns, and covenants with Landlord to grant and assign to Landlord, all rights to such compensation. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for the value of any of Tenant’s personal property installed in the Premises by Tenant at Tenant’s expense and for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority.

ARTICLE 19

Quiet Enjoyment; Subordination

19.1 Landlord’s Covenant .

Landlord agrees at no cost to Tenant, to use reasonable efforts to obtain from the Superior Mortgagee as of the date of this Lease, a non-disturbance and attornment agreement for Tenant. Provided that an Event of Default has not occurred and is not then continuing, Tenant shall, subject to the Permitted Exceptions, quietly have and enjoy the Premises during the Term, without hindrance or molestation from any Person lawfully claiming by, through or under Landlord.

19.2 Subordination .

This Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate to all mortgages which may now or hereafter affect the Property, whether or not such mortgages shall also cover other lands and/or buildings, to each and every advance made or hereafter to be made under such mortgages, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and all consolidations of such mortgages; provided, however , that such subordination is conditioned upon the holder of any mortgage entering into a subordination, non-disturbance and attornment agreement with Tenant in commercially reasonable form. Any mortgage to which this Lease is, at the time referred to, subject and subordinate, is herein called “Superior Mortgage” and the holder of a Superior Mortgage, or its successor in interest at the time referred to, is herein called “Superior Mortgagee.” If any holder of a mortgage which includes the Premises, executed and recorded prior to the Date of Lease, shall so elect, this Lease and the rights of Tenant hereunder, shall be superior in right to the rights of such holder, with the same force and effect as if this Lease had been executed, delivered and recorded, or a statutory notice hereof recorded, prior to the execution, delivery and recording of any such mortgage. The election of any such holder shall become effective upon either notice from such holder to Tenant in the same fashion as notices from Landlord to Tenant are to be given hereunder or by the recording in the appropriate registry or recorder’s office of an instrument in which such holder subordinates its rights under such mortgage to this Lease.

19.3 Notice to Mortgagee

Tenant shall not seek to enforce any remedy it may have for any default on the part of Landlord without first giving Superior Mortgagee written notice by certified mail, return receipt requested, specifying the default in reasonable detail, and affording such Superior Mortgagee (i) a reasonable opportunity to perform Landlord’s obligations hereunder (but not less than thirty (30) days), if such default can be cured without such Superior Mortgagee taking possession of the mortgaged or leased estate, or (ii) to obtain possession of the mortgaged or leased estate and then to cure such default of Landlord, if such default cannot be cured without such Superior Mortgagee or taking possession of the mortgaged or leased estate.

ARTICLE 20

Defaults; Events of Default

20.1 Tenant’s Default .

(a) If at any time subsequent to the Date of Lease any one or more of the following events (herein referred to as an “Event of Default”) shall occur:

(i) Tenant shall fail to pay the Basic Rent or any other Additional Rent hereunder when due and such failure shall continue for five (5) days after notice thereof from Landlord; or

(ii) Tenant shall neglect or fail to perform or observe any other covenant herein contained on Tenant’s part to be performed or observed and Tenant shall fail to remedy the same within thirty (30) days after notice to Tenant specifying such neglect or failure (or such shorter period for completing a cure for such default as may be required by applicable Laws or by virtue of an emergency situation) or if such failure is of such a nature that Tenant cannot reasonably remedy the same within such thirty (30) day period, Tenant shall fail to commence promptly (and in any event within such thirty (30) day period) to remedy the same and to prosecute such remedy to completion with diligence and continuity (and in any event, within ninety (90) days after the notice described in this subparagraph (ii)); or

(iii) Tenant’s leasehold interest in the Premises shall be taken on execution or by other process of law directed against Tenant; or

(iv) If Tenant or any guarantor of this Lease shall (1) make an assignment for the benefit of creditors, (2) acquiesce in a petition in any court in any bankruptcy, reorganization, composition, extension or insolvency proceedings, (3) seek, consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of any guarantor of this Lease or of all or any part of Tenant’s or such guarantor’s property, (4) file a petition seeking an order for relief under the Title 11 of the United States Code, as now or hereafter amended or supplemented (the “Bankruptcy Code”), or by filing any petition under any other present or future federal, state or other statute or law for the same or similar relief, or (5) fail to win the dismissal, discontinuation or vacating of any involuntary bankruptcy proceeding filed under the Bankruptcy Code, or under any other present or future federal, state or other statute or law for the same or similar relief, within sixty (60) days after such proceeding is initiated; or

(v) Any lien has been filed against the Property, or any portion thereof, as a result of Tenant’s acts, omissions or breach of this Lease, and Tenant fails, within 30 days after notice that the lien is filed, either (1) to cause said lien to be removed from the Property, or (2) to furnish a bond sufficient to remove the lien or cause a title insurance endorsement to be issued with respect to such lien, which endorsement shall be satisfactory, in form and substance to Landlord, in Landlord’s sole and absolute discretion;

then in any such case Landlord may terminate this Lease as hereinafter provided and exercise any other rights or remedies available under this Lease, at law or in equity.

(b) If the trustee or the debtor in possession assumes the Lease under applicable bankruptcy law, it may assign its interest in this Lease only if the proposed assignee first provides Landlord with Adequate Assurance of Future Performance of all of Tenant’s obligations under the Lease, and if Landlord determines, in the exercise of its reasonable business judgment, that the assignment of this Lease will not breach any other lease, or any mortgage, financing agreement, or other agreement relating to the Property by which Landlord or the Property is then bound (and Landlord shall not be required to obtain consents or waivers from any third party required under any lease, mortgage, financing agreement, or other such agreement by which Landlord is then bound).

(c) For purposes only of paragraph (b) above, and in addition to any other requirements under the Bankruptcy Code, any future federal bankruptcy law and applicable case law, “Adequate Assurance of Future Performance” means at least the satisfaction of the following conditions, which Landlord and Tenant acknowledge to be commercially reasonable:

(i) the proposed assignee submitting a current financial statement, audited by a certified public accountant, that allows a net worth and working capital in amounts determined in the reasonable business judgment of Landlord to be sufficient to assure the future performance by the assignee of Tenant’s obligation under this Lease; and

(ii) if requested by Landlord in the exercise of its reasonable business judgment, the proposed assignee obtaining a guarantee (in form and substance satisfactory to Landlord) from one or more persons who satisfy Landlord’s standards of creditworthiness.

20.2 Landlord’s Remedies .

(a) Upon the occurrence of an Event of Default, Landlord shall have the following remedies, in addition to any and all other rights and remedies provided by law or otherwise provided in this Lease, any one or more of which Landlord may resort to cumulatively, consecutively, or in the alternative:

(i) Landlord may continue this Lease in full force and effect, and collect Rent when due.

(ii) Landlord may terminate this Lease upon written notice to Tenant to such effect, in which event this Lease (and all of Tenant’s rights hereunder) shall immediately terminate, but such termination shall not affect those obligations of Tenant which are intended by their terms to survive the expiration or termination of this Lease, nor Tenant’s obligation to pay damages as set forth in this Section 20.2. This Lease may also be terminated by a judgment specifically providing for termination.

(iii) Landlord may terminate Tenant’s right of possession without terminating this Lease upon written notice to Tenant to such effect, in which event Tenant’s right of possession of the Premises shall

immediately terminate, but this Lease shall continue subject to the effect of this Section 20.2.

(iv) Landlord may, but shall not be obligated to, perform any defaulted obligation of Tenant, and to recover from Tenant, as Additional Rent, the costs incurred by Landlord in performing such obligation. Notwithstanding the foregoing, or any other notice and cure period set forth herein, Landlord may exercise its rights under this clause 4 of Section 20.2(a) without prior notice or upon shorter notice than otherwise required hereunder (and as may be reasonable under the circumstances) in the event of any one or more of the following circumstances is present: (i) there exists a reasonable risk of prosecution of Landlord unless such obligation is performed sooner than the stated cure period; (ii) there exists an emergency arising out of the defaulted obligation; or (iii) the Tenant has failed to obtain insurance required by this Lease, or such insurance has been canceled by the insurer without being timely replaced by Tenant, as required herein.

(v) Landlord shall have the right to recover damages from Tenant, as set forth in this Section 20.2.

(b) Upon any termination of this Lease or of Tenant’s right of possession subject to applicable law, Landlord, at its sole election, may (i) re-enter and take possession of the Premises and all the remaining improvements or property, (ii) eject Tenant or any of the Tenant’s subtenants, assignees or other person or persons claiming any right under or through Tenant, (iii) take exclusive possession of all of Tenant’s personal property and any other property located in the Premises and to use such Tenant’s personal property and other property without charge therefor, (iv) remove all property from the Premises and store the same in a public warehouse or elsewhere at Tenant’s expense, and/or (v) deem such property to be abandoned, and, in such event, Landlord may dispose of such property at Tenant’s expense, free from any claim by Tenant or anyone claiming by, through or under Tenant. Landlord shall use commercially reasonable efforts to mitigate damages. It shall not constitute a constructive or other termination of this Lease or Tenant’s right to possession if Landlord (a) exercises its right to repair or maintain the Premises, (b) performs any unperformed obligations of Tenant, (c) stores or removes Tenant’s property from the Premises after Tenant’s dispossession, (d) attempts to relet, or, in fact, does relet, the Premises or (e) seeks the appointment of a receiver on Landlord’s initiative to protect Landlord’s interest under this Lease.

(c) If this Lease shall have been terminated as provided in this Article, Tenant shall pay the Basic Rent, Operating Expenses, Taxes, Additional Rent and other sums payable hereunder up to the time of such termination, and thereafter Tenant, until the end of what would have been the Term of this Lease in the absence of such termination, and whether or not the Premises shall have been relet, shall be liable to Landlord for, and shall pay to Landlord, as liquidated current damages: (x) the Basic Rent, Operating Expenses, Taxes, Additional Rent and other sums that would be payable hereunder if such termination had not occurred, less the net proceeds, if any, of any reletting of the Premises, after deducting all expenses incurred by

Landlord in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys’ fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting; and (y) if Tenant commenced payment of the full amount of Basic Rent on any day other than the Term Commencement Date, the amount of Basic Rent that would have been payable during the period beginning on the Term Commencement Date and ending on the day Tenant commenced payment of the full amount of Basic Rent. Tenant shall pay the portion of such current damages referred to in clause (x) above to Landlord monthly on the days which the Basic Rent would have been payable hereunder if this Lease had not been terminated, and Tenant shall pay the portion of such current damages referred to in clause (y) above to Landlord upon such termination.

(d) At any time after termination of this Lease as provided in this Article, whether or not Landlord shall have collected any such current damages, as liquidated final damages and in lieu of all such current damages beyond the date of such demand, at Landlord’s election Tenant shall pay to Landlord an amount equal to the excess, if any, of the Basic Rent, Operating Expenses, Taxes, Additional Rent and other sums as hereinbefore provided which would be payable hereunder from the date of such demand.

(e) In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (i) re let the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord’s option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to re let the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord considers advisable and necessary for the purpose of reletting the Premises; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid.

(f) In addition, Tenant shall immediately become liable to Landlord for all damages directly caused by Tenant’s breach of its obligations under this Lease, including all costs Landlord incurs in reletting (or attempting to relet) the Premises or any part thereof, including, without limitation, brokers’ commissions, expenses of cleaning, altering and preparing the Premises for new tenants, legal fees and all other like expenses properly chargeable against the Premises and the rental received therefrom and like costs, provided that nothing set forth in this Section 20.2(f) shall be construed to impose upon Landlord any obligation to relet the Premises or to mitigate its damages hereunder, except to the extent expressly required under applicable Law. If Landlord does elect to relet the Premises (or any portion thereof), such reletting may be for a period shorter or longer than the remaining Term, and upon such terms and conditions as Landlord deems appropriate, in its sole and absolute discretion, and Tenant shall have no interest in any sums collected by Landlord in connection with such reletting except to the extent expressly set forth herein. If the Premises or any part thereof shall be relet in combination with any other space, then proper apportionment on a per-square foot basis shall be made of the rent received from such reletting and of the expenses of such reletting. If Landlord shall succeed in reletting the Premises during the period in which Tenant is paying monthly rent damages as described in Section 20.2(c), Landlord shall credit Tenant with the net rents collected by Landlord from such reletting, after first deducting from the gross rents, as and when collected by

Landlord, (A) all expenses incurred or paid by Landlord in collecting such rents, and (B) any theretofore unrecovered costs associated with the termination of this Lease or Landlord’s reentry into the Premises, including any theretofore unrecovered expenses of reletting or other damages payable hereunder. If the Premises or any portion thereof be relet by Landlord for the unexpired portion of the Term before presentation of proof of such damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall, prima facie, constitute the fair and reasonable rental value for the Premises, or part thereof, so relet for the term of the reletting. Landlord shall not be liable in any way whatsoever for its failure to relet the Premises, or if the Premises or any part are relet, for its failure to collect the rent under such reletting, and no such refusal or failure to relet or failure to collect rent shall release or affect Tenant’s liability for damages or otherwise under this Lease.

20.3 Intentionally Omitted .

20.4 Remedying Defaults .

Landlord shall have the right, but shall not be required, to pay such sums or do any act which requires the expenditure of monies which may be necessary or appropriate by reason of the occurrence of an Event of Default, and in the event of the exercise of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon demand all such sums, together with interest thereon at a rate equal to 3% plus the prime rate published from time to time in The Wall Street Journal or its successor publication, as Additional Rent.

20.5 Remedies Cumulative .

The specified remedies to which Landlord may resort hereunder are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be entitled lawfully, and Landlord may invoke any remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided for.

20.6 Enforcement Costs .

Tenant shall pay all reasonable third party costs and expenses (including, without limitation, attorneys’ fees and expenses at both the trial and appellate levels) incurred by or on behalf of Landlord in connection with the successful enforcement of any rights of Landlord or obligations of Tenant hereunder, whether or not occasioned by an Event of Default.

20.7 Landlord’s Default .

Landlord shall in no event be in default under this Lease unless Landlord shall neglect or fail to perform any of its obligations hereunder and shall fail to remedy the same within forty five (45) days after notice to Landlord specifying such neglect or failure, or if such failure is of such a nature that Landlord cannot reasonably remedy the same within such forty five (45) day period, Landlord shall fail to commence promptly (and in any event within such forty five (45) day period) to remedy the same and to prosecute such remedy to completion with diligence and continuity. The liability of Landlord, if any, hereunder shall in any event be limited to the Landlord’s interest in the Property and rents therefrom.

20.8 Independent Covenants .

(a) TENANT HEREBY ACKNOWLEDGES AND AGREES THAT THE OBLIGATIONS OF TENANT HEREUNDER SHALL BE SEPARATE AND INDEPENDENT COVENANTS AND AGREEMENTS, THAT RENT SHALL CONTINUE TO BE PAYABLE IN ALL EVENTS AND THAT THE OBLIGATIONS OF TENANT HEREUNDER SHALL CONTINUE UNAFFECTED, UNLESS THE REQUIREMENT TO PAY OR PERFORM THE SAME SHALL HAVE BEEN TERMINATED PURSUANT TO AN EXPRESS PROVISION OF THIS LEASE. LANDLORD AND TENANT EACH ACKNOWLEDGES AND AGREES THAT THE INDEPENDENT NATURE OF THE OBLIGATIONS OF TENANT HEREUNDER REPRESENTS FAIR, REASONABLE, AND ACCEPTED COMMERCIAL PRACTICE WITH RESPECT TO THE TYPE OF PROPERTY SUBJECT TO THIS LEASE, AND THAT THIS AGREEMENT IS THE PRODUCT OF FREE AND INFORMED NEGOTIATION DURING WHICH BOTH LANDLORD AND TENANT WERE REPRESENTED BY COUNSEL SKILLED IN NEGOTIATING AND DRAFTING COMMERCIAL LEASES IN MASSACHUSETTS. SUCH WAIVER AND ACKNOWLEDGEMENTS BY TENANT ARE A MATERIAL INDUCEMENT TO LANDLORD ENTERING INTO THIS LEASE.

(b) To the extent of any conflicts or inconsistencies between the terms and provisions of this Section 20.8 and the terms and provisions of the remainder of this Lease, the terms and provisions of this Section 20.8 shall control.

ARTICLE 21

HOLDING OVER; SURRENDER

21.1 Holding Over .

If Tenant or anyone claiming by, through or under Tenant shall remain in possession of all or any part of the Premises (which shall include a failure by Tenant to remove any Tenant’s personal property or Improvements which Landlord notified Tenant were to be removed at the expiration or earlier termination of the Term) after the expiration or earlier termination of the Term of this Lease, such holding over shall be treated as a daily tenancy at sufferance at a Basic Rent equal to one hundred ten (110%) percent for the first thirty (30) days and thereafter one hundred fifty (150%) percent of the Basic Rent in effect for the last rental period of the Term plus Operating Expenses, Taxes and other Additional Rent herein provided (prorated on a daily basis). Commencing on the thirty-first (31st) day of any holdover period, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs and damages, direct and/or indirect, sustained by reason of any such holding over, including, without limitation, claims made by and loss of any succeeding tenant forwarded upon such failure to surrender possession in the condition required under this Lease. In all other respects, such holding over shall be on the terms and conditions set forth in this Lease as far as applicable. Nothing contained in this ARTICLE 21 shall be construed as a consent by Landlord to any holding over by Tenant, if such holdover period exceeds thirty (30) days, and Landlord shall have the right to immediately terminate such holding over pursuant to

applicable Law. The provisions of this ARTICLE 21 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law.

Except as set forth in this ARTICLE 21, under no circumstances shall Tenant be liable to Landlord for consequential damages.

21.2 Surrender of Premises .

Upon the expiration or earlier termination of the Term, Tenant shall promptly and peaceably quit and surrender to Landlord the Premises in neat and clean condition and in good order, condition and repair, together with all Improvements, alterations and additions which may have been made or installed in, on or to the Premises prior to or during the Term of this Lease (except as hereinafter provided), excepting only ordinary wear and use and damage by fire or other casualty for which, under other provisions of this Lease, Tenant has no responsibility to repair or restore. Tenant shall remove all of Tenant’s personal property, all signs installed by or on behalf of Tenant in or on the Premises and the Building, all lines and other wiring and cabling installed by Tenant prior to or during the Term and, to the extent specified by Landlord at the time of its approval of any Improvements installed by Tenant after the Term Commencement Date, all Improvements made by or on behalf of Tenant. Tenant shall not be obligated to remove any of Landlord’s Work. Tenant shall repair any damage to the Premises or the Building caused by such removal and restore the affected area to its condition prior to the installation thereof. Any of Tenant’s personal property which shall remain in the Building or on the Premises after the expiration or termination of the Term of this Lease shall be deemed conclusively to have been abandoned, and either may be retained by Landlord as its property or may be disposed of in such manner as Landlord may see fit, at Tenant’s sole cost and expense.

ARTICLE 22

Waivers

22.1 No Waivers .

Failure of Landlord or Tenant to complain of any act or omission on the part of the other party no matter how long the same may continue, shall not be deemed to be a waiver by said Landlord or Tenant of any of its rights hereunder. No waiver by any provision of this Lease shall be deemed a waiver of a breach of the same or any other provision. No acceptance by Landlord of any partial payment shall constitute an accord or satisfaction but shall only be deemed a partial payment on account.

ARTICLE 23

Security Deposit

23.1 Security Deposit .

Tenant has deposited the Security Deposit with Landlord. Landlord shall hold the Security Deposit as security for the full and faithful payment or performance by Tenant of its obligations under this Lease and not as a prepayment of Rent. Landlord may expend such

amounts from the Security Deposit, as may be necessary to cure any Event of Default including legal fees, and in such case, Tenant shall pay to Landlord the amount so expended, on demand. Landlord shall assign the Security Deposit, or any remaining portion of the Security Deposit, to any subsequent owner of the Property and thereafter Landlord shall have no further liability to Tenant with respect thereto. Within thirty days (30) after the Lease Termination Date, Landlord shall (i) inspect the Premises, (ii) make such payments from the Security Deposit as may be required to cure any outstanding Events of Default and (iii) if no Event of Default is then continuing, pay the balance of the Security Deposit to Tenant.

Notwithstanding the foregoing, so long as no Event of Default is then continuing, within thirty (30) days after the end of the 5th Lease Year, Landlord shall return to Tenant $25,000.00 of the Security Deposit and thereafter the Security Deposit shall be $25,000.00.

ARTICLE 24

General Provisions

24.1 Force Majeure .

In the event that Landlord or Tenant shall be delayed, hindered in or prevented from the performance of any act required hereunder by reason of Force Majeure, then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay.

24.2 Notices and Communications .

All notices, demands, requests and other communications provided for or permitted under this Lease shall be in writing, either delivered by hand or sent by certified mail, postage prepaid, to the following address:

(a) if to Landlord at the address stated in Section 1.1, or at such other address as the Landlord shall have designated in writing to the Tenant, with a copy to such Persons as Landlord shall have designated in writing to Tenant, or

(b) if to Tenant at the address stated in Section 1.1, or at such other address as the Tenant shall have designated in writing to the Landlord, with a copy to such Persons as Tenant shall have designated in writing to Landlord.

Any notice provided for herein shall become effective only upon and at the time of receipt by the Person to whom it is given, unless such notice is mailed by first class registered or certified mail, in which case it shall be deemed to be received on (i) the third Business Day following the mailing thereof or (ii) the day of its receipt, if a Business Day, or the next succeeding Business Day, whichever of (i) or (ii) shall be the earlier.

24.3 Certificates, Estoppel Letter .

Either party shall, without charge, at any time and from time to time hereafter, within ten (10) days after written request of the other, certify by written instrument, the provided document

of the requesting party, duly executed and acknowledged to any mortgagee or purchaser, or proposed mortgagee or proposed purchaser, or any Person specified in such request; (i) as to whether this Lease has been supplemented or amended, and if so, the substance and manner of such supplement or amendment, (ii) as to the existence of any Event of Default, (iii) as to the existence of any offsets, counterclaims or defenses thereto on the part of such other party, (iv) as to the Term Commencement Date and Stated Expiration Date, and (v) as to any other matters as may reasonably be so requested. Any such certificate may be relied upon by the party requesting it and any other Person to whom the same may be exhibited or delivered, and the contents of such certificate shall be binding on the party executing same.

24.4 Rules and Regulations .

Tenant, its employees, licensees, contractors, and invitees shall abide by the written Rules and Regulations from time to time established by Landlord, it being agreed that Landlord shall have the right from time to time during the Term to make reasonable changes in and additions to the Rules and Regulations provided such changes or additions do not interfere with Tenant’s use of the Premises or increase its cost of occupying the Premises. The Rules and Regulations shall be generally applicable to all tenants of the Building of similar nature to the Tenant named herein. Landlord agrees that any such Rules and Regulations shall be uniformly enforced. The Rules and Regulations in effect on the Date of Lease are set forth on Exhibit F .

24.5 Financial Statements .

Tenant shall deliver to Landlord, within ten (10) days after Landlord’s reasonable request for the same, Tenant’s most recent annual financial statements certified by an officer of Tenant as being true and correct in all material respects. Landlord and its affiliates and investors shall keep such financial statements confidential, provided that Landlord shall be permitted to deliver such financial statements to a lender or purchaser or a prospective lender or prospective purchaser of the Property.

This Section shall not apply for so long as the shares of Tenant are traded on any public exchange.

24.6 Recording .

Tenant agrees not to record this Lease, but, if the Term (including any Option Terms) is ten (10) years or longer, each party agrees, on the request of the other, to execute a Notice of Lease in recordable form and complying with applicable law.

24.7 Waiver of Jury Trial .

IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE COMMONWEALTH OF MASSACHUSETTS, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR

SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASIC RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

24.8 Reservation .

Provided (i) access to the Premises and the parking area is not impaired and (ii) at all times there are at least 3.5 parking spaces available for each rentable 1,000 square feet of space in the Building for use by tenants of the Building only, nothing set forth in this Lease shall be deemed or construed to restrict Landlord from making any repairs, renovations, replacements, improvements and modifications to, or to reconfigure, any of the parking or Common Areas serving the Property, and Landlord expressly reserves the right to make any such repairs, renovations, replacements, improvements and modifications or reconfigurations to such areas and other facilities of the Building and Common Areas as Landlord may deem appropriate, including the addition or deletion of temporary or permanent improvements therein, or the conversion of areas now dedicated for the non- exclusive common use of tenants (including Tenant) to the exclusive use of one or more tenants or licensees within the Building. In connection with the foregoing, Landlord may temporarily close or cover entrances, doors, windows, corridors, or other facilities without liability to Tenant; however, in doing so, Landlord shall use commercially reasonable efforts to minimize disruption of Tenant’s use and occupancy of the Premises.

24.9 Prohibited Persons and Transactions .

Tenant represents and warrants that neither Tenant nor any of its affiliates, and none of their respective officers, or directors, is, nor will Tenant or any of its affiliations become, a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and is not and will not Transfer this Lease to, contract with or otherwise engage in any dealings or transactions or be otherwise associated with such persons or entities.

24.10 Governing Law .

This Lease and the performance thereof shall be governed, interpreted, construed and regulated by the laws of the Commonwealth of Massachusetts.

24.11 Partial Invalidity .

If any term, covenant, condition or provision of this Lease or the application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which is held invalid or unenforceable, shall not be affected thereby, and each term, covenant, condition and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

24.12 Interpretation; Consents .

The section headings used herein are for reference and convenience only, and shall not enter into the interpretation hereof. This Lease may be executed in several counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. The term “Landlord” whenever used herein, shall mean only the owner at the time of Landlord’s interest herein, and shall upon any sale or assignment (other than as collateral security for a loan) of the interest of Landlord herein, its respective successors in interest and/or assigns shall, during the term of ownership of its respective estates herein, be deemed to be Landlord.

24.13 Parties .

Except as herein otherwise expressly provided, the covenants, conditions and agreements contained in this Lease shall be binding upon the successors and assigns of the parties hereto.

24.14 Waiver of Trial by Jury .

Landlord and Tenant do hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other upon any matters whatsoever arising out of or in any way connected with this Lease, Tenant’s use or occupancy of the Premises and/or claim of injury or damage.

24.15 Time of the Essence .

It is agreed that time is of the essence of this Lease.

ARTICLE 25

Miscellaneous

25.1 No relocation . Landlord shall not have any right to relocate Tenant.

25.2 Brokerage .

Tenant and Landlord each represent and warrant to the other that neither it nor its officers or agents nor anyone acting on its behalf has dealt with any real estate broker other than the Broker(s). Tenant and Landlord each agree to defend, indemnify and hold each other, its agents, employees, partners, directors, shareholders and independent contractors harmless from and against any and all liabilities, costs, demands, judgments, settlements, claims, and losses, including reasonable attorney fees and costs, incurred by Landlord or Tenant in conjunction with

the breach of the foregoing representation and indemnity by the breaching party. The Broker(s) shall be paid a fee by Landlord per a separate agreement, provided Tenant occupies the Premises.

25.3 Signage .

Except as provided below, Tenant agrees not to place, erect or alter signs on any door, vestibule or exterior surface of the Premises or anywhere else in the Building. Tenant agrees not to place any sign, lettering, decoration or advertising, except such that have been approved in writing by Landlord. All signage subject to local codes.

Tenant shall have the opportunity, at its sole cost and expense to install (i) a sign panel upon the Building pylon sign and (ii) a sign above the entrance to the Premises of similar style and size as others erected on the building. All such signage must first be approved by Landlord and conform to all legal requirements. All signage shall be installed at the sole cost and expense of the Tenant and such signage shall be installed by Landlord’s sign contractor. All signage is subject to local ordinance.

25.4 Intentionally Omitted .

25.5 Right of First Offer .

Subject to the existing rights of Olympus (a tenant in Landlord’s building located at 136 Turnpike) and Visiant (a tenant in Landlord’s building located at 134 Turnpike), Landlord agrees that if any space on the 3rd floor that is contiguous to the Premises becomes available during the Term (any such available space, the “First Offer Space”), the following will apply:

(a) Prior to entering into a lease with any third party for all or any portion of the First Offer Space, Landlord shall give Tenant notice (the “Notice”) of its interest in commencing negotiations to lease such First Offer Space to a prospective tenant. The Notice shall designate the First Offer Space; the Rent Landlord proposes to charge therefor (which shall be at Market Rent) and any other material business terms, including, without limitation, the term and any proposed tenant improvement allowance. Tenant shall have ten (10) business days after receipt of the Notice to lease such First Offer Space on the terms and conditions set forth in the Notice; otherwise, Tenant’s rights with respect to such First Offer Space shall terminate. Tenant’s right of first offer shall be restored in the event Landlord does not consummate a lease transaction with a third party or, if Landlord does enter into such a lease transaction, the space subsequently becomes available during the Term of this Lease.

(b) If Tenant leases the First Offer Space, the First Offer Space shall become part of the Premises on the terms and conditions of this Lease except as otherwise set forth in the Notice.

(c) Notwithstanding anything to the contrary contained herein, Tenant shall only have the right of first offer with respect to the First Offer Space if no Event of Default has occurred and is continuing on the date of Tenant’s notice of its intention to lease the First Offer Space or on the date of delivery of the First Offer Space to Tenant.

(d) Within twenty (20) days after Tenant exercises its option to lease the First Offer Space, Landlord and Tenant shall execute an amendment to this Lease documenting the expansion of the Premises pursuant to this Article .

(e) Landlord shall have no liability to Tenant for any damages resulting from any delay in delivering possession of the First Offer Space to Tenant if said delay is caused by the holding over of a previous tenant of the First Offer Space; provided , however , that Landlord shall take all action reasonably necessary, including required legal proceedings, to secure possession of the First Offer Space.

25.6 Entire Agreement .

No oral statement or prior written matter shall have any force or effect. This Agreement shall not be modified or canceled except by writing subscribed to all parties. No Representations, inducement, promises or agreements, oral or otherwise, between Landlord and Tenant or any of their respective brokers, employees or agents, not embodied herein, shall be of any force or effect.

SIGNATURES APPEAR ON THE NEXT PAGE

Executed as a sealed instrument as of the 23rd day of October 2017.

LANDLORD:

132 TURNPIKE ROAD LLC

By:	/s/ William Depietri
	William Depietri, Manager

TENANT:

Virtusa Corporation, a Delaware corporation

By:	/s/ Eric Brown
	Name: Eric Brown
	Title: VP, Controller

INDEX

EXHIBITS


Exhibit A:		PLAN OF PREMISES

Exhibit A-1:		FLOOR PLAN

Exhibit B:		BASIC SERVICES

Exhibit C:		LANDLORD’S WORK

Exhibit D:		INTENTIONALLY OMITTED

Exhibit E:		INTENTIONALLY OMITTED

Exhibit F:		RULES AND REGULATIONS

Exhibit G:		INTENTIONALLY OMITTED

Exhibit H:		AUTHORIZATION FOR ADDITIONAL WORK

Exhibit I:		INTENTIONALLY OMITTED

Exhibit J:		SAMPLE OF INSURANCE CERTIFICATE

EXHIBIT A

PLAN OF PREMISES

A- 1

EXHIBIT A-1

FLOOR PLAN

A-1- 1

EXHIBIT B

BASIC SERVICES TO BE PROVIDED BY LANDLORD

(INCLUDED IN OPERATING EXPENSES)

A. Replacement of fluorescent tubes and starters in overhead parabolic light fixtures as needed.

B. Hot and cold water for lavatory and drinking purposes.

C. Toilet supplies including soap, paper or cloth towels, and toilet tissue for lavatories.

D. Janitor services in accordance with the following schedule and to be accomplished as indicated either five nights per week after Normal Business Hours (Monday, Tuesday, Wednesday, Thursday, Friday evenings) or three nights per week (Monday, Wednesday, Friday). All services to be performed after Normal Business Hours and no services will be performed on Holidays:

Building Entrance Doors:		Entrance glass will be cleaned five times per week.

Building Entrance Floor:		Entrance floor will be cleaned five times per week.

Carpeted Areas:		All common area carpeted areas will be vacuumed five times per week. All Tenant carpeted areas within the Premises will be vacuumed three times per week. Carpeted areas within the Premises will be shampooed upon request, at an additional cost to Tenant.

Wastepaper Containers:		Wastepaper containers in the Tenant’s space will be emptied three times per week; plastic liner bags will be provided for wastepaper containers; liners will be changed as needed.

Restrooms:		Restrooms will be cleaned and serviced five times per week. This will include refilling all paper towel, toilet tissue, and soap dispensers, cleaning all towel and trash containers, cleaning and polishing all stainless-steel fixtures, cleaning toilets, washing and sanitizing all wash basins and shelves, cleaning and polishing all mirrors, removing all disfigurations such as ink marks, drawings, etc. from all partitions and walls, damp mopping of floors.

Tile Floors:		All common area tile floors will be swept five times per week and damp mopped as needed. Floors will be stripped and polished whenever necessary.
		All Tenant area tile floors will be swept three times per week and damp mopped as needed. Floors will be stripped and polished upon request, at an additional cost to Tenant.

Tenant kitchen:		Tables, counters, and floors will be cleaned three times per week.

B- 1

E. Proper care of grounds surrounding the Building, including care of lawns and shrubs and including removal of litter.

F. Maintaining and cleaning the sidewalks and parking areas in front of and around the Building including snow removal.

G. Provision of adequate lighting for the parking areas servicing the Building.

H. Exterior windows will be washed as needed and determined by Landlord in its sole discretion as a common area expense.

I. HVAC (Heating, Ventilation, and Air-Conditioning) will be provided to Tenant during normal business hours (7:00AM to 6:00PM Monday thru Friday). Landlord shall use its best efforts to maintain the temperature for Tenant’s space at 68 degrees Fahrenheit for heat and 74 degrees Fahrenheit for air-conditioning subject to the following design limitations of the “Energy Conservation Requirements of the Massachusetts State Building Code” (780 CMR 13). All of Tenants secondary HVAC systems and any special interior requirements shall be operated, maintained, repaired, and replaced, if necessary, at Tenant’s sole cost and expense.

J. Furnish passenger elevator service to the Premises at all hours.

B- 2

EXHIBIT C

BUILDING STANDARD FINISHES

LIGHTING:

Landlord will utilize the existing lighting within the Premises and supplement with like kind fixtures where needed as part of Landlord’s Work

CEILINGS:

Landlord will utilize the existing ceiling tiles within the Premises and supplement any repairs or replacements of damaged ceiling tiles with like kind ceiling tiles as part of Landlord’s Work.

FLOORING:

Patcraft — PDQ or PDQ1 — 22-25 oz. broadloom loop commercial grade carpet. The carpet allowance is $22 per yard installed.

DOORS, FRAMES, SIDELIGHTS& HARDWARE:

Landlord will utilize the existing doors, frames, sidelights and hardware and supplement with like kind doors, frames, sidelights and hardware for any new that are required per the Working Drawings as part of the Landlord’s Work. At Tenant’s option, Landlord will remove the adhesive vinyl frosting on any sidelights, doors or glass panels as requested in writing by Tenant.

3’0” x 8’0” solid core oak doors - sealed natural.

3 piece metal knock down frames — painted semi-gloss finish.

Brushed aluminum finished lever hardware and hinges.

DRYWALL:

Demising walls — 3 5/8” metal studs run to the deck with sound insulation 5/8”

GWB each side, taped and sanded ready for paint.

Interior walls — 3 5/8” metal studs run 6” above ceiling with sound insulation and 5/8 GWB each side, taped and sanded ready for paint.

WINDOW TREATMENT:

Perforated PVC continuous vertical blinds.

ELECTRICAL:

Plugs & switches to code for standard office build out, exit signs & emergency lights to local building code.

HVAC:

Supply registers as required for standard office build out, return air plenum.

Zoning as required through package roof top units.

SPRINKLERS:

Semi recessed sprinkler heads located to meet local building code.

PAINTING:

2 coats of paint on all walls and door frames.

CABINETS, COUNTERTOPS, APPLIANCES :

Landlord shall furnish and supply all cabinets, countertops and stainless-steel appliances as detailed on the Working Drawings as part of Landlord’s Work. Countertops to be quarts or similar hard-surface.

EXHIBIT D

INTENTIONALLY OMITTED

EXHIBIT E

INTENTIONALLY OMITTED

EXHIBIT F

RULES AND REGULATIONS

1. Heating, lighting and plumbing: The Landlord should be notified at once of any trouble with heating, lighting or plumbing fixtures. Tenants must not leave the doors of the Premises unlocked at night.

2. The sidewalks, entrances, halls and stairways shall not be obstructed by any Tenant or used for any purposes other than ingress and egress to and from their respective Premises, and no articles or rubbish shall be left herein.

3. No toilet fixture shall be used for any purpose other than that for which it is intended, and no sweepings, rubbish, rags, ashes or other substances shall be thrown herein.

4. The weight and position of all safes and heavy equipment or machines shall be subject to the approval of the Landlord.

5. Lettering on doors and building directory shall be subject to the approval of the Landlord; no lettering shall be allowed on outside windows.

6. No wires for telephone service, electric lights, messenger service or for any other purpose shall be put in the Premises without the consent of the Landlord.

7. No glass in doors or elsewhere through which light is admitted in to any part of the building shall be obstructed.

8. No animals or birds shall be kept in or about the Building.

9. All freight, furniture, etc. must be received and delivered through the rear entrances to the Building designated for such purpose unless otherwise authorized by the Landlord.

10. Nothing shall be thrown from or taken in through the windows, nor shall anything be left outside the Building on the window sills of the Premises.

11. No person shall loiter in the halls, corridors, or lavatories.

12. The Landlord, its agents and employees shall have access at reasonable times to perform their duties in the maintenance and operation of the Premises.

13. No Tenant shall use any method of heating other than that provided for in the Tenant’s Lease without the consent of the Landlord.

14. Any damage caused to the Building or the Premises or to any person or property herein as a result of any breach of any of the rules and regulations by the Tenant shall be borne by the Tenant.

15. All office areas shall require floor mats under any chairs that have casters, so that the carpet shall remain in good order and repair.

17. The fitness center shall be maintained safe and clean manner. All parties using the fitness center will use at their own risk and will not impede on the enjoyment of others.

EXHIBIT G

INTENTIONALLY OMITTED

EXHIBIT H

AUTHORIZATION FOR ADDITIONAL WORK

DATE OF REQUEST:

BUILDING:						SUITE #:

TENANT:

CONTACT PERSON:						PHONE #:

PLEASE COMPLETE, SIGN, AND RETURN THIS FORM WITH THE FOLLOWING:

o Company name, address, contact person of contractor performing work:

o Insurance certificate from contractor performing work showing proof of $1mil General Liability and workers compensation coverage, listing the building owner as additionally insured to General Liability (contact Katie Keefe at (508) 357-8825 x115 regarding insurance questions)

o Detailed description of requested work along with any plans, pictures, cut sheets showing work to be performed:

·	Electrical work to be performed:

·	Tel-Data work to be performed:

·	Plumbing or Carpentry work to be performed:

·	Other work to be performed:

**Please note a $50 fee must be submitted in order for this form to be processed**

SIGNATURE OF SUBMITTER:


Tenant		Date

o Approved by Landlord o Not Approved by Landlord

o Work to be performed by Landlord’s Contractor: Reason for denial:

o CGP o JBJ

o Work to be performed by Tenant contractor; all above materials/documents received

Insurance Verified:

Date:

o Space shall be returned to original condition at Lease Termination at Tenant’s expense

o Space to remain as is at Lease Termination.


Property Manager Approval		Date


Building Owner Approval		Date

EXHIBIT I

INTENTIONALLY OMITTED

EXHIBIT J

SAMPLE OF INSURANCE CERTIFICATE

EXHIBIT A PLAN OF THE PREMISES $ :"! 1e.JZ .s,r! •

[LOGO]

Exhibit 31.1

CERTIFICATION

I, Kris Canekeratne, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Virtusa 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 control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of 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: November 8, 2017	/s/ Kris Canekeratne

	Kris Canekeratne
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Ranjan Kalia, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Virtusa Corporation;

(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: November 8, 2017	/s/ Ranjan Kalia

	Ranjan Kalia
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Virtusa Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kris Canekeratne, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

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

Date: November 8, 2017	/s/ Kris Canekeratne

	Kris Canekeratne
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Virtusa Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ranjan Kalia, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

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

Date: November 8, 2017	/s/ Ranjan Kalia

	Ranjan Kalia
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)