10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 30, 2011

OR

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 1-8777

VIRCO MFG. CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware	95-1613718
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

2027 Harpers Way, Torrance, CA	90501
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (310) 533-0474

No change
Former name, Former Address and Former Fiscal Year, if Changed Since Last Report.

     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 þ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

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

The number of shares outstanding for each of the registrant’s classes of common stock, as of the latest practicable date:

Common Stock, $.01 par value — 14,204,988 shares as of June 1, 2011.

VIRCO MFG. CORPORATION

INDEX

Part I. Financial Information
Item 1. Financial Statements	3
Condensed consolidated balance sheets — April 30, 2011, January 31, 2011 and April 30, 2010	3
Unaudited condensed consolidated statements of operations — Three months ended April 30, 2011 and 2010	5
Unaudited condensed consolidated statements of cash flows — Three months ended April 30, 2011 and 2010	6
Notes to unaudited condensed consolidated financial statements — April 30, 2011	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures about Market Risk	12
Item 4. Controls and Procedures	12
Part II. Other Information
Item 1. Legal Proceedings	14
Item 1A. Risk Factors	14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 6. Exhibits	14
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1

Exhibit 10.1 —Amendment No. 8 to Second Amended and Restated Credit Agreement, dated as of May 31, 2011, between Virco Mfg. Corporation and Wells Fargo Bank, National Association.

Exhibit 10.2 — Separation Agreement and General Release of Claims between Virco Mfg. Corporation and Larry O. Wonder, dated May 24, 2011.

Exhibit 31.1 — Certification of Robert A. Virtue, President, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 — Certification of Robert E. Dose, Vice President, Finance, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 — Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

VIRCO MFG. CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	4/30/2011		1/31/2011		4/30/2010
	(In thousands, except share data)
	Unaudited (Note 1)				Unaudited (Note 1)
Assets
Current assets
Cash	$	768	$	1,529	$	1,080
Trade accounts receivables, net		10,038		10,462		13,468
Other receivables		51		168		40
Income tax receivable		345		367		273
Inventories
Finished goods, net		13,926		9,617		15,840
Work in process, net		24,796		13,773		27,900
Raw materials and supplies, net		12,778		11,980		14,012
		51,500		35,370		57,752
Deferred tax assets, net		—		—		1,947
Prepaid expenses and other current assets		2,020		1,619		1,942
Total current assets		64,722		49,515		76,502
Property, plant and equipment
Land and land improvements		3,108		3,108		3,329
Buildings and building improvements		47,797		47,797		47,796
Machinery and equipment		119,598		118,799		117,063
Leasehold improvements		2,699		2,699		2,688
		173,202		172,403		170,876
Less accumulated depreciation and amortization		131,637		130,342		127,132
Net property, plant and equipment		41,565		42,061		43,744
Deferred tax assets, net		2,596		2,605		10,546
Other assets		6,407		6,407		6,310
Total assets	$	115,290	$	100,588	$	137,102

3

VIRCO MFG. CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	4/30/2011			1/31/2011			4/30/2010
	(In thousands, except share data)
	Unaudited (Note 1)						Unaudited (Note 1)
Liabilities
Current liabilities
Checks released but not yet cleared bank	$	1,976		$	1,154		$	4,172
Accounts payable		13,573			8,382			12,966
Accrued compensation and employee benefits		4,256			3,946			4,179
Current portion of long-term debt		11,652			12			14,742
Deferred Tax Liability		1,398			1,398			—
Other accrued liabilities		6,204			5,125			5,638
Total current liabilities		39,059			20,017			41,697
Non-current liabilities
Accrued self-insurance retention and other		5,568			4,924			5,767
Accrued pension expenses		17,942			18,027			17,439
Income tax payable		731			722			1,134
Long-term debt, less current portion		7,500			6,496			7,532
Total non-current liabilities		31,741			30,169			31,872
Commitments and contingencies
Stockholders’ equity
Preferred stock:
Authorized 3,000,000 shares, $.01 par value; none issued or outstanding Common stock:
Authorized 25,000,000 shares, $.01 par value; issued 14,204,998 at 04/30/2011, 14,204,998 shares at 01/31/2011 and 14,121,004 at 04/30/2010		142			142			142
Additional paid-in capital		114,109			114,467			114,201
Accumulated deficit		(60,019	)		(54,465	)		(41,239	)
Accumulated other comprehensive loss		(9,742	)		(9,742	)		(9,571	)
Total stockholders’ equity		44,490			50,402			63,533
Total liabilities and stockholders’ equity	$	115,290		$	100,588		$	137,102

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

VIRCO MFG. CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited (Note 1)

	Three months ended
	4/30/2011			4/30/2010
	(In thousands, except share data)
Net sales	$	24,256		$	24,860
Costs of goods sold		17,478			18,589
Gross profit		6,778			6,271
Selling, general, administrative & other expenses		11,936			12,532
Interest expense		214			233
Loss before income taxes		(5,372	)		(6,494	)
Income tax expense (benefit)		28			(1,413	)
Net loss	$	(5,400	)	$	(5,081	)
Net loss per common share Basic and diluted	$	(0.38	)	$	(0.36	)
Weighted average shares outstanding Basic and diluted		14,205			14,157
Dividend declared per common share
Cash	$	0.05		$	0.05

Net loss per share was calculated based on basic shares outstanding due to the anti-dilutive effect on the inclusion of common stock equivalent shares.

See Notes to Unaudited Condensed Consolidated Financial Statements.

5

VIRCO MFG. VIRCO MFG. CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited (Note 1)

	Three months ended
	4/30/2011			4/30/2010
	(In thousands)
Operating activities
Net loss	$	(5,400	)	$	(5,081	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		1,299			1,371
Provision for doubtful accounts		15			15
Deferred income taxes		18			(1,413	)
Stock based compensation		199			200
Changes in operating assets and liabilities
Trade accounts receivable		409			644
Other receivables		117			101
Inventories		(16,130	)		(14,163	)
Income taxes		22			(14	)
Prepaid expenses and other assets		(401	)		(483	)
Accounts payable and accrued liabilities		7,609			4,691
Net cash used in operating activities		(12,243	)		(14,132	)
Investing activities
Capital expenditures		(803	)		(679	)
Net cash used in investing activities		(803	)		(679	)
Financing activities
Issuance of debt		12,644			15,353
Repayment of debt		(3	)		(3	)
Cash dividends paid		(356	)		(354	)
Repurchase of common stock		—			(150	)
Net cash provided by financing activities		12,285			14,846
Net (decrease) increase in cash		(761	)		35
Cash at beginning of period		1,529			1,045
Cash at end of period	$	768		$	1,080
Non cash disclosures:
Cash dividends declared but not paid	$	355		$	352

See Notes to Unaudited Condensed Consolidated Financial Statements.

6

VIRCO MFG. CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2011

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended April 30, 2011, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2012. The balance sheet at January 31, 2011, has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 (“Form 10-K”). All references to the “Company” refer to Virco Mfg. Corporation and its subsidiaries.

Note 2. Seasonality

The market for educational furniture is marked by extreme seasonality, with over 50% of the Company’s total sales typically occurring from June to September each year, which is the Company’s peak season. Hence, the Company typically builds and carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market. This requires a large up-front investment in inventory, labor, storage and related costs as inventory is built in anticipation of peak sales during the summer months. As the capital required for this build-up generally exceeds cash available from operations, the Company has historically relied on third-party bank financing to meet cash flow requirements during the build-up period immediately preceding the peak season.

In addition, the Company typically is faced with a large balance of accounts receivable during the peak season. This occurs for two primary reasons. First, accounts receivable balances typically increase during the peak season as shipments of products increase. Second, many customers during this period are government institutions, which tend to pay accounts receivable more slowly than commercial customers.

The Company’s working capital requirements during and in anticipation of the peak summer season require management to make estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those related to market demand, labor costs, and stocking inventory.

Note 3. New Accounting Standards

There were no accounting pronouncements applicable to the Company in the first quarter of 2011.

Note 4. Inventories

Inventories consist of raw materials, work in progress, and finished goods of manufactured products. Inventories are stated at lower of cost or market and consist of materials, labor, and overhead. The Company determines the cost of inventory by the first-in, first-out method. The value of inventory includes any related production overhead costs incurred in bringing the inventory to its present location and condition. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation. Management continually monitors production costs, material costs, and inventory levels to determine that the interim inventories are fairly stated. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.

Management continually monitors production costs, material costs and inventory levels to determine that interim inventories are fairly stated.

Note 5. Debt

At April 30, 2011, the Company had outstanding borrowings pursuant to its revolving line of credit with Wells Fargo Bank of $19,140,000. The revolving line typically provided for advances of up to 80% on eligible accounts receivable and 20% — 55% on eligible inventory, subject to the specific terms of the facility. The advance rates fluctuates depending on the time of year and the types of assets. The revolving credit facility will mature on June 30, 2012, with interest payable monthly at a fluctuating rate equal to the Wells Fargo Bank’s prime rate plus 1.25%. The agreement had an unused commitment fee of 0.375% as of April 30, 2011. Availability under the line was $9,528,000 at April 30, 2011.

The terms of the revolving line of credit are set forth in the Second Amended and Restated Credit Agreement (as amended, the “Agreement”), dated as of March 12, 2008, between the Company and Wells Fargo Bank, National Association (the “Lender”). The Credit Agreement has been amended from time to time to modify covenants or other terms and conditions. Subsequent to the first quarter of 2011, effective May 31, 2011, the Company entered into Amendment No. 8, which extended the maturity date of the loan to June 30, 2012. No other terms were modified in this agreement.

7

The revolving credit facility with Wells Fargo Bank is subject to financial covenants that include a maximum leverage ratio and a minimum net income requirement. The agreement also places certain restrictions on capital expenditures, incurrence of indebtedness and liens, dividends and the repurchase of the Company’s common stock. The revolving credit facility is secured by substantially all of the assets of the Company and its subsidiary, including the Company’s accounts receivable, inventories, equipment and real property. The Company was in compliance with its covenants at April 30, 2011.

Management believes that the carrying value of debt approximated fair value at April 30, 2011 and 2010, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

The descriptions set forth herein of the Agreement and Amendments are qualified in their entirety by the terms of such agreements, each of which has been filed with the Securities and Exchange Commission.

Note 6. Income Taxes

The Company recognizes deferred income taxes under the asset and liability method of accounting for income taxes in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, the Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. Based on this consideration, the Company determined the realization of a majority of the net deferred tax assets no longer met the more likely than not criteria and a valuation allowance was recorded against the majority of the net deferred tax assets at April 30, 2011 and January 31, 2011. The effective tax rate of 21.8 percent in the first quarter ended April 30, 2010 was impacted by the forecasted profit levels for the respective years and discrete items associated with non-taxable permanent differences.

The Internal Revenue Service (the “IRS’’) has completed the examination of all federal income tax returns through 2008 with no issues pending or unresolved. The years 2009 and 2010 remain open for examination by the IRS. The years 2006 through 2010 remain open for examination by state tax authorities. The Company is not currently under state examination.

The specific timing of when the resolution of each tax position will be reached is uncertain. As of January 31, 2011, we do not believe that there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

Note 7. Net Loss per Share

	Three Months Ended
	4/30/2011			4/30/2010
	(In thousands, except per share data)
Numerators:
Numerator for both basic and diluted net loss per share	$	(5,400	)	$	(5,081	)
Denominators:
Denominator for basic net loss per share weighted-average common shares outstanding		14,205			14,157
Potentially dilutive shares from stock option plans		—			—
Denominator for diluted net loss per share		14,205			14,157
Net loss per share — basic and diluted	$	(0.38	)	$	(0.36	)

Certain exercisable and non-exercisable stock options were not included in the computation of diluted net loss per share at April 30, 2011 and 2010, because their inclusion would have been anti-dilutive. The number of stock options outstanding, which met this anti-dilutive criterion for the three months ended April 30, 2011 and 2010, was 140,000 and 127,000, respectively.

Note 8. Stock Based Compensation

Stock Incentive Plans

The Company’s two stock plans are the 2007 Stock Incentive Plan (the “2007 Plan”) and the 1997 Stock Incentive Plan (the “1997 Plan”). Under the 2007 Plan, the Company may grant an aggregate of 1,000,000 shares to its employees and non-employee directors in the form of stock options or awards. Restricted stock or stock units awarded under the 2007 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted stock unit awards and related compensation expense as the difference between the market value of the awards on the date of grant less the exercise price of the awards granted. The Company did not issue any grants during the quarter ended April 30, 2011. As of April 30, 2011, there were approximately 200,160 shares available for future issuance under the 2007 Plan.

The 1997 Plan expired in 2007 and had 12,100 unexercised options outstanding at April 30, 2011. Stock options awarded to employees under the 1997 Plan had to be at exercise prices equal to the fair market value of the Company’s common stock on the date of grant. Stock options generally have a maximum term of 10 years and generally become exercisable ratably over a five-year period.

8

Restricted Stock and Stock Unit Awards

Accounting for the Plans

The following table presents a summary of restricted stock and stock unit awards at April 30, 2011 and 2010:

					Unrecognized
	Expense for 3 months ended				Compensation Cost at
	4/30/2011		4/30/2010		4/30/2011
2007 Plan
56,455 Grants of Restricted Stock, issued 6/8/2010, vesting over 1 year	$	43,000	$	—	$	15,000
382,500 Restricted Stock Units, issued 6/16/2009, vesting over 5 years		67,000		67,000		826,000
49,854 Restricted Stock Units, issued 6/16/2009, vesting over 1 year		—		44,000		—
262,500 Restricted Stock Units, issued 6/19/2007, vesting over 5 years		89,000		89,000		386,000
Totals for the period	$	199,000	$	200,000	$	1,227,000

Stockholders’ Rights

On October 15, 1996, the Board of Directors declared a dividend of one preferred stock purchase right (the “Rights”) for each outstanding share of the Company’s common stock. Each of the Rights entitles a stockholder to purchase for an exercise price of $50.00 ($20.70, as adjusted for stock splits and stock dividends), subject to adjustment, one one-hundredth of a share of Series A Junior Participating Cumulative Preferred Stock of the Company, or under certain circumstances, shares of common stock of the Company or a successor company with a market value equal to two times the exercise price. The Rights are not exercisable, and would only become exercisable for all other persons when any person has acquired or commences to acquire a beneficial interest of at least 20% of the Company’s outstanding common stock. The Rights have no voting privileges, and may be redeemed by the Board of Directors at a price of $.001 per Right at any time prior to the acquisition of a beneficial ownership of 20% of the outstanding common stock. There are 200,000 shares (483,153 shares as adjusted by stock splits and stock dividends) of Series A Junior Participating Cumulative Preferred Stock reserved for issuance upon exercise of the Rights. On July 31, 2007, the Company and Mellon Investor Services LLC entered into an amendment to the Rights Agreement governing the Rights. The amendment, among other things, extended the term of the Rights issued under the Rights Agreement to October 25, 2016, removed the dead-hand provisions from the Rights Agreement, and formally replaced the former Rights Agent, The Chase Manhattan Bank, with its successor-in-interest, Mellon Investor Services LLC.

Note 9. Comprehensive Loss and Stockholders’ Equity

Comprehensive loss for the three months ended April 30, 2011 and 2010 was the same as net loss reported on the Statements of Operations. Accumulated other comprehensive loss at April 30, 2011 and 2010 and January 31, 2011 is composed of minimum pension liability adjustments.

During the three months ended April 30, 2011, the Company did not repurchase any shares of its common stock. As of April 30, 2011, $1.1 million remained available for repurchases of the Company’s common stock pursuant to the Company’s repurchase program approved by the Board of Directors.

Note 10. Retirement Plans

The Company and its subsidiaries cover all employees under a noncontributory defined benefit retirement plan, entitled the Virco Employees’ Retirement Plan (the “Employees Retirement Plan”). Benefits under the Employees Retirement Plan are based on years of service and career average earnings. As more fully described in the Form 10-K, benefit accruals under the Employees Retirement Plan were frozen effective December 31, 2003.

The Company also provides a supplementary retirement plan for certain key employees, the VIP Retirement Plan (the “VIP Plan”). The VIP Plan provides a benefit of up to 50% of average compensation for the last five years in the VIP Plan, offset by benefits earned under the Employees Retirement Plan. As more fully described in the Form 10-K, benefit accruals under this plan were frozen effective December 31, 2003.

The Company also provides a non-qualified plan for non-employee directors of the Company (the “Non-Employee Directors Retirement Plan”). The Non-Employee Directors Retirement Plan provides a lifetime annual retirement benefit equal to the director’s annual retainer fee for the fiscal year in which the director terminates his or her position with the Board, subject to the director providing 10 years of service to the Company. As more fully described in the Form 10-K, benefit accruals under this plan were frozen effective December 31, 2003.

9

The net periodic pension costs for the Employees Retirement Plan, the VIP Plan, and the Non-Employee Directors Retirement Plan for the three months each ended April 30, 2011 and 2010 were as follows (in thousands):

							Three Months Ended April 30,
												Non-Employee Directors
	Employees Retirement Plan						VIP Retirement Plan					Retirement Plan
	2011			2010			2011		2010			2011			2010
Service cost	$	—		$	—		$	—	$	—		$	—		$	—
Interest cost		360			352			95		87			6			6
Expected return on plan assets		(289	)		(262	)		—		—			—			—
Amortization of prior service cost		—			—			13		(—	)		—			—
Recognized net actuarial (gain) or loss		262			243			—		—			(10	)		(7	)
Net periodic pension cost	$	333		$	333		$	108	$	87		$	(4	)	$	(1	)

Note 11. Warranty

The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. The majority of the Company’s products sold through January 31, 2005, carry a five-year warranty. Effective February 1, 2005, the Company extended its standard warranty period to 10 years. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The warranty liability is included in accrued liabilities in the accompanying consolidated balance sheets.

The following is a summary of the Company’s warranty claim activity for the three months ended April 30, 2011 and 2010 (in thousands):

	April 30,
	2011			2010
Beginning balance	$	2,300		$	1,675
Provision		82			192
Costs incurred		(232	)		(192	)
Ending balance	$	2,150		$	1,675

Note 12. Subsequent Events

We have evaluated subsequent events to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Such events were evaluated through the date these financial statements were issued. Based upon this evaluation, it was determined that, except for the amendment to the revolving line of credit in Note 5, no subsequent events occurred that required recognition or disclosure in the financial statements.

10

VIRCO MFG. CORPORATION

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

Results of Operations

For the three months ended April 30, 2011, the Company incurred a pre-tax loss of $5,372,000 on net sales of $24,256,000 compared to a pre-tax loss of $6,494,000 on net sales of $24,860,000 in the same period last year.

Net sales for the three months ended April 30, 2011 decreased by $604,000, a 2.4% decrease, compared to the same period last year. This decrease was the result of a modest increase in selling prices, combined with a reduction in unit volume. Unit volume declined largely as a result of general economic conditions, which negatively impacted tax receipts and the funded status of public schools. Incoming orders for the same period decreased by approximately 21.7% compared to the prior year. Backlog at April 30, 2011 decreased by approximately 14.7% compared to the prior year.

Gross margin as a percentage of sales increased to 27.9% for the three months ended April 30, 2011 compared to 25.2% in the same period last year. The improvement in gross margin was attributable to a modest increase in selling prices, a 3.5% increase in production hours combined with cost reductions which favorably affected overhead absorption, and a reduction in factory spending.

Selling, general and administrative expenses for the three months ended April 30, 2011, decreased by approximately $596,000 compared to the same period last year, and decreased as a percentage of sales by 1.2%. The decrease in selling, general and administrative expenses was attributable to a reduction in variable selling and service costs due to the reduced volume of shipments in addition to the impact of cost reduction initiatives implemented in the fourth quarter of 2010.

In the first quarter of 2011 the Company did not record an income tax benefit. During the fourth quarter of 2010 the Company established a valuation allowance on the majority of deferred tax assets. Because of this valuation allowance the effective income tax expense / (benefit) is expected to be relatively low, with income tax expense / (benefit) being primarily attributable to alternative minimum taxes combined with income and franchise taxes required by various states.

During the fourth quarter of 2010, the Company initiated a variety of cost controls which enabled improved operating results in the first quarter despite a modest reduction in revenue. The cost controls initiated in the prior year will not be adequate if order rates continue at the current rate. The Company continues to aggressively pursue all profitable business in our market, and we continue to bring new products to market in an effort to gain market share. In response to the reduction in orders, the Company is evaluating different methods to reduce our cost structure and control spending. The seasonal nature of our business will allow us to control our inventory levels this summer, and we have already taken measures to establish production levels appropriate to this summer’s anticipated business activity.

Liquidity and Capital Resources

Interest expense decreased by approximately $19,000 for the three months ended April 30, 2011, compared to the same period last year. The decrease was primarily due to lower loan balances under the Company’s credit facility with Wells Fargo Bank.

Accounts receivable was lower at April 30, 2011 than at April 30, 2010, due to decreased days sales outstanding. The Company traditionally builds large quantities of inventory during the first quarter of each fiscal year in anticipation of seasonally high summer shipments. The Company started the current fiscal year with $8,200,000 less inventory than in the prior year. For the current fiscal quarter, the Company increased inventory by approximately $16,130,000 compared to January 31, 2011. This increase was slightly more than the $14,163,000 increase in 2010, but because the Company started the year with substantially less inventory, at the end of the first quarter inventory decreased by approximately $6,250,000 compared to April 30, 2010. The increase in inventory during the first quarter of 2011 compared to the January 31, 2011, was financed through the Company’s credit facility with Wells Fargo Bank.

Borrowings under the Company’s revolving line of credit with Wells Fargo Bank at April 30, 2011 decreased by approximately $3,000,000 compared to April 30, 2010, primarily due to decreased levels of inventory and receivables. The Company established a goal of limiting capital spending to less than $3,000,000 for fiscal year 2011, which is less than the Company’s anticipated depreciation expense. Capital spending for the three months ended April 30, 2011 was $803,000 compared to $679,000 for the same period last year. Capital expenditures are being financed through the Company’s credit facility with Wells Fargo Bank and operating cash flow.

Net cash used in operating activities for the three months ended April 30, 2011, was $12,243,000 compared to $14,132,000 for the same period last year. The decrease in cash used was primarily attributable to a decrease in the pre-tax loss for the quarter and an increase in accounts payable and accrued liabilities offset slightly by an increase in the amount of inventory acquired during the quarter.

The Company believes that cash flows from operations, together with the Company’s unused borrowing capacity with Wells Fargo will be sufficient to fund the Company’s debt service requirements, capital expenditures and working capital needs for the next twelve months. Approximately $9,528,000 was available for borrowing as of April 30, 2011.

Off Balance Sheet Arrangements

During the three months ended April 30, 2011, there were no material changes in the Company’s off balance sheet arrangements or contractual obligations and commercial commitments from those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 (“Form 10-K”).

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Critical Accounting Policies and Estimates

The Company’s critical accounting policies are outlined in its Form 10-K. There have been no changes in the quarter ended April 30, 2011.

Forward-Looking Statements

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2011, the Company or its representatives have made and may make forward-looking statements, orally or in writing, including those contained herein. Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission. The words or phrases “anticipates,” “expects,” “will continue,” “believes,” “estimates,” “projects,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The results contemplated by the Company’s forward-looking statements are subject to certain risks and uncertainties that could cause actual results to vary materially from anticipated results, including without limitation, availability of funding for educational institutions, material availability and cost of materials, especially steel, availability and cost of labor, demand for the Company’s products, competitive conditions affecting selling prices and margins, capital costs and general economic conditions. Such risks and uncertainties are discussed in more detail in the Company’s Form 10-K.

The Company’s forward-looking statements represent its judgment only on the dates such statements were made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changed or unanticipated events or circumstances.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is party to that certain Second Amended and Restated Credit Agreement (as amended, the “Agreement”), dated as of March 12, 2008, with Wells Fargo Bank, National Association (the “Lender”). The Credit Agreement has been amended from time to time to modify covenants or other terms and conditions. Subsequent to the first quarter of 2011, effective May 31, 2011, the Company entered into Amendment No. 8, which extended the maturity date of the loan to June 30, 2012.

The Agreement provides the Company with a secured revolving line of credit (the “Revolving Credit”) of up to $45,000,000, with seasonal adjustments to the credit limit and subject to borrowing base limitations. The Revolving Credit includes a letter of credit sub-facility with a sub-limit of up to $2,500,000 and is secured by a first priority security interest in substantially all of the personal and real property of the Company and its subsidiaries in favor of the Lender. The Revolving Credit is an asset-based line of credit that is subject to a borrowing base limitation and generally provides for advances of up to 80% on eligible accounts receivable and up to 20-55% of eligible inventory, with exceptions and modifications as provided in the Agreement. The Agreement is also subject to an annual clean down provision requiring a 30-day period each fiscal year during which advances and letter of credit usage may not exceed $7,500,000 in the aggregate.

The Revolving Credit will mature on March 1, 2012, with interest payable monthly at a fluctuating rate equal to the Lender’s prime rate plus 1.25%. The Agreement provides for an unused commitment fee of 0.375%. At April 30, 2011, availability under the Revolving Credit line was $9,528,000.

The Revolving Credit is subject to various financial covenants including a maximum leverage amount and a minimum net income requirement. The Agreement also provides for certain additional negative covenants, including restrictions on capital expenditures, new operating leases, dividends and the repurchase of the Company’s common stock. The Company was in compliance with its covenants at April 30, 2011. Management believes that the carrying value of debt approximated fair value at April 30, 2011 and 2010, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

The descriptions set forth herein of the Agreement and amendments are qualified in their entirety by the terms of such agreements, each of which has been filed with the Commission.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management, and such controls and procedures, by their nature, can provide only reasonable assurance that management’s objectives in establishing them will be achieved.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Principal Executive Officer along with its Principal Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, pursuant to Exchange Act Rule 13a-15. Based upon the foregoing, the Company’s Principal Executive Officer along with the Company’s Principal Financial Officer concluded that, subject to the limitations noted in this Part I, Item 4, the Company’s disclosure controls and procedures are effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s

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management, including its Principal Executive and Principal Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the first fiscal quarter of 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION
VIRCO MFG. CORPORATION

Item 1. Legal Proceedings

The Company has various legal actions pending against it arising in the ordinary course of business, which in the opinion of the Company, are not material in that management either expects that the Company will be successful on the merits of the pending cases or that any liabilities resulting from such cases will be substantially covered by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to these suits and claims, management believes that the aggregate amount of such liabilities will not be material to the results of operations, financial position, or cash flows of the Company.

Item 1A. Risk Factors

There have been no material changes from the risk factors as disclosed in the Company’s Form 10-K for the period ended January 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to the purchases made by the Company of its Common Stock during the first quarter of 2011:

					Total Number of Shares
					Purchased as Part of a		Maximum Number of $ that
	Total Number of Shares		Average Price Paid Per		Publicly Announced		May Yet Be Expended Under
	Purchased		Share		Program (1)		the Program (1)
February 1, 2011 through February 28, 2011		—		—		591,386		1,053,000
March 1, 2011 through March 31, 2011		—		—		591,386		1,053,000
April 1, 2011 through April 30, 2011		—		—		591,386		1,053,000

(1) On June 6, 2008, the Board of Directors approved a $3,000,000 share repurchase program.

Item 6. Exhibits

Exhibit 10.1 — Amendment No. 8 to Second Amended and Restated Credit Agreement, dated as of May 31, 2011, between Virco Mfg. Corporation and Wells Fargo Bank, National Association.

Exhibit 10. 2 — Separation Agreement and General Release of Claims between Virco Mfg. Corporation and Larry O. Wonder, dated May 24, 2011.

Exhibit 31.1 — Certification of Robert A. Virtue, President, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 — Certification of Robert E. Dose, Vice President, Finance, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 — Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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VIRCO MFG. CORPORATION

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.

	VIRCO MFG. CORPORATION
Date: June 9, 2011	By:	/s/ Robert E. Dose
		Robert E. Dose
		Vice President — Finance

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EX-10.1

Exhibit 10.1

AMENDMENT NO. 8 TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT

     AMENDMENT NO. 8 dated as of May 31, 2011 (“Amendment”) among VIRCO MFG. CORPORATION, a Delaware corporation (the “Borrower”), VIRCO INC., a Delaware corporation (the “Guarantor”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (the “Bank”), amending the Second Amended and Restated Credit Agreement dated as of March 12, 2008 (as amended, restated, supplemented or otherwise modified, the “Credit Agreement”) between the Borrower and the Bank. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined.

     WHEREAS, subject to the satisfaction of the conditions set forth herein, the Borrower and the Bank have agreed to certain amendments to the Credit Agreement.

     NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows:

     Amendment to Section 4.10 of the Credit Agreement. Section 4.10 of the Credit Agreement is hereby amended and restated in its entirety as follows:

     “Section 4.10 Right to Inspect; Collateral Monitoring.

          Bank (through any of its officers, employees, or agents) shall have the right, from time to time hereafter during regular business hours, to: (i) inspect, audit and examine Borrower’s books and records and business locations, and (ii) check, test and appraise the Collateral in order to verify Borrower’s financial condition and/or the amount, quality, value, condition of, or any other matter relating to the Collateral. In addition to all rights granted to Bank hereunder and in the other Loan Documents, Borrower shall fully cooperate with all reasonable requests for information from Bank’s employees, agents, representatives, consultants and auditors at all times. Borrower shall reimburse Bank (and hereby authorizes Bank to add the following costs and fees to Borrower’s obligations hereunder and under the Loan Documents) all collateral monitoring fees, audit fees, consulting fees, appraisal fees and attorneys’ fees incurred by Bank.”

     Amendment to Article IV the Credit Agreement. Article IV of the Credit Agreement is hereby amended by adding the following new Section 4.11:

     “Section 4.11. Bank’s Consultant.

          Bank shall select and engage, in its reasonable discretion, a financial advisor and/or consultant (the “Consultant”) to advise Bank in connection with Borrower’s compliance with the Loan Documents and repayment of the Obligations. The scope of the Consultant’s duties shall be in the sole and absolute discretion of Bank but shall include, without limitation, a focus on the outlook for Borrower’s industry over the foreseeable future and the strength and rationale of Borrower’s business plan, products, manufacturing processes and cost structure in connection with Borrower’s potential future performance within a changing market. Borrower agrees to fully cooperate with the Consultant, and to provide the Consultant with full access to Borrower’s books and records, facilities, officers, employees, accountants and advisors. Borrower consents to Bank’s selection and engagement of the Consultant, and Borrower shall reimburse Bank on demand for all fees and expenses of the Consultant. To the extent not previously paid, Borrower agrees that Bank may debit any operating account of Borrower for any and all fees, costs and expenses of the Consultant with same day’s notice to Borrower.”

     Amendments to Annex A to the Credit Agreement.

     The following definitions hereby are inserted in Annex A to the Credit Agreement in the proper alphanumerical order:

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          “Amendment No. 8” means Amendment No. 8 to Second Amended and Restated Credit Agreement dated as of May 31, 2011 among the Borrower, the Guarantor and the Bank.

          “Consultant” has the meaning set forth in Section 4.11.

          “Eighth Amendment Effective Date” means the first date on which all conditions set forth in Section 5 of Amendment No. 8 have been satisfied.

     The following definitions appearing in Annex A to the Credit Agreement hereby are amended and restated as follows:

          “Line of Credit Termination Date” means June 30, 2012.

          “Loan Documents” means this Agreement, the Bank Product Agreements, the Guaranties, the Security Agreements, the Reaffirmation Agreement, the Mortgages, any note or notes executed by Borrower in connection with this Agreement and payable to Bank, and any other agreement entered into, now or in the future, by Borrower, any Guarantor or any of their respective Affiliates and Bank in connection with this Agreement or any of the foregoing agreements.

     Consent to Amendments. The Guarantor hereby acknowledges and consents to this Amendment, and affirms and acknowledges that the Guaranty and each other Loan Document to which it is a party remains in full force and effect and that such Guarantor remains obligated thereunder without defense, offset or counterclaim of any kind whatsoever, as if such Guaranty or other Loan Document were executed and delivered to the Bank on the date hereof.

     Representations and Warranties. To induce the Bank to enter into this Amendment, the Borrower represents and warrants to the Bank that:

     Representations and Warranties in Credit Agreement. Each of the representations and warranties of the Borrower and its Subsidiaries contained in the Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with the Credit Agreement: (i) were true and correct when made, and (ii) after giving effect to this Amendment, continue to be true and correct on the date hereof (except to the extent that such representations and warranties relate expressly to an earlier date).

     Authority. The execution and delivery by the Borrower of this Amendment and the performance by the Borrower of its obligations under this Amendment (i) are within its power and authority, (ii) have been duly authorized by all necessary proceedings, (iii) do not and will not conflict with or result in any breach or contravention or any provision of law, statute, rule or regulation to which the Borrower is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower so as to materially adversely affect the assets, business or any activity of the Borrower, (iv) do not conflict with any provision of the certificate of incorporation or bylaws of the Borrower or any agreement or other instrument binding upon the Borrower, and (v) do not and will not require any waivers, consents or approvals by any of its creditors which have not been obtained, or do not and will not require any approval which has not been obtained.

     Enforceability of Obligations. This Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor maybe brought.

     No Event of Default. No Event of Default or Default has occurred and is continuing.

     Conditions to Effectiveness. This Amendment shall become effective on the date when the following conditions precedent have been satisfied:

2

     The Borrower, the Guarantor and the Bank shall have delivered an executed counterpart of this Amendment.

     The Bank shall have received each of the following documents, each duly executed by the parties thereto (as applicable) and in full force and effect:

          (1) a duly executed amendment to the Mortgage signed by the record owner of the Real Property Collateral, together with customary Mortgage Related Documents relating thereto, substantially in the form of Exhibit A attached hereto and otherwise acceptable to the Bank in its reasonable discretion, (2) an appraisal of all Real Property Collateral required hereby, and all improvements thereon, issued by an appraiser acceptable to the Bank and in form, substance and reflecting values satisfactory to the Bank, in its reasonable discretion, and (3) either mortgage modification endorsements to, or date down endorsements to (or re-dated title insurance policies which replace), the existing title insurance policy issued on the Closing Date, in any case issued by a nationally recognized title insurance company reasonably acceptable to the Bank, insuring the Lien of the Mortgage, as amended by such amendment, as a valid first priority Lien on the Real Property Collateral described therein, free of any other Liens except as permitted by the Loan Documents; and

          An Intellectual Property Security Agreement, substantially in the form of Exhibit B attached hereto and otherwise acceptable to the Bank in its reasonable discretion, which shall be recorded in the appropriate federal offices having jurisdiction over trademarks and patents.

     The Borrower and the Guarantor shall have delivered to the Bank a certificate, signed by the Secretary or Assistant Secretary of such Person, dated as of the Eighth Amendment Effective Date certifying as to the incumbency, and containing the specimen signature or signatures, of the Person or Persons authorized to execute this Amendment and each other Loan Document contemplated hereby, together with evidence of the incumbency of such Secretary or Assistant Secretary.

     No Event of Default or Default shall have occurred and be continuing or would result after giving effect to the transactions contemplated hereby.

     The representations and warranties set forth in Section 5 hereof shall be true and correct on the effective date of this Amendment.

     No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against the Borrower, the Guarantor or the Bank.

     The Borrower shall have paid all reasonable out-of-pocket costs and expenses of the Bank, to the extent invoices therefor have been presented.

     All other documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to the Bank.

     Admissions and Acknowledgments. Both the Borrower and the Guarantor expressly acknowledges and agrees with each of the following:

     That such Person does not dispute the validity or enforceability of any of the Loan Documents or any of their respective obligations under any of the foregoing, or the validity, priority, enforceability, scope or extent of any charge, Lien, security interest or any other encumbrance of the Bank in, on or against any of the Collateral in any judicial, administrative or other proceeding;

3

     That such Person shall not challenge or dispute the validity of any of its obligations under the Loan Documents to which it is party or any other obligations incurred by such Person pursuant to the Loan Documents; and

     That the Indebtedness evidenced by the Loan Documents is secured by first priority, non-avoidable, perfected, valid and enforceable liens on and security interests in the Collateral, subject only to Permitted Liens.

     Reference to and Effect on Loan Documents.

     Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof’ or words of like import, and each reference in the other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby.

     Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Bank under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect.

     Nothing herein shall be deemed to entitle the Borrower or the Guarantor to a waiver, amendment, modification or other change of any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or difference circumstances.

     This Amendment shall be a Loan Document for all purposes.

     Benefits of Amendment. The terms and provisions of this Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns to the extent contemplated by the Credit Agreement.

     General Release. In consideration of the benefits provided to the Borrower under the terms and provisions hereof, the Borrower and the Guarantor each hereby agree as follows (“General Release”):

     The Borrower and the Guarantor hereunder, for themselves and on behalf of their respective successors and assigns, each hereby release, acquit and forever discharge the Bank, all of the Bank’s predecessors in interest, and all of the Bank’s past and present officers, directors, attorneys, affiliates, employees and agents, of and from any and all claims, demands, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or of any relationship, acts, omissions, misfeasance, malfeasance, causes of action, defenses, offsets, debts, sums of money, accounts, compensation, contracts, controversies, promises, damages, costs, losses and expenses, of every type, kind, nature, description or character, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, each as though fully set forth herein at length (each, a “Released Claim” and collectively, the “Released Claims”), that the Borrower or the Guarantor hereunder now has or may acquire as of the later of: (i) the date this letter becomes effective through the satisfaction (or waiver by the Bank) of all conditions hereto; or (ii) the date that the Borrower and the Guarantor hereunder have executed and delivered this letter to the Bank (hereafter, the “Release Date”), including without limitation, those Released Claims in any way arising out of, connected with or related to any and all-prior credit accommodations, if any, provided by the Bank, or any of the Bank’s predecessors in interest, to the Borrower or the Guarantor hereunder, and any agreements, notes or documents of any kind related thereto or the transactions contemplated thereby or hereby, or any other agreement or document referred to herein or therein.

     The Borrower and the Guarantor each hereby acknowledge, represent and warrant to the Bank as follows:

4

          The Borrower and the Guarantor each understand the meaning and effect of Section 1542 of the California Civil Code which provides:

“Section 1542. GENERAL RELEASE; EXTENT. A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

          With regard to Section 1542 of the California Civil Code, the Borrower and the Guarantor each agree to assume the risk of any and all unknown, unanticipated or misunderstood defenses and Released Claims which are released by the provisions of this General Release in favor of the Bank, and both the Borrower and the Guarantor each hereby waive and release all rights and benefits which they might otherwise have under Section 1542 of the California Civil Code with regard to the release of such unknown, unanticipated or misunderstood defenses and Released Claims.

     Each person signing below on behalf of the Borrower or the Guarantor hereunder acknowledges that he or she has read each of the provisions of this General Release. Each such person fully understands that this General Release has important legal consequences, and each ‘such realizes that they are releasing any and all Released Claims that the Borrower or the Guarantor may have as of the Release Date. The Borrower and the Guarantor hereunder hereby acknowledge that each of them has had an opportunity to obtain a lawyer’s advice concerning the legal consequences of each of the provisions of this General Release.

     The Borrower and the Guarantor hereunder hereby specifically acknowledge and agree that: (i) none of the provisions of this General Release shall be construed as or constitute an admission of any liability on the part of the Bank; (ii) the provisions of this General Release shall constitute an absolute bar to any Released Claim of any kind, whether any such Released Claim is based on contract, tort, warranty, mistake or any other theory, whether legal, statutory or equitable; and (iii) any attempt to assert a Released Claim barred by the provisions of this General Release shall subject the Borrower and the Guarantor hereunder to the provisions of applicable law setting forth the remedies for the bringing of groundless, frivolous or baseless claims or causes of action.

     Interpretation. The Article and Section headings used in this Amendment are for convenience of reference only and shall not affect the construction hereof.

     Execution in Counterparts. This Amendment may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Amendment. Faxed signatures of this Amendment shall be binding for all purposes.

     Severability. If any provision of this Amendment shall be held to be invalid, illegal or unenforceable under applicable law in any jurisdiction, such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability, which shall not affect any other provisions hereof or the validity, legality and enforceability of such provision in any other jurisdiction.

     Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. The arbitration provisions of Section 7.11 of the Credit Agreement are incorporated herein by this reference.

     Expenses. The Borrower agrees to pay the reasonable out-of-pocket expenses of the Bank, including but not limited to the reasonable fees, charges and disbursements, including but not limited to the fees, charges and disbursements of Pillsbury Winthrop Shaw Pittman LLP, special counsel for the Bank, incurred in connection with the preparation, negotiation, execution and delivery of this Amendment and any subsequent waiver, amendment or

5

modification of the Credit Agreement or any other Loan Document and the security arrangements in connection herewith or therewith.

     No Course of Dealing. The execution and delivery of this Amendment shall not establish a course of dealing among the Bank, the Borrower and the Guarantor or in any other way obligate the Bank to hereafter provide any further amendments, waivers, or consents of any kind to the Borrower and the Guarantor.

     Arm’s Length Agreement. Each of the parties to this Amendment agrees and acknowledges that this Amendment has been negotiated in good faith, at arm’s length, and not by any means forbidden by law.

     Entire Agreement. This Amendment together with all other instruments, agreements, and certificates executed by the parties in connection herewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supercede all prior agreements, understandings, and inducements, whether express or implied, oral or written.

[Signature Pages Follow]

6

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first set forth above.

VIRCO MFG. CORPORATION, as the Borrower
By:
	Name:
	Title:
VIRCO INC., as the Guarantor
By:
	Name:
	Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Bank
By:
	Name:
	Title:

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EXHIBIT A

THIS INSTRUMENT PREPARED BY:

Pillsbury Winthrop Shaw Pittman LLP
725 South Figueroa Street, 28^th Floor
Los Angeles, CA 90017
Attn: Bradley E. Wolf

AND WHEN RECORDED MAIL TO:
Wells Fargo Bank, National Association
333 S. Grand Avenue, Suite 940
Los Angeles, CA 90071
Attn: Razia Damji
Loan No. 8079119402

MEMORANDUM OF MODIFICATION AGREEMENT
(SHORT FORM)

THIS MEMORANDUM OF MODIFICATION AGREEMENT (SHORT FORM) (“Agreement”) is made and entered into as of May 31, 2011, by and between Wells Fargo Bank, National Association (“Lender”), and VlRCO MFG. CORPORATION, a Delaware corporation (“Borrower”).

R E C I T A L S :

A.

Pursuant to the terms of that certain Second Amended and Restated Credit Agreement dated as of March 12, 2008 (as amended, restated, supplemented or otherwise modified, the “Credit Agreement”), Lender made a loan to Borrower in the principal amount of up to Forty-Five Million and No/100 Dollars ($45,000,000) (the “Loan”). The Loan is evidenced by that certain Amended and Restated Revolving Line of Credit Note dated as of October 29, 2010, executed by Borrower in favor of Lender, in the principal amount of the Loan (as amended, restated, supplemented or otherwise modified, the “Note”), which Note amends and restates in its entirety the Revolving Line of Credit Notes dated as July 30, 2010, January 29, 2010, March 27, 2009 and July 31, 2008 executed by Borrower in favor of Lender, and is further evidenced by the documents described in the Credit Agreement as “Loan Documents”. The Note is secured by, among other things, that certain Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing dated January 26, 2004 (as amended, restated, supplemented or otherwise modified, the “Original Mortgage”) to and for the benefit of Lender, which was recorded and filed in the Official Records of the County of Faulkner, Arkansas (the “Official Records”) on January 28, 2004, as Document No 2004-1700 and re-recorded and filed February 27, 2004. as Document No. 2004-3958, and modified by that certain Modification Agreement (Secured Loan) executed by Borrower on January 27, 2005, which was recorded and filed in the Official Records on February 3, 2005, as Document No. 2005-2338, and by that certain Modification Agreement (Secured Loan) executed by Borrower on December 8, 2005, which was recorded and filed in the Official Records on December 15, 2005, as Document No. 2005-27794, and by that certain Modification Agreement (Secured Loan) executed by Borrower on March 26, 2007, which was recorded and filed in the Official Records on April 10, 2007, as Document No. 2007-7273.

B.

The Original Mortgage was amended and restated by that certain Amended and Restated Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing dated March 12, 2008 (as amended, restated, supplemented or otherwise modified, the “Amended and Restated Mortgage”), and recorded and filed in the Official Records on March 18, 2008 as Document No. 2008-4858, and re-recorded and filed October 16, 2008, as Document No. 2008-20134; as modified by that certain Partial Release Deed dated September 29, 2008 and recorded and filed in the Official Records on October 6,2008 as Document No. 2008-19527.

C.	The Amended and Restated Mortgage was amended and restated by that certain Second Amended and Restated Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of March 26, 2009 (as amended, restated, supplemented or otherwise modified, the “Second Amended and Restated Mortgage”), and recorded and filed in the Official Records on April 9, 2009 as Document No. 2009-6306.
D.	On July 31,2008, Borrower and Lender entered into that certain Amendment No. 1 to Second Amended and Restated Credit Agreement (the “First Modification Agreement”), which modified and amended certain provisions of the Loan Documents.
E.	On March 27, 2009, Borrower and Lender entered into that certain Amendment No. 2 to Second Amended and Restated Credit Agreement (the “Second Modification Agreement”), which modified and amended certain provisions of the Loan Documents.
F.	On January 29, 2010, Borrower and Lender have entered into that certain Amendment No. 3 to Second Amended and Restated Credit Agreement of even date herewith (the “Third Modification Agreement”), pursuant to which Borrower and Lender agreed to modify certain terms and provisions of the Loan Documents.
G.	On April 28, 2010, Borrower and Lender have entered into that certain Amendment No. 4 to Second Amended and Restated Credit Agreement of even date herewith (the “Fourth Modification Agreement”), pursuant to which Borrower and Lender agreed to modify certain terms and provisions of the Loan Documents.
H.	On July 30, 2010, Borrower and Lender have entered into that certain Amendment No. 5 to Second Amended and Restated Credit Agreement of even date herewith (the “Fifth Modification Agreement”), pursuant to which Borrower and Lender agreed to modify certain terms and provisions of the Loan Documents.
I.	October 29, 2010, Borrower and Lender have entered into that certain Amendment No. 6 to Second Amended and Restated Credit Agreement of even date herewith (the “Sixth Modification Agreement”), pursuant to which Borrower and Lender agreed to modify certain terms and provisions of the Loan Documents.
J.	On January 31, 2011, Borrower and Lender have entered into that certain Amendment No. 7 to Second Amended and Restated Credit Agreement of even date herewith (the “Seventh Modification Agreement”), pursuant to which Borrower and Lender agreed to modify certain terms and provisions of the Loan Documents.
K.	On May 31, 2011, Borrower and Lender have entered into that certain Amendment No. 8 to Second Amended and Restated Credit Agreement of even date herewith (the “Eighth Modification Agreement”), pursuant to which Borrower and Lender agreed to modify certain terms and provisions of the Loan Documents.
L.	Unless otherwise defined, capitalized terms used herein shall have the meanings attributed to such terms in the Loan Documents.

NOW, THEREFORE, the parties hereto agree as follows:

     Memorandum of Eighth Modification Agreement. This instrument is a memorandum of the Eighth Modification Agreement, and the same is by this reference incorporated herein and made a part hereof as if set forth herein in its entirety.

     Eighth Modification Agreement. Borrower and Lender entered into the Eighth Modification Agreement pursuant to which, among other things, the Line of Credit Termination Date was extended to June 30, 2012.

     Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same instrument.

[Signatures follow on next page]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

“LENDER” WELLS FARGO BANK, NATIONAL ASSOCIATION
By:
	Razia Damji
	Its: Vice President
“BORROWER” VIRCO MFG. CORPORATION, a Delaware corporation
By:
	Robert E. Dose
	Its: Vice President — Finance, Secretary and Treasurer

(ALL SIGNATURES MUST BE ACKNOWLEDGED)

SIGNATURE PAGE TO MEMORANDUM OF MODIFICATION

STATE OF CALIFORNIA                             )

COUNTY OF   _______________________ )

On ____________________ before me, ____________________, a Notary Public, personally appeared ____________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.  

Signature 

(Seal) 

STATE OF CALIFORNIA                             )

COUNTY OF   _______________________ )

On ____________________ before me, ____________________, a Notary Public, personally appeared ____________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature______________________________________

(Seal)

NOTARY PAGE TO MEMORANDUM OF MODIFICATION

EXHIBIT B

INTELLECTUAL PROPERTY SECURITY AGREEMENT

     This INTELLECTUAL PROPERTY SECURITY AGREEMENT, dated as of May 31, 2011 (as amended, restated, supplemented, replaced or otherwise modified from time to time, the “Intellectual Property Security Agreement”), is made by VIRCO MFG. CORPORATION, a Delaware corporation (the “Grantor”) in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION (the “Bank”).

WITNESSETH:

     WHEREAS, the Grantor is or will be a party to that certain Amendment No. 8 to Second Amended and Restated Credit Agreement dated as of May 31, 2011 (as it may be amended, restated, supplemented or otherwise modified from time to time, the “Amendment”), by and among Bank, the Grantor and Virco Inc., a Delaware corporation, as Guarantor, amending the Second Amended and Restated Credit Agreement dated as of March 12, 2008, which has subsequently been amended pursuant to various amendments (as it may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) between the Grantor and the Bank (capitalized terms used and not defined herein have the meanings given such terms in the Credit Agreement, as amended by the Amendment).

     WHEREAS, the Grantor is party to that certain Amended and Restated Security Agreement dated as of January 27, 2004 (as it may be amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”), by and among Bank, the Grantor and each of the Grantor’s Subsidiaries signatory thereto, as Subsidiary Guarantors (as such term is defined in the Security Agreement).

     WHEREAS, under the terms of the Security Agreement, the Grantor and its Subsidiary Guarantors have previously granted a security interest in certain personal property, including, without limitation, certain intellectual property of the Grantors and the Subsidiary Guarantors to the Bank pursuant to an Intellectual Property Security Agreement dated as of January 27, 2004 (the “Existing IP Security Agreement”).

     WHEREAS, under the terms of the Master Reaffirmation Agreement dated as of March 12, 2008 (as it may be amended, restated, supplemented or otherwise modified from time to time, the “Reaffirmation Agreement”) by and among the Grantor, the Guarantors in effect at such time and the Bank, the Grantor ratified and reaffirmed it obligations and pledge of collateral under the Security Agreement, including, without limitation, the Existing IP Security Agreement.

     WHEREAS, the Grantor has filed new patent and trademark applications and/or has been granted new patents and trademark registrations since executing the Security Agreement and the Existing IP Security Agreement.

     WHEREAS, pursuant to Section 6(b)(ii) of the Amendment, the Grantor has agreed as a condition thereof to execute this Intellectual Property Security Agreement for filing with the United States Patent and Trademark Office in order to properly record the Bank’s security interest in the new patents, trademark registrations and/or applications therefor referenced above and attached hereto as Schedule 1 and Schedule 2.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees as follows:

     Section 1. Grant of Security. The Grantor hereby grants to the Bank a security interest in and to all of the Grantor’s right, title, and interest in and to the following as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Grantor’s Obligations (as such term “Obligations” is defined in the Credit Agreement) now or hereafter existing under or in respect of the Loan Documents, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise:

          1.1. Trademarks

               1.1.1 The Grantor’s United States and foreign trademarks, trade names, trade styles, trade dress, corporate names, company names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, and other source or business identifiers, all registrations and applications to register any of the foregoing including, but not limited to: (i) the U.S. trademark registrations and applications referred to in Schedule 1 hereto (as such schedule may be amended or supplemented from time to time), (ii) all rights to, and to obtain, any extensions or renewals of any of the foregoing, (iii) all of the goodwill of the business connected with the use of and symbolized by any of the foregoing, (iv) the right to sue or otherwise recover for any and all past, present and future infringements, dilutions, and other violations of any of the foregoing or for any injury to goodwill, (v) all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit, and (vi) all other rights of any kind whatsoever corresponding thereto throughout the world (collectively, the “Trademarks”); and

               1.1.2 All licenses or agreements, whether written or oral, providing for the grant by or to the Grantor of (i) any right to use any Trademark, (ii) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations of any of the foregoing, (iii) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all licenses entered into in connection therewith, and damages and payments for past, present or future infringements thereof), (iv) all other rights of any kind whatsoever of the Grantor accruing thereunder or pertaining thereto, and (v) any and all proceeds of the foregoing.

          1.2. Patents

               1.2.1 The Grantor’s United States, foreign, and multinational patents, certificates of invention, and patentable inventions (regardless of whether reduced to practice) or similar industrial property rights, and applications for any of the foregoing, including, but not limited to: (i) each patent and patent application referred to in Schedule 2 hereto (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all inventions and improvements described therein, (iv) all rights to sue or otherwise recover for any past, present, and future infringements or other violations thereof, (v) all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit, and (vi) all other rights of any kind whatsoever corresponding thereto throughout the world (collectively, the “Patents”); and

               1.2.2 All licenses or agreements, whether written or oral, providing for the grant by or to the Grantor of (i) any right to use any Patent, (ii) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations of any of the foregoing, (iii) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including, without limitation, payments under all licenses entered into in connection therewith, and damages and payments for past, present or future infringements thereof), (iv) all other rights of any kind whatsoever of the Grantor accruing thereunder or pertaining thereto, and (v) any and all proceeds of the foregoing.

     Section 2. Recordation. The Grantor authorizes and requests that the Commissioner of Patents and Trademarks and any other applicable government officer record this Intellectual Property Security Agreement.

     Section 3. Execution in Counterparts. This Intellectual Property Security Agreement may be executed in any number of counterparts (including by telecopy), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

     Section 4. Governing Law. This Intellectual Property Security Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of California without regard to conflict of laws principles thereof.

     Section 5. Conflict Provision. This Intellectual Property Security Agreement has been entered into in conjunction with the provisions of the Security Agreement, the Credit Agreement and the Amendment referenced herein. The rights and remedies of each party hereto with respect to the security interest granted herein are without prejudice to, and are in addition to those set forth in, the Security Agreement, the Credit Agreement and the Amendment, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Intellectual Property Security Agreement are in conflict with the Security Agreement, the Credit Agreement or the Amendment, the provisions of the Security Agreement, the Credit Agreement or the Amendment shall govern.

[remainder of page intentionally left blank]

     IN WITNESS WHEREOF, the parties hereto have caused this Intellectual Property Security Agreement to be executed as of the date first above written by their respective officers thereunto duly authorized.

VIRCO MFG. CORPORATION, as Grantor
By:
	Name:
	Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Bank
By:
	Name:
	Title:

SCHEDULE 1

TO INTELLECTUAL PROPERTY SECURITY AGREEMENT

TRADEMARKS

	Serial No.		Filing Date
U.S. Trademark	Registration No.		Issue Date
PENDING TRADEMARKS
ANALOGY		77/265,430	08/27/2007
GEM		77/267,629	08/29/2007
PLANSCAPE		85/163,638	10/28/2010
RECESS		77/267,643	08/29/2007
REGISTERED TRADEMARKS
DESIGN ONLY		3,010,383	11/01/2005
METAPHOR		3,528,679	11/04/2008
PARAMETER		3,887,535	12/07/2010
TELOS		3,509,728	09/30/2008
TEXT		3,633,057	06/02/2009
V VIRCO		3,380,310	02/12/2008
VIRCO		3,380,311	02/12/2008
ZUMA		3,115,038	07/11/2006

SCHEDULE 2

TO INTELLECTUAL PROPERTY SECURITY AGREEMENT

PATENTS

Title	Application/Patent Number		Filing/Issue Date
Heat-Transfer Mechanism Including a Liquid-Metal Thermal Coupling		20090316359	06/18/2008
Self-Leveling Furniture Leg Foot		7,380,879	06/03/2008
Book Rack and Pencil Tray Combination		7,281,476	10/16/2007
Student Desk Chair with Rockers Rails		7,147,284	12/12/2006
Stackable Chair-Desk Frame		7,059,670	06/13/2006
Molded and Laminated Curved Surface Composites		6,706,382	03/16/2004
Office Furniture System		6,592,194	07/15/2003
Molded and Laminated Curved Surface Composites		6,534,165	03/18/2003
Enlarged Iron Cover with Rough Textured Inner Surface		5,944,081	08/31/1999
Two-Part Table Top		5,845,587	12/08/1998
Follower for File Drawer		5,826,956	10/27/1998
Lateral File Anti-Tilt Mechanism with Pivotal Activator Rail		5,411,327	05/02/1995
Desk with Floating Top		D621,176	08/10/2010
Desk with Floating Top		D621,175	08/10/2010
Desk Top Spacer		D617,123	06/08/2010
Drawer Pull		D616,721	06/01/2010
Grommet		D606,844	12/29/2009
Task Chair		D564,768	03/25/2008
Desk		D563,697	03/11/2008
Table		D560,085	01/22/2008
Table		D560,084	01/22/2008
Desk		D559,592	01/15/2008
Chair Bucket		D549,018	08/21/2007
Chair Bucket		D547,980	08/07/2007
Chair Frame		D547,979	08/07/2007
Desk		D546,097	07/10/2007
Chair		D544,230	06/12/2007
Chair/Desk		D542,039	05/08/2007
Rocking Chair		D526,134	08/08/2006
Chair Desk Combination Frame		D523,265	06/20/2006
Chair Desk Combination Frame		D522,777	06/13/2006
Chair		D522,265	06/06/2006

Title	Application/Patent Number	Filing/Issue Date
Chair	D521,757	05/30/2006
Chair Desk Combination	D521,751	05/30/2006
Chair Desk Combination	D521,750	05/30/2006
Chair Seat	D521,283	05/23/2006
Chair Desk Combination Frame	D521,282	05/23/2006
Chair Back	D520,782	05/16/2006
Chair	D520,768	05/16/2006
Hanger	D518,706	04/11/2006
Chair/Desk	D514,829	02/14/2006
Task Chair	D514,339	02/07/2006
Chair Seating Assembly	D513,911	01/31/2006
Chair/Desk	D513,892	01/31/2006
Rocking Chair Carriage Assembly	D512,252	12/06/2005
Desk	D510,670	10/18/2005
Hanger	D510,258	10/04/2005
Stool	D507,893	08/02/2005
Chair and Desk Combination	D507,890	08/02/2005
Desk	D507,710	07/26/2005
Pencil Tray	D506,225	06/14/2005
Book Tray	D505,581	05/31/2005
Chair and Desk Combination	D505,002	05/17/2005
Task Chair	D504,026	04/19/2005
Chair	D503,559	04/05/2005
Chair	D499,260	12/07/2004
Stool	D488,630	04/20/2004
Desk with Two-Part Table Top	D408,651	04/27/1999

EX-10.2

Exhibit 10.2

May 24, 2011

HAND DELIVERED

MR. LARRY O. WONDER

Re: SEPARATION AGREEMENT AND GENERAL RELEASE OF ALL CLAIMS

Dear Larry:

     This letter will serve as the Separation Agreement and General Release of all Claims (the “Agreement”) between you and Virco. As used in this Agreement, the term “Virco” or “Company” shall include Virco Mfg. Corporation, its divisions, subsidiaries, affiliates, and past, present or future officers, directors, shareholders, employees, agents and representatives.

     You have been employed by Virco for over 30 years and presently serve as its Vice President of Sales. We have agreed that it is in the mutual interest of you and the Company for Virco to accept your voluntary resignation of employment. By signing this Agreement and in consideration of certain compensation and benefits offered by Virco, you are agreeing to the commitments set forth below. This Agreement will fully and finally conclude the employment relationship between you and Virco on the terms and conditions that follow:

     1. Resignation. You have submitted and Virco has accepted your voluntary resignation as both an employee and an officer of the Company, effective June 30, 2011. You understand and agree that, in return for a portion of the consideration described below, you forever waive any claim you may have for re-employment.

     2. Severance Payment. In consideration of your acceptance of this Agreement, you will receive a lump sum severance payment of One Hundred Sixty-Six Thousand, Nine Hundred Thirty-Five Dollars and 75 Cents ($166,935.75), less applicable payroll taxes and deductions, which is the equivalent of twenty-five (25) months of monthly benefits from the Virco Important Performers (“VIP”) Pension Plan, to bridge the gap between your resignation on June 30, 2011 and your full retirement date of July 31, 2013.

     3. Health Care Coverage. As you are currently enrolled in Virco’s medical, dental and vision insurance plans, you are eligible to continue such coverage in accordance with COBRA upon your separation of employment. In consideration of your acceptance of this Agreement, you will receive a lump sum payment in the amount of Two Thousand Dollars ($2000.00), net of applicable payroll taxes and deductions, that you may use toward medical, dental and/or vision insurance premiums through COBRA or another source, or for any other purpose of your choosing. Virco represents that this amount is sufficient to cover the cost of medical, dental and vision insurance premiums for an individual subscriber through COBRA for four (4) months at Virco’s present rates. You understand and agree that, should COBRA insurance premiums increase at any time after the Effective Date of this Agreement, you will not be entitled to additional funds or other consideration from Virco as a result.

     4. Company Car. In consideration of your acceptance of this Agreement, you will receive a lump sum payment, net of applicable payroll taxes and deductions, in an amount sufficient to purchase your Company car for its fair market value as determined by Virco’s fleet provider. Virco represents that such payment will be adequate to cover estimated sales taxes and transfer fees in connection with the vehicle purchase.

     5. Executive Outplacement Services. In consideration of your acceptance of this Agreement, Virco will pay you a lump sum of Five Thousand Dollars ($5,000.00), net of applicable payroll taxes and deductions, in lieu of providing outplacement services. You understand and agree that you will be solely responsible for the selection, acquisition and payment of any such services.

     6. Vested Benefits. You will receive payment of any unused accrued vacation, less applicable payroll taxes and deductions. Any vested benefits you may have under Virco’s 401(k) plan, the Virco Important Performers (“VIP”) pension plan, the Virco Mfg. Corporation Employees Retirement Plan, or other such Company benefit plans or agreements will be payable in accordance with the applicable terms and conditions of such plans or agreements.

     7. Bonus. You understand and agree that you are not entitled to receive any bonus or prorated bonus that may be distributed to Virco employees pursuant to any policy, practice or plan of the Company on or after the separation of your employment.

     8. Release of all Claims. You represent that you do not currently have pending before any Court or government agency any dispute of any kind against Virco. In consideration of the various payments and benefits provided to you under the terms of this Agreement, you hereby release and forever discharge Virco from any and all claims, causes of action, demands, rights, damages, liability, costs or expenses, of every kind and description, whether known or unknown, arising at any time prior to your signing of this Agreement, including but not limited to those arising out of or in any way connected, directly or indirectly, with your employment and/or separation from employment with Virco. This release is intended as a general release, including all claims whatsoever, whether arising under local, state or federal laws of the United States of America or any other country and whether founded upon contract, tort, statute or regulation, wrongful discharge or discrimination, and specifically including, but not limited to, claims under the federal Age Discrimination in Employment Act; Title VII of the Civil Rights Act of 1964; the federal Americans With Disabilities Act; the federal Family and Medical Leave Act; and the Employee Retirement Income Security Act of 1974. This waiver of rights and release of claims is knowing and voluntary. The invalidity in whole or in part of any provision of this release shall not affect the validity of any other provision.

The remainder of this page has been left blank intentionally.

     9. Waiver of California Civil Code Section 1542. The disputes released by you herein include any and all disputes, whether known or unknown, suspected or unsuspected, past or present, and whether or not they are attributable to circumstances arising out of or related to your employment with Virco or the separation of your employment. Specifically, you waive any and all rights under California Civil Code Section 1542, which reads in full as follows:

Section 1542. General Release. A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially altered his settlement with the debtor.

     You acknowledge that you have separately bargained with Virco for the foregoing waiver of Section 1542.

     10. No Admission of Liability. You and Virco acknowledge and agree that nothing contained in this Agreement shall constitute or be construed as an admission of any alleged liability or wrongdoing by the other.

     11. Non-Solicitation. You agree that, for a period of two (2) years after the date of this Agreement, you will not induce or attempt to induce any employee of Virco to leave the employ of Virco or in any way interfere with the relationship between Virco and its employees.

     12. References. If asked about your separation of employment, you and Virco will state that you voluntarily resigned. Should a prospective employer wish to verify your employment with Virco, you agree to direct such inquiries to Virco’s Corporate Director of Human Resources (presently Ms. Margie McEntire) and to no other person. In response to such inquiries, Virco will confirm your voluntary resignation, dates of employment, positions held, and your final salary. If asked for further information, Virco will state that Company policy precludes the release of additional data.

     13. Confidential Information. You acknowledge that in the course of your employment with Virco you have had access to confidential or proprietary information related to Virco’s business. You further acknowledge that you have been and will continue to be under an obligation not to disclose such confidential or proprietary information to any third party unless (a) disclosure is required by law; (b) such information shall have become generally known outside Virco through no action of your own; or (c) you obtain written permission from Virco’s President or Executive Vice President.

     “Confidential or proprietary information” includes, but is not limited to, financial statements, marketing plans, product research and development, sales plans, ideas or other information regarding Virco’s objectives and strategies and any information about the business and practices of Virco that was obtained during your course of employment with the Company. You agree that any documents in your possession including such information shall be expeditiously returned to Virco. You agree that any breach or threatened breach of this provision would cause irreparable harm to Virco, that no adequate remedy exists at law or in damages for such a breach or threatened breach, and that Virco shall be entitled to an immediate injunction or restraining order in addition to any other remedies that may be available by law or equity.

     14. Disposition of Company Property. Any Company-owned property in your possession, including any office equipment or other items, shall be delivered promptly to a designated Company representative. You agree to immediately discontinue the use of any credit cards issued to you by or through Virco and to return any such credit cards to an authorized Virco representative. In addition, you agree to promptly submit any expense reports required to account for outstanding charges and to cooperate in the process of reconciling any such charges with your expense reports.

     15. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, without regard to its conflict of laws provisions.

     16. Jurisdiction. You agree that any dispute arising under this Agreement shall be filed, heard and decided in Los Angeles County. You also agree to subject yourself to the personal jurisdiction and venue of the identified courts regardless of where you may be located at the time of the proceeding.

     17. Review and Consultation. You are advised to consult an attorney before executing this Agreement. Upon execution you acknowledge that you have had sufficient opportunity to review the Agreement and to consult with advisors and attorneys of your choice concerning its terms and conditions. Execution of this Agreement further acknowledges your full and complete understanding of the terms and their significance, and that those terms have been accepted freely and voluntarily, thereby binding you and your heirs, successors, personal representatives and assigns.

     18. Period for Consideration or Revocation. Virco will provide you with a period of twenty-one (21) days from the date this Agreement is first presented to you in which to consider it. In the event that you execute this Agreement prior to the expiration of the twenty-one (21) day period, you agree that you have freely elected to waive any remaining part of the consideration period. For a period of seven (7) days following the execution of this Agreement, you may revoke it by notifying Virco’s President or Executive Vice President in writing.

     19. Effective Date. If not revoked in the manner described in Paragraph 18, above, this Agreement will become effective on the eighth calendar day following its execution (the “Effective Date” of this Agreement).

The remainder of this page has been left blank intentionally.

     20. Entire Agreement. This Agreement contains the entire understanding of the parties and there are no additional promises, representations, assurances, terms or provisions between the parties other than those specifically set forth herein. This Agreement may not be amended except in writing signed by you and either Virco’s President or Executive Vice President.

     If you agree with the foregoing, please execute both of the enclosed original copies of this letter and return one to Virco’s President or Executive Vice President.

Very truly yours,

VIRCO MFG. CORPORATION
 

/s/ Douglas A. Virtue  

Douglas A. Virtue 

Executive Vice President 

READ, UNDERSTOOD AND ACCEPTED
 

/s/ Larry O. Wonder  

LARRY O. WONDER 

Date: May 24, 2011

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Robert A. Virtue, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Virco Mfg. 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(s) 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(s) 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: June 9, 2011	/s/ Robert A. Virtue
	Robert A. Virtue
	President and Chief Executive Officer of Virco Mfg. Corporation (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Robert E. Dose, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Virco Mfg. 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(s) 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(s) 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: June 9, 2011	/s/ Robert E. Dose
	Robert E. Dose
	Vice President of Finance of Virco Mfg. Corporation (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert A. Virtue, President and Chief Executive Officer of Virco Mfg. Corporation (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Quarterly Report of the Company on Form 10-Q for the quarter ended April 30, 2011, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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: June 9, 2011	/s/ Robert A. Virtue
	Robert A. Virtue
	President and Chief Executive Officer of Virco Mfg. Corporation (Principal Executive Officer)

I, Robert E. Dose, Vice President of Finance of Virco Mfg. Corporation (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Quarterly Report of the Company on Form 10-Q for the quarter ended April 30, 2011, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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: June 9, 2011	/s/ Robert E. Dose
	Robert E. Dose
	Vice President of Finance of Virco Mfg. Corporation (Principal Financial Officer)

These certifications accompany the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject the Company to the liability of that section.

End of Filing