8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): March 18, 2008

VIRCO MFG. CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation) 001-8777
(Commission File Number) 95-1613718
(IRS Employer Identification No.)

2027 Harpers Way
Torrance, California
(Address of principal executive offices)
90501
(Zip Code)

Registrant’s telephone number, including area code: (310) 533-0474

Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

 EXHIBIT 10.1

 EXHIBIT 10.2

 EXHIBIT 10.3

 EXHIBIT 10.4

 EXHIBIT 99.1

Item 1.01 Entry into a Material Definitive Agreement.

Effective as of March 18, 2008, Virco Mfg. Corporation (the “Company”) entered into the Second Amended and Restated Credit Agreement (the “Agreement”), dated as of March 12, 2008, with Wells Fargo Bank, National Association (the “Lender”) and a related Revolving Line of Credit Note (the “Note”), dated as of March 12, 2008, in favor of the Lender. The Agreement provides the Company with an increased secured revolving line of credit (the “Revolving Credit”) of up to $65,000,000, with seasonal adjustments to the credit limit, and includes a sub-limit of up to $10,000,000 for the issuance of letters of credit. The proceeds of the Revolving Credit are to be used to refinance the Company’s existing credit facility with the Lender and to provide for the working capital needs and general corporate purposes of the Company. The Revolving Credit is secured by the maintenance by the Lender of a first priority perfected security interest in certain of the personal and real property of the Company and its subsidiaries, pursuant to (1) a Master Reaffirmation Agreement (the “Reaffirmation Agreement”), dated as of March 12, 2008, among the Company, the Company’s subsidiaries, and the Lender, and (2) an Amended and Restated Mortgage (the “Mortgage”), dated as of March 12, 2008, by the Company in favor of the Lender.

The foregoing description of each of the Agreement, the Note, the Reaffirmation Agreement and the Mortgage is qualified in its entirety by reference to the agreements attached as Exhibits 10.1, 10.2, 10.3 and 10.4 and incorporated herein by reference. These agreements have been included to provide investors with information regarding their terms and are not intended to provide any other factual information about the Company.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information provided in Item 1.01 is incorporated herein by reference.

Item 7.01 Regulation FD Disclosure

On March 24, the Company issued a press release announcing the entry by the Company into the Agreement. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference. The information in Item 7.01 of this Current Report, including Exhibit 99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

Item 9.01 Financial Statements and Exhibits.

(d) The following exhibits are filed with this Form 8-K:

Exhibit No.	Description
10.1	Second Amended and Restated Credit Agreement, dated as of March 12, 2008 between Virco Mfg. Corporation and Wells Fargo Bank, National Association
10.2	Revolving Line of Credit Note, dated as of March 12, 2008, by Virco Mfg. Corporation in favor of Wells Fargo Bank, National Association
10.3	Master Reaffirmation Agreement, dated as of March 12, 2008, among Virco Mfg. Corporation, Virco Mgmt. Corporation, Virco Inc. and Wells Fargo Bank, National Association
10.4	Amended and Restated Mortgage, dated as of March 12, 2008, by Virco Mfg. Corporation in favor of Wells Fargo Bank, National Association
99.1	Press Release dated March 24, 2008

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 hereunto duly authorized.

	VIRCO MFG. CORPORATION
	(Registrant)
Date: March 24, 2008	/s/ Robert A. Virtue
	(Signature)
	Name:	Robert A. Virtue
	Title:	Chief Executive Officer and Chairman of the Board of Directors

EXHIBIT INDEX

10.1	Second Amended and Restated Credit Agreement, dated as of March 12, 2008 between Virco Mfg. Corporation and Wells Fargo Bank, National Association
10.2	Revolving Line of Credit Note, dated as of March 12, 2008, by Virco Mfg. Corporation in favor of Wells Fargo Bank, National Association
10.3	Master Reaffirmation Agreement, dated as of March 12, 2008, among Virco Mfg. Corporation, Virco Mgmt. Corporation, Virco Inc. and Wells Fargo Bank, National Association
10.4	Amended and Restated Mortgage, dated as of March 12, 2008, by Virco Mfg. Corporation in favor of Wells Fargo Bank, National Association
99.1	Press Release dated March 24, 2008

EX-10.1

EXHIBIT 10.1

EXECUTION COPY

SECOND AMENDED AND RESTATED

CREDIT AGREEMENT

Dated as of March 12, 2008

between

VIRCO MFG. CORPORATION,

as Borrower,

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Bank

TABLE OF CONTENTS

	Page
ARTICLE I CREDIT TERMS		1
Section 1.1. Line Of Credit		1
Section 1.2. Interest/Fees		2
Section 1.3. Collection Of Payments		3
ARTICLE II REPRESENTATIONS AND WARRANTIES		3
Section 2.1. Legal Status		4
Section 2.2. Authorization And Validity		4
Section 2.3. No Violation		4
Section 2.4. Litigation		4
Section 2.5. Correctness Of Financial Statement		4
Section 2.6. Income Tax Returns		4
Section 2.7. No Subordination		5
Section 2.8. Permits, Franchises		5
Section 2.9. ERISA		5
Section 2.10. Other Obligations		5
Section 2.11. Environmental Matters		5
Section 2.12. No Encumbrances		6
Section 2.13 Solvency		6
Section 2.14. Indebtedness		6
Section 2.15. Inactive Subsidiaries; Other Subsidiaries		6
ARTICLE III CONDITIONS		6
Section 3.1. Conditions Of Initial Extension Of Credit		6
Section 3.2. Conditions Of Each Extension Of Credit		8

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Table of Contents

(Continued)

	Page
ARTICLE IV AFFIRMATIVE COVENANTS		9
Section 4.1. Punctual Payments		9
Section 4.2. Accounting Records		9
Section 4.3. Financial Statements and Reports		9
Section 4.4. Compliance		10
Section 4.5. Insurance		10
Section 4.6. Facilities		11
Section 4.7. Taxes And Other Liabilities		11
Section 4.8. Existence		11
Section 4.9. Notice To Bank		11
Section 4.10. Right to Inspect		11
ARTICLE V NEGATIVE COVENANTS		12
Section 5.1. Use Of Funds		12
Section 5.2. Capital Expenditures		12
Section 5.3. Other Indebtedness		12
Section 5.4. Liens		12
Section 5.5. Merger, Consolidation, Transfer Of Assets		13
Section 5.6. Guaranties		13
Section 5.7. Loans, Advances, Investments		13
Section 5.8. Dividends, Distributions		13
Section 5.9. Transactions with Affiliates		14
Section 5.10. Annual Clean Down		14
Section 5.11. Minimum Consolidated Current Ratio		14

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Table of Contents

(Continued)

	Page
Section 5.12. Minimum Consolidated Fixed Charge Coverage Ratio		15
Section 5.13. Maximum Leverage Ratio		15
Section 5.14. Inactive Subsidiaries		15
Section 5.15. Licensing Agreements		15
ARTICLE VI EVENTS OF DEFAULT		16
Section 6.1. Events of Default		16
Section 6.2. Remedies		18
ARTICLE VII MISCELLANEOUS		18
Section 7.1 No Waiver		18
Section 7.2. Notices		18
Section 7.3. Costs, Expenses And Attorneys’ Fees		19
Section 7.4. Successors, Assignment		19
Section 7.5. Entire Agreement; Amendment		19
Section 7.6. No Third Party Beneficiaries		20
Section 7.7. Time		20
Section 7.8. Severability Of Provisions		20
Section 7.9. Counterparts		20
Section 7.10. Governing Law		20
Section 7.11. Arbitration		20
Section 7.12. Restatement of Prior Credit Agreement		22

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EXHIBITS AND SCHEDULES

EXHIBIT A	FORM OF LINE OF CREDIT NOTE
EXHIBIT B	FORM OF COMPLIANCE CERTIFICATE
SCHEDULE 2.11	ENVIRONMENTAL MATTERS
SCHEDULE 5.3	EXISTING INDEBTEDNESS
SCHEDULE R-1	REAL PROPERTY COLLATERAL

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SECOND AMENDED AND RESTATED CREDIT AGREEMENT

     SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 12, 2008 (“Agreement”) between VIRCO MFG. CORPORATION, a Delaware corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

RECITALS

     A. Bank and Borrower previously entered into that certain Amended and Restated Credit Agreement dated as of January 27, 2004 (as amended from time to time, the “Prior Credit Agreement”), pursuant to which Bank extended to Borrower a line of credit, with a subfeature for the issuance of letters of credit (the letters of credit issued thereunder and outstanding on the date hereof, the “Prior Letters of Credit”), and made certain term loans.

     B. Bank and Borrower wish to amend and restate the Prior Credit Agreement in its entirety with this Agreement to evidence the extension to Borrower of the credit accommodations described below on the terms and conditions contained herein.

     C. Terms used in this Agreement shall have the meanings set forth in Annex A, and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Annex A shall govern.

     NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows:

ARTICLE I

CREDIT TERMS

Section 1.1. Line Of Credit.

     (a) Line of Credit. During the Line of Credit Period, Bank hereby agrees, subject to the terms and conditions of this Agreement, to make advances (“Advances”) to Borrower from time to time in an aggregate principal amount at any time outstanding not to exceed the Maximum Line of Credit Amount minus the Letter of Credit Usage (“Line of Credit”). The proceeds of all advances made hereby shall be used to finance Borrower’s working capital requirements and for other lawful purposes consistent with the provisions hereof. Borrower’s obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto (“Line of Credit Note”), all terms of which are incorporated herein by this reference.

     (b) Letter of Credit Subfeature. As a subfeature under the Line of Credit, Bank agrees from time to time during the term thereof to issue or cause an affiliate to issue sight commercial or standby letters of credit for the account of Borrower (each, a “Letter of Credit” and collectively, “Letters of Credit”); provided however, Bank shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the requested Letter of Credit: (i) the Letter of Credit Usage would exceed $10,000,000, or (ii) the Letter of Credit

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Usage would exceed the Maximum Line of Credit Amount less the then extant amount of outstanding Advances. The form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion. Each commercial Letter of Credit shall be issued for a term not to exceed one hundred eighty (180) days, as designated by Borrower; provided, however, that no commercial Letter of Credit shall have an expiration date subsequent to the Line of Credit Termination Date. Each standby Letter of Credit shall be issued for a term not to exceed twelve (12) months, as designated by Borrower; provided, however, that no standby Letter of Credit shall have an expiration date subsequent to the Line of Credit Termination Date. Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit agreements, applications and any related documents required by Bank in connection with the issuance thereof. Each drawing paid under a Letter of Credit shall be deemed an Advance under the Line of Credit and shall be repaid by Borrower in accordance with the terms and conditions of this Agreement applicable to such advances; provided, however, that if Advances under the Line of Credit are not available, for any reason, at the time any drawing is paid, then Borrower shall immediately pay to Bank the full amount drawn, together with interest thereon from the date such drawing is paid to the date such amount is fully repaid by Borrower, at the rate of interest applicable to advances under the Line of Credit. In such event Borrower agrees that Bank, in its sole discretion, may debit any account maintained by Borrower with Bank for the amount of any such drawing. All Prior Letters of Credit which are outstanding as of the date hereof shall be deemed “Letters of Credit” hereunder.

     (c) Borrowing and Repayment. Borrower may from time to time during the Line of Credit Period borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided, however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above.

Section 1.2. Interest/Fees.

     (a)  Interest. The outstanding principal balance of the Line of Credit shall bear interest at the rate of interest set forth in the Line of Credit Note.

     (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in each promissory note or other instrument or document required hereby.

     (c) Unused Commitment Fee. Borrower shall pay to Bank an unused commitment fee on the 15th day of the month immediately following each fiscal quarter end in an amount equal to 0.25% per annum times the result of (i) the Maximum Line of Credit Amount, less (ii) the sum of (A) the average daily balance of Advances that were outstanding during the immediately preceding quarter, plus (B) the average daily balance of Letters of Credit outstanding during the immediately preceding quarter.

     (d) Standby Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the issuance of each standby Letter of Credit equal to 2.0% per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount thereof, and (ii) fees upon the payment or negotiation of each drawing under any standby Letter of Credit and fees upon the occurrence of

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any other activity with respect to any standby Letter of Credit (including without limitation, the transfer, amendment or cancellation of any standby Letter of Credit) determined in accordance with Bank’s standard fees and charges then in effect for such activity.

     (e) Commercial Letter of Credit Fees. Borrower shall pay to Bank fees upon the issuance of each commercial Letter of Credit, upon the payment or negotiation by Bank of each draft under any commercial Letter of Credit and upon the occurrence of any other activity with respect to any commercial Letter of Credit (including without limitation, the transfer, amendment or cancellation of any commercial Letter of Credit) determined in accordance with Bank’s standard fees and charges then in effect for such activity.

     (f) Collateral Audits; Appraisals.

     (i) Borrower shall pay to Bank its customary fees plus reasonable out-of-pocket expenses for each financial or collateral analysis and examination (i.e., audit) of Borrower and its Subsidiaries performed by personnel employed by Bank (or the actual charges paid or incurred by Bank if it elects to employ the services of one or more Persons to perform such audits); provided, however that so long as no Event of Default has occurred and is continuing, Borrower shall not be obligated to reimburse Bank the fees and costs of more than one (1) audit in any fiscal year.

     (ii) Bank shall have the right to have the Equipment and the Real Property Collateral of the Borrower and its Subsidiaries appraised from time to time by a qualified appraiser selected by Bank. Borrower shall pay to Bank its customary fees plus reasonable out-of-pocket expenses for each appraisal conducted by personnel employed by Bank (or the actual charges paid or incurred by Bank if it elects to employ the services of one or more third Persons to appraise the Equipment and Real Property Collateral of Borrower and its Subsidiaries).

Section 1.3. Collection Of Payments.

     Borrower authorizes Bank to collect all interest and fees due under the Line of Credit by charging Borrower’s deposit account number 4648-052785 with Bank, or any other deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

     Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement.

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Section 2.1. Legal Status.

     Borrower and each of its Subsidiaries is a corporation, duly organized and existing and in good standing under the laws of its jurisdiction of organization, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a Material Adverse Change on Borrower or such Subsidiary.

Section 2.2. Authorization And Validity.

     This Agreement and each other Loan Document has been duly authorized, and upon its execution and delivery in accordance with the provisions hereof will constitute a legal, valid and binding obligation of Borrower or Guarantor, as the case may be, enforceable in accordance with their respective terms.

Section 2.3. No Violation.

     The execution, delivery and performance by Borrower and each of its Subsidiaries of the Loan Documents to which each is a party do not violate any provision of any law or regulation, or contravene any provision of the Governing Documents of Borrower or such Subsidiary, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower or such Subsidiary is a party or by which Borrower or such Subsidiary may be bound.

Section 2.4. Litigation.

     There are no pending, or to the best of Borrower’s knowledge threatened, actions, claims, investigations, suits or proceedings by or before any Governmental Authority which could reasonably be expect to have a Material Adverse Change.

Section 2.5. Correctness Of Financial Statement.

     The financial statements of Borrower dated December 31, 2007, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower and its Subsidiaries, (b) discloses all liabilities of Borrower and its Subsidiaries that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with GAAP consistently applied. Since December 31, 2007 there has been no Material Adverse Change in the financial condition of Borrower, nor has Borrower or any of its Subsidiaries mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank.

Section 2.6. Income Tax Returns.

     Borrower has filed all federal, national, state, provincial, municipal, and other tax returns and reports, if any, which are required to be filed (or appropriate extensions have been timely filed) and has paid all taxes due pursuant to such returns and reports or pursuant to any assessment received by Borrower, except such taxes, if any, as are being contested in good faith

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and as to which adequate reserves have been provided in accordance with GAAP and as to which no Lien, other than a Permitted Lien, exists. The charges, accruals and reserves on the books of Borrower in respect of any taxes or other governmental charges are adequate.

Section 2.7. No Subordination.

     There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower’s obligations subject to this Agreement to any other obligation of Borrower.

Section 2.8. Permits, Franchises.

     Borrower and each Subsidiary possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law.

Section 2.9. ERISA.

     Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time (“ERISA”); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a “Plan”); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles.

Section 2.10. Other Obligations.

     Borrower is not in default on any Indebtedness or any other material lease, commitment, contract, instrument or obligation.

Section 2.11. Environmental Matters.

     Except as set forth on Schedule 2.11, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower’s operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower or its Subsidiaries is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Neither the Borrower nor any of its Subsidiaries has any material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.

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Section 2.12. No Encumbrances.

     Borrower and its Subsidiaries have good and indefeasible title to their personal property assets and good and marketable title to their Real Property, in each case, free and clear of Liens except for Permitted Liens.

Section 2.13 Solvency.

     Borrower and each of its Subsidiaries is Solvent.

Section 2.14. Indebtedness.

     Immediately following the Closing Date Borrower has no Indebtedness outstanding other than the Obligations and Indebtedness described on Schedule 5.3.

Section 2.15. Inactive Subsidiaries; Other Subsidiaries.

     Each of Delkay Plastics and Virtue of California, Inc. have no Indebtedness or other liabilities, conduct no operations or business or own any assets or properties. Other than the Guarantors, Delkay Plastics and Virtue of California, Inc., Borrower has no Subsidiaries.

ARTICLE III

CONDITIONS

Section 3.1. Conditions Of Initial Extension Of Credit.

     The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank’s satisfaction of all of the following conditions:

     (a) Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank’s counsel.

     (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed and delivered:

     (i) This Agreement.

     (ii) The Line of Credit Note.

     (iii) Each of (A) a duly executed amendment (or amendment and restatement) to the Mortgage delivered in connection with the Prior Credit Agreement signed by the record owner of the Real Property Collateral, together with customary Mortgage Related Documents relating thereto, in each case in form and substance acceptable to the Bank and (B) either mortgage modification endorsements to, or date down endorsements to (or re-dated title insurance policies which replace), the existing title insurance policy issued in respect of the Real Property Collateral, in any case issued by a nationally recognized title

6

insurance company reasonably acceptable to the Bank, insuring the Lien of the Mortgage, as amended by the above referenced 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.

     (iv) The Reaffirmation Agreement.

     (v) Such other documents as Bank may require under any other Section of this Agreement.

     (c) Authorization; Governing Documents; and Good Standing of Borrower.

     (i) Bank shall have received a certificate from the Secretary of Borrower attesting to the resolutions of Borrower’s Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute the same;

     (ii) Bank shall have received copies of Borrower’s Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower;

     (iii) Bank shall have received a certificate of status with respect to Borrower, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower, which certificate shall indicate that Borrower is in good standing in such jurisdiction; and

     (iv) Bank shall have received certificates of status with respect to Borrower, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that Borrower is in good standing in such jurisdictions.

     (d) Authorization; Governing Documents; and Good Standing of Each Guarantor.

     (i) Bank shall have received a certificate from the Secretary of each Guarantor attesting to the resolutions of such Guarantor’s board of directors authorizing its execution, delivery, and performance of the Loan Documents to which such Guarantor is a party and authorizing specific officers of such Guarantor to execute the same;

     (ii) Bank shall have received copies of each Guarantor’s Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of such Guarantor;

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     (iii) Bank shall have received a certificate of status with respect to each Guarantor, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Guarantor, which certificate shall indicate that Guarantor is in good standing in such jurisdiction; and

     (iv) Bank shall have received certificates of status with respect to each Guarantor, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Guarantor) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Guarantor is in good standing in such jurisdictions.

     (e) Diligence. Bank shall have completed its business, legal, and collateral due diligence, including a collateral audit and review of Borrower’s and its Subsidiaries’ books and records and verification of Borrower’s representations and warranties to Bank, the results of which shall be satisfactory to Bank.

     (f) Appraisals. Bank shall have received an appraisal of the Real Property Collateral, the results of which shall be satisfactory to Bank.

     (g) Financial Condition. There shall have been no Material Adverse Change, as determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any Collateral required hereunder or a substantial or material portion of the assets of Borrower.

     (h) Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower’s property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank.

Section 3.2. Conditions Of Each Extension Of Credit.

     The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank’s satisfaction of each of the following conditions:

     (a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, and no Default or Event of Default shall have occurred and be continuing.

     (b) Injunctions. No injunction, writ, restraining order, or other order of any nature restricting or prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against Borrower, Bank, or any of their Affiliates.

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     (c) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit.

ARTICLE IV

AFFIRMATIVE COVENANTS

     Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, and shall cause each of its Subsidiaries to:

Section 4.1. Punctual Payments.

     Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein.

Section 4.2. Accounting Records.

     Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied.

Section 4.3. Financial Statements and Reports.

     Provide to Bank all of the following, in form and detail satisfactory to Bank:

     (a) Annual Financial Statements. Not later than 90 days after and as of the end of each fiscal year (including the fiscal year ended January 31, 2008) (i) audited financial statements of Borrower, prepared by a certified public accountant acceptable to Bank and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP; and, if issued, a copy of such accountant’s management letter (such audited financial statements to include a consolidated balance sheet, consolidated statements of income, a statement of cash flows and appropriate footnotes and supporting consolidating information); (ii) a certificate of such accountants addressed to Bank stating that such accountants do not have knowledge of the existence of any Default or Event of Default under Sections 5.2, 5.10, 5.11, 5.12 or 5.13; and (iii) a certificate of the chief financial officer of Borrower to the effect that (1) the financial statements delivered thereby have been prepared in accordance with GAAP and fairly present in all material respects the financial condition of Borrower and its Subsidiaries and (2) no Default or Event of Default has occurred and is continuing (or, if a Default or Event of Default has occurred and is continuing, describing such Default or Event of Default and what action Borrower has taken, is taking, or proposes to take with respect thereto).

     (b) Form 10-K. Not later than 90 days after and as of the end of each fiscal year, Borrower’s Annual Report Form 10-K as filed with the Securities and Exchange Commission (the delivery of which shall satisfy the requirement set forth in the preceding clause (a)(i), so long as such filing includes a certification, without qualification, by Borrower’s accountants that the financial statements included in such filing have been prepared in accordance with GAAP);

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     (c) Monthly Financial Statements. Not later than 45 days after and as of the end of each month, a financial statement of Borrower, prepared by Borrower, together with a certificate signed by the chief financial officer of Borrower to the effect that the financial statements delivered thereby have been prepared in accordance with GAAP (except for (i) the lack of footnotes, (ii) quarterly accounting adjustments and (iii) being subject to year-end audit adjustments) and fairly present in all material respects the financial condition of Borrower and its Subsidiaries (such financial statements to include a consolidated balance sheet and consolidated statements of income);

     (d) Form 10-Q. Not later than 60 days after and as of the end of each fiscal quarter, Borrower’s Quarterly Report Form 10-Q as filed with the Securities and Exchange Commission;

     (e) Projections. Not later than 60 days prior to end of each fiscal year, Borrower’s detailed monthly operating budget for the upcoming fiscal year (such budget to include a projected balance sheet and statement of income);

     (f) Public Reports. If and when filed by Borrower, copies of each Form 8-K filed by Borrower with the Securities and Exchange Commission and any other filings made by Borrower with the Securities and Exchange Commission; and

     (g) Supplemental Information. from time to time such other information as Bank may reasonably request.

Section 4.4. Compliance.

     Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower or a Subsidiary is organized and/or which govern the continued existence of Borrower or a Subsidiary and with the requirements of all laws, rules, regulations and orders of any Governmental Authority applicable to Borrower, its Subsidiaries and/or their businesses.

Section 4.5. Insurance.

     Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers’ compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank’s request schedules setting forth all insurance then in effect. In addition, Borrower shall deliver copies of all such policies to Bank with a satisfactory lender’s loss payable endorsement naming Bank as sole loss payee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Bank in the event of cancellation of the policy for any reason whatsoever. (Bank acknowledges that Borrower has given it notice that Borrower’s insurance policies in effect on the Closing Date lapse on April 1, 2008 and that Borrower is negotiating replacement coverage that it expects to be in place on April 1, 2008.)

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Section 4.6. Facilities.

     Keep all properties useful or necessary to the businesses of the Borrower and its Subsidiaries in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.

Section 4.7. Taxes And Other Liabilities.

     Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank’s satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment.

Section 4.8. Existence.

     At all times preserve and keep in full force and effect Borrower’s and its Subsidiaries valid existence and good standing and any rights and franchises material to their businesses.

Section 4.9. Notice To Bank.

     Promptly give written notice to Bank in reasonable detail of: (a) the occurrence of any Default or Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; (d) any unscheduled termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower’s property in excess of an aggregate of $500,000, (e) any demand for payment in excess of an aggregate of $250,000 made of Borrower by any bonding company or (f) any litigation pending or threatened against Borrower with a claim in excess of $500,000, to the extent not covered by independent third party insurance as to which the insurer has admitted coverage.

Section 4.10. Right to Inspect.

     Bank (through any of its officers, employees, or agents) shall have the right, from time to time hereafter during regular business hours, to inspect, audit and examine Borrower’s books and records and to check, test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount, quality, value, condition or, or any other matter relating to, the Collateral.

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ARTICLE V

NEGATIVE COVENANTS

     Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not, and will cause each of its Subsidiaries not to:

Section 5.1. Use Of Funds.

     Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof.

Section 5.2. Capital Expenditures.

     Make any additional investment in fixed assets in excess of an aggregate of $7,000,000 during any fiscal year.

Section 5.3. Other Indebtedness.

     Create, incur, assume or permit to exist any Indebtedness, except

     (a) the Obligations;

     (b) Indebtedness outstanding on the Closing Date and set forth on Schedule 5.3; and

     (c) $2,000,000 in aggregate principal amount of additional Capital Lease Obligations.

Section 5.4. Liens.

     Create, incur, assume, or suffer to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, except (“Permitted Liens”):

     (a) Liens in favor of Bank;

     (b) Liens for unpaid taxes that either (i) are not yet delinquent or (ii) do not constitute an Event of Default hereunder;

     (c) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of an Issuer’s or Subsidiary’s business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent or (ii) are being

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contested in good faith, and in any event do not secure liabilities greater than $250,000 in the aggregate;

     (d) with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof; and

     (e) Liens securing the obligations described in Section 5.3(c) or Section 5.3(d).

Section 5.5. Merger, Consolidation, Transfer Of Assets.

     Merge into or consolidate with any other entity; make any substantial change in the nature of the business of Borrower and its Subsidiaries as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of any assets of Borrower or any Subsidiary except:

     (a) dispositions of Inventory in the ordinary course of business;

     (b) disposition of obsolete or worn out Equipment in the ordinary course of business; and

     (c) the use or transfer of money or cash equivalents in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents.

Section 5.6. Guaranties.

     Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for any liabilities or obligations of any other Person, except in respect of performance bonds, surety or appeal bonds, notary public bonds and bonds in support of Borrower’s prior self insurance program (such bonds, not to exceed $225,000 in aggregate principal amount), in each case issued in the ordinary course of business consistent with past practice.

Section 5.7. Loans, Advances, Investments.

     Make any loans or advances to or Investments in any Person, other than ordinary course travel advances made by Borrower to its employees in an aggregate amount not to exceed $100,000 at any one time outstanding.

Section 5.8. Dividends, Distributions.

     Make any distribution or declare or pay any dividends (in cash or other property, including stock of Borrower) on, or purchase, acquire, redeem, or retire any of Borrower’s stock, of any class, whether now or hereafter outstanding (each, a “Restricted Payment”); provided, however, that the Borrower may make Restricted Payments in an aggregate amount in any fiscal year not to exceed $5,000,000 so long as (a) no Default or Event of Default has occurred and is

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continuing or would result therefrom, (b) Borrower shall have delivered to Bank a Compliance Certificate, duly executed by the chief financial officer of Borrower, demonstrating that Borrower shall be in pro forma compliance with Sections 5.11, 5.12 and 5.13 after giving effect to the subject Restricted Payment, (c) the aggregate amount of the Restricted Payments comprised of dividends or distributions by Borrower made in any fiscal year does not exceed $2,000,000, and (d) immediately after giving effect to any such Restricted Payment, Availability is not less than $5,000,000.

Section 5.9. Transactions with Affiliates.

     Directly or indirectly enter into or permit to exist any transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms, that are fully disclosed to Bank, and that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-Affiliate.

Section 5.10. Annual Clean Down.

     Permit the LC Usage Amount to exceed $10,000,000 for a period of 30 consecutive days during each fiscal year of Borrower.

Section 5.11. Minimum Consolidated Current Ratio.

     Permit the Consolidated Current Ratio to be less than the ratio set forth below for the designated fiscal quarter end:

	Minimum Consolidated
Applicable Fiscal Quarter	Current Ratio
Fiscal quarter ended January 31 of each fiscal year	1.50 to 1.00
Fiscal quarter ended April 30 of each fiscal year	1.25 to 1.00
Fiscal quarter ended July 31 of each fiscal year	1.25 to 1.00
Fiscal quarter ended October 31 of each fiscal year	1.50 to 1.00

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Section 5.12. Minimum Consolidated Fixed Charge Coverage Ratio.

     Permit the Consolidated Fixed Charge Coverage Ratio, measured as of the end of each fiscal quarter of each fiscal year, to be less than 2.50 to 1.00.

Section 5.13. Maximum Leverage Ratio.

     Permit the Consolidated Leverage Ratio, measured as of the end of each fiscal quarter of each fiscal year, to be less than the required ratio set forth in the following table for the:

	Maximum Consolidated
Applicable Fiscal Quarter	Leverage Ratio
Fiscal quarter ended January 31 of each fiscal year	1.25 to 1.00
Fiscal quarter ended April 30 of each fiscal year	2.50 to 1.00
Fiscal quarter ended July 31 of each fiscal year	3.50 to 1.00
Fiscal quarter ended October 31 of each fiscal year	1.25 to 1.00

Section 5.14. Inactive Subsidiaries.

     Allow Delkay Plastics or Virtue of California, Inc. to incur any Indebtedness or other liabilities, conduct any operations or business or own or acquire any asset or properties.

Section 5.15. Licensing Agreements.

     Enter into or assume any contract or agreement for the payment of licensing royalties in excess of 6.0% of the sales price of the inventory related to the licensed right.

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ARTICLE VI

EVENTS OF DEFAULT

Section 6.1. Events of Default.

     The occurrence of any of the following shall constitute an “Event of Default” under this Agreement:

     (a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents.

     (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made.

     (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained in Section 4.1, 4.3, 4.4, 4.7, 4.8, 4.9(a) or Article V of this Agreement.

     (d) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a), (b) and (c) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from the earlier to occur of (i) Borrower’s knowledge of the occurrence of such default and (ii) the receipt of written notice from Bank of any such default.

     (e) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower or any Subsidiary has incurred any debt or other liability to any Person, including Bank, in an aggregate amount of $50,000 or more.

     (f) (i) The filing of a notice of judgment lien against Borrower or any Subsidiary; or (ii) the recording of any abstract of judgment against Borrower or any Subsidiary in any county in which Borrower or such Subsidiary has an interest in real property; or (iii) the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any Subsidiary; or (iv) the entry of a judgment, order, decree or arbitration award against Borrower or any Subsidiary; or (v) Borrower or any of its Subsidiaries shall enter into any agreement to settle or compromise any pending or threatened litigation, except in the case of clauses (iv) and (v), (A) if the payment on such award, settlement or compromise represents an obligation for the payment of money of less than $50,000 or (B) in the case of an award, settlement or compromise that represents an obligation for the payment of money of $50,000 or more, such award, settlement or compromise is covered by third party insurance as to which the insurer has agreed in writing to make such payment on behalf of Borrower or such Subsidiary.

     (g) Borrower or any Guarantor shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its

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property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any Guarantor shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code, or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any Guarantor, or Borrower or any Guarantor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition, or Borrower or any Guarantor shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any Guarantor by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.

     (h) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower or any Guarantor of its obligations under any of the Loan Documents to which it is a party.

     (i) The dissolution or liquidation of Borrower or any Guarantor; or Borrower or any Guarantor, or any of their respective directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower or such Guarantor, as the case may be.

     (j) A Change of Control shall occur.

     (k) If any Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered thereby.

     (l) Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by Borrower or any Subsidiary, or a proceeding shall be commenced by Borrower or any Subsidiary, or by any governmental authority having jurisdiction over Borrower or any Subsidiary, seeking to establish the invalidity or unenforceability thereof, or Borrower or any Subsidiary shall deny that it has any liability or obligation purported to be created under any Loan Document, or Borrower or any Subsidiary shall challenge or contest in any action, suit or proceeding the perfection or priority of any Lien granted to the Bank.

     (m) If there shall occur any event or condition that has had or may reasonably be expected to have a Material Adverse Change.

     (n) If a notice of Lien, levy, or assessment is filed of record with respect to any of Borrower’s or any of its Subsidiaries’ assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any Borrower’s or any of its Subsidiaries’ assets and the same is not paid before such payment is delinquent, except in the case of a notice of lien, levy or

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assessment filed by, or any taxes or debts owing to, any state, county or other local governmental authority wherein the obligation owing to such governmental authority does not exceed $25,000.

Section 6.2. Remedies.

     Upon the occurrence of any Event of Default: (a) all Obligations, any term thereof to the contrary notwithstanding, shall at Bank’s option, in the case of an Event of Default arising under any clause of Section 6.1 other than clauses (f) or (h), and, automatically without any action on the part of Bank, in the case of an Event of Default under arising under clause (f) or (h) of Section 6.1, and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

ARTICLE VII

MISCELLANEOUS

Section 7.1 No Waiver.

     No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.

Section 7.2. Notices.

     All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:

BORROWER:	VIRCO MFG. CORPORATION
	2027 Harpers Way
	Torrance, California 90501
	Attn: Robert E. Dose
	Chief Financial Officer

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BANK:	WELLS FARGO BANK, NATIONAL ASSOCIATION
	San Gabriel Valley Regional
	Commercial Banking Office
	1000 Lakes Drive, Suite 250
	West Covina, California 91790
	Attention: Jeff Heisinger, Vice President

or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.

Section 7.3. Costs, Expenses And Attorneys’ Fees.

     Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to include outside counsel fees and all allocated costs of Bank’s in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank’s continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank’s rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity.

Section 7.4. Successors, Assignment.

     This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank’s prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank’s rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, or any collateral required hereunder.

Section 7.5. Entire Agreement; Amendment.

     This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto.

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Section 7.6. No Third Party Beneficiaries.

     This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.

Section 7.7. Time.

     Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.

Section 7.8. Severability Of Provisions.

     If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement.

Section 7.9. Counterparts.

     This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement.

Section 7.10. Governing Law.

     This Agreement shall be governed by and construed in accordance with the laws of the State of California.

Section 7.11. Arbitration.

     (a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

     (b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional

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procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

     (c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

     (d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000. Any dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

     (e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final

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determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

     (f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

     (g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

     (h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

     (i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

Section 7.12. Restatement of Prior Credit Agreement.

     Borrower and Bank hereby agree that as of the Closing Date (i) the terms and provisions of the Prior Credit Agreement shall be and hereby are amended, superceded and restated in their entirety by the terms and provisions of this Agreement, (ii) Bank shall not have any obligations under the Prior Credit Agreement, except to the extent that any such obligations may be restated in this Agreement or in the other Loan Documents and (iii) the execution and delivery of this Agreement shall not constitute or effect, or be deemed to constitute or effect, a novation, refinancing, discharge, extinguishment or refunding of any of the Indebtedness outstanding

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under the Prior Credit Agreement or that portion of such Indebtedness that remain outstanding under this Agreement.

[Signature Page Follows]

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

VIRCO MFG. CORPORATION		WELLS FARGO BANK, NATIONAL
		ASSOCIATION
By:	/s/ Robert E. Dose	By:	/s/ Jeff Heisinger
	Robert E. Dose		Jeff Heisinger
	Vice President – Finance, Secretary and		Vice President
	Treasurer

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ANNEX A
to CREDIT AGREEMENT

(DEFINITIONS)

     Capitalized terms used in the Loan Documents shall have (unless otherwise provided elsewhere in the Loan Documents) the following respective meanings.

     “Account” means an account (as that term is defined in the Code), and any and all supporting obligations in respect thereof.

     “Account Debtor” means any Person who is obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible.

     “ACH Transactions” means any cash management or related services (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by a Bank Product Provider for the account of Borrower or its Subsidiaries.

     “Affiliate” means, as applied to any Person, any other Person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of stock, by contract, or otherwise; provided, however, that, for purposes of Section 5.9 hereof: (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed an Affiliate of such Person.

     “Availability” means, as of any date of determination, the amount that Borrower is entitled to borrow as Advances under Section 1.1(a) (after giving effect to all then outstanding Advances and the then effective Letter of Credit Usage).

     “Bank Product” means any financial accommodation extended to Borrower or its Subsidiaries by Bank including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services or (g) transactions under Hedge Agreements.

     “Bank Product Agreements” means those agreements entered into from time to time by Borrower or any of its Subsidiaries with Bank in connection with any Bank Products.

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     “Bank Product Obligations” means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by Borrower or its Subsidiaries to Bank pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that Borrower or its Subsidiaries are obligated to reimburse to Bank as a result of Bank purchasing participations from, or executing indemnities or reimbursement obligations to, Bank with respect to the Bank Products provided by Bank to Borrower or its Subsidiaries.

     “Bankruptcy Code” means title 11 of the United States Code, as in effect from time to time.

     “Borrower” has the meaning set forth in the preamble to this Agreement.

     “Business Day” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the state of California, except that, if a determination of a Business Day shall relate to a LIBOR rate loan, the term “Business Day” also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market.

     “Capital Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

     “Capitalized Lease Obligation” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.

     “Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investor Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1, from S&P or at least P-1 from Moody’s, (d) certificates of deposit or bankers’ acceptances maturing within 1 year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000, (e) demand Deposit Accounts maintained with any bank organized under the laws of the United States or any state thereof so long as the amount maintained with any individual bank is less than or equal to $100,000 and is insured by the Federal Deposit Insurance Corporation and (f) Investments in money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (e) above.

     “Change of Control” means that (a) any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended), other than members of the Virtue family, becomes the beneficial owner (as defined in Rule 13d-3 under

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such Act), directly or indirectly, of 20% or more, of the capital stock of Borrower having the right to vote for the election of members of the Board of Directors or (b) a majority of the members of the Board of Directors do not constitute Continuing Directors.

     “Closing Date” means the date of the making of the initial Advance (or other extension of credit) hereunder.

     “Code” means the California Uniform Commercial Code, as in effect from time to time.

     “Collateral” means all assets and interests in assets and proceeds thereof now owned or hereafter acquired by Borrower, any Guarantor or any of their respective Subsidiaries in or upon which a Lien is granted to Bank under any of the Loan Documents.

     “Compliance Certificate” means a certificate substantially in the form of Exhibit B delivered by the chief financial officer of Borrower to Bank.

     “Consolidated Current Assets” means, as of any date of determination, the total assets of Borrower and its Subsidiaries on a consolidated basis that may properly be classified as current assets in conformity with GAAP.

     “Consolidated Current Liabilities” means, as of any date of determination, the total liabilities of Borrower and its Subsidiaries on a consolidated basis that may properly be classified as current liabilities in conformity with GAAP, including, without limitation, all outstanding Obligations outstanding hereunder.

     “Consolidated Current Ratio” means, as of any date of determination, the ratio of (a) Consolidated Current Assets at such date to (b) Consolidated Current Liabilities at such date.

     “Consolidated EBITDA” means, with reference to any period, Net Income for such period plus the sum of all amounts deducted in determining such Net Income in respect of (a) Interest Expense for such period, (b) federal, state and local income taxes for such period and (c) depreciation of fixed assets and amortization of intangible assets for such period; minus the sum of (x) gains from sales of capital assets in such period, (y) any income or gain from extraordinary items in such period and (z) income or gain from non-recurring items in such period, in each case as determined in accordance with GAAP.

     “Consolidated Fixed Charge Coverage Ratio” means, as of any date of determination, the ratio of (a) the result of (i) Consolidated EBITDA minus (ii) the aggregate amount of Restricted Payments, in each case for the four consecutive fiscal quarters ended on or most recently to such date to (b) the sum of (i) Interest Expense for the four consecutive fiscal quarters ended on or most recently to such date plus (ii) the current portion of the long term Indebtedness of Borrower and its Subsidiaries as of such date.

     “Consolidated Leverage Ratio” means, as of any date of determination, the ratio of (a) Total Funded Debt as of such date to (b) Consolidated EBITDA for the four consecutive fiscal quarters ended on or most recently to such date.

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     “Continuing Director” means (a) any member of the Board of Directors who was a director (or comparable manager) of Borrower on the Closing Date, and (b)  any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual threatened election contest relating to the election of the directors (or comparable managers) of Borrower and whose initial assumption of office resulted from such contest or the settlement thereof.

     “Default” means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

     “Dollars” or “$” means United States dollars.

     “Equipment” means equipment (as that term is defined in the Code) and includes machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), computer hardware, tools, parts, and goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing.

     “Event of Default” has the meaning set forth in Section 6.1.

     “GAAP” means generally accepted accounting principles as in effect from time to time in the United States, consistently applied.

     “Governing Documents” means, with respect to any Person, the certificate of formation, articles of incorporation, by-laws, operating agreement, limited partnership agreement, partnership agreement, joint venture agreement or other organizational documents of such Person.

     “Governmental Authority” means any federal, state, local, or other governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body.

     “Guarantied Obligations” means, at any date, all guaranties or similar contingent obligations of Borrower and its Subsidiaries as of such date. The amount of any guaranty shall be deemed to be the lower of (x) an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty is made and (y) the maximum amount for which Borrower or its Subsidiary may be liable pursuant to the terms of the instrument embodying such guarantee, unless such primary obligation and the maximum amount for which Borrower or such Subsidiary may be liable are not stated or determinable, in which case the amount of such guaranty shall be Borrower’s or such Subsidiary’s maximum reasonably anticipated liability in respect thereof as determined by Borrower in good faith.

     “Guarantor” means each of Virco Inc., a Delaware corporation, Virco Mgmt. Corporation, a Delaware corporation, and any other Person that at any time executes a Guaranty or any other guaranty in favor of Bank with respect to the Obligations or whose assets, directly or indirectly, are at any time pledged as security for the Obligations.

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     “Guaranty” means each guaranty, executed and delivered by each Guarantor in favor of Bank, in form and substance satisfactory to Bank, as the same may be amended, restated, supplemented or otherwise modified from time to time.

     “Hedge Agreement” means any and all agreements or documents now existing or hereafter entered into by Borrower or its Subsidiaries that provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging Borrower’s or its Subsidiaries’ exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices.

     “Indebtedness” means (a) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations as a lessee under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of a Person or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices), (f) all obligations owing under Hedge Agreements and (g) any obligation guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (f) above. The term “Indebtedness” shall exclude any ordinary course insurance premium financing.

     “Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, receivership, or proceedings seeking reorganization, arrangement, or other similar relief.

     “Interest Expense” means, with reference to any period, the aggregate of the interest expense of Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

     “Inventory” means inventory (as that term is defined in the Code).

     “Investment” means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising in the ordinary course of business consistent with past practices), purchases or other acquisitions of Indebtedness, stock, or all or substantially all of the assets of such other Person (or of any division or business line of such other Person), and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.

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     “Investment Property” means investment property (as that term is defined in the Code), and any and all supporting obligations in respect thereof.

     “LC Usage Amount” means, at any time, the sum of (a) the aggregate outstanding principal amount of Advances on such date plus (b) the Letter of Credit Usage on such date.

     “Letter of Credit Usage” means, at any date, the aggregate undrawn amount of all outstanding Letters of Credit on such date.

     “Lien” means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, irrespective of whether (a) such interest is based on the common law, statute, or contract, (b) such interest is recorded or perfected, and (c) such interest is contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances. Without limiting the generality of the foregoing, the term “Lien” includes the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also includes reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property.

     “Line of Credit Period” means the period from and including the Closing Date to but not including the Line of Credit Termination Date.

     “Line of Credit Termination Date” means February 1, 2010.

     “Loan Documents” means this Agreement, the Bank Product Agreements, the Guaranties, the Security Agreements, the Reaffirmation Agreement, 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.

     “Material Adverse Change” means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower and its Subsidiaries, taken as a whole, (b) a material impairment of Borrower’s and its Subsidiaries’ ability to perform their obligations under the Loan Documents to which they are parties or of Bank’s ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of the Bank’s Liens with respect to the Collateral as a result of an action or failure to act on the part of Borrower or its Subsidiaries.

     “Maximum Line of Credit Amount” means, as of any date of determination, an amount equal to:

     (a)  for the period commencing on the Closing Date through and including March 31, 2008, $40,000,000,

     (b)  for the period commencing on April 1, 2008 through and including September 30, 2008, $65,000,000,

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     (c)  for the period commencing on October 1, 2008 through and including October 31, 2008, $40,000,000,

     (d)  for the period commencing on November 1, 2008 through and including January 31, 2009, $20,000,000,

     (e)  for the period commencing on February 1, 2009 through and including March 31, 2009, $40,000,000,

     (f)  for the period commencing on April 1, 2009 through and including September 30, 2009, $65,000,000,

     (g)  for the period commencing October 1, 2009 through and including October 31, 2009, $40,000,000, and

     (h) for the period commencing on November 1, 2009 and thereafter, $20,000,000.

     “Mortgages” means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt, executed and delivered by Borrower or its Subsidiaries in favor of Bank, in form and substance satisfactory to Bank, that encumber the Real Property Collateral and the related improvements thereto.

     “Mortgage Related Documents” means, with respect to each parcel composing the Real Property Collateral, each of the following, in each case in form, scope and substance satisfactory to Bank:

     (a) marked-up commitments for a policy of title insurance, insuring the first priority of Bank’s Liens, with title insurance companies (the “Title Companies”) acceptable to Bank on each of parcel subject to a Mortgage, with the final title insurance policy being delivered within thirty (30) days of the Closing Date;

     (b) any customary affidavits and indemnities in favor of the Title Companies as may be required or necessary to obtain title insurance satisfactory to Bank;

     (c) copies of all recorded documents creating exceptions to the title policy referred to in Paragraph (a) above;

     (d) a survey; and, the surveyors retained for such survey shall be acceptable to Bank;

     (e) environmental assessments, audits or reports as Bank may request; and, the environmental consultants retained for such assessments, audits or reports shall be acceptable to Bank;

     (f) evidence of property and liability insurance on such parcel in form and substance acceptable to Bank naming Bank as first mortgagee; and

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     (g) such other certificates, documents and information as are reasonably requested by Bank, including, without limitation, permanent certificates of occupancy and evidence of zoning.

     “Net Income” means, with reference to any period, the net income (or net loss) of Borrower and its Subsidiaries for such period computed on a consolidated basis in accordance with GAAP; provided that there shall be excluded from Net Income (a) the net income (or net loss) of any Person accrued prior to the date it becomes a Subsidiary of, or has merged into or consolidated with, Borrower or any of its Subsidiaries; and (b) the net income (or net loss) of any Person (other than a Guarantor) in which Borrower or any of its Subsidiaries has a equity interest in, except to the extent of the amount of dividends or other distributions actually received by Borrower or such Guarantor during such period.

     “Obligations” means (a) all loans, Advances, debts, principal, interest (including any interest that, but for the commencement of an Insolvency Proceeding, would have accrued), contingent reimbursement obligations with respect to outstanding Letters of Credit, premiums, liabilities, obligations (including indemnification obligations), fees, charges, costs, expenses, lease payments, guaranties, covenants, and duties of any kind and description owing by Borrower or a Guarantor to Bank pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due, and (b) all Bank Product Obligations. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all extensions, modifications, renewals or alterations thereof, both prior and subsequent to any Insolvency Proceeding.

     “Permitted Liens” has the meaning set forth in Section 5.4.

     “Person” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.

     “Reaffirmation Agreement” means a reaffirmation agreement among Borrower, Guarantors and Bank, in form and substance satisfactory to Bank.

     “Real Property” means any estates or interests in real property now owned or hereafter acquired by Borrower or its Subsidiaries and the improvements thereto.

     “Real Property Collateral” means the parcel or parcels of Real Property identified on Schedule R-1 and any Real Property hereafter acquired by Borrower or its Subsidiaries.

     “Security Agreement” means the security agreement among Borrower, Guarantors and Bank, in form and substance satisfactory to Bank, as amended, restated, supplemented or otherwise modified from time to time.

     “Solvent” means, with respect to any Person on a particular date, that, at fair valuations, the sum of such Person’s assets is greater than all of such Person’s debts.

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     “Subsidiary” of a Person means a corporation, partnership, limited partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement and the other Loan Documents shall refer to a Subsidiary or Subsidiaries of Borrower.

     “Total Funded Debt” means, at any date, the sum of (a) Indebtedness and all other interest bearing liabilities of Borrower and its Subsidiaries, plus (b) all reimbursement or other obligations of Borrower and its Subsidiaries in respect of letters of credit plus (c) all Guarantied Obligations of Borrower and its Subsidiaries, in each case outstanding as of such date.

     Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP. All financial statements required to be delivered hereunder shall be prepared in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower’s independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Subsidiaries delivered to the Lender.

     Other Definitional Provisions. References in this Agreement to “Articles”, “Sections”, “Schedules” or “Exhibits” shall be to Articles, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. Any of the terms defined in Annex A may, unless the context otherwise requires, be used in the singular or plural depending on the reference. “Include” or “includes” and “including” shall be deemed to be followed by “without limitation” whether or not they are in fact followed by such words or words of like import. “Writing”, “written” and comparable terms refer to printing, typing and other means of reproducing words in a visible form. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and assigns of such Person. References “from” or “through” any date mean, unless otherwise specified, “from and including” or “through and including”, respectively.

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EX-10.2

EXHIBIT 10.2

REVOLVING LINE OF CREDIT NOTE

$65,000,000 West Covina, California
March 12, 2008

     FOR VALUE RECEIVED, the undersigned VIRCO MFG. CORPORATION (“Borrower”) promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) at its office at San Gabriel Valley Regional Commercial Banking Office, 1000 Lakes Drive, Suite 250, West Covina, California, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Sixty Five Million Dollars ($65,000,000), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein.

     This Revolving Line of Credit Note (this “Note”) is the Line of Credit Note issued pursuant to the Second Amended and Restated Credit Agreement dated as of March 12, 2008 (as amended, restated, supplemented or otherwise modified, the “Credit Agreement”) between Borrower and Bank. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. Reference hereby is made to the Loan Documents for a description of the assets in which a Lien has been granted, the nature and extent of the security and the guaranties, the terms and conditions upon which the Liens and each guaranty were granted and the rights of the holder of this Note in respect thereof.

     DEFINITIONS:

     As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:

     (a) “Applicable Margin” means the following percentages per annum, based upon the Consolidated EBITDA as set forth in the most recent Compliance Certificate received by Bank pursuant to Section 4.3(f) of the Credit Agreement:

	Trailing 12 month
Tier	Consolidated EBITDA	LIBOR Margin		Prime Rate Margin
I	<$17,999,999		2.50		0.0
II	$18,000,000 to $19,999,999		2.25		0.0
III	$20,000,000 to $21,999,999		2.00		-0.25
IV	> $22,000,000		1.75		-0.50

Any increase or decrease in the Applicable Margin resulting from a change in the Consolidated EBITDA for any relevant period shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 4.3(f); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then Pricing Tier 1 shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered. The Applicable Margin in effect from the Closing Date through the date that the Compliance Certificate (and audited financial

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statements) required to be delivered for the fiscal year ended January 31, 2008 is delivered to Bank shall be determined based upon Pricing Tier 1.

     (b) “Fixed Rate Term” means a period commencing on a Business Day and continuing for one (1), two (2), three (3), six (6), nine (9) or twelve (12) months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than $1,000,000; and provided further, that no Fixed Rate Term shall extend beyond the Line of Credit Termination Date. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day.

     (c) “LIBOR” means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

LIBOR =	Base LIBOR
	100% - LIBOR Reserve Percentage

     (i) “Base LIBOR” means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

     (ii) “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term.

     (d) “Prime Rate” means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate.

INTEREST:

     (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time plus the Applicable Margin or (ii) at a fixed rate per annum determined by Bank equal to LIBOR in effect on the first day of the

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applicable Fixed Rate Term plus the Applicable Margin. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank’s books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted.

     (b) Selection of Interest Rate Options. At any time any portion of this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term; provided, however, that if an Event of Default has occurred and is continuing, Borrower may not elect to continue or convert any Advance outstanding hereunder into a LIBOR rate loan. Any such notice may be given by telephone (or such other electronic method as Bank may permit) so long as, with respect to each LIBOR selection, (A) if requested by Bank, Borrower provides to Bank written confirmation thereof not later than three (3) Business Days after such notice is given, and (B) such notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate Term, or at a later time during any Business Day if Bank, at it’s sole option but without obligation to do so, accepts Borrower’s notice and quotes a fixed rate to Borrower. If Borrower does not immediately accept a fixed rate when quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request from Borrower shall be subject to a redetermination by Bank of the applicable fixed rate. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term applied.

     (c) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any Governmental Authority and related in any manner to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any Governmental Authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority and related in any manner to LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

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     (d) Payment of Interest. Interest accrued on this Note shall be payable on the first day of each month, commencing March 1, 2008.

     (e) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

     (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount set forth above or such lesser amount as shall at any time be available hereunder, as set forth in the Credit Agreement. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on Line of Credit Termination Date.

     (b) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) Robert A. Virtue, Robert Dose, Doug Virtue or Bassey Yau, any one of them acting alone, who are authorized to request Advances and direct the disposition of any Advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to Advances deposited to the credit of any deposit account of Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request Advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an Advance is or has been authorized by Borrower.

     (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first.

PREPAYMENT:

     (a) Prime Rate. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty.

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     (b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of $1,000,000; provided, however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month:

     (i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto.

     (ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid.

     (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above.

     Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees to pay the above described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum two percent (2%) above the Prime Rate in effect from time to time (computed on the basis of a 360 day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank.

     (c) The principal Indebtedness evidenced hereby shall be payable as follows and without set off, counterclaim or reduction of any kind:

     (i) the amount, if any, by which the LC Usage Amount at any time exceeds the Maximum Line of Credit Amount at such date shall be payable immediately; and

     (ii) the principal Indebtedness evidenced hereby shall be payable on the Line of Credit Termination Date

EVENTS OF DEFAULT:

     Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an “Event of Default” under this Note.

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MISCELLANEOUS:

     (a) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several.

     (b) Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California.

[Signature Page Follows]

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     IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above.

VIRCO MFG. CORPORATION
By:	/s/ Robert E. Dose
	Robert E. Dose
	Vice President – Finance, Secretary and Treasurer

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EX-10.3

EXHIBIT 10.3

MASTER REAFFIRMATION AGREEMENT

     MASTER REAFFIRMATION AGREEMENT dated as of March 12, 2008 (“Agreement”) among VIRCO MFG. CORPORATION, a Delaware corporation (the “Borrower”), VIRCO, INC., a Delaware corporation (“Virco”), VIRCO MGMT. CORPORATION, a Delaware corporation (“Virco Mgmt”; and, together with the Borrower and Virco, the “Loan Parties”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (the “Bank”).

W I T N E S S ET H:

     WHEREAS, concurrently with the execution and delivery of this Agreement, the Borrower and the Bank have entered into that certain Second Amended and Restated Credit Agreement dated as of the date hereof (as further amended, modified, restated or otherwise supplemented from time to time, the “Credit Agreement”; terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined), which has amended and restated in its entirety that certain Amended and Restated Credit Agreement dated as of January 27, 2004 (as amended or otherwise modified prior to the date hereof, the “Prior Credit Agreement”) between the Borrower and the Bank; and

     WHEREAS, the Loan Parties have previously executed and delivered to the Bank various guaranties, security agreements and mortgages, each listed on Annex A attached hereto (collectively, the “Existing Security Documents”).

     NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the undersigned agrees as follows:

     1. Amendments to Existing Security Documents.

          (a) All references in the Existing Security Documents to the “Credit Agreement” shall be deemed to refer to the Credit Agreement. Cross references in the Existing Security Documents to particular section references in the Prior Credit Agreement shall be deemed to be cross references to the corresponding sections of the Credit Agreement.

          (b) All references to the obligations guaranteed or secured under the Existing Security Documents shall be deemed to include all of the Obligations of the Loan Parties.

     2. Reaffirmation. Each Loan Party, as debtor, grantor, mortgagor, pledgor, guarantor, assignor, or in other similar capacities in which such Loan Party has granted liens or security interests in its properties and/or acts as a guarantor, surety or an accommodation party, as the case may be, under any of the Existing Security Documents to which it is a party hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, and undertakings arising under or pursuant to each of such Existing Security Documents and (ii) acknowledges and agrees that, subsequent to the execution and delivery of, and after taking into account and giving effect to, the Credit Agreement, each of such Existing Security Documents remains in full force and effect as hereby ratified, amended and confirmed. To the extent such Loan Party granted liens on, or security interests in, any of its properties pursuant to any such Existing Security Documents as security for the Obligations arising under, pursuant to or as defined in the Prior Credit

Agreement, each such Credit Party hereby ratifies and reaffirms such grant of security and confirms and agrees that, subsequent to the execution and delivery of, and after taking into account and giving effect to, the Credit Agreement, such liens and security interests hereafter secure all of the Obligations arising under, pursuant to or as defined in the Credit Agreement. The execution of this Agreement shall not operate as a waiver of any right, power or remedy of the Bank, nor constitute a waiver of any provision of any of the Existing Security Documents.

     3. Indemnification. Each Loan Party agrees to indemnify and hold harmless the Bank (including each Person obligated on a Hedging Agreement that is a Loan Document if such Person was an affiliate of Bank at the time of it entered into such Hedging Agreement) and each of their respective Affiliates, and each of the directors, officers, employees, agents, trustees, representatives, attorneys, consultants and advisors of or to any of the foregoing (each such Person being an “Indemnitee”) from and against any and all claims, damages, liabilities, obligations, losses, penalties, actions, judgments, suits, costs, disbursements and expenses, joint or several, of any kind or nature (including reasonable fees, disbursements and expenses of financial and legal advisors to any such Indemnitee) that may be imposed on, incurred by or asserted against any such Indemnitee in connection with or arising out of any investigation, litigation or proceeding, whether or not such investigation, litigation or proceeding is brought by any such Indemnitee or any of its directors, security holders or creditors or any such Indemnitee, director, security holder or creditor is a party thereto, whether direct, indirect, or consequential and whether based on any federal, state or local law or other statutory regulation, securities or commercial law or regulation, or under common law or in equity, or on contract, tort or otherwise, in any manner relating to or arising out of the Credit Agreement, the Prior Credit Agreement, any other Loan Document, any Obligation, or any act, event or transaction related or attendant to any thereof, or the use or intended use of the proceeds of the Advances or Letters of Credit or in connection with any investigation of any potential matter covered hereby (collectively, the “Indemnified Matters”); provided, however, that the Borrower shall not have any liability hereunder to an Indemnitee with respect to any Indemnified Matter that has resulted primarily from the gross negligence or willful misconduct of that Indemnitee, as determined by a court of competent jurisdiction in a final non-appealable judgment or order.

     4. Successors and Assigns. This Agreement shall be binding upon each of the Loan Parties and upon their respective successors and assigns and shall inure to the benefit of the Bank and its successors and assigns. The successors and assigns of such entities shall include, without limitation, their respective receivers, trustees, or debtors-in-possession.

     5. Further Assurances. Each Loan Party hereby agrees from time to time, as and when requested by the Bank to execute and deliver, or cause to be executed and delivered, all such documents, instruments and agreements and to take or cause to be taken such further or other action as the Bank may reasonably deem necessary or desirable in order to carry out the intent and purposes of this Agreement and any Security Documents to which such Loan Party is a party.

     6. Definitions. All references to the singular shall be deemed to include the plural and vice versa where the context so requires.

     7. Authorization. The Bank is hereby authorized by the Loan Parties to file UCC financing statements with respect to the Collateral in which security interests are granted and

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affirmed, which UCC financing statements may describe such collateral as “all assets” of the debtor named therein.

     8. Governing Law; Arbitration. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. The provisions of Section 7.11 of the Credit Agreement are hereby incorporated by reference, mutatis mutandis.

     9. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

     10. Merger. This Agreement represents the final agreement of each of the Loan Parties with respect to the matters contained herein and may not be contradicted by evidence of prior or contemporaneous agreements, or prior or subsequent oral agreements, among any of the Loan Parties and the Bank.

     11. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, 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.

     12. Section Headings. The section headings herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions hereof.

[Signature Page Follows]

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     WITNESS the due execution of this Agreement by the respective duly authorized officers of the undersigned as of the date first written above.

VIRCO MFG. CORPORATION
By:	/s/ Robert E. Dose
	Robert E. Dose
	Vice President - Finance, Secretary and Treasurer

VIRCO INC.
By:	/s/ Robert E. Dose
	Robert E. Dose
	Vice President - Finance, Secretary and Treasurer

VIRCO MGMT. CORPORATION
By:	/s/ Robert E. Dose
	Robert E. Dose
	Vice President - Finance, Secretary and Treasurer

WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Jeff Heisinger
	Jeff Heisinger
	Vice President

Annex A
Existing Security Documents

     (i) the Subsidiary Guaranty dated as of January 27, 2004 executed by Virco, Inc., a Delaware corporation (“Virco”), in favor of Wells Fargo Bank, National Association (the “Bank”);

     (ii) the Subsidiary Guaranty dated as of January 27, 2004 executed by Virco Mgmt. Corporation, a Delaware corporation (“Virco Mgmt”), in favor of the Bank;

     (iii) the Amended and Restated Security Agreement dated as of January 27, 2004 among Virco Mfg. Corporation, a Delaware corporation (the “Borrower”), Virco, Virco Mgmt and the Bank, including the powers of attorney executed by the Borrower, Virco and Virco Mgmt in connection therewith;

     (iv) the Intellectual Property Security Agreement dated as of January 27, 2004 between the Borrower and the Bank;

     (v) the Intellectual Property Security Agreement dated as of January 27, 2004 between Virco and the Bank;

     (vi) the Intellectual Property Security Agreement dated as of January 27, 2004 between Virco Mgmt and the Bank; and

     (vii) the Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing executed by the Borrower in favor of the Bank.

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EX-10.4

EXHIBIT 10.4

Loan No. 8079119402

THIS INSTRUMENT PREPARED BY:

Gibson Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attn: Mark Nicoletti

AND WHEN RECORDED MAIL TO:

Commercial Banking Group (AU #2702)
201 Third Street, 8th Floor
San Francisco, CA 94013
Attn: Records Management / Team 2
Loan No. 8079119402

THIS MORTGAGE SECURES A NOTE THAT

PROVIDES FOR A VARIABLE INTEREST RATE

AMENDED AND RESTATED MORTGAGE
WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING

     THE PARTIES TO THIS AMENDED AND RESTATED MORTGAGE WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this “Mortgage”), made as of March 12, 2008, are VIRCO MFG. CORPORATION, a Delaware corporation (“Mortgagor”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Mortgagee”). The mailing address of Mortgagor and Mortgagee are the addresses for those parties set forth or referred to in Section 7.10 below.

RECITALS

     WHEREAS, Mortgagor did execute and deliver 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 Mortgagee; and

     WHEREAS, the Original Mortgage 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, as modified by that certain Modification Agreement (Secured Loan) executed by Mortgagor 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 Mortgagor on December 8, 2005, which was recorded and filed in the Official Records on

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December 15, 2005, as Document No. 2005-27794, and by that certain Modification Agreement (Secured Loan) executed by Mortgagor on March 26, 2007, which was recorded and filed in the Official Records on April 10, 2007, as Document No. 2007-7273; and

     WHEREAS, Mortgagor and Mortgagee are parties to that certain Second Amended and Restated Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified, from time to time, the “Credit Agreement”), which amends and restates, in its entirety, that certain Amended and Restated Credit Agreement dated as of January 27, 2004; and

     WHEREAS, Mortgagor and Mortgagee, now desire to amend and restate the Original Mortgage, in its entirety, and replace it with this Mortgage.

ARTICLE 1. GRANT OF MORTGAGE

     1.1 GRANT. For the purposes of and upon the terms and conditions in this Mortgage and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mortgagor irrevocably grants, bargains, sells, conveys and assigns to Mortgagee, with power of sale and right of entry and possession, all of that real property located in the City of Conway, County of Faulkner, State of Arkansas, described on Exhibit A attached hereto, together with all right, title, interest, and privileges of Mortgagor in and to all streets, ways, roads, and alleys used in connection with or pertaining to such real property, all development rights or credits, air rights, water, water rights and water stock related to the real property, and all minerals, oil and gas, and other hydrocarbon substances in, on or under the real property, and all appurtenances, easements, rights and rights of way appurtenant or related thereto; all buildings, other improvements and fixtures now or hereafter located on the real property, including, but not limited to, all apparatus, equipment, and appliances used in the operation or occupancy of the real property, it being intended by the parties that all such items shall be conclusively considered to be a part of the real property, whether or not attached or affixed to the real property (the “Improvements”); all interest or estate which Mortgagor may hereafter acquire in the property described above, and all additions and accretions thereto, and the proceeds of any of the foregoing; (all of the foregoing being collectively referred to as the “Subject Property”). The listing of specific rights or property shall not be interpreted as a limit of general terms.

     1.2 ADDRESS. The addresses of the Subject Property are (i) 1701 Sturgis Road, (ii) 900 Robbins Street, and (iii) 701 Bruce Street. However, neither the failure to designate an address nor any inaccuracy in the addresses designated shall affect the validity or priority of the lien of this Mortgage on the Subject Property as described on Exhibit A.

     1.3 INCORPORATION OF RECITALS. The Recitals (above) are true and correct and are hereby incorporated herein by this reference.

ARTICLE 2. OBLIGATIONS SECURED

     2.1 OBLIGATIONS SECURED. Mortgagor makes this Mortgage for the purpose of securing the following obligations (“Secured Obligations”):

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          (a) Payment to Mortgagee of all sums at any time owing under that certain Revolving Line of Credit Note of even date herewith in the principal amount of Sixty-Five Million and No/100 Dollars ($65,000,000) (the “Note”), executed by Mortgagor, as “Borrower,” and payable to the order of Mortgagee, as “Lender;” and

          (b) Payment to Mortgagee of all sums representing Bank Product Obligations, as defined in the Credit Agreement; and

          (c) Payment and performance of all covenants and obligations of Mortgagor under this Mortgage; and

          (d) Payment and performance of all covenants and obligations on the part of Mortgagor under the Credit Agreement and each other Loan Document executed in connection therewith; and

          (e) Payment and performance of all future advances and other obligations that the then record owner of all or part of the Subject Property may agree to pay and/or perform (whether as principal, surety or guarantor) for the benefit of Mortgagee, when such future advance or obligation is evidenced by a writing which recites that it is secured by this Mortgage; and

          (f) All amendments, restatements, modifications, extensions and renewals of any of the obligations secured hereby, however evidenced, including, without limitation: (i) modifications of the required principal payment dates or interest payment dates or both, as the case may be, deferring or accelerating payment dates wholly or partly; or (ii) amendments, restatements, modifications, extensions or renewals at a different rate of interest whether or not in the case of a note, the amendment, restatement, modification, extension or renewal is evidenced by a new or additional promissory note or notes.

     2.2 OBLIGATIONS. The term “obligations” is used herein in its broadest and most comprehensive sense and shall be deemed to include, without limitation, all interest and charges, prepayment charges (if any), late charges and loan fees at any time accruing or assessed on any of the Secured Obligations, including, without limitation, any interest or other payment obligations that would have accrued on the Secured Obligations but for the application of the United States Bankruptcy Code.

     2.3 INCORPORATION. All terms of the Secured Obligations and the documents evidencing such obligations are incorporated herein by this reference. All persons who may have or acquire an interest in the Subject Property shall be deemed to have notice of the terms of the Secured Obligations and to have notice, if provided therein, that: (a) the Note or the Credit Agreement may permit borrowing, repayment and re-borrowing so that repayments shall not reduce the amounts of the Secured Obligations; and (b) the rate of interest on one or more Secured Obligations may vary from time to time.

ARTICLE 3. ASSIGNMENT OF LEASES AND RENTS

     3.1 ASSIGNMENT. Mortgagor hereby irrevocably assigns to Mortgagee all of Mortgagor’s right, title and interest in, to and under: (a) all leases of the Subject Property or any

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portion thereof, and all other agreements of any kind relating to the use or occupancy of the Subject Property or any portion thereof, whether now existing or entered into after the date hereof (“Leases”); and (b) the rents, revenue, income, issues, deposits and profits of the Subject Property, including, without limitation, all amounts payable and all rights and benefits accruing to Mortgagor under the Leases (“Payments”). The term “Leases” shall also include all guarantees of and security for the lessees’ performance thereunder, and all amendments, extensions, renewals or modifications thereto which are permitted hereunder. This is a present and absolute assignment, not an assignment for security purposes only, and Mortgagee’s right to the Leases and Payments is not contingent upon, and may be exercised without possession of, the Subject Property.

     3.2 GRANT OF LICENSE. Mortgagee confers upon Mortgagor a license (“License”) to collect and retain the Payments as they become due and payable, until the occurrence of a Default (as hereinafter defined). Upon a Default, the License shall be automatically revoked and Mortgagee may collect and apply the Payments pursuant to Section 6.4 without notice and without taking possession of the Subject Property. Mortgagor hereby irrevocably authorizes and directs the lessees under the Leases to rely upon and comply with any notice or demand by Mortgagee for the payment to Mortgagee of any rental or other sums which may at any time become due under the Leases, or for the performance of any of the lessees’ undertakings under the Leases, and the lessees shall have no right or duty to inquire as to whether any Default has actually occurred or is then existing hereunder. Mortgagor hereby relieves the lessees from any liability to Mortgagor by reason of relying upon and complying with any such notice or demand by Mortgagee.

     3.3 EFFECT OF ASSIGNMENT. The foregoing irrevocable assignment shall not cause Mortgagee to be: (a) a mortgagee in possession; (b) responsible or liable for the control, care, management or repair of the Subject Property or for performing any of the terms, agreements, undertakings, obligations, representations, warranties, covenants and conditions of the Leases; or (c) responsible or liable for any waste committed on the Subject Property by the lessees under any of the Leases or any other parties; for any dangerous or defective condition of the Subject Property; or for any negligence in the management, upkeep, repair or control of the Subject Property resulting in loss or injury or death to any lessee, licensee, employee, invitee or other person. Mortgagee shall not directly or indirectly be liable to Mortgagor or any other person as a consequence of: (i) the exercise or failure to exercise by Mortgagee, or any of its employees, agents, contractors or subcontractors, any of the rights, remedies or powers granted to Mortgagee hereunder; or (ii) the failure or refusal of Mortgagee to perform or discharge any obligation, duty or liability of Mortgagor arising under the Leases.

     3.4 REPRESENTATIONS AND WARRANTIES. Mortgagor represents and warrants that: (a) the Schedule of Leases attached hereto as Schedule 1 is, as of the date hereof, a true, accurate and complete list of all Leases; (b) all existing Leases are in full force and effect and are enforceable in accordance with their respective terms, and no breach or default, or event which would constitute a breach or default after notice or the passage of time, or both, exists under any existing Leases on the part of any party; (c) no rent or other payment under any existing Lease has been paid by any lessee for more than one (1) month in advance; and (d) none of the lessor’s interests under any of the Leases has been transferred or assigned.

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     3.5 COVENANTS. Mortgagor covenants and agrees at Mortgagor’s sole cost and expense to: (a) perform the obligations of lessor contained in the Leases and enforce by all available remedies performance by the lessees of the obligations of the lessees contained in the Leases; (b) give Mortgagee prompt written notice of any default which occurs with respect to any of the Leases, whether the default be that of the lessee or of the lessor; (c) exercise Mortgagor’s best efforts to keep all portions of the Subject Property that are capable of being leased at all times at rentals not less than the fair market rental value; (d) deliver to Mortgagee fully executed, counterpart original(s) of each and every Lease if requested to do so; and (e) execute and record such additional assignments of any Lease or specific subordinations (or subordination, attornment and non-disturbance agreements executed by the lessor and lessee) of any Lease to the Mortgage, in form and substance acceptable to Mortgagee, as Mortgagee may request. Mortgagor shall not, without Mortgagee’s prior written consent or as otherwise permitted by any provision of the Credit Agreement: (i) enter into any Leases after the date thereof; (ii) execute any other assignment relating to any of the Leases; (iii) discount any rent or other sums due under the Leases or collect the same in advance, other than to collect rentals one (1) month in advance of the time when it becomes due; (iv) terminate, modify or amend any of the terms of the Leases or in any manner release or discharge the lessees from any obligations thereunder; (v) consent to any assignment or subletting by any lessee; or (vi) subordinate or agree to subordinate any of the Leases to any other Mortgage or encumbrance. Any such attempted action in violation of the provisions of this Section 3.5 shall be null and void. Without in any way limiting the requirement of Mortgagee’s consent hereunder, any sums received by Mortgagor in consideration of any termination (or the release or discharge of any lessee) modification or amendment of any Lease shall be applied to reduce the outstanding Secured Obligations and any such sums received by Mortgagor shall be held in trust by Mortgagor for such purpose.

     3.6 ESTOPPEL CERTIFICATES. Within thirty (30) days after written request by Mortgagee, Mortgagor shall deliver to Mortgagee and to any party designated by Mortgagee estoppel certificates executed by Mortgagor and by each of the lessees, in recordable form, certifying (if such be the case): (a) that the foregoing assignment and the Leases are in full force and effect; (b) the date of each lessee’s most recent payment of rent; (c) that there are no defenses or offsets outstanding, or stating those claimed by Mortgagor or lessees under the foregoing assignment or the Leases, as the case may be; and (d) any other information reasonably requested by Mortgagee.

ARTICLE 4. SECURITY AGREEMENT AND FIXTURE FILING

     4.1 SECURITY INTEREST. Mortgagor hereby grants and assigns to Mortgagee as of the “Closing Date” (defined in the Credit Agreement) a security interest, to secure payment and performance of all of the Secured Obligations, in all of the following described personal property in which Mortgagor now or at any time hereafter has any interest (collectively, the “Collateral”):

          (a) All goods, building and other materials, supplies, inventory, work in process, equipment, machinery, fixtures, furniture, furnishings, signs and other personal property and embedded software included therein and supporting information, wherever situated, which are or are to be incorporated into, used in connection with, or appropriated for use on (i) the real

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property described on Exhibit A attached hereto and incorporated by reference herein or (ii) any existing or future improvements on the real property (which real property and improvements are collectively referred to herein as the “Subject Property”); together with all rents and security deposits derived from the Subject Property; all inventory, accounts, cash receipts, deposit accounts, accounts receivable, contract rights, licenses, agreements, general intangibles, payment intangibles, software, chattel paper (whether electronic or tangible), instruments, documents, promissory notes, drafts, letters of credit, letter of credit rights, supporting obligations, insurance policies, insurance and condemnation awards and proceeds, proceeds of the sale of promissory notes, any other rights to the payment of money, trade names, trademarks and service marks arising from or related to the ownership, management, leasing, operation, sale or disposition of the Subject Property or any business now or hereafter conducted thereon by Mortgagor; all development rights and credits, and any and all permits, consents, approvals, licenses, authorizations and other rights granted by, given by or obtained from, any governmental entity with respect to the Subject Property; all water and water rights, wells and well rights, canals and canal rights, ditches and ditch rights, springs and spring rights, and reservoirs and reservoir rights appurtenant to or associated with the Subject Property, whether decreed or undecreed, tributary, non-tributary or not non-tributary, surface or underground or appropriated or unappropriated, and all shares of stock in water, ditch, lateral and canal companies, well permits and all other evidences of any of such rights; all deposits or other security now or hereafter made with or given to utility companies by Mortgagor with respect to the Subject Property; all advance payments of insurance premiums made by Mortgagor with respect to the Subject Property; all plans, drawings and specifications relating to the Subject Property; all loan funds held by Mortgagee, whether or not disbursed; all funds deposited with Mortgagee pursuant to any loan agreement; all reserves, deferred payments, deposits, accounts, refunds, cost savings and payments of any kind related to the Subject Property or any portion thereof; together with all replacements and proceeds of, and additions and accessions to, any of the foregoing; together with all books, records and files relating to any of the foregoing.

          (b) As to all of the above described personal property which is or which hereafter becomes a “fixture” under applicable law, this Mortgage constitutes a fixture filing under the Arkansas Uniform Commercial Code, as amended or recodified from time to time (“UCC”).

     4.2 REPRESENTATIONS AND WARRANTIES. Mortgagor represents and warrants that: (a) Mortgagor has, or will have, good title to the Collateral; (b) Mortgagor has not previously assigned or encumbered the Collateral, and no financing statement covering any of the Collateral has been delivered to any other person or entity; (c) Mortgagor’s principal place of business is located at the address shown in Section 7.10; and (d) Mortgagor’s legal name is exactly as set forth on the first page of this Mortgage and all of Mortgagor’s organizational documents or agreements delivered to Mortgagee are complete and accurate in every respect.

     4.3 COVENANTS. Mortgagor agrees: (a) to execute and deliver such documents as Mortgagee deems necessary to create, perfect and continue the security interests contemplated hereby; (b) not to change its name, and as applicable, its chief executive office, its principal residence or the jurisdiction in which it is organized and/or registered without giving Mortgagee prior written notice thereof; (c) to cooperate with Mortgagee in perfecting all security interests granted herein and in obtaining such agreements from third parties as Mortgagee deems

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necessary, proper or convenient in connection with the preservation, perfection or enforcement of any of its rights hereunder; and (d) that Mortgagee is authorized to file financing statements in the name of Mortgagor to perfect Mortgagee’s security interest in Collateral.

     4.4 RIGHTS OF MORTGAGEE. In addition to Mortgagee’s rights as a “Secured Party” under the UCC, Mortgagee may, but shall not be obligated to, at any time without notice and at the expense of Mortgagor: (a) give notice to any person of Mortgagee’s rights hereunder and enforce such rights at law or in equity; (b) insure, protect, defend and preserve the Collateral or any rights or interests of Mortgagee therein; (c) inspect the Collateral; and (d) endorse, collect and receive any right to payment of money owing to Mortgagor under or from the Collateral. Notwithstanding the above, in no event shall Mortgagee be deemed to have accepted any property other than cash in satisfaction of any obligation of Mortgagor to Mortgagee unless Mortgagee shall make an express written election of said remedy under UCC § 9-620, or other applicable law.

     4.5 RIGHTS OF MORTGAGEE ON DEFAULT. Upon the occurrence of a Default (hereinafter defined) under this Mortgage, then in addition to all of Mortgagee’s rights as a “Secured Party” under the UCC or otherwise at law:

          (a) Mortgagee may (i) upon written notice, require Mortgagor to assemble any or all of the Collateral and make it available to Mortgagee at a place designated by Mortgagee; (ii) without prior notice, enter upon the Subject Property or other place where any of the Collateral may be located and take possession of, collect, sell, lease, license and dispose of any or all of the Collateral, and store the same at locations acceptable to Mortgagee at Mortgagor’s expense; (iii) sell, assign and deliver at any place or in any lawful manner all or any part of the Collateral and bid and become the purchaser at any such sales;

          (b) Mortgagee may, for the account of Mortgagor and at Mortgagor’s expense: (i) operate, use, consume, sell, lease, license or dispose of the Collateral as Mortgagee deems appropriate for the purpose of performing any or all of the Secured Obligations; (ii) enter into any agreement, compromise, or settlement, including insurance claims, which Mortgagee may deem desirable or proper with respect to any of the Collateral; and (iii) endorse and deliver evidences of title for, and receive, enforce and collect by legal action or otherwise, all indebtedness and obligations now or hereafter owing to Mortgagor in connection with or on account of any or all of the Collateral; and

          (c) In disposing of Collateral hereunder, Mortgagee may disclaim all warranties of title, possession, quiet enjoyment and the like. Any proceeds of any disposition of any Collateral may be applied by Mortgagee to the payment of expenses incurred by Mortgagee in connection with the foregoing, including reasonable attorneys’ fees, and the balance of such proceeds may be applied by Mortgagee toward the payment of the Secured Obligations in such order of application as Mortgagee may from time to time elect.

          (d) Notwithstanding any other provision hereof, Mortgagee shall not be deemed to have accepted any property other than cash in satisfaction of any obligation of Mortgagor to Mortgagee unless Mortgagor shall make an express written election of said remedy

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under UCC § 9-620, or other applicable law. Mortgagor agrees that Mortgagee shall have no obligation to process or prepare any Collateral for sale or other disposition.

     4.6 POWER OF ATTORNEY. Mortgagor hereby irrevocably appoints Mortgagee as Mortgagor’s attorney-in-fact (such agency being coupled with an interest), and as such attorney-in-fact Mortgagee may, without the obligation to do so, in Mortgagee’s name, or in the name of Mortgagor, prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve any of Mortgagee’s security interests and rights in or to any of the Collateral, and, upon a Default hereunder, take any other action required of Mortgagor; provided, however, that Mortgagee as such attorney-in-fact shall be accountable only for such funds as are actually received by Mortgagee.

     4.7 POSSESSION AND USE OF COLLATERAL. Except as otherwise provided in this Section or the other Loan Documents (as defined in the Credit Agreement), so long as no Default exists under this Mortgage or any of the Loan Documents, Mortgagor may possess, use, move, transfer or dispose of any of the Collateral in the ordinary course of Mortgagor’s business and in accordance with the Credit Agreement.

ARTICLE 5. RIGHTS AND DUTIES OF THE PARTIES

     5.1 TITLE. Mortgagor represents and warrants that, except as disclosed to Mortgagee in a writing which refers to this warranty, Mortgagor lawfully holds and possesses fee simple title to the Subject Property without limitation on the right to encumber, and that this Mortgage is a first and prior lien on the Subject Property.

     5.2 TAXES AND ASSESSMENTS. Subject to Mortgagor’s rights to contest payment of taxes as may be provided in the Credit Agreement, Mortgagor shall pay prior to delinquency all taxes, assessments, levies and charges imposed by any public or quasi-public authority or utility company which are or which may become a lien upon or cause a loss in value of the Subject Property or any interest therein. Mortgagor shall also pay prior to delinquency all taxes, assessments, levies and charges imposed by any public authority upon Mortgagee by reason of its interest in any Secured Obligation or in the Subject Property, or by reason of any payment made to Mortgagee pursuant to any Secured Obligation; provided, however, Mortgagor shall have no obligation to pay taxes which may be imposed from time to time upon Mortgagee and which are measured by and imposed upon Mortgagee’s net income.

     5.3 TAX AND INSURANCE IMPOUNDS. At any time following the occurrence of a Default, at Mortgagee’s option and upon its demand, Mortgagor, shall, until all Secured Obligations have been paid in full, pay to Mortgagee monthly, annually or as otherwise directed by Mortgagee an amount estimated by Mortgagee to be equal to: (a) all taxes, assessments, levies and charges imposed by any public or quasi-public authority or utility company which are or may become a lien upon the Subject Property or Collateral and will become due for the tax year during which such payment is so directed; and (b) premiums for fire, hazard and insurance required or requested pursuant to the Loan Documents when same are next due. If Mortgagee determines that any amounts paid by Mortgagor are insufficient for the payment in full of such taxes, assessments, levies, charges and/or insurance premiums, Mortgagee shall notify

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Mortgagor of the increased amounts required to pay all amounts when due, whereupon Mortgagor shall pay to Mortgagee within thirty (30) days thereafter the additional amount as stated in Mortgagee’s notice. All sums so paid shall not bear interest, except to the extent and in any minimum amount required by law; and Mortgagee shall, unless Mortgagor is otherwise in Default hereunder or under any Loan Document, apply said funds to the payment of, or at the sole option of Mortgagee release said funds to Mortgagor for the application to and payment of, such sums, taxes, assessments, levies, charges, and insurance premiums. Upon Default by Mortgagor hereunder or under any Secured Obligation, Mortgagee may apply all or any part of said sums to any Secured Obligation and/or to cure such Default, in which event Mortgagor shall be required to restore all amounts so applied, as well as to cure any other events or conditions of Default not cured by such application. Upon assignment of this Mortgage, Mortgagee shall have the right to assign all amounts collected and in its possession to its assignee whereupon Mortgagee shall be released from all liability with respect thereto. Within ninety-five (95) days following full repayment of the Secured Obligations (other than full repayment of the Secured Obligations as a consequence of a foreclosure or conveyance in lieu of foreclosure of the liens and security interests securing the Secured Obligations) or at such earlier time as Mortgagee may elect, the balance of all amounts collected and in Mortgagee’s possession shall be paid to Mortgagor and no other party shall have any right or claim thereto.

     5.4 PERFORMANCE OF SECURED OBLIGATIONS. Mortgagor shall promptly pay and perform each Secured Obligation when due.

     5.5 LIENS, ENCUMBRANCES AND CHARGES. Mortgagor shall immediately discharge any lien not approved by Mortgagee in writing that has or may attain priority over this Mortgage. Subject to the provisions of the Credit Agreement regarding mechanics’ liens, Mortgagor shall pay when due all obligations secured by or which may become liens and encumbrances which shall now or hereafter encumber or appear to encumber all or any part of the Subject Property or Collateral, or any interest therein, whether senior or subordinate hereto.

     5.6 DAMAGES; INSURANCE AND CONDEMNATION PROCEEDS.

          (a) The following (whether now existing or hereafter arising) are all absolutely and irrevocably assigned by Mortgagor to Mortgagee and, at the request of Mortgagee, shall be paid directly to Mortgagee: (i) all awards of damages and all other compensation payable directly or indirectly by reason of a condemnation or proposed condemnation for public or private use affecting all or any part of, or any interest in, the Subject Property or Collateral; (ii) all other claims and awards for damages to, or decrease in value of, all or any part of, or any interest in, the Subject Property or Collateral; (iii) all proceeds of any insurance policies (whether or not expressly required by Mortgagee to be maintained by Mortgagor, including, but not limited to, earthquake insurance and terrorism insurance, if any) payable by reason of loss sustained to all or any part of the Subject Property or Collateral; and (iv) all interest which may accrue on any of the foregoing. Subject to applicable law, and without regard to any requirement contained in Section 5.7(d), Mortgagee may at its discretion apply all or any of the proceeds it receives to its expenses in settling, prosecuting or defending any claim and may apply the balance to the Secured Obligations in any order acceptable to Mortgagee, and/or Mortgagee may release all or any part of the proceeds to Mortgagor upon any conditions Mortgagee may impose. Mortgagee may commence, appear in, defend or prosecute

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any assigned claim or action and may adjust, compromise, settle and collect all claims and awards assigned to Mortgagee; provided, however, in no event shall Mortgagee be responsible for any failure to collect any claim or award, regardless of the cause of the failure, including, without limitation, any malfeasance or nonfeasance by Mortgagee or its employees or agents.

          (b) At its sole option, Mortgagee may permit insurance or condemnation proceeds held by Mortgagee to be used for repair or restoration but may condition such application upon reasonable conditions, including, without limitation: (i) the deposit with Mortgagee of such additional funds which Mortgagee determines are needed to pay all costs of the repair or restoration, (including, without limitation, taxes, financing charges, insurance and rent during the repair period); (ii) the establishment of an arrangement for lien releases and disbursement of funds acceptable to Mortgagee; (iii) the delivery to Mortgagee of plans and specifications for the work, a contract for the work signed by a contractor acceptable to Mortgagee, a cost breakdown for the work and a payment and performance bond for the work, all of which shall be acceptable to Mortgagee; and (iv) the delivery to Mortgagee of evidence acceptable to Mortgagee (aa) that after completion of the work the income from the Subject Property will be sufficient to pay all expenses and debt service for the Subject Property; (bb) of the continuation of Leases acceptable to and required by Mortgagee; (cc) that upon completion of the work, the size, capacity and total value of the Subject Property will be at least as great as it was before the damage or condemnation occurred; (dd) that there has been no material adverse change in the financial condition or credit of Mortgagor since the date of this Mortgage; and (ee) of the satisfaction of any additional conditions that Mortgagee may reasonably establish to protect its security. Mortgagor hereby acknowledges that the conditions described above are reasonable, and, if such conditions have not been satisfied within thirty (30) days of receipt by Mortgagee of such insurance or condemnation proceeds, then Mortgagee may apply such insurance or condemnation proceeds to pay the Secured Obligations in such order and amounts as Mortgagee in its sole discretion may choose.

     5.7 INSURANCE, MAINTENANCE AND PRESERVATION OF THE SUBJECT PROPERTY. Subject to the provisions of the Credit Agreement, while any obligation of Mortgagor or any guarantor under any Loan Document remains outstanding, Mortgagor covenants:

          (a) to maintain at Mortgagor’s sole expense, with licensed insurers approved by Mortgagee, the following policies of insurance in form and substance satisfactory to Mortgagee, with Mortgagee named as first mortgagee on all such policies: (i) title insurance (including a Title Policy, together with any endorsements which Mortgagee may require, insuring Mortgagee in the principal amount of the Notes), (ii) property insurance (including, without limitation, such endorsements as Mortgagee may require, insuring Mortgagee against damage to the Subject Property in an amount acceptable to Mortgagee, with Mortgagee named on the policy under a Lender’s Loss Payable Endorsement), (iii) flood hazard insurance, as required by applicable governmental regulations, or as deemed necessary by Mortgagee, (iv) liability insurance (including a policy of comprehensive general liability insurance) with limits as required by Mortgagee, insuring against liability for injury and/or death to any person and/or damage to any property occurring on the Subject Property and/or from any cause whatsoever. Mortgagor shall provide to Mortgagee the originals of all required insurance policies, or other evidence of insurance acceptable to Mortgagee. All insurance policies shall provide that the

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insurance shall not be cancelable or materially changed without thirty (30) days’ prior written notice to Mortgagee. Mortgagee shall be named under a Lender’s Loss Payable Endorsement (form #438BFU or equivalent) on all insurance policies which Mortgagor actually maintains with respect to the Property. Mortgagor shall provide to Mortgagee evidence of any other hazard insurance Mortgagee may deem necessary at any time during the loan secured by this Mortgage;

          (b) to keep the Subject Property and Collateral in good condition and repair;

          (c) not to remove or demolish the Subject Property or Collateral or any part thereof, not to alter, restore or add to the Subject Property or Collateral (except in the ordinary course of business) and not to initiate or acquiesce in any change in any zoning or other land classification which affects the Subject Property without the Mortgagee’s prior written consent;

          (d) in the event of any damage or other casualty relating to the Subject Property or the Collateral and so long as Mortgagee has released any insurance claim proceeds relating thereto in accordance with Section 5.6 hereof, to complete or restore promptly and in good and workmanlike manner the Subject Property and Collateral, or any part thereof which may be damaged or destroyed;

          (e) to comply with all laws, ordinances, regulations and standards, and all covenants, conditions, restrictions and equitable servitudes, whether public or private, of every kind and character which affect the Subject Property or Collateral and pertain to acts committed or conditions existing thereon, including, without limitation, any work, alteration, improvement or demolition mandated by such laws, covenants or requirements;

          (f) not to commit or permit waste of the Subject Property or Collateral; and

          (g) to do all other acts which from the character or use of the Subject Property or Collateral may be reasonably necessary to maintain and preserve its value.

     5.8 INTENTIONALLY OMITTED.

     5.9 APPROVAL OF LEASES. All leases of all or any part of the Subject Property shall: (a) be upon terms and with tenants approved by Mortgagee prior to Mortgagor’s execution of any such lease; and (b) include estoppel, subordination, attornment and mortgagee protection provisions satisfactory to Mortgagee. All standard lease forms and any material deviation from any form, shall be approved by Mortgagee prior to execution of any lease using such form.

     5.10 DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS. At Mortgagor’s sole expense, Mortgagor shall protect, preserve and defend the Subject Property and Collateral and title to and right of possession of the Subject Property and Collateral, the security hereof and the rights and powers of Mortgagee hereunder against all adverse claims. Mortgagor shall give Mortgagee prompt notice in writing of the assertion of any claim, of the filing of any action or proceeding, of the occurrence of any damage to the Subject Property or Collateral and of any condemnation offer or action.

     5.11 CERTAIN POWERS OF MORTGAGEE.

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          (a) From time to time and without affecting the personal liability of any person for payment of any indebtedness or performance of any obligations secured hereby, Mortgagee may, without liability therefor and without notice: (a) release from the lien of this Mortgage all or any part of the Subject Property; (b) consent to the making of any map or plat thereof; and (c) join in any grant of easement thereon, any declaration of covenants and restrictions, or any extension agreement or any agreement subordinating the lien or charge of this Mortgage.

          (b) Except as may be required by applicable law, Mortgagee may from time to time apply to any court of competent jurisdiction for aid and direction in the enforcement of the rights and remedies available hereunder, and may obtain orders or decrees directing or confirming or approving the enforcement of said remedies.

     5.12 COMPENSATION; EXCULPATION; INDEMNIFICATION.

          (a) Mortgagor shall pay to Mortgagee reasonable compensation for services rendered concerning this Mortgage, including without limit any statement of amounts owing under any Secured Obligation. Mortgagee shall not directly or indirectly be liable to Mortgagor or any other person as a consequence of (i) the exercise of the rights, remedies or powers granted to Mortgagee in this Mortgage; (ii) the failure or refusal of Mortgagee to perform or discharge any obligation or liability of Mortgagor under any agreement related to the Subject Property or Collateral or under this Mortgage; or (iii) any loss sustained by Mortgagor or any third party resulting from Mortgagee’s failure (whether by malfeasance, nonfeasance or refusal to act) to lease the Subject Property after a Default (hereinafter defined) or from any other act or omission (regardless of whether same constitutes negligence) of Mortgagee in managing the Subject Property after a Default unless the loss is caused by the gross negligence or willful misconduct of Mortgagee and no such liability shall be asserted against or imposed upon Mortgagee, and all such liability is hereby expressly waived and released by Mortgagor.

          (b) MORTGAGOR INDEMNIFIES MORTGAGEE AGAINST, AND HOLDS MORTGAGEE HARMLESS FROM, ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, CAUSES OF ACTION, JUDGMENTS, COURT COSTS, ATTORNEYS’ FEES AND OTHER LEGAL EXPENSES, COST OF EVIDENCE OF TITLE, COST OF EVIDENCE OF VALUE, AND OTHER EXPENSES WHICH IT MAY SUFFER OR INCUR: (i) BY REASON OF THIS MORTGAGE; (ii) BY REASON OF THE EXECUTION OF THIS MORTGAGE OR IN PERFORMANCE OF ANY ACT REQUIRED OR PERMITTED HEREUNDER OR BY LAW; (iii) AS A RESULT OF ANY FAILURE OF MORTGAGOR TO PERFORM MORTGAGOR’S OBLIGATIONS; OR (iv) BY REASON OF ANY ALLEGED OBLIGATION OR UNDERTAKING ON MORTGAGEE’S PART TO PERFORM OR DISCHARGE ANY OF THE REPRESENTATIONS, WARRANTIES, CONDITIONS, COVENANTS OR OTHER OBLIGATIONS CONTAINED IN ANY OTHER DOCUMENT RELATED TO THE SUBJECT PROPERTY. THE ABOVE OBLIGATION OF MORTGAGOR TO INDEMNIFY AND HOLD HARMLESS MORTGAGEE SHALL SURVIVE THE RELEASE AND CANCELLATION OF THE SECURED OBLIGATIONS AND THE RELEASE OR PARTIAL RELEASE OF THIS MORTGAGE.

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          (c) Mortgagor shall pay all amounts and indebtedness arising under this Section 5.12 immediately upon demand by Mortgagee together with interest thereon from the date the indebtedness arises at the rate of interest then applicable to the principal balance of the Notes as specified therein.

     5.13 INTENTIONALLY OMITTED.

     5.14 DUE ON SALE OR ENCUMBRANCE. If the Subject Property or any interest therein shall be sold, transferred (including, without limitation, through sale or transfer of a majority or controlling interest of the corporate stock or general partnership interests or limited liability company interests of Mortgagor), mortgaged, assigned, further encumbered or leased, whether directly or indirectly, whether voluntarily, involuntarily or by operation of law, without the prior written consent of Mortgagee, THEN Mortgagee, in its sole discretion, may declare all Secured Obligations immediately due and payable.

     5.15 RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY. Without notice to or the consent, approval or agreement of any persons or entities having any interest at any time in the Subject Property and Collateral or in any manner obligated under the Secured Obligations (“Interested Parties”), Mortgagee may, from time to time, release any person or entity from liability for the payment or performance of any Secured Obligation, take any action or make any agreement extending the maturity or otherwise altering the terms or increasing the amount of any Secured Obligation, or accept additional security or release all or a portion of the Subject Property and Collateral and other security for the Secured Obligations. None of the foregoing actions shall release or reduce the personal liability of any of said Interested Parties, or release or impair the priority of the lien of and security interests created by this Mortgage upon the Subject Property and Collateral.

     5.16 INTENTIONALLY OMITTED.

     5.17 SUBROGATION. Mortgagee shall be subrogated to the lien of all encumbrances, whether released of record or not, paid in whole or in part by Mortgagee pursuant to the Loan Documents or by the proceeds of any loan secured by this Mortgage.

     5.18 RIGHT OF INSPECTION. Mortgagee, its agents and employees, may enter the Subject Property at any reasonable time for the purpose of inspecting the Subject Property and Collateral and ascertaining Mortgagor’s compliance with the terms hereof.

     5.19 INTENTIONALLY OMITTED.

     5.20 HAZARDOUS MATERIALS. Mortgagor agrees as follows:

          (a) No Hazardous Activities. Mortgagor shall not cause or permit the Subject Property to be used as a site for the use, generation, manufacture, storage, treatment, release, discharge, disposal, transportation or presence of any “hazardous substances,” “hazardous wastes,” “hazardous materials,” “toxic substances,” “wastes,” “regulated substances,” “industrial solid wastes,” or “pollutants” under the Hazardous Materials Laws, as described below, and/or other applicable environmental laws, ordinances and regulations (collectively, the “Hazardous Materials”). “Hazardous Materials” shall not include commercially reasonable

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amounts of such materials used in the ordinary course of operation of the Property which are used and stored in accordance with all applicable environmental laws, ordinances and regulations. “Hazardous Materials Laws” are defined as laws, ordinances and regulations relating to Hazardous Materials, including, without limitation: the Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq.; the Comprehensive Environment Response, Compensation and Liability Act of 1980, as amended (including the Superfund Amendments and Reauthorization Act of 1986, “CERCLA”), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act, as amended, 29 U.S.C. Section 651, the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water Act, as amended, 42 U.S.C. Section 300f et seq.; and all comparable state and local laws, laws of other jurisdictions or orders and regulations.

          (b) Compliance. Mortgagor shall comply and cause the Subject Property to comply with all Hazardous Materials Laws.

          (c) Notices. Mortgagor shall immediately notify Mortgagee in writing of: (i) the discovery of any Hazardous Materials on, under or about the Property; (ii) any knowledge by Mortgagor that the Property does not comply with any Hazardous Materials Laws; and (iii) any claims or actions (“Hazardous Materials Claims”) pending or threatened against Mortgagor or the Property by any governmental entity or agency or by any other person or entity relating to Hazardous Materials or pursuant to the Hazardous Materials Laws.

          (d) Remedial Action. In response to the presence of any Hazardous Materials on, under or about the Property, Mortgagor shall immediately take, at Mortgagor’s sole expense, all remedial action required by any Hazardous Materials Laws or any judgment, consent decree, settlement or compromise in respect to any Hazardous Materials Claims.

     5.21 HAZARDOUS MATERIALS INDEMNITY. MORTGAGOR HEREBY AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS MORTGAGEE, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, ACTIONS, JUDGMENTS, COURT COSTS AND LEGAL OR OTHER EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ FEES AND EXPENSES) WHICH MORTGAGEE MAY INCUR AS A DIRECT OR INDIRECT CONSEQUENCE OF THE USE, GENERATION, MANUFACTURE, STORAGE, DISPOSAL, THREATENED DISPOSAL, TRANSPORTATION OR PRESENCE OF HAZARDOUS MATERIALS IN, ON, UNDER OR ABOUT THE PROPERTY. MORTGAGOR SHALL IMMEDIATELY PAY TO MORTGAGEE UPON DEMAND ANY AMOUNTS OWING UNDER THIS INDEMNITY, TOGETHER WITH INTEREST FROM THE DATE THE INDEBTEDNESS ARISES UNTIL PAID AT THE RATE OF INTEREST APPLICABLE TO THE PRINCIPAL BALANCE OF THE NOTES. MORTGAGOR’S DUTY AND OBLIGATIONS TO DEFEND, INDEMNIFY AND HOLD HARMLESS MORTGAGEE SHALL SURVIVE THE CANCELLATION OF THE NOTES AND THE RELEASE, OR PARTIAL RELEASE OF THIS MORTGAGE.

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     5.22 LEGAL EFFECT OF SECTION. Mortgagor and Mortgagee agree that Mortgagor’s duty to indemnify Mortgagee hereunder shall survive: (a) any judicial or non-judicial foreclosure under this Mortgage, or transfer of the Subject Property in lieu thereof, (b) the release or cancellation of this Mortgage; and (c) the satisfaction of all of Mortgagor’s obligation under the Loan Documents.

ARTICLE 6. DEFAULT PROVISIONS

     6.1 DEFAULT. For all purposes hereof, the term “Default” shall mean (a) at Mortgagee’s option, the failure of Mortgagor to make any payment of principal or interest on the Notes or to pay any other amount due hereunder or under the Notes when the same is due and payable, whether at maturity, by acceleration or otherwise; (b) the failure of Mortgagor to perform any non-monetary obligation hereunder, or the failure to be true of any representation or warranty of Mortgagor contained herein and the continuance of such failure for ten (10) days after notice, or within any longer grace period, if any, allowed in the Credit Agreement for such failure, (c) the condemnation, seizure or appropriation of, or occurrence of an uninsured casualty with respect to any material portion of the Subject Property; (d) the sequestration or attachment of, or any levy or execution upon any of the Subject Property, which sequestration, attachment, levy or execution is not released, expunged or dismissed prior to the earlier of thirty (30) days or the sale of the assets affected thereby; (e) the failure at any time of this Mortgage to be a valid first lien upon the Subject Property or any portion thereof, other than as a result of any release of the Mortgage with respect to all or any portion of the Subject Property pursuant to the terms and conditions of the Credit Agreement; (f) the discovery of any Hazardous Materials, which in Mortgagee’s sole discretion, have a materially adverse impact on the value of the Subject Property, in, on or about the Subject Property subsequent to the Closing Date, as defined in the Credit Agreement; or (g) the existence of any Default as defined in the Credit Agreement.

     6.2 RIGHTS AND REMEDIES. At any time after Default, Mortgagee shall have all the following rights and remedies:

          (a) With or without notice, to declare all Secured Obligations immediately due and payable.

          (b) With or without notice, and without releasing Mortgagor from any Secured Obligation, and without becoming a mortgagee in possession, to cure any breach or Default of Mortgagor and, in connection therewith, to enter upon the Subject Property and do such acts and things as Mortgagee deems necessary or desirable to protect the security hereof, including, without limitation: (i) to appear in and defend any action or proceeding purporting to affect the security of this Mortgage or the rights or powers of Mortgagee under this Mortgage; (ii) to pay, purchase, contest or compromise any encumbrance, charge, lien or claim of lien which, in the sole judgment of Mortgagee, is or may be senior in priority to this Mortgage, the judgment of Mortgagee being conclusive as between the parties hereto; (iii) to obtain insurance; (iv) to pay any premiums or charges with respect to insurance required to be carried under this Mortgage; or (v) to employ counsel, accountants, contractors and other appropriate persons.

          (c) To commence and maintain an action or actions in any court of competent jurisdiction to foreclose this instrument as a mortgage or to obtain specific enforcement of the

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covenants of Mortgagor hereunder, and Mortgagor agrees that such covenants shall be specifically enforceable by injunction or any other appropriate equitable remedy and that for the purposes of any suit brought under this subparagraph, Mortgagor waives the defense of laches and any applicable statute of limitations.

          (d) To the fullest extent permitted by law, to seek non-judicial foreclosure pursuant to Ark. Code Ann. Section 18-50-101, et seq.

          (e) To apply to a court of competent jurisdiction for and obtain appointment of a receiver of the Subject Property as a matter of strict right and without regard to the adequacy of the security for the repayment of the Secured Obligations, the existence of a declaration that the Secured Obligations are immediately due and payable, or the filing of a notice of default, and Mortgagor hereby consents to such appointment.

          (f) To enter upon, possess, manage and operate the Subject Property or any part thereof, to take and possess all documents, books, records, papers and accounts of Mortgagor or the then owner of the Subject Property, to make, terminate, enforce or modify Leases of the Subject Property upon such terms and conditions as Mortgagee deems proper, to make repairs, alterations and improvements to the Subject Property as necessary, in Mortgagee’s sole judgment, to protect or enhance the security hereof.

          (g) To give such notice of such Default and of its election to cause the Subject Property to be sold as may be required by law or as may be necessary to cause the Mortgagee to exercise the power of sale granted herein. As a condition precedent to any such sale, Mortgagee shall give and record such notice as the law then requires. When the minimum period of time required by law after such notice has elapsed, Mortgagee, without notice to or demand upon Mortgagor except as required by law, shall sell the Subject Property at the time and place of sale fixed by it in the notice of sale, at one or several sales, either as a whole or in separate parcels and in such manner and order, as deemed advisable by Mortgagee, or by Mortgagor to the extent required by law, at public auction to the highest bidder for cash, in lawful money of the United States, payable at time of sale. Except as required by law, neither Mortgagor nor any other person or entity other than Mortgagee shall have the right to direct the order in which the Subject Property is sold. Subject to requirements and limits imposed by law, Mortgagee may from time to time postpone sale of all or any portion of the Subject Property by public announcement at such time and place of sale. Mortgagee shall deliver to the purchaser at such sale a deed conveying the Subject Property or portion thereof so sold, but without any covenant or warranty, express or implied. The recitals in the deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Mortgagor or Mortgagee may purchase at the sale. Mortgagor hereby expressly waives any right of redemption, including any rights under the Act passed by the Arkansas General Assembly on May 8, 1899, and all acts amendatory or in replacement thereof or supplemental thereto.

          (h) To resort to and realize upon the security hereunder and any other security now or later held by Mortgagee concurrently or successively and in one or several consolidated or independent judicial actions or lawfully taken non-judicial proceedings, or both, and to apply the proceeds received upon the Secured Obligations all in such order and manner as Mortgagee determines in its sole discretion.

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          (i) Upon sale of the Subject Property at any judicial or non-judicial foreclosure, Mortgagee may credit bid (as determined by Mortgagee in its sole and absolute discretion) all or any portion of the Secured Obligations. In determining such credit bid, Mortgagee may, but is not obligated to, take into account all or any of the following: (i) appraisals of the Subject Property as such appraisals may be discounted or adjusted by Mortgagee in its sole and absolute underwriting discretion; (ii) expenses and costs incurred by Mortgagee with respect to the Subject Property prior to foreclosure; (iii) expenses and costs which Mortgagee anticipates will be incurred with respect to the Subject Property after foreclosure, but prior to resale, including, without limitation, costs of structural reports and other due diligence, costs to carry the Subject Property prior to resale, costs of resale (e.g. commissions, attorneys’ fees, and taxes), costs of any hazardous materials clean-up and monitoring, costs of deferred maintenance, repair, refurbishment and retrofit, costs of defending or settling litigation affecting the Subject Property, and lost opportunity costs (if any), including the time value of money during any anticipated holding period by Mortgagee; (iv) declining trends in real property values generally and with respect to properties similar to the Subject Property; (v) anticipated discounts upon resale of the Subject Property as a distressed or foreclosed property; (vi) the fact of additional collateral (if any), for the Secured Obligations; and (vii) such other factors or matters that Mortgagee (in its sole and absolute discretion) deems appropriate. In regard to the above, Mortgagor acknowledges and agrees that: (w) Mortgagee is not required to use any or all of the foregoing factors to determine the amount of its credit bid; (x) this Section does not impose upon Mortgagee any additional obligations that are not imposed by law at the time the credit bid is made; (y) the amount of Mortgagee’s credit bid need not have any relation to any loan-to-value ratios specified in the Loan Documents or previously discussed between Mortgagor and Mortgagee; and (z) Mortgagee’s credit bid may be (at Mortgagee’s sole and absolute discretion) higher or lower than any appraised value of the Subject Property.

          (j) Upon the completion of any foreclosure sale of all or a portion of the Subject Property, commence an action to recover any of the Secured Obligations that remains unpaid or unsatisfied.

     6.3 APPLICATION OF FORECLOSURE SALE PROCEEDS. Except as may be otherwise required by applicable law, after deducting all costs, fees and expenses including, without limitation, cost of evidence of title and attorneys’ fees in connection with sale and costs and expenses of sale and of any judicial proceeding wherein such sale may be made, all proceeds of any foreclosure sale shall be applied: (a) to payment of all sums expended by Mortgagee under the terms hereof and not then repaid, with accrued interest at four percent (4%) above the Prime Rate in effect from time to time; (b) to payment of all other Secured Obligations; and (c) the remainder, if any, to the person or persons legally entitled thereto. As used herein, the term “Prime Rate” means at any time the rate of interest most recently announced within Wells Fargo Bank, National Association (“WFB”) at its principal office, as its Prime Rate, with the understanding that the Prime Rate is one of WFB’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as WFB may designate.

     6.4 APPLICATION OF OTHER SUMS. All sums received by Mortgagee under Section 6.2 or Section 3.2, less all costs and expenses incurred by Mortgagee or any receiver

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under Section 6.2 or Section 3.2, including, without limitation, attorneys’ fees, shall be applied in payment of the Secured Obligations in such order as Mortgagee shall determine in its sole discretion; provided, however, Mortgagee shall have no liability for funds not actually received by Mortgagee.

     6.5 NO CURE OR WAIVER. Neither Mortgagee’s nor any receiver’s entry upon and taking possession of all or any part of the Subject Property and Collateral, nor any collection of rents, issues, profits, insurance proceeds, condemnation proceeds or damages, other security or proceeds of other security, or other sums, nor the application of any collected sum to any Secured Obligation, nor the exercise or failure to exercise of any other right or remedy by Mortgagee or any receiver shall cure or waive any breach, Default or notice of default under this Mortgage, or nullify the effect of any notice of default or sale (unless all Secured Obligations then due have been paid and performed and Mortgagor has cured all other defaults), or impair the status of the security, or prejudice Mortgagee in the exercise of any right or remedy, or be construed as an affirmation by Mortgagee of any tenancy, lease or option or a subordination of the lien of or security interests created by this Mortgage.

     6.6 PAYMENT OF COSTS, EXPENSES AND ATTORNEYS’ FEES. Mortgagor agrees to pay to Mortgagee immediately and without demand all costs and expenses incurred by Mortgagee pursuant to Section 6.2 (including, without limitation, court costs and attorneys’ fees, whether incurred in litigation or not) with interest from the date of expenditure until said sums have been paid at the rate of interest then applicable to the principal balance of the Notes as specified therein. In the event of any legal proceedings, court costs and attorneys’ fees shall be set by the court and not by jury and shall be included in any judgment obtained by Mortgagee.

     6.7 POWER TO FILE NOTICES AND CURE DEFAULTS. Mortgagor hereby irrevocably appoints Mortgagee and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor, or any other notices that Mortgagee deems appropriate to protect Mortgagee’s interest, (b) upon the issuance of a deed pursuant to the foreclosure of the lien of this Mortgage or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment or further assurance with respect to the Subject Property and Collateral, Leases and Payments in favor of the grantee of any such deed, as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Mortgagee’s security interests and rights in or to any of the Subject Property and Collateral, and (d) upon the occurrence of an event, act or omission which, with notice or passage of time or both, would constitute a Default, Mortgagee may perform any obligation of Mortgagor hereunder; provided, however, that: (i) Mortgagee as such attorney-in-fact shall only be accountable for such funds as are actually received by Mortgagee; and (ii) Mortgagee shall not be liable to Mortgagor or any other person or entity for any failure to act (whether such failure constitutes negligence) by Mortgagee under this Section.

     6.8 REMEDIES CUMULATIVE. All rights and remedies of Mortgagee provided hereunder are cumulative and are in addition to all rights and remedies provided by applicable law (including specifically that of foreclosure of this instrument as though it were a mortgage) or in any other agreements between Mortgagor and Mortgagee. No failure on the part of Mortgagee

18

to exercise any of its rights hereunder arising upon any Default shall be construed to prejudice its rights upon the occurrence of any other or subsequent Default. No delay on the part of Mortgagee in exercising any such rights shall be construed to preclude it from the exercise thereof at any time while that Default is continuing. Mortgagee may enforce any one or more remedies or rights hereunder successively or concurrently. By accepting payment or performance of any of the Secured Obligations after its due date, Mortgagee shall not thereby waive the agreement contained herein that time is of the essence, nor shall Mortgagee waive either its right to require prompt payment or performance when due of the reminder of the Secured Obligations or its right to consider the failure to so pay or perform a Default.

ARTICLE 7. MISCELLANEOUS PROVISIONS

     7.1 ADDITIONAL PROVISIONS. The Loan Documents contain or incorporate by reference the entire agreement of the parties with respect to matters contemplated herein and supersede all prior negotiations. The Loan Documents grant further rights to Mortgagee and contain further agreements and affirmative and negative covenants by Mortgagor which apply to this Mortgage and to the Subject Property and Collateral and such further rights and agreements are incorporated herein by this reference.

     7.2 MERGER. No merger shall occur as a result of Mortgagee’s acquiring any other estate in, or any other lien on, the Subject Property unless Mortgagee consents to a merger in writing.

     7.3 OBLIGATIONS OF MORTGAGOR, JOINT AND SEVERAL. If more than one person has executed this Mortgage as “Mortgagor”, the obligations of all such persons hereunder shall be joint and several.

     7.4 WAIVER OF MARSHALLING RIGHTS. Mortgagor, for itself and for all parties claiming through or under Mortgagor, and for all parties who may acquire a lien on or interest in the Subject Property and Collateral, hereby waives all rights to have the Subject Property and Collateral and/or any other property, which is now or later may be security for any Secured Obligation (“Other Property”) marshaled upon any foreclosure of the lien of this Mortgage or on a foreclosure of any other lien or security interest against any security for any of the Secured Obligations. Mortgagee shall have the right to sell, and any court in which foreclosure proceedings may be brought shall have the right to order a sale of, the Subject Property and any or all of the Collateral or Other Property as a whole or in separate parcels, in any order that Mortgagee may designate.

     7.5 RULES OF CONSTRUCTION. When the identity of the parties or other circumstances make it appropriate the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. The term “Subject Property” and “Collateral” means all and any part of the Subject Property and Collateral, respectively, and any interest in the Subject Property and Collateral, respectively.

     7.6 SUCCESSORS IN INTEREST. The terms, covenants, and conditions herein contained shall be binding upon and inure to the benefit of the heirs, successors and assigns of

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the parties hereto; provided, however, that this Section 7.6 does not waive or modify the provisions of Section 5.14.

     7.7 EXECUTION IN COUNTERPARTS. To facilitate execution, this document may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature or acknowledgment of, or on behalf of, each party, or that the signature of all persons required to bind any party, or the acknowledgment of such party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, and the respective acknowledgments of, each of the parties hereto. Any signature or acknowledgment page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures or acknowledgments thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature or acknowledgment pages.

     7.8 CHOICE OF LAW. The entire transaction contemplated by this Mortgage and the Credit Agreement and all terms and provisions of this Mortgage, the Credit Agreement and the other Loan Documents shall be governed by the laws of the State of California, except for the creation, perfection and enforcement of certain lien rights and remedies provided herein which must be governed by the laws of the situs of the Subject Property, that being Arkansas, regarding which lien rights and remedies Arkansas law shall govern.

     7.9 INCORPORATION. Exhibit A and Schedule 1, all as attached, are incorporated into this Mortgage by this reference.

     7.10 NOTICES. All notices, demands or other communications required or permitted to be given pursuant to the provisions of this Mortgage shall be in writing and shall be considered as properly given if delivered personally or sent by first class United States Postal Service mail, postage prepaid, except that notice of Default may be sent by certified mail, return receipt requested, or by Overnight Express Mail or by overnight commercial courier service, charges prepaid. Notices so sent shall be effective three (3) days after mailing, if mailed by first class mail, and otherwise upon receipt at the address set forth below; provided, however, that non-receipt of any communication as the result of any change of address of which the sending party was not notified or as the result of a refusal to accept delivery shall be deemed receipt of such communication. For purposes of notice, the address of the parties shall be:

Mortgagor:	VIRCO MFG. CORPORATION
	2027 Harpers Way
	Torrance, California 90501
	Attn: Robert E. Dose,
	Chief Financial Officer

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Mortgagee:	WELLS FARGO BANK, NATIONAL ASSOCIATION
	Commercial Banking Group (AU #2702)
	201 Third Street, 8th Floor
	San Francisco, CA 94013
	Attn: Records Management / Team 2
	Loan #: 8079119402
With a copy to:	WELLS FARGO BANK, NATIONAL ASSOCIATION
	San Gabriel Valley Regional Commercial Banking Office
	1000 Lakes Drive, Suite 250
	West Covina, CA 91790
	Attn: Randall J. Repp
With a copy to:	WELLS FARGO BANK, NATIONAL ASSOCIATION
	Disbursement and Operations Center
	2120 East Park Place, Suite 100
	El Segundo, CA 90245
	Attention: DISBURSEMENT REPRESENTATIVE

Any party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving of thirty (30) days notice to the other party in the manner set forth hereinabove. Mortgagor shall forward to Mortgagee, without delay, any notices, letters or other communications delivered to the Subject Property or to Mortgagor naming Mortgagee, “Lender” or any similar designation as addressee, or which could reasonably be deemed to affect the ability of Mortgagor to perform its obligations to Mortgagee under the Notes or the Credit Agreement.

     7.11 ARBITRATION. THE PROVISIONS OF SECTION 7.11 OF THE CREDIT AGREEMENT ARE INCORPORATED HEREIN IN THEIR ENTIRETY, MUTATIS MUTANDIS.

     7.12 PATRIOT ACT NOTICE COMPLIANCE. The USA Patriot Act of 2001 (Public Law 107-56) and federal regulations issued with respect thereto require all financial institutions to obtain, verify and record certain information that identifies individuals or business entities which open an “account” with such financial institution. Consequently, Lender may from time-to-time request, and Mortgagor shall provide to Lender, Mortgagor’s name, address, tax identification number and/or such other identification information as shall be necessary for Lender to comply with federal law. An “account” for this purpose may include, without limitation, a deposit account, cash management service, a transaction or asset account, a credit account, a loan or other extension of credit, and/or other financial services product.

[Signature Page Follows]

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     IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the day and year set forth above.

MORTGAGOR: VIRCO MFG. CORPORATION, a Delaware corporation
By:	/s/ Robert E. Dose
	Name:	Robert E. Dose
	Title:	Chief Financial Officer

(ALL SIGNATURES MUST BE ACKNOWLEDGED)

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]

Loan No. 8079119402

TABLE OF CONTENTS

	Page
ARTICLE 1. GRANT OF MORTGAGE		2
1.1 GRANT		2
1.2 ADDRESS		2
1.3 INCORPORATION OF RECITALS		2
ARTICLE 2. OBLIGATIONS SECURED		2
2.1 OBLIGATIONS SECURED		2
2.2 OBLIGATIONS		3
2.3 INCORPORATION		3
ARTICLE 3. ASSIGNMENT OF LEASES AND RENTS		3
3.1 ASSIGNMENT		3
3.2 GRANT OF LICENSE		4
3.3 EFFECT OF ASSIGNMENT		4
3.4 REPRESENTATIONS AND WARRANTIES		4
3.5 COVENANTS		5
3.6 ESTOPPEL CERTIFICATES		5
ARTICLE 4. SECURITY AGREEMENT AND FIXTURE FILING		5
4.1 SECURITY INTEREST		5
4.2 REPRESENTATIONS AND WARRANTIES		6
4.3 COVENANTS		6
4.4 RIGHTS OF MORTGAGEE		7
4.5 RIGHTS OF MORTGAGEE ON DEFAULT		7
4.6 POWER OF ATTORNEY		8
4.7 POSSESSION AND USE OF COLLATERAL		8
ARTICLE 5. RIGHTS AND DUTIES OF THE PARTIES		8
5.1 TITLE		8
5.2 TAXES AND ASSESSMENTS		8
5.3 TAX AND INSURANCE IMPOUNDS		8
5.4 PERFORMANCE OF SECURED OBLIGATIONS		9
5.5 LIENS, ENCUMBRANCES AND CHARGES		9
5.6 DAMAGES; INSURANCE AND CONDEMNATION PROCEEDS		9
5.7 INSURANCE, MAINTENANCE AND PRESERVATION OF THE SUBJECT PROPERTY		10
5.8 INTENTIONALLY OMITTED		11
5.9 APPROVAL OF LEASES		11

Loan No. 8079119402

Table of Contents
(Continued)

	Page
5.10 DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS		11
5.11 CERTAIN POWERS OF MORTGAGEE		11
5.12 COMPENSATION; EXCULPATION; INDEMNIFICATION		12
5.13 INTENTIONALLY OMITTED		13
5.14 DUE ON SALE OR ENCUMBRANCE		13
5.15 RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY		13
5.16 INTENTIONALLY OMITTED		13
5.17 SUBROGATION		13
5.18 RIGHT OF INSPECTION		13
5.19 INTENTIONALLY OMITTED		13
5.20 HAZARDOUS MATERIALS		13
5.21 HAZARDOUS MATERIALS INDEMNITY		14
5.22 LEGAL EFFECT OF SECTION		15
ARTICLE 6. DEFAULT PROVISIONS		15
6.1 DEFAULT		15
6.2 RIGHTS AND REMEDIES		15
6.3 APPLICATION OF FORECLOSURE SALE PROCEEDS		17
6.4 APPLICATION OF OTHER SUMS		17
6.5 NO CURE OR WAIVER		18
6.6 PAYMENT OF COSTS, EXPENSES AND ATTORNEYS’ FEES		18
6.7 POWER TO FILE NOTICES AND CURE DEFAULTS		18
6.8 REMEDIES CUMULATIVE		18
ARTICLE 7. MISCELLANEOUS PROVISIONS		19
7.1 ADDITIONAL PROVISIONS		19
7.2 MERGER		19
7.3 OBLIGATIONS OF MORTGAGOR, JOINT AND SEVERAL		19
7.4 WAIVER OF MARSHALLING RIGHTS		19
7.5 RULES OF CONSTRUCTION		19
7.6 SUCCESSORS IN INTEREST		19
7.7 EXECUTION IN COUNTERPARTS		20
7.8 CHOICE OF LAW		20
7.9 INCORPORATION		20
7.10 NOTICES		20
7.11 ARBITRATION		21
7.12 PATRIOT ACT NOTICE COMPLIANCE		21

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE	Contact:
	Robert A. Virtue, President
	Douglas A. Virtue, Executive Vice President
	Robert E. Dose, Chief Financial Officer
	Virco Mfg. Corporation
	(310) 533-0474

Virco Announces Improved Line of Credit

Torrance, California, March 24, 2008 — Virco Mfg. Corporation (NASDAQ: VIRC) announced today that it has renewed and amended its credit facility with Wells Fargo Bank in the following letter to stockholders from Robert A. Virtue, President and CEO:

I am pleased to report that Virco has renewed its credit facility with Wells Fargo. The terms of the facility have been favorably modified to reflect Virco’s strong balance sheet.

The facility provides $65,000,000 of working capital through our seasonal peak of late summer, but unlike recent years there is no permanent floor of term debt that carries through the off-season. Our voluntary elimination of the term debt component means that we are now borrowing only to finance the seasonality of our business. As with last year, we believe that we will be debt-free around the end of our third quarter, when accounts receivable from summer deliveries will have been collected.

The facility allows Virco to borrow at Wells Fargo prime or LIBOR based rates. We believe this competitive rate will contribute to lower overall interest payments in fiscal 2008, continuing the favorable trend of the last two years.

This marks our 19^th consecutive year of banking with Wells Fargo. The stability of this relationship gives us great comfort. It also supports our long-term goal of being a reliable, trustworthy supplier of furniture and equipment for educators of all grade levels.

This news release contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding: new business strategies; the cost and availability of credit; expectations regarding working capital needs; market, including credit market, conditions; the cost of steel and other raw materials; the continuing impact of our Assemble-to-Ship and Equipment for Educators programs on earnings; market demand and acceptance of new products; development of new distribution channels; pricing; and seasonality. Forward-looking statements are based on current expectations and beliefs about future events or circumstances, and you should not place undue reliance on these statements. Such statements involve known and unknown risks, uncertainties, assumptions and other factors, many of which are out of our control and difficult to forecast. These factors may cause actual results to differ materially from those which are anticipated. Such factors include, but are not limited to: changes in general economic conditions including raw material, energy and freight costs; the seasonality of our markets; the markets for school and office furniture generally; the specific markets and customers with which we conduct our principal business; and the response of competitors to our price increases. See our Annual Report on Form 10K for year ended January 31, 2007, and other materials filed with the Securities and Exchange Commission for a further description of these and other risks and uncertainties applicable to our business. We assume no, and hereby disclaim any, obligation to update any of our forward-looking statements. We nonetheless reserve the right to make such updates from time to time by press release, periodic reports or other methods of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements which are not addressed by such an update remain correct or create an obligation to provide any other updates.