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<SEC-DOCUMENT>0000950148-02-001157.txt : 20020501
<SEC-HEADER>0000950148-02-001157.hdr.sgml : 20020501
ACCESSION NUMBER:		0000950148-02-001157
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20020131
FILED AS OF DATE:		20020501

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			VIRCO MFG CORPORATION
		CENTRAL INDEX KEY:			0000751365
		STANDARD INDUSTRIAL CLASSIFICATION:	PUBLIC BUILDING AND RELATED FURNITURE [2531]
		IRS NUMBER:				951613718
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0131

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-08777
		FILM NUMBER:		02630234

	BUSINESS ADDRESS:	
		STREET 1:		2027 HARPERS WAY
		CITY:			TORRANCE
		STATE:			CA
		ZIP:			90501
		BUSINESS PHONE:		3105330474

	MAIL ADDRESS:	
		STREET 1:		P O BOX 44846
		CITY:			LOS ANGELES
		STATE:			CA
		ZIP:			90044
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>v81125e10-k.htm
<DESCRIPTION>FORM 10-K DATED 1/31/2002
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<TITLE>Virco MFG. Corporation Form 10-K</TITLE>
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<P align="center"><FONT size="4"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B></FONT>

<DIV align="center"><FONT size="2"><B>Washington, D.C. 20549</B></FONT></DIV>

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<P align="center"><FONT size="4"><B>FORM 10-K</B></FONT>

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<P align="left"><FONT size="2"><B>(Mark One)</B></FONT>

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        <TD valign="top"><FONT size="2">&#091;X&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Annual Report Pursuant to Section&nbsp;13 or 15 (d)&nbsp;of the Securities Exchange
Act of 1934</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
For the fiscal year ended January&nbsp;31, 2002.</FONT></TD>
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        <TD valign="top"><FONT size="2">&#091;&nbsp;&nbsp;&nbsp;&#093;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Transition Report Pursuant to Section&nbsp;13 or 15 (d)&nbsp;of the Securities
Exchange Act of 1934</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

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        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
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For the transition period from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
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<P align="center"><FONT size="2">Commission file number 1-8777</FONT>

<P align="center"><FONT size="2"><B>VIRCO MFG. CORPORATION</B><BR>
(Exact name of registrant as specified in its charter)</FONT>

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        <TD align="center" valign="top"><FONT size="2">DELAWARE</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
95-1613718</FONT></TD>
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        <TD align="center" valign="top"><FONT size="2">(State or other jurisdiction of incorporation or organization)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
(IRS Employer<BR>
Identification No.)</FONT></TD>
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        <TD align="center" valign="top"><FONT size="2">2027 Harpers Way, Torrance, California</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
90501</FONT></TD>
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        <TD align="center" valign="top"><FONT size="2">(Address of principal executive offices)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="center" valign="top"><FONT size="2">(Zip Code)</FONT></TD>
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<P align="center"><FONT size="2">Registrant&#146;s telephone number, including area code (310)&nbsp;533-0474</FONT>

<P align="left"><FONT size="2">Securities registered pursuant to Section&nbsp;12(b) of the Act:</FONT>

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        <TD nowrap align="center"><FONT size="1">Title of each class</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">Name of each exchange on which registered:</FONT></TD>
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<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top" align="center"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common Stock, $0.01 Par Value</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
American Stock Exchange</FONT></DIV></TD>
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<P align="left"><FONT size="2">Securities registered pursuant to section 12(g) of the Act: None</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that
the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. Yes X No
</FONT>
<P align="center"><FONT size="2">&nbsp;
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation&nbsp;S-K is not contained herein, and will not be contained, to
the best of registrant&#146;s knowledge, in definitive proxy or information
statements incorporated by reference or in Part III of this Form&nbsp;10-K or any
amendment to this Form&nbsp;10-K &#091;X&#093;.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on April&nbsp;23, 2002, based on the closing price
at which such stock was sold on the American Stock Exchange on that date, was
approximately $116,449,000. Shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of shares of Common Stock outstanding at April&nbsp;23, 2002, was
12,139,241 shares.
</FONT>
<P align="center"><FONT size="2"><B>DOCUMENTS INCORPORATED BY REFERENCE</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Portions of registrant&#146;s definitive proxy statement for registrant&#146;s 2002
Annual Meeting of Stockholders to be filed with the Commission pursuant to
Regulation&nbsp;14A no later than 120&nbsp;days after the end of the fiscal year covered
by this Form are incorporated by reference into Part III of this Form&nbsp;10-K
Report as set forth herein. Portions of registrant&#146;s Annual Report to
Stockholders for the year ended January&nbsp;31, 2002, are incorporated by reference
into Part I and Part II of this Form&nbsp;10-K Report as set forth herein.
</FONT>
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<P align="center"><FONT size="2">2
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<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
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<TR><TD colspan="9"><A HREF="#000">PART I</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">Item&nbsp;1. Business</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#002">Item&nbsp;2. Properties</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#003">Item&nbsp;3. Legal Proceedings</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">Item&nbsp;4. Submission of Matters to a Vote of Security Holders</A></TD></TR>
<TR><TD colspan="9"><A HREF="#005">PART II</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">Item&nbsp;5. Market for Registrant&#146;s Common Stock and Related Stockholder Matters</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">Item&nbsp;6. Selected Financial Data</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">Item&nbsp;7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009">Item&nbsp;7a. Quantitative and Qualitative Disclosures about Market Risk</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">Item&nbsp;8. Financial Statements and Supplementary Data</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">Item&nbsp;9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures</A></TD></TR>
<TR><TD colspan="9"><A HREF="#012">PART III</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">Item&nbsp;10. Directors and Executive Officers of the Registrant</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#014">Item&nbsp;11. Executive Compensation</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#015">Item&nbsp;12. Security Ownership of Certain Beneficial Owners and Management</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#016">Item&nbsp;13. Certain Relationships and Related Transactions</A></TD></TR>
<TR><TD colspan="9"><A HREF="#017">PART IV</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#018">Item&nbsp;14. Financial Statements, Financial Statement Schedules, Exhibits, and Reports on Form&nbsp;8-K</A></TD></TR>
<TR><TD colspan="9"><A HREF="#019">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="#020">EXHIBITS TO FORM 10-K ANNUAL REPORT</A></TD></TR>
<TR><TD colspan="9"><A HREF="v81125ex10-6.txt">EXHIBIT 10.6</A></TD></TR>
<TR><TD colspan="9"><A HREF="v81125ex10-7.txt">EXHIBIT 10.7</A></TD></TR>
<TR><TD colspan="9"><A HREF="v81125ex13-1.txt">EXHIBIT 13.1</A></TD></TR>
<TR><TD colspan="9"><A HREF="v81125ex21-1.txt">EXHIBIT 21.1</A></TD></TR>
<TR><TD colspan="9"><A HREF="v81125ex23-1.txt">EXHIBIT 23.1</A></TD></TR>
</TABLE>
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<!-- link1 "PART I" -->
<DIV align="left"><A NAME="000"></A></DIV>
<P align="center"><FONT size="2"><B>PART I</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>This report on Form&nbsp;10-K contains a number of &#147;forward-looking statements&#148;
that reflect the Company&#146;s current views with respect to future events and
financial performance, including, but not limited to, statements regarding
plans and objectives of management for future operations, including plans and
objectives relating to products, marketing, expansion, manufacturing processes
and potential or contemplated acquisitions, such as the anticipated acquisition
of Furniture Focus, Inc. discussed herein; new business strategies; our ability
to continue to control costs and inventory levels; the potential impact of our
&#147;Assemble-To-Ship&#148; program on earnings; market demand; our ability to position
ourselves in the market; references to current and future investments in and
utilization of our infrastructure; statements relating to management&#146;s beliefs
that cash flow from current operations, existing cash reserves, and available
lines of credit will be sufficient to support our working capital requirements
to fund existing operations; references to expectations of future revenues;
pricing, and seasonality.</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Such statements involve known and unknown risks, uncertainties,
assumptions and other factors, many of which are out of our control and
difficult to forecast, that may cause actual results to differ materially from
those which are anticipated. Such factors include, but are not limited to,
changes in, or our ability to predict, general economic conditions, the markets
for school and office furniture generally and specifically in areas and with
customers with which we conduct our principal business activities, the rate of
approval of school bonds for the construction of new schools, the extent to
which existing schools order replacement furniture, customer confidence, and
competition.</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>In this report, words such as &#147;anticipates,&#148; &#147;believes,&#148; &#147;expects,&#148;
&#147;future,&#148; &#147;intends,&#148; &#147;plans,&#148; &#147;potential,&#148; &#147;budgets,&#148; &#147;may,&#148; &#147;could&#148; and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on forward-looking statements, which speak only as
of the date hereof.</I>
</FONT>
<!-- link2 "Item&nbsp;1. Business" -->
<DIV align="left"><A NAME="001"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;1. </B><B><I>Business</I></B></FONT>

<P align="left"><FONT size="2"><B><I>Introduction</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Designing, producing
and distributing high-value furniture for a diverse
family of customers is a 52-year tradition at Virco Mfg. Corporation. Over the
years, Virco has become the largest manufacturer of educational furniture in the
United States. The Company has also become a leading supplier of tables, chairs and
storage equipment for offices, convention centers, auditoriums, places of
worship, hotels and related settings.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The markets that
Virco has served over the years include the education
market (our primary market), which includes public and private schools
(preschool through 12th grade), junior and community colleges, four-year
colleges and universities, and trade, technical and vocational schools;
convention centers and arenas; the hospitality industry, with respect to their
banquet and meeting facilities requirements; government facilities at the
federal, state, county and municipal levels; and places of worship. In
addition, the Company sells to wholesalers, distributors, retailers and catalog retailers
that serve these same markets.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although Virco got started as a local supplier of chairs and desks for Los
Angeles-area schools, folding chairs and folding tables were soon
added to the Company&#146;s
offerings with a resultant expansion of sales to a broadening customer base.
Successive product lines were subsequently introduced, including a variety of
upholstered stack chairs, banquet tables and mobile storage equipment. Products
such as these have helped Virco provide
complete furniture solutions for thousands of customers in the
hospitality, food service, convention center and public facilities markets.
</FONT>
<P align="center"><FONT size="2">3
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco serves its customers through a well-trained, nationwide sales and
support team. Although the Company&#146;s sales professionals were divided into two main
groups in fiscal 2000, &#147;Education&#148; and &#147;Commercial&#148;, and were organized by
market within those groups, management combined what had previously been the Commercial
and Education sales groups into one field sales team in mid-November of 2001.
Instead of having two representatives pursuing separate customers within the
same geographical territory, Virco now has only one. It was increasingly clear
to management that the needs of commercial and educational customers were evolving
towards greater similarity, and that combining the Company&#146;s sales efforts would allow
individual representatives to plow more deeply in a smaller field. In
addition, Virco also established a Corporate Accounts Group to pursue wholesalers,
mail order accounts and national chains where management believes that it would be more
efficient to have a single sales representative or group approach such persons,
as they tend to have needs that transcend the geographic boundaries
established for Virco&#146;s local accounts.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company also has an array of support services, including product delivery,
installation and repair, and computer-assisted layout planning.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Virco maintains a core marketing group, which reports to the
President and is composed of representatives from sales, product development
and corporate marketing. This group prepares annual plans for the allocation
of resources for product development, marketing and selling expense
for various sales channels, for customer service, and for the
implementation of the Company&#146;s product stocking plan.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco employs approximately 2,100 people nationwide and has approximately
1.3&nbsp;million square feet of manufacturing facilities and 1.2&nbsp;million square feet
of warehousing facilities for the production and distribution of furniture in
two principal facilities which are located in Torrance, California, and
Conway, Arkansas. Much of the Company&#146;s product line can be produced in either facility,
although management has chosen to produce many products and components at only one
factory in consideration of space, cost or process requirements. In addition,
both facilities maintain a customer service department, giving Virco the ability
to provide sales support and order fulfillment services to end users from coast
to coast.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management&#146;s strategy is to position Virco as the overall value supplier of
moveable furniture for publicly-funded institutions characterized by extreme
seasonality and/or a bid-based purchasing function. The Company&#146;s business model, which
is designed to support this strategy, includes the development of several
competencies to enable superior service to the markets in which Virco
competes. For one, Virco has developed what management believes to be the largest
direct sales force in the education market for classroom furniture.
Management believes this provides Virco with a competitive advantage
over the Company&#146;s primary competitors, who
rely instead upon distributorships, by allowing Virco to cut-out the &#147;middleman&#148;
and deal directly with end customers. Another important element of
Virco&#146;s
business model is the Company&#146;s emphasis on developing and maintaining key manufacturing
capabilities. For example, Virco has developed competencies in several
manufacturing processes that are important to the markets the Company serves, such as
finishing systems, plastic molding, metal fabrication and woodworking. For
more information about the Company&#146;s business model and strategy for the future,
please see the section entitled &#147;To Our Stockholders&#148; in
Virco&#146;s Annual Report to
Stockholders for the year ended January&nbsp;31, 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finally, management
continues to hone Virco&#146;s ability to finance, manufacture and
warehouse furniture within the relatively narrow delivery window associated
with the highly seasonal demand for education sales. In the fiscal year
covered by this report, over 50% of the Company&#146;s total sales were delivered in June,
July, August and September with an even higher portion of educational sales
</FONT>
<P align="center"><FONT size="2">4
</FONT>

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<P><FONT size="2">delivered in
that period. Virco's substantial warehouse space allows the Company to build adequate
inventories to service this narrow delivery window for the education market.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco was incorporated in California in February 1950, and reorganized as a
Delaware corporation in April 1984.
</FONT>
<P align="left"><FONT size="2"><B><I>Principal Products</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco offers the broadest line of furniture for the K-12 market of any
company in the United States. Virco also provides a variety of products for the
pre-school markets and have recently developed products that are targeted for
college, university, and corporate learning center environments.
The Company's primary
furniture lines are constructed of tubular metal legs and frames, combined with
wood and plastic tops, plastic seats and backs, upholstered seats and backs,
and upholstered rigid polyethylene and polypropylene shells.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco's principal products include:
</FONT>
<P>

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<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2"><B>SEATING</B>&#151;Among the
Company's newest chair offerings are the Ph.D.&#153;, I.Q.&#174;,
Lunada&#153; and Virtuoso&#174; lines. Traditional favorites include best-selling Classic Series&#153;
stack chairs and a variety of Martest 21&#174; hard plastic seating. In addition,
Virco provides a wide selection of upholstered stack chairs, plastic stack chairs,
Egg&#174; Series ergonomic office chairs, steel dining chairs and folding chairs.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2"><B>TABLES</B>&#151;Virco tables range from the innovative Plateau&#174; table system to
lightweight Core-a-Gator&#174; folding tables. The Future Access&#174; Series delivers
functional computer-support solutions, while Lunada&#153; bases by Peter Glass
may be used in a wide variety of environments. The Company offers a full spectrum
of traditional folding and banquet tables, activity tables, mobile tables,
cafe tops and bases, and office tables.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2"><B>COMPUTER
FURNITURE</B>&#151;Virco&#146;s full range of computer furniture includes
the Mojave&#153;
desking system, as well as versatile Future Access and 8700 Series computer
tables. 8400 Series units provide a functional, modular technology-support
alternative for working and learning environments.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2"><B>DESKS/CHAIR
DESKS</B>&#151;Virco&#146;s extensive offerings include a complete spectrum of
student desks, chair desks, combo units, tablet arms and teachers&#146; desks.
Selected models are available with durable, colorfast Martest 21 hard
plastic seats, backs and work surfaces.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2"><B>MOBILE FURNITURE</B>&#151;Virco
offers a complete line of sturdy mobile cabinets for
storage needs. In addition, the Company offers mobile tables for situations where
quick set-up and tear-down are desirable, such as in banquet facility and
lunchroom settings.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2"><B>STORAGE EQUIPMENT</B>&#151;Virco
offers a complete line of chair and table trucks, as
well as large-scale storage units for arenas, convention centers and similar
venues.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Please note that this report includes trademarks of Virco, including, but
not limited to, the following: Ph.D.&#153;, I.Q.&#174;, Virtuoso&#174;, Classic Series&#153;,
Martest 21&#174;, Lunada&#153;, Plateau&#174;, Core-a-Gator&#174;, Future Access&#174;, Mojave&#153;, 8400
Series and 8700 Series. Other names and brands included in this
report may be claimed by Virco as well or by third parties.
</FONT>
<P align="center"><FONT size="2">5
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco&#146;s major customers include educational institutions, convention centers
and arenas, hospitality providers, government facilities, and places of
worship.
</FONT>
<P><FONT size="2"><B><I>Raw Materials</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company purchases steel, aluminum, plastic, polyurethane, polyethylene,
polypropylene, plywood, particleboard, cartons and other raw materials in the
manufacture of its principal products from many different sources.
Management does not believe that we are more vulnerable with respect to the sources and
availability of these raw materials than other manufacturers.</FONT>

<P align="left"><FONT size="2"><B><I>Marketing and Distribution</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco&#146;s
educational product line is marketed through what management believes to be the
largest direct sales force in the education furniture industry. During the
fourth quarter of 1997, Virco terminated distribution arrangements with several
major educational dealerships and increased the size of its direct sales force
to cover these territories. Virco has historically increased both sales and
margins in territories where its direct sales force has replaced educational
dealerships. The sales force calls directly upon school business officials,
who can include purchasing agents or individual school principals where site
based management is practiced. The Company&#146;s direct sales force is considered to be an
important competitive advantage over competitors who rely primarily upon dealer
networks for distribution of their products. Significant portions of
educational furniture are sold on a bid basis.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of commercial and contract furniture are made throughout the United
States by distributorships and by Company sales representatives who service the
distributorship network. Virco representatives call directly upon state and
local governments, convention centers, individual hospitality installations,
and mass merchants. Sales to this market include colleges and universities,
pre-schools, private schools, and office training facilities, which typically
purchase furniture through commercial channels.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales are made to thousands of customers, and no single customer
represents a significant amount of the Company&#146;s business.
</FONT>
<P align="left"><FONT size="2"><B><I>Seasonality</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trend in educational sales is becoming increasingly seasonal. Over
50% of total sales are delivered in June, July, August and September with an
even higher portion of educational sales delivered in that period.
</FONT>
<P align="left"><FONT size="2"><B><I>Working Capital Practices During the &#147;Peak&#148; Summer Season</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed above, the market for educational furniture is marked by
extreme seasonality, with the vast majority of sales occurring from June to
September each year, which is the Company&#146;s peak season. Hence, Virco builds and carries
significant amounts of inventory during this peak summer season to enable us to
meet the rapid delivery requirements of customers in the educational
market. This requires a large up-front investment in inventory, labor, storage
and related costs as inventory is built in anticipation of peak sales
during the summer months. As the capital required for this build-up generally
exceeds cash available from operations, Virco has historically relied on third
party bank financing to meet cash flow requirements during the build-up
period immediately preceding the high season.
</FONT>
<P align="center"><FONT size="2">6
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Virco
typically is faced with a large balance of accounts
receivable during the peak season. This occurs for two primary reasons.
First, accounts receivable balances naturally increase during the peak season
as shipments of products increase. Second, many customers during
this period are government institutions, which tend to pay accounts receivable
more slowly than commercial customers. Virco has historically enjoyed high levels of collectability on these
accounts receivable due to the low-credit risk associated with such customers.
Nevertheless, due to the time differential between inventory build-up in
anticipation of the peak season and the collection on accounts receivable
throughout the peak season, the Company currently relies on a revolving line of credit
from Wells Fargo Bank, N.A., that approximately ranges from $40,000,000 to
$70,000,000, to assist us in meeting cash flow requirements as
inventory is built for, and business is transacted during, the peak summer season.
For more information on this financing arrangement, please see the section
entitled &#147;Liquidity&#148; in the Management's Discussion and
Analysis section contained in Virco&#146;s Annual Report to Shareholders for
the fiscal year ended January 31, 2002.

</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco&#146;s working capital requirements during and in anticipation of the peak
summer season require management to make estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and
liabilities. For example, management expends a significant amount of time
in the first quarter of each year developing a stocking plan and estimating the
number of temporary summer employees, the amount of raw materials, and the
types of components and products that will be required during the peak season.
If management underestimates any of these requirements, Virco&#146;s
ability to meet customer orders in a timely manner or to provide adequate customer service may be diminished.
If management overestimates any of these requirements, the Company may be required to
absorb higher storage, labor and related costs, each of which may affect the
bottom line. On an on-going basis, management evaluates its estimates, including those
related to market demand, labor costs, and stocking inventory;
moreover, management continually strives to improve its ability to correctly forecast the
requirements of the Company&#146;s business during the peak season each year.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of Virco&#146;s efforts to balance seasonality, financial performance and
quality without sacrificing service or market share, management has been refining an
operating model called Assemble-to-Ship (ATS). ATS is Virco&#146;s version of
mass-customization, which assembles standard, stocked components into
customized configurations before shipment. The ATS program reduces the total
amount of inventory and working capital needed to support a given level of
sales. It does this by increasing the inventory&#146;s versatility, delaying costly
assembly until the last moment, and reducing the amount of warehouse space
needed to store finished goods.
</FONT>
<P align="left"><FONT size="2"><B><I>Developments During 2001</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a discussion of
the general developments of Virco&#146;s business during the
period covered by this report, please see the section entitled &#147;To Our
Stockholders&#148; in the Company&#146;s Annual Report to Stockholders for the year ended January
31, 2002.
</FONT>

<P align="left"><FONT size="2"><B><I>Other Matters</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Competition</I></B>
</FONT>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
        <TD width="99%"></TD>
</TR>
<TR valign="top">
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco has
numerous competitors in each of its markets. In the
educational furniture market, competitors include Artco-Bell, American Desk,
Royal, Bretford, Columbia and Scholarcraft. Competitors in contract
furniture vary depending upon the specific product line or sales market and
include Falcon Products, Inc., Krueger International, Inc., MTS and Mity
Enterprises, Inc.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">7
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
        <TD width="99%"></TD>
</TR>
<TR valign="top">
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The educational furniture market is characterized by price competition,
as many sales occur on a bid basis. Management compensates for this market
characteristic through a combination of methods that may include, but are not
expected to emphasize, direct price competition. Instead, management
expects to
emphasize the value of Virco's products, the value of Virco's distribution and
delivery capabilities, the value of Virco's customer support capabilities and
other intangibles. In addition, management believes that the streamlining
of costs assists the Company
in compensating for this market characteristic by allowing Virco to offer a
higher value product at a lower price. For example, as disclosed
above, Virco has decreased distribution costs by avoiding resellers,
and management believes that the Company's large direct sales force
and the Company's sizeable manufacturing and warehousing
capabilities facilitate these efforts.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Backlog</I></B>
</FONT>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
        <TD width="99%"></TD>
</TR>
<TR valign="top">
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales order backlog for continuing operations of the consolidated
companies at January&nbsp;31, 2002, totaled $26.0&nbsp;million and approximates eight
weeks of sales, compared to $20.0&nbsp;million at January&nbsp;31, 2001, and $16.0
million at January&nbsp;31, 2000.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Patents and Trademarks</I></B>
</FONT>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
        <TD width="99%"></TD>
</TR>
<TR valign="top">
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco has a
number of patents and trademarks for which the Company has not
appraised or established a value. It is believed that the loss of any of the
patents would not have a material effect on Virco's manufacturing business.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Employees</I></B>
</FONT>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
        <TD width="99%"></TD>
</TR>
<TR valign="top">
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco and its subsidiaries employ approximately 2,100 full-time
employees at various locations. Of this number, approximately 1,740 are
involved in manufacturing and distribution, 235 in sales and marketing and
approximately 125 in administration. During the period covered by this
report, the Company's headcount was reduced by approximately 200 from the prior year,
due primarily to attrition.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Environmental Compliance</I></B>
</FONT>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
        <TD width="99%"></TD>
</TR>
<TR valign="top">
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco is subject to numerous environmental laws and regulations in the
various jurisdictions in which it operates that (a)&nbsp;govern operations that may
have adverse environmental effects, such as the discharge of materials into
the environment, as well as handling, storage, transportation and disposal
practices for solid and hazardous wastes, and (b)&nbsp;impose liability for
response costs and certain damages resulting from past and current spills,
disposals or other releases of hazardous materials. Although Virco has enacted
policies for recycling and resource recovery that have earned repeated
commendations, including designation as a 2001 WasteWise Program Champion for
Large Businesses by the United States Environmental Protection Agency, it is
possible that the Company's operations may result in noncompliance with or liability
for remediation pursuant to environmental laws. Environmental laws have
changed rapidly in recent years, and Virco may be subject to more stringent
environmental laws in the future. The Company has expended, and may be expected to
continue to expend, significant amounts in the future for the investigation
of environmental conditions, installation of environmental control equipment,
or remediation of environmental contamination.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Financial Information About Geographic Areas</I></B>
</FONT>
<P align="center"><FONT size="2">8
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="1%" nowrap>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
        <TD width="99%"></TD>
</TR>
<TR valign="top">
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the period covered by this report, we derived approximately 3%
of Virco's revenues from external customers located outside of the United
States (primarily in Canada).</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B><I>Executive Officers of the Registrant</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of April&nbsp;23, 2002, the executive officers of Virco Mfg. Corporation,
who are elected by and serve at the discretion of our Board of Directors, were
as follows:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="26%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="53%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">Age at</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">Has Held</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">January 31,</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">Office</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="left"><FONT size="1">Name</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">Office</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">2002</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1">Since</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">R. A. Virtue(1)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
President, Chairman of the Board
and Chief Executive Officer
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">69
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">1990</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">R. E. Dose(2)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Vice President &#151; Finance,
Secretary &#038; Treasurer
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">45
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">1995</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">R. J. Mills(3)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Vice President &#151; Engineering,
Product Development
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">43
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">1997</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">G. D. Parish(4)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Vice President &#151; General Manager
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">64
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">1999</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">W. D. Roberts(5)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Vice President &#151; Chief Information Officer
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">25
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">2001</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">D. R. Smith(6)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Vice President &#151; Corporate Marketing
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">53
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">1995</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">L. L. Swafford(7)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Vice President &#151; Legal Affairs
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">37
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">1998</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">D. A. Virtue(8)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Corporate Executive Vice President
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">43
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">1992</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">L. O. Wonder(9)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Vice President &#151; Sales
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">50
</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">1995</FONT></TD>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed Chairman in 1990; has been employed by the Company for 46
years. Has served as the President since 1982.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed in 1995; has been employed by the Company for 12&nbsp;years and has
served as the Corporate Controller, and currently as Vice President -
Finance, Secretary and Treasurer.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed in 1997; has been employed by the Company for 7&nbsp;years and has
served as the Corporate Counsel, Vice President and General Manager of
Torrance Division and currently as Vice President &#151; Engineering and
Product Development.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed in 1999; has been employed by the Company for 43&nbsp;years and has
served in a variety of manufacturing, warehousing and sales and marketing
positions and currently as Vice President and General Manager of the
Conway Division.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">9
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed in 2001, has been employed by the Company for 5&nbsp;years in a
variety of analytic and technology positions, currently as Vice President
and Chief Information Officer.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(6)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed in 1995; has been employed by the Company for 17&nbsp;years in a
variety of sales and marketing positions, currently as Corporate Vice
President of Marketing.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(7)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed in 1998; has been employed by the Company for 7&nbsp;years
and has served as Associate Corporate Counsel, and currently as Vice
President of Legal Affairs.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(8)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed in 1992; has been employed by the Company for 17&nbsp;years and has
served in Production Control, as Contract Administrator, as Manager of
Marketing Services, as General Manager of Torrance Division, and currently
as Corporate Executive Vice President.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(9)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Appointed in 1995; has been employed by the Company for 24&nbsp;years in a
variety of sales and marketing positions, currently as Corporate Vice
President of Sales.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(10)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Company officers do not have employment contracts.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item regarding Directors will be
contained in Virco's Proxy Statement to be filed within 120&nbsp;days after the end of
the Company's most recent fiscal year and is incorporated herein by this reference.
</FONT>
<!-- link2 "Item&nbsp;2. Properties" -->
<DIV align="left"><A NAME="002"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;2. </B><B><I>Properties</I></B></FONT>

<P align="left"><FONT size="2"><B><I>Torrance, California</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco leases a 560,000 sq. ft. office, manufacturing and warehousing
facility located on 23.5 acres of land in Torrance, California. This facility
is occupied under a ten-year lease (with two five-year renewal options)
expiring January 2005. This facility also includes the corporate headquarters,
the West Coast showroom, and all West Coast distribution operations. In April
2000, Virco sold a 200,000 sq. ft. warehouse, which was held as rental property,
located on 8.5 acres of land in Torrance, California.
</FONT>
<P align="left"><FONT size="2"><B><I>Los Angeles, California</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco owns a 160,000 sq. ft. manufacturing facility located on 8 acres of
land in Gardena, California. This manufacturing facility is held as rental
property and is currently being marketed for either sale or lease.
Management
currently expects to be in a position to close either a lease or a sale of this
property in the second quarter of 2002.
</FONT>
<P align="left"><FONT size="2"><B><I>Conway, Arkansas</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 1997, the Board of Directors authorized an expansion and
re-configuration of Virco&#146;s Conway, Arkansas, manufacturing and distribution
facilities. In late 1997 and early 1998, the Company acquired approximately
100 acres of land in Conway, which can support up to 1,700,000 sq. ft. of
manufacturing, warehousing, office, and showroom facilities. Phase one of the
project consisted of a 400,000 sq. ft. manufacturing plant and was completed in
March 1999. This plant replaced an existing 150,000 sq. ft. facility,
providing an additional 250,000 sq. ft., which was earmarked for new
manufacturing processes to support product development efforts, as well as
future growth in sales. This plant utilizes a manufacturing cell concept,
which has proved successful in our Torrance, California facility. The
Conway manufacturing facility contains
</FONT>
<P align="center"><FONT size="2">10
</FONT>

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<P><FONT size="2">new equipment, which was selected to
improve manufacturing efficiency and flexibility, as well as improve product
quality. In March 1999, substantially all of the production equipment from the
existing 150,000 sq. ft. facility was transferred to the new plant. New
processes and equipment are being brought on line, as capacity and process
requirement demand. The 150,000 sq. ft. facility, which is adjacent to the
main factory in Conway, was converted to a finished goods warehouse.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Phase two of the Conway project consists of an 800,000 sq. ft. assembly,
warehouse and distribution facility. Construction on the first 400,000 sq. ft.
segment of this facility began in March 1999 and was completed and fully
operational in December 1999. The Company vacated two rental facilities in late 1999
with the completion of this first segment, as management no longer deemed them
necessary. The second segment was substantially completed in July 2000. With
the completion of the second segment, the Company vacated two additional rental
facilities in November 2000, as well as a building which was sold subsequent to
that fiscal year end, and a building in Newport, Tennessee, which is leased to
a third party. The final stage of this consolidation will occur when we sell a
150,000 sq. ft. manufacturing plant located in Conway. Management converted this plant
to a finished goods warehouse in 1999 and expects to store finished goods at
this location until the building is sold.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This new production
and manufacturing complex will enable Virco to pursue
manufacturing strategies which are expected to support growth in sales volume
without a proportional increase in inventory. In addition, it will allow all
finished goods manufactured at the Conway facility to be stored in one
location, which management expects will substantially reduce costs related to material
handling. The new warehouse facility in Conway has been equipped with
high-density storage systems, features over 70 dock doors dedicated to
out-bound freight, and has substantial yard capacity for storing and staging
trailers. Management believes that this facility will significantly
improve Virco's ability
to support increased sales during the peak delivery season and enhance the
efficiency with which orders are filled.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital spending at this location was approximately $3,979,000 in 2001,
$15,974,000 in 2000, $29,200,000 in 1999 and $20,600,000 in 1998. For a
discussion of how this expansion project impacts Virco's results of operations,
please refer to the Management&#146;s Discussion and Analysis section of the
Company&#146;s 2001 Annual Report to Stockholders.
</FONT>
<P align="left"><FONT size="2"><B><I>Newport, Tennessee</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco owns a 55,000 sq. ft. manufacturing facility located on 3.5 acres of
land in Newport, Tennessee, which was previously used to manufacture melamine
plastic seats, backs and table tops for classroom furniture. This factory was
leased under a 10-year lease that expires in 2011. The new tenant at this
facility has the option to purchase the property during the first three years
of the lease.
</FONT>
<!-- link2 "Item&nbsp;3. Legal Proceedings" -->
<DIV align="left"><A NAME="003"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;3. </B><B><I>Legal Proceedings</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virco has various legal actions pending against it which in the opinion of
management are not material in that management either expects to be successful on the
merits of the pending cases or that any liabilities resulting from such cases
will be substantially covered by insurance. While it is impossible to estimate
with certainty the ultimate legal and financial liability with respect to these
suits and claims, management believes that the aggregate amount of such liabilities will
not be material to the results of operations, financial position, or cash flows
of the Company.
</FONT>
<P align="center"><FONT size="2">11
</FONT>

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<!-- link2 "Item&nbsp;4. Submission of Matters to a Vote of Security Holders" -->
<DIV align="left"><A NAME="004"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;4. </B><B><I>Submission of Matters to a Vote of Security Holders</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</FONT>
<P align="center"><FONT size="2">12
</FONT>

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<!-- link1 "PART II" -->
<DIV align="left"><A NAME="005"></A></DIV>
<P align="center"><FONT size="2"><B>PART II</B></FONT>

<!-- link2 "Item&nbsp;5. Market for Registrant&#146;s Common Stock and Related Stockholder Matters" -->
<DIV align="left"><A NAME="006"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;5. </B><B><I>Market for Registrant&#146;s Common Stock and Related Stockholder Matters</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Incorporated herein by reference is the information appearing under the
caption &#147;Supplemental Stockholders&#146; Information&#148; which
appears in Virco&#146;s Annual Report to Stockholders for the year ended January&nbsp;31, 2002. As of April
23, 2002, there were approximately 350 Registered Stockholders according to
transfer agent records. There were approximately 1,500 Beneficial
Stockholders.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Dividend Policy</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is the Board of Directors&#146; policy to periodically review the payment of
cash and stock dividends in light of the Company&#146;s earnings and liquidity. In
each of the fiscal years ending January&nbsp;31, 2001, and
January&nbsp;31, 2002, Virco
declared a $0.02 per quarter cash dividend and an annual 10% stock dividend.
</FONT>
<!-- link2 "Item&nbsp;6. Selected Financial Data" -->
<DIV align="left"><A NAME="007"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;6. </B><B><I>Selected Financial Data</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Incorporated herein by reference is the Selected Financial Data
Information appearing in Virco&#146;s Annual Report to Stockholders for the year ended
January&nbsp;31, 2002. This data should be read in conjunction with Item&nbsp;8,
Financial Statements and Supplementary Data thereto, and with Item&nbsp;7,
Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations.
</FONT>
<!-- link2 "Item&nbsp;7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations" -->
<DIV align="left"><A NAME="008"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;7. </B><B><I>Management&#146;s Discussion and Analysis of Financial Condition and
Results of Operations</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This information is incorporated herein by reference to the &#147;Management&#146;s
Discussion and Analysis and Results of Operations&#148; section
included in Virco&#146;s Annual Report to Stockholders for the year ended January&nbsp;31, 2002.
</FONT>
<!-- link2 "Item&nbsp;7a. Quantitative and Qualitative Disclosures about Market Risk" -->
<DIV align="left"><A NAME="009"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;7a</B><B><I>. Quantitative and Qualitative Disclosures about Market Risk</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This information is incorporated herein by reference to the &#147;Inflation and
Future Change in Prices&#148; section of &#147;Management&#146;s Discussion and Analysis and
Results of Operations&#148; included in Virco&#146;s Annual Report to Stockholders for
the year ended January&nbsp;31, 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;22,
2000, Virco entered into an interest rate swap agreement with
Wells Fargo Bank. The initial notional swap amount was $30,000,000 for the
period February&nbsp;22, 2000, through February&nbsp;29, 2001. The notional swap amount
then decreased to $20,000,000 until the end of the swap agreement, March&nbsp;3,
2003. The swap agreement is in consideration for a fixed rate at 7.23% plus a
fluctuating margin of 1.25% to 1.50%.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of
January&nbsp;31, 2002, Virco has borrowed $22,414,000 under the Wells Fargo
credit facilities, of which $20,000,000 is subject to the interest rate swap
agreement as described above and the remaining contain variable interest rates.
Accordingly, a 100 basis point upward fluctuation in the interest rate would
have caused the Company to incur additional interest charges of approximately $476,000
for the fiscal year ended January&nbsp;31, 2002. Virco would have benefited from a
similar interest savings if the base rate were to fluctuate downward by the
same amount.
</FONT>
<P align="center"><FONT size="2">13
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link2 "Item&nbsp;8. Financial Statements and Supplementary Data" -->
<DIV align="left"><A NAME="010"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;8</B><B><I>. Financial Statements and Supplementary Data</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The report of independent auditors and consolidated financial statements
included in the Annual Report to Stockholders for the year ended January&nbsp;31,
2002, are incorporated herein by reference.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unaudited quarterly results in Note 10 of the financial statements
included in the Annual Report to Stockholders for the year ended January&nbsp;31,
2002, are incorporated herein by reference.
</FONT>
<!-- link2 "Item&nbsp;9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures" -->
<DIV align="left"><A NAME="011"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;9. </B><B><I>Changes in and Disagreements with Accountants on Accounting and Financial Disclosures</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</FONT>
<P align="center"><FONT size="2">14
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "PART III" -->
<DIV align="left"><A NAME="012"></A></DIV>
<P align="center"><FONT size="2"><B>PART III</B></FONT>

<!-- link2 "Item&nbsp;10. Directors and Executive Officers of the Registrant" -->
<DIV align="left"><A NAME="013"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;10. </B><B><I>Directors and Executive Officers of the Registrant</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item is incorporated by reference to
information set forth in the definitive Proxy Statement to be filed within 120
days after the end of the Company&#146;s most recent fiscal year and in Part I of
this report under the heading &#147;Executive Officers of the Registrant.&#148;
</FONT>
<!-- link2 "Item&nbsp;11. Executive Compensation" -->
<DIV align="left"><A NAME="014"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;11</B><B><I>. Executive Compensation</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be contained in the Company&#146;s
Proxy Statement to be filed within 120&nbsp;days after the end of the Company&#146;s most
recent fiscal year and is incorporated herein by this reference.
</FONT>
<!-- link2 "Item&nbsp;12. Security Ownership of Certain Beneficial Owners and Management" -->
<DIV align="left"><A NAME="015"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;12. </B><B><I>Security Ownership of Certain Beneficial Owners and Management</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be contained in the Company&#146;s
Proxy Statement to be filed within 120&nbsp;days after the end of the Company&#146;s most
recent fiscal year and is incorporated herein by this reference.
</FONT>
<!-- link2 "Item&nbsp;13. Certain Relationships and Related Transactions" -->
<DIV align="left"><A NAME="016"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;13. </B><B><I>Certain Relationships and Related Transactions</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by this Item will be contained in the Company&#146;s
Proxy Statement to be filed within 120&nbsp;days after the end of the Company&#146;s most
recent fiscal year and is incorporated herein by this reference.
</FONT>
<P align="center"><FONT size="2">15
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "PART IV" -->
<DIV align="left"><A NAME="017"></A></DIV>
<P align="center"><FONT size="2"><B>PART IV</B></FONT>

<!-- link2 "Item&nbsp;14. Financial Statements, Financial Statement Schedules, Exhibits, and Reports on Form&nbsp;8-K" -->
<DIV align="left"><A NAME="018"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;14. </B><B><I>Financial Statements, Financial Statement Schedules, Exhibits, and
Reports on Form&nbsp;8-K</I></B></FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">a) 1.</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">The following consolidated financial statements of Virco Mfg.
Corporation, included in the annual report of the registrant to its
stockholders for the year ended January&nbsp;31, 2002, are incorporated by
reference in Item&nbsp;8.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Report of Management.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Report of Independent Auditors.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Consolidated balance sheets &#151; January&nbsp;31, 2002 and 2001.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Consolidated statements of income &#151; Years ended January&nbsp;31, 2002, 2001,
and 2000.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Consolidated statements of stockholders&#146; equity &#151; Years ended January&nbsp;31,
2002, 2001, and 2000.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Consolidated statements of cash flows &#151; Years ended January&nbsp;31, 2002,
2001, and 2000.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Notes to consolidated financial statements &#151; January&nbsp;31, 2002.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">2.</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">The following consolidated financial statement schedule of Virco Mfg.
Corporation is included in Item&nbsp;14(d):</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Schedule&nbsp;II Valuation and Qualifying Accounts and Reserves.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or are included
in the Financial Statements or Notes thereto, and therefore are not
required to be presented under this Item.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">3.</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Exhibits</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">See Index to Exhibits. The Exhibits listed in the accompanying Index to
Exhibits are filed as part of this report.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" align="left" nowrap><FONT size="2">b)</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="98%"><FONT size="2">Reports on Form&nbsp;8-K.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</FONT>
<P align="center"><FONT size="2">16
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="019"></A></DIV>
<P align="center"><FONT size="2">SIGNATURES</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;13 or 15 (d)&nbsp;of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Torrance, and State of California, on the 30th of April, 2002.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="30%">&nbsp;</TD>
        <TD width="30%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="36%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">VIRCO MFG. CORPORATION</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
By
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">/s/ Robert A. Virtue</FONT></TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Robert A. Virtue, Chairman of the Board
(Principal Executive Officer)</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
By
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">/s/ Robert E. Dose</FONT></TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Robert E. Dose, Vice President &#151; Finance,
Secretary &#038; Treasurer (Principal Financial
Officer)</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
By
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">/s/ Bassey Yau</FONT></TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Bassey Yau, Corporate Controller<BR>
(Principal Accounting Officer)</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>POWER OF ATTORNEY</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert A. Virtue and Robert E. Dose
his/her true and lawful attorney-in-fact and agent, with full power of
substitution and, for him/her and in his/her name, place and stead, in any and
all capacities to sign any and all amendments to this report on Form&nbsp;10-K, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he/she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or
his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="34%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="28%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="28%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1">Signature</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">Title</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">Date</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ Robert A. Virtue<BR>
<HR size="1" noshade>
Robert A. Virtue</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
Chairman of the Board,<BR>
Chief Executive Officer,<BR>
President and Director
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">17
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="34%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="28%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="28%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1">Signature</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">Title</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">Date</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ Douglas A. Virtue</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
Director
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
<TR>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><HR size="1" noshade></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Douglas A. Virtue</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ Donald S. Friesz</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
Director
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
<TR>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><HR size="1" noshade></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Donald S. Friesz</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ Evan M. Gruber</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
Director
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
<TR>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><HR size="1" noshade></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Evan M. Gruber</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ Robert K. Montgomery</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
Director
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
<TR>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><HR size="1" noshade></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Robert K. Montgomery</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ George W. Ott</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
Director
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
<TR>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><HR size="1" noshade></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">George W. Ott</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ Glen D. Parish</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
Director
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
<TR>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><HR size="1" noshade></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Glen D. Parish</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ Donald A. Patrick</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
Director
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
<TR>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><HR size="1" noshade></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Donald A. Patrick</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">/s/ James R. Wilburn</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
Director
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2002</FONT></DIV></TD>
</TR>
<TR>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><HR size="1" noshade></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
<TR valign="bottom">
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">James R. Wilburn</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><DIV style="margin-left:10px; text-indent:-10px"></DIV></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">18
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "EXHIBITS TO FORM 10-K ANNUAL REPORT" -->
<DIV align="left"><A NAME="020"></A></DIV>

<P align="center"><FONT size="2"><B>VIRCO MFG. CORPORATION</B></FONT>

<P align="center"><FONT size="2"><B>EXHIBITS TO FORM 10-K ANNUAL REPORT<BR>
For the Year Ended January&nbsp;31, 2002</B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="8%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="87%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1"><B>Exhibit</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1"><B>Number</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1"><B>Description</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">3.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Certificate of Incorporation of the Company dated April&nbsp;23, 1984, as
amended (incorporated by reference to Exhibit&nbsp;4.4 to the Company&#146;s
Form&nbsp;S-8 Registration Statement (Commission File No.&nbsp;33-65098), filed
with the Commission on June&nbsp;25, 1993).</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">3.2</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Bylaws of the Company dated April&nbsp;23, 1984 (incorporated by reference
to Exhibit&nbsp;4.5 to the Company&#146;s Form&nbsp;S-8 Registration Statement
(Commission File No.&nbsp;33-65098), filed with the Commission on
September&nbsp;14, 2001).</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Form of Virco Mfg. Corporation Employee Stock Ownership Plan (the
&#147;ESOP&#148;) (incorporated by reference to Exhibit&nbsp;4.1 to the Company&#146;s
Form&nbsp;S-8 Registration Statement (Commission File No.&nbsp;33-65098), filed
with the Commission on June&nbsp;25, 1993).</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.2</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Trust Agreement for the ESOP (incorporated by reference to Exhibit
4.2 to the Company&#146;s Form&nbsp;S-8 Registration Statement (Commission File
No.&nbsp;33-65098), filed with the Commission on June&nbsp;25, 1993).</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.3</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Form of Registration Rights Agreement for the ESOP (incorporated by
reference to Exhibit&nbsp;4.3 to the Company&#146;s Form&nbsp;S-8 Registration
Statement (Commission File No.&nbsp;33-65098), filed with the Commission
on June&nbsp;25, 1993).</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.4</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Rights Agreement dated as of October&nbsp;18, 1996, by and between the
Company and Mellon Investor Services, as Rights Agent (incorporated
by reference to Exhibit&nbsp;1 to the Company&#146;s Form&nbsp;S-8 Registration
Statement (Commission File No.&nbsp;001-08777), filed with the Commission
on October&nbsp;25, 1996).</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.5</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
1993 Stock Incentive Plan of the Company (incorporated by reference
to Exhibit&nbsp;4.1 to the Company&#146;s Form&nbsp;S-8 Registration Statement
(Commission File No.&nbsp;33-65098), filed with the Commission on June
1993).</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.6</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Lease between FHL Group, a California Corporation, as landlord and
Virco Mfg. Corporation, a Delaware Corporation, as tenant.</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.7</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Credit Agreement with Wells Fargo.</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">13.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Annual Report to Stockholders for the Year Ended January&nbsp;31, 2002.</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">21.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
List of All Subsidiaries of Virco Mfg. Corporation.</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">23.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Consent of Independent Auditors.</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">24.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Power of Attorney (See signature page).</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">19</FONT>


</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>3
<FILENAME>v81125ex10-6.txt
<DESCRIPTION>EXHIBIT 10.6
<TEXT>
<PAGE>
                                                                    Exhibit 10.6

                                      LEASE

                                     BETWEEN

                                  FHL GROUP, A

                             CALIFORNIA CORPORATION,

                                   AS LANDLORD

                                       AND

                             VIRCO MFG. CORPORATION,

                             A DELAWARE CORPORATION,

                                    AS TENANT



<PAGE>



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>        <C>    <C>                                                                     <C>
1.  Term....................................................................................4
           1.1    Term......................................................................4
           1.2    Early Possession..........................................................4
           1.3    "As Is" Delivery of the Property..........................................4
           1.4    Lease Year................................................................5

2.  Rent and Security Deposit...............................................................5
           2.1    Rent......................................................................5
           2.2    Additional Rent...........................................................5
           2.3    Security Deposit..........................................................5

3.  Tenant's Share of Certain Expenses......................................................6
           3.1    Tenant's Share of Certain Expenses........................................6
           3.2    Definitions...............................................................6
                  3.2.1    Real Estate Taxes Defined........................................6
                  3.2.2    Tenant's Share of Real Estate Taxes Defined......................6
                  3.2.3    Insurance Charges................................................6
                  3.2.4    Tenant's Share of Insurance Charges..............................7
                  3.2.5    Earthquake and Flood Insurance...................................7
           3.3    Procedure.................................................................7
                  3.3.1    Estimated Monthly Installments...................................7

4.  Tenant's Insurance Obligations and Liability............................................8
           4.1    Insurance.................................................................8
                  4.1.1    Liability Insurance..............................................8
                  4.1.2    All Risk Insurance...............................................8
                  4.1.3    Plate Glass Insurance............................................8
                  4.1.4    Workers' Compensation Insurance..................................8
                  4.1.5    Business Interruption Insurance..................................9
           4.2    Insurer and Policy Form...................................................9
           4.3    Blanket Insurance.........................................................9
           4.4    Waiver of Subrogation.....................................................9
           4.5    Indemnification...........................................................9
           4.6    Exemption of Landlord from Liability.....................................10

5.  Personal Property Taxes and Utilities..................................................10
           5.1    Personal Property Taxes..................................................10
           5.2    Utility Charges..........................................................10

6.  Operation..............................................................................10
           6.1    General..................................................................10
           6.2    Environmental Covenants..................................................11
                  6.2.1    Definition of "Hazardous Material"..............................11
</TABLE>

                                       (i)


<PAGE>

<TABLE>
<S>        <C>    <C>                                                                     <C>
                  6.2.2    Definition of "Hazardous Material Contaminations"...............11
                  6.2.3    Definition of "Pre-existing Contamination"......................11
                  6.2.4    Tenant's Compliance with Laws related to Hazardous Materials....11
                  6.2.5    Tenant's Communications with Government Authorities
                           Regarding Releases of Petroleum Products........................11
                  6.2.6    Confidentiality of Information Related to Hazardous Materials...11
                  6.2.7    List of Hazardous Materials Used by Tenant......................11
                  6.2.8    Tenant's Securing the Property Against Unauthorized
                           Handling of Hazardous Materials.................................11
                  6.2.9    Negotiations, Settlement or Litigation by Tenant Related
                           to Hazardous Materials..........................................12
                  6.2.10   Indemnification by Tenant.......................................12
                  6.2.11   Indemnification by Landlord.....................................12
                  6.2.12   Landlord's Right of Entry for Environmental Investigation
                           or Cleanup......................................................12
                  6.2.13   Survival of Indemnities.........................................12
           6.3    Use......................................................................12
           6.4    Signs....................................................................13

7.  Maintenance, Repairs and Alterations...................................................13
           7.1    Tenant Maintenance, Repair, Replacement and Restoration Obligations......13
           7.2    Landlord Maintenance and Repair..........................................14
           7.3    Alterations and Additions................................................14
           7.4    Mechanics' Liens.........................................................15
           7.5    Failure..................................................................15
           7.6    Title....................................................................15
           7.7    Surrender................................................................15
                  7.7.1    Removal of Tenant's Equipment...................................15
                  7.7.2    Removal of Improvements.........................................16

8.  Damage or Destruction..................................................................16
           8.1    Definitions..............................................................16
           8.2    Partial Damage -- Insured Loss...........................................17
           8.3    Partial Damage -- Uninsured Loss.........................................17
           8.4    Total Destruction........................................................17
           8.5    Damage Near End of Term..................................................17
           8.6    Abatement of Rent; Tenant's Remedies.....................................17
                  8.6.1    Rent Abatement..................................................17
                  8.6.2    Completion of Repair or Restoration.............................18
                  8.6.3    Delays..........................................................18
           8.7    Termination -- Advance Payments..........................................19
           8.8    Waiver of Civil Code Sections............................................19

9.  Condemnation...........................................................................19
           9.1    Definitions..............................................................19
                  9.1.1    Condemnation....................................................19
                  9.1.2    Total Condemnation..............................................19
</TABLE>

                                      (ii)
<PAGE>

<TABLE>
<S>        <C>    <C>                                                                     <C>
                  9.1.3    Partial Condemnation............................................19
                  9.1.4    Condemnation Date...............................................20
                  9.1.5    Award...........................................................20
           9.2    Total Condemnation.......................................................20
           9.3    Partial Condemnation.....................................................20
                  9.3.1    Termination.....................................................20
                  9.3.2    Abatement of Rent...............................................20
                  9.3.3    Restoration.....................................................20
           9.4    Allocation of Award......................................................20
           9.5    Waiver of Code of Civil Procedure Section................................20

10. Assignment and Subletting..............................................................21
           10.1   Assignment or Subletting.................................................21
           10.2   Notice...................................................................21
           10.3   Intentionally Omitted....................................................21
           10.4   Assignment/Sublease Amendment............................................21
           10.5   Criteria for Approval....................................................21
           10.6   Miscellaneous............................................................22
           10.7   Additional Transactions..................................................22

11. Subordination..........................................................................23
           11.1   Tenants Agreement to Subordinate.........................................23
           11.2   Attornment...............................................................23

12. Default and Remedies...................................................................24
           12.1   Default..................................................................24
                  12.1.1   Failure to Pay Rent.............................................24
                  12.1.2   Abandonment.....................................................24
                  12.1.3   Bankruptcy......................................................24
                  12.1.4   Other...........................................................24
           12.2   Remedies.................................................................24
                  12.2.1   Termination.....................................................24
                  12.2.2   Continuation....................................................25
                  12.2.3   Additional Rights...............................................25
           12.3   Late Charge and Interest.................................................26
                  12.3.1   Late Charge.....................................................26
                  12.3.2   Interest........................................................26
           12.4   Waiver of Redemption.....................................................26

13. Miscellaneous..........................................................................26
           13.1   Default by Landlord......................................................26
                  13.1.1   Default.........................................................26
                  13.1.2   Remedies of Tenant..............................................26
                  13.1.3   Non-Liability of Landlord Parties...............................26
           13.2   Estoppel Certificates....................................................27
           13.3   Holding Over.............................................................27
           13.4   Quiet Enjoyment..........................................................28
</TABLE>

                                     (iii)

<PAGE>

<TABLE>
<S>        <C>    <C>                                                                     <C>
           13.5   Sale of the Premises.....................................................28
           13.6   Intentionally Omitted....................................................28
           13.7   Recording................................................................28
           13.8   Financial Statements.....................................................28
           13.9   Access by Landlord.......................................................28
           13.10  [Intentionally Omitted]..................................................29
           13.11  Notices..................................................................29
           13.12  Time.....................................................................29
           13.13  Entire Agreement.........................................................29
           13.14  Further Assurances.......................................................29
           13.15  Applicable Law; Severability.............................................29
           13.16  Controversy..............................................................29
           13.17  Headings, Gender and Number..............................................29
           13.18  Successors...............................................................30
           13.19  Corporate Authority......................................................30
           13.20  Construction Warranties..................................................30
           13.21  Broker's Commission......................................................30

14. Additional Lease Provisions............................................................31
           14.1   Options to Extend Term...................................................31
                  14.1.1   Option..........................................................31
                  14.1.2   Basic Monthly Rent During Extension Periods.....................31
                           14.1.2.1 Fair Market Rental Rate................................31
                           14.1.2.2 Delivery of Extension Notice...........................32
           14.2   Conditions to Tenant's Obligations.......................................33
                  14.2.1   Environmental Investigation.....................................33
                  14.2.2   Receipt of Governmental Approvals and Permits...................34
           14.3   Assumption of the Harpers Obligations....................................34
           14.4   Survival of Tenant's Termination Obligations.............................35
           14.5   Construction of Tenant Improvements and Roof Work........................35
           14.6   Right of First Notice....................................................35
</TABLE>

                                      (iv)

<PAGE>



                                    EXHIBITS

        EXHIBIT A-1:  Work Letter Agreement (Tenant Improvements)

        EXHIBIT A-2:  Work Letter Agreement (Roof)

        EXHIBIT B:    Conditions to Early Entry

        EXHIBIT C:    Condition of Building Upon Delivery

        EXHIBIT D:    Description of the "Warehouse Condition" Upon Surrender

        EXHIBIT K:    Form of Non-Disturbance and Attornment Agreement

        EXHIBIT F:    License For Environmental Investigation

        EXHIBIT G:    Environmental Documents Delivered by Landlord to Tenant

                                      (v)

<PAGE>


                                      LEASE

        THIS LEASE (the "Lease") is made and entered by and between FHL Group, a
California corporation ("Landlord") and the tenant ("Tenant") described in Item
1 of the Fundamental Lease Provisions.

                                LEASE OF PREMISES

        Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, subject to all of the terms and conditions set forth in this Lease,
including the Fundamental Lease Provisions, the Standard Lease Provisions and
the Exhibits, the real property and all improvements thereon, and appurtenances
thereto, described in Item 2 of the Fundamental Lease Provisions (collectively,
the- "Property").

                          FUNDAMENTAL LEASE PROVISIONS

        1.     Tenant: Virco Mfg. Corporation, a Delaware corporation

        2.     Property:  Parcel 1 in the City of Torrance, County of Los
                          Angeles, State of California as shown on Parcel Map
                          8389 filed in Book 88, Pages 1 through 4, inclusive,
                          of Parcel Maps in the Office of the County Recorder of
                          Los Angeles County consisting of approximately 23.53
                          acres (the "Land") and all improvements thereon,
                          including the industrial building consisting of
                          approximately 559,000 square feet (the "Building")
                          commonly known as 2027 Harpers Way, Torrance,
                          California.

        3.     Term Commencement Date: February 1, 1995

        4.     Term:

               (a) Initial Lease Term: 120 months (plus one (1) partial month if
               the Lease Term commences on a date other than the first day of a
               calendar month) following the Term Commencement Date (See Section
               1)

               (b) Options to Extend Initial Lease Term: Two 5-year options to
               extend (See Section 14.1)

        5.     Basic Monthly Rent: The basic monthly rent shall be as follows:

<TABLE>
<CAPTION>
                                                    Basic Monthly Rent
                                                    ------------------
<S>                                               <C>
February 1, 1995 through January 31, 1996         $112,000.00 per month
February 1, 1996 through January 31, 1997         $117,600.00 per month
February 1, 1997 through January 31, 1998         $128,800.00 per month
February 1, 1998 through January 31, 1999         $137,200.00 per month
February 1, 1999 through January 31, 2000         $142,800.00 per month
February 1, 2000 through January 31, 2001         $148,400.00 per month
February 1, 2001 through January 31, 2002         $156,800.00 per month
February 1, 2002 through January 31, 2003         $162,400.00 per month
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                                    Basic Monthly Rent
                                                    ------------------
<S>                                               <C>
February 1, 2003 through January 31, 2004         $168,000.00 per month
February 1, 2004 through January 31, 2005         $168,000.00 per month
</TABLE>

               Partial Lease Month (if any) (prorated on a 30-day basis):
               $3,733.33 per day

                                (See Section 2.1)

        6.     First Month's Rent (payable upon execution): $112,000.00 (which
               shall be credited to the first installment of Basic Monthly Rent
               due)

        7.     Security Deposit (payable upon execution): $120,000.00

                                (See Section 2.3)

        8.     Permitted Use: Manufacturing and warehousing of furniture,
               including all processes related thereto, general office and
               administrative uses, and all other uses related thereto.

        9.     Rent Commencement Date: February 1, 1995.

        10.    Address for Notice:

               Landlord:        FHL Group
                                1219 Morningside Drive
                                Suite 213
                                Manhattan Beach, CA 90266
                                Attention:  Henry J. Harper, Jr.

                                and to:

                                Pillsbury Madison & Sutro
                                600 Anton Blvd., Suite 1100
                                Costa Mesa, CA 92626
                                Attention:  James P. Clough, Esq.

               Tenant:          Prior to the Term Commencement Date:

                                1331 V. Torrance Blvd.
                                Torrance, California 90501-2399
                                Attention:  Mr. Robert Virtue and Mr. Jim Braam

                                After the Term Commencement Date

                                Virco Mfg. Corporation
                                2027 Harpers Way
                                Torrance, California 90501
                                Attention:  Mr. Robert Virtue and Mr. Jim Braam


                                       2
<PAGE>


        11.    Date of this Lease For Reference Purposes Only: April 25, 1994

        References in the Fundamental Lease Provisions to Sections in this Lease
are for convenience only and designate some of the Sections of the Standard
Lease Provisions set forth below where references to the particular Fundamental
Lease Provisions appear. Each reference in this Lease to any of the Fundamental
Lease Provisions shall be construed to incorporate all the terms provided under
each such Fundamental Lease Provision. In the event of any conflict between any
Fundamental Lease Provision and the balance of the Lease, the latter shall
control.



                                       3
<PAGE>


                            STANDARD LEASE PROVISIONS

1.      TERM.

        1.1 TERM. The Term shall be as specified in Item 4 of the Fundamental
Lease Provisions, commencing as of the Term Commencement Date specified in
Section 1.2. The "Term" shall also include the Extension Period(s) if Tenant
exercises its Extension Option(s) pursuant to Section 14.1, below.

        1.2 EARLY POSSESSION. At any time after September 1, 1994 (the "Early
Possession Date") and until the Term Commencement Date, Tenant shall be entitled
to enter the Property as a licensee for the purposes of (x) constructing the
"Tenant Improvements" as that term is defined in paragraph 1 of the Work Letter
Agreement attached hereto as Exhibit A-l (the "Work Letter"), (y) installing
"Tenant's Equipment", as defined in Section 5.1, below, and (z) preparing the
Property for the conduct of Tenant's business (collectively, the "Permitted
Purposes"), provided that: (i) Tenant's entry on and early possession of the
Property in no way interferes any other work of construction or other work on
any part of the Property to be undertaken by Landlord, if any; (ii) Tenant
delivers to Landlord before entering on the Property evidence of insurance
coverage required under this Lease; (iii) Tenant at all times during Tenant's
early possession keeps the Property free of all mechanic's, materialmen's and
design professionals" liens and otherwise complies with the provisions of
Section 7 of this Lease; (iv) Tenant's early possession hereunder shall be
subject to and governed by all the terms and conditions of this Lease, excluding
only the payment of Basic Monthly Rent as described in Item 5 of the Fundamental
Lease Provisions; and (v) Tenant otherwise complies with the terms and
conditions of attached Exhibit B. Tenant's entering the Property is subject to
prior compliance, at Tenant's sole expense, with all statutes, ordinances,
regulations and policies and interpretations thereof applicable to the Property
(collectively, "Applicable Laws") and relating to Tenant's possession thereof;
in this connection, Tenant shall have the sole responsibility at its cost to
obtain a certificate of occupancy or other permit to occupy if legally required
in connection with Tenant's taking possession of the Property. In the event the
Early Possession Date is delayed as of the result of a Landlord Delay, the Term
Commencement Date shall be extended one (1) day for every day of Landlord Delay.
The term "Landlord Delay" shall mean any delay the Early Possession Date which
is caused by any act or omission of Landlord (wrongful, negligent or otherwise).
No Landlord Delay shall be deemed to have occurred unless and until Tenant has
given written notice to Landlord specifying the action or inaction which Tenant
contends constitutes a Landlord Delay. If such action or inaction is not cured
within one (l) business day after Landlord's receipt of such notice, then a
Landlord Delay, as set forth in such notice, shall be deemed to have occurred
commencing as of the date Landlord received such notice and continuing for the
number of days the Early Possession Date was in fact delayed as a direct result
of such action or inaction.

        1.3 "AS IS" DELIVERY OF THE PROPERTY. Tenant acknowledges that (i)
delivery of the Property by Landlord to Tenant shall be on an "as is" basis in
its condition as of the date of Tenant's execution of this Lease as set forth on
attached Exhibit C, (ii) Landlord makes no representations or warranties,
express or implied, with respect to the environmental condition of the Property
or the surrounding properties or compliance with any Applicable Laws, and (iii)
Basic Monthly Rental and other monetary and non-monetary provisions of this
Lease are material consideration for delivery of the Property in the foregoing
"as is" condition.


                                       4
<PAGE>


        1.4 LEASE YEAR. A Lease Year shall consist of a period of 12 consecutive
full calendar months. The first Lease Year shall begin on the Term Commencement
Date or, if the Term Commencement Date does not occur on the first day of a
calendar month, on the first day of the calendar month next following the Term
Commencement Date. Each succeeding Lease Year shall commence upon the
anniversary date of the first Lease Year.

2.      RENT AND SECURITY DEPOSIT.

        2.1 RENT. Tenant shall pay to Landlord as rent for each month of each
Lease Year during the Term, when due and without offset or deduction, the Basic
Monthly Rent described in Item 5 of the Fundamental Lease Provisions. The amount
referenced in Item 6 of the Fundamental Lease Provisions shall be credited
toward the first installment of Basic Monthly Rent due.

        Each installment of Basic Monthly Rent shall be paid in lawful tender in
advance to Landlord at the address specified in Item 10 of the Fundamental Lease
Provisions or to such other address as Landlord shall designate in writing to
Tenant on or before the first day of the calendar month for which Rent is due.
If the Rent Commencement Date is on a day other than the first day of a calendar
month, then the Rent for the Partial Lease Month shall be prorated on the basis
of a thirty (30)-day month and shall be payable in advance on or before the Term
Commencement Date.

        2.2 ADDITIONAL RENT. Tenant shall also pay as additional rent at the
address specified in Item 10 of the Fundamental Lease Provisions all other
payments to be made by Tenant pursuant to the provisions of this Lease
("Additional Rent"), payable when due. Basic Monthly Rent and Additional Rent
are sometimes collectively referred to herein as "Rent."

        2.3 SECURITY DEPOSIT. Concurrently with the execution of this Lease by
Landlord, Tenant shall deposit with Landlord a security deposit (the "security
Deposit") securing Tenant's faithful performance of all the terms, covenants and
conditions hereunder in the amount set forth in Item 7 of the Fundamental Lease
Provisions. In the event of any Default (as defined in Section 12.1, below),
Landlord may from time to time, without any obligation to do so, use, apply or
retain all or any part of the Security Deposit for the payment of any Rent or
any other sum in Default, or for the payment of any amount which Landlord may
spend or become obligated to spend by reason of Tenant's Default, or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of a Default. If any portion of the Security Deposit is so used or
applied, Tenant shall, immediately upon written demand there for by Landlord,
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount; Tenant's failure to do so shall be a Default
under this Lease. Landlord shall not be required to keep the Security Deposit
separate from its general funds, and Tenant shall not be entitled to interest on
the Security Deposit. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, the Security Deposit (or any
remaining balance thereof) shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest hereunder) within thirty (30)
days following expiration of the Term. In the event of termination of Landlord's
interest in this Lease, Landlord shall transfer the Security Deposit to
Landlord's successor in interest.


                                       5
<PAGE>

3.      TENANT'S SHARE OF CERTAIN EXPENSES.

        3.1 TENANT'S SHARE OF CERTAIN EXPENSES. In addition to the payment of
Basic Monthly Rent and all forms of Additional Rent, Tenant shall pay to
Landlord in accordance with the provisions of this Section 3, Tenant's Share of
Real Estate Taxes (as defined below), and Tenant's Share of Insurance Charges
(as also defined below).

        3.2 DEFINITIONS.

            3.2.1 REAL ESTATE TAXES DEFINED. "Real Estate Taxes" means (i) any
and all forms of tax, assessment, license fee, excise, bond, levy, charge or
imposition (collectively referred to herein as "Taxes"), general, special,
ordinary or extraordinary, imposed, levied or assessed against the Building, the
Property or any portion(s) thereof by any authority or entity having the direct
or indirect power to tax, including without limitation, any city, county, state
or federal government, or any fire, school, redevelopment, agricultural,
sanitary, street, lighting, security, drainage or other authority, political
subdivision or improvement district thereof, (ii) any Tax in substitution
partially or totally, of any Tax now or previously included within the
definition of Real Estate Taxes, including without limitation, those imposed,
levied or assessed to increase tax increments to governmental agencies, or for
services such as (but not limited to) fire protection, police protection,
street, sidewalk and road maintenance, refuse removal or other governmental
services previously provided without charge (or for a lesser charge) to property
owners and/or occupants, (iii) any taxes allocable to or measured by the area of
the Building, the Property, or any portion(s) thereof, or any Rent payable
hereunder, including without limitation, any gross income tax or excise tax on
the receipt of such Rent or upon the possession, leasing, operation,
maintenance, repair, use or occupancy by Tenant or Landlord of the Property if
the same are assessed in lieu of Real Estate Taxes or property taxes as the same
are currently determined, and (iv), any increase in Taxes in the event of a
"change of ownership" (as that term is defined and interpreted in sections 61 et
seq. of the California Revenue and Taxation Code and in sections 461 et seq. of
the California Administrative Code and any amendments or successor statutes and
regulations thereto). Real Estate Taxes shall not include any general franchise,
net income, estate or inheritance tax imposed on Landlord.

            3.2.2 TENANT'S SHARE OF REAL ESTATE TAXES DEFINED. Landlord shall
pay (i) all Real Estate Taxes up to the amount of Real Estate Taxes which are
based on the assessed value of the Land and Building on the 1994-1995 Los
Angeles County real property tax assessment rolls (the "Real Property Tax Base
Year") and (ii) all increases in Real Estate Taxes for the Land and Building
based on an increase in the assessed value of the Land and Building resulting
from a change in ownership of the Property occurring during the initial Term
only. Tenant shall pay all increases in Real Estate Taxes based on (i) any
increase in the assessed value of Property above the value for the Land and
Building assessed for the Real Property Tax Base Year (excluding increases in
the assessed value based on a change in ownership occurring during the initial
Term, which shall be paid by Landlord as set forth in the immediately preceding
sentence) and (ii) a change in ownership occurring after the initial Term
(collectively, "Tenant's Share of Real Estate Taxes").

            3.2.3 INSURANCE CHARGES. "Insurance Charges" means the cost of All
Risk Insurance insuring the Building and the Building General Work (as defined
in paragraph 1 of the Work Letter) ("All Disk Insurance for the Building")
(other than the Tenant's inventory, Tenant-Specific Improvements (as also
defined in paragraph 1 of the Work Letter), Tenant's Equipment


                                       6
<PAGE>


(as defined in Section 5.1, below), the Utility Installations (as defined in
Section 7.1, below), and Alterations (defined in Section 7.3, below)) against
loss or damage by (i) fire, sprinkler damage, vandalism and all other perils
customarily covered under an all risk policy, (ii) such other perils or risks,
insurance against which is required by any lender providing financing for the
Property from time to time, and (iii) which Landlord determines in its good
faith subjective discretion is customarily carried in comparable projects, in
each case in an amount equal to their full new replacement cost and with such
deductibles as Landlord in the exercise of its good faith subjective discretion
shall determine. All Risk Insurance for the Building shall not include
earthquake and flood insurance, which shall be allocated among the parties
exclusively as set forth in Section 3.2.5, below. Landlord hereby covenants and
agrees to carry All Risk Insurance for the Building as required in this Section
3.2.3, and shall provide Tenant with written evidence of such insurance coverage
from time to time at the request of Tenant.

            3.2.4 TENANT'S SHARE OF INSURANCE CHARGES. "Tenant's Share of
Insurance Charges" means the increase, if any, of Insurance Charges for any
Lease Year over Twelve Thousand and 00/100 Dollars ($12,000.00). Tenant shall be
responsible for paying all Insurance Charges over Twelve Thousand and 00/100
Dollars ($12,000.00) per Lease Year.

            3.2.5 EARTHQUAKE AND FLOOD INSURANCE. During the Term, Landlord
shall procure earthquake and flood insurance insuring the Building and the
Building General Work to fifty percent (50%) of its full replacement value and
with a deductible not to exceed five percent (5%) of such replacement cost
(collectively, the "Earthquake Insurance"). The premium for the Earthquake
Coverage shall be paid by Tenant as Additional Rent. In the event of earthquake
damage to the Building and the Earthquake Insurance proceeds together with the
deductible amount is sufficient to repair or restore the Building and the
Building General Work, such earthquake damage shall be considered an Insured
Loss (as defined in Section 8.1.3, below), in which case (i) Landlord shall
commence such repair and restoration in accordance with the provisions of
Section 8, (ii) Landlord shall be responsible for the deductible amount under
the policy of Earthquake Insurance, and (iii) Landlord shall promptly reimburse
Tenant as Additional Rent an amount equal to the total premiums previously paid
by Tenant for the Earthquake Insurance as of the date of such earthquake damage
(or as of the date of the most recent earthquake in the event more than one
earthquake should occur during the Term) plus interest thereon the prime
interest rate announced from time to time by Bank of America, N.A. plus one
percent (1%) but never to exceed the maximum legal rate (the "Interest Rate").
If however, the Earthquake Insurance proceeds together with the approved
deductible amount are not sufficient to repair or restore the Building and the
Building General Work or are otherwise not applied by the insurer to the repair
or restoration of the Building and Building General Work, such earthquake damage
shall be considered damage which is not an Insured Loss, and the parties shall
then proceed in accordance with Section 8.3, below.

        3.3 PROCEDURE.

            3.3.1 ESTIMATED MONTHLY INSTALLMENTS. Tenant's Share of Real Estate
Taxes and Tenant's Share of Insurance Charges shall be payable by Tenant within
twenty (20) days after a reasonably detailed statement of such actual expenses
is presented to Tenant by Landlord. At Landlord's option, however, Landlord may
deliver to Tenant a written estimate of the amount of Tenant's Share of Real
Estate Taxes and Tenant's Share of Insurance Charges for any Lease Year. In such
event, Tenant shall pay to Landlord such estimated amount in equal monthly
installments, in advance on the first day of each month, and Landlord shall
submit to Tenant


                                       7
<PAGE>

within ninety (90) days following the end of each such Lease Year (or as soon
thereafter as all necessary data is reasonably available) a statement showing in
reasonable detail the actual amount of Tenant's Share of Real Estate Taxes and
Tenant's Share of Insurance Charges ("Landlord's Statements") during such
period, and the parties shall make any payment or allowance necessary to adjust
Tenant's estimated payments to the actual amount of Tenant's Share of Real
Estate Taxes and Tenant's Share of Insurance Charges for such period as
indicated by "Landlord's Statement". Any payment due Landlord shall be payable
by Tenant within thirty (30) days following receipt by Tenant of Landlord's
Statement. Any amount due Tenant shall be credited against installments next
becoming due under this Section 3.3. Despite the expiration or early termination
of this Lease, when the final determination is made of Tenant's Share of Real
Estate Taxes and Tenant's Share of Insurance Charges for the year in which the
expiration or early termination occurs, Tenant shall pay on demand any
adjustment due to Landlord and any amount due to Tenant shall be promptly paid
by Landlord.

4.      TENANT'S INSURANCE OBLIGATIONS AND LIABILITY.

        4.1 INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
full force during all portions of the Term and effective upon tender of
possession of the Premises:

            4.1.1 LIABILITY INSURANCE. A policy of comprehensive general
liability insurance insuring on an occurrence basis (provided occurrence based
insurance continues to be available on a commercially reasonable basis) against
any liability arising out of the ownership, use, occupancy or maintenance of the
Property and contractual indemnity insurance insuring Tenant's obligations under
Section 4.4, with an "Additional Insured--Manager of Lessors of Premises"
endorsement and contain the "Amendment of Pollution Exclusion" for damages
caused by heat, smoke or fumes from hostile fire, and owned or non-owned
automobile (vehicle) coverage (collectively, "Liability Insurance"). Such
insurance shall have limits of not less than $10,000,000 for combined single
limit for injury, death of any one or more persons and property damage. The
limits of the Liability Insurance shall never be decreased, but shall be
increased in accordance with increases, if any, reasonably determined by
Landlord to be necessary to maintain policy limits from time to time in amounts
customary and usual for premises comparable to the Property; such increases, if
any, are to be made not more frequently than once every Lease Year;

            4.1.2 ALL RISK INSURANCE. A policy of All Risk Insurance insuring
all of Tenant's Equipment, the Utility Installations, all Alterations, and all
leasehold improvements (other than the Building General Work) against loss or
damage by fire, flood, sprinkler, vandalism, malicious mischief and all perils
customarily covered under a standard all risk coverage policy in an amount equal
to their full new replacement cost. The proceeds from such insurance shall be
used for the replacement or restoration o all the foregoing. If such insurance
has a deductible clause, the deductible amount shall not exceed $25,000 per
occurrence, and Tenant shall be liable for such deductible amount in the event
of an insured loss;

            4.1.3 PLATE GLASS INSURANCE. A policy of full coverage plate glass
insurance on the Premises;

            4.1.4 WORKERS' COMPENSATION INSURANCE. A policy of workers'
compensation insurance insuring all of Tenant's employees working on or about
the Premises with coverage limits not less than those required by applicable
law; and


                                       8
<PAGE>

            4.1.5 BUSINESS INTERRUPTION INSURANCE. A policy of loss of income
and business interruption insurance in such amounts as will reimburse Tenant for
direct or indirect loss of earnings attributable to all perils insured against
under the policy of All Risk Insurance and in no event in an amount less than
Rent and any Additional Rent payable under this Lease for a period of one (1)
year.

        4.2 INSURER AND POLICY FORM. All insurance policies required to be
obtained by Tenant pursuant to the provisions of this Section 4 (i) shall be
carried only through responsible insurance companies and which for the first
$1,000,000 in coverage shall be rated A:VII or better in the most current
"Best's Key Rating Guide," and which for coverage from $2,000,000 through
$10,000,000 shall be rated A-XV or better in the most current "Best's Key Rating
Guide," (ii) shall be primary and noncontributing with, and not in excess of,
any insurance coverage which may be carried by Landlord, (iii) shall name
Landlord and any other parties designated by Landlord as an additional insured,
with a "separate interests" or "cross liability" endorsement and (iv) shall
contain language or bear endorsements that such policy or policies shall not
lapse, be cancelable or be subject to reduction of coverage without giving
Landlord at least 30 days' prior written notice thereof. On or before the Term
Commencement Date and within thirty (30) days after every material change
therein, Tenant shall provide Landlord a copy of each such policy of insurance
or a certificate of insurance certifying to the existence of such insurance in
effect in a form consistent with the requirements of this Section 4.

        4.3 BLANKET INSURANCE. Tenant shall be entitled to provide the foregoing
insurance through a corporate policy or policies of blanket insurance, provided
(i) such blanket policy(ies) is in conformance with section 4.2, above, (ii)
does not result in any decrease in insurance coverage required under this
Section 4, and (iii) specifically allocates no less than $10,000,000 to the
coverage required for the Property. Upon request of Landlord, Tenant shall
provide Landlord with all documentation reasonably requested by Landlord setting
forth the extent of such blanket coverage and the portions thereof allocated to
the Property and allocated to other properties.

        4.4 WAIVER OF SUBROGATION. Landlord and Tenant hereby waive their right
of recovery against the other from any claim arising out of loss, damage or
destruction to the Building and other improvements on the Property, or contents
thereon or therein, to the extent its respective property is covered by a policy
of insurance whether or not such loss, damage or destruction may be attributable
to the negligence of either party or its respective agents, visitors,
contractors, servants or employees. Each policy of insurance obtained by either
party pursuant to this Lease insuring against the perils required to be covered
in the All Risk Insurance, whether or not such policy is required to be obtained
hereunder, shall expressly waive all rights of subrogation against the other and
their respective officers, directors, general partners, employees, agents and
representatives.

        4.5 INDEMNIFICATION. From and after the date of execution hereof by
Landlord, Tenant shall indemnify, defend and hold Landlord and Landlord's
officers, directors, shareholders, agents, employees, successors and assigns
(collectively, "Landlord's Parties") harmless from and against any and all
claims, losses, costs, expenses, demands, actions, causes of action, damages,
liabilities and obligations, including, but not limited to, reasonable
attorneys' fees, arising from (i) the construction, repair, alteration,
improvement, use, occupancy or enjoyment of the Property by Tenant or any person
thereon, including, but not limited to, any labor dispute involving Tenant, (ii)
any breach or default in the performance of any obligation on Tenant's part to
be performed under the terms of this Lease, or (iii) any negligent or wrongful
act


                                       9
<PAGE>

or omission of Tenant, or any officer, agent, employee, guest or invitee of
Tenant, in or about the Property. Notwithstanding the foregoing, the
indemnifications provided under this Section 4.4 shall not apply to any claims
resulting from the gross negligence or willful misconduct of Landlord or
Landlord's Parties.

        4.6 EXEMPTION OF LANDLORD FROM LIABILITY. Landlord and Landlord's
Parties shall not be liable for injury or damage to the person or goods, wares,
merchandise or other property of Tenant, Tenant's employees, contractors,
invitees, customers, or any other person in or about the Property, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether the said injury or damage
results from conditions arising upon the Property or from other sources or
places, and regardless of whether the cause of such damage or injury or the
means of repairing the same is accessible or not. Notwithstanding Landlord's or
Landlord's Parties' negligence or breach of this Lease, Landlord shall under no
circumstances be liable for injury to Tenant's business, for any loss of income
or profit therefrom, or other consequential damages.

5.      PERSONAL PROPERTY TAXES AND UTILITIES.

        5.1 PERSONAL PROPERTY TAXES. Tenant shall pay, or cause to be paid prior
to delinquency all taxes, assessments, license fees and other charges levied or
assessed and which become payable during the Term upon all Alterations, the
Tenant-Specific Improvements (as defined in paragraph 1 of the Work Letter
Agreement) and all other leasehold improvements (other than the Building General
Work), all Utility Installations (as defined in Section 7.1, below), and all
equipment, machinery, furniture, trade fixtures, and other personal property
located in or about the Property (collectively, "Tenant's Equipment". In the
event any or all of the foregoing are assessed and taxed with the Property,
Tenant shall pay to Landlord such taxes within thirty (30) days after delivery
to Tenant by Landlord of a statement in writing setting forth the amount of such
taxes applicable to Tenant's property.

        5.2 UTILITY CHARGES. Tenant shall be solely responsible for, and shall
promptly pay the cost of (including connection and other charges), all heat,
water, gas, electrical, light, power, sewer charges, telephone service, fire
monitoring, police and security, and all other services and utilities supplied
to the Premises, together with any taxes thereon. Electricity and all other
utilities and services shall be separately metered to Tenant at Tenant's cost.

6.      OPERATION.

        6.1 GENERAL. Tenant, for itself, its subtenants and concessionaires
agrees: (i) not to cause, permit or suffer any nuisance or waste to or of the
Premises, (ii) to comply with all federal, state, county or municipal statutes,
laws, ordinances, rules, regulations and orders now or in the future affecting
the Premises and each and all of the provisions of this Lease, and any policies
of insurance now or in the future in effect pursuant to this Lease, and (iii)
not to take, permit or suffer any action or thing which would (a) materially
increase the rates of any policy of insurance now or in the future affecting the
Building or Property, or (b) subject Landlord to any liability for injury to
person or property as a result thereof or (c) subject Landlord to a claim of
damages or liability arising from a Hazardous Material (as defined in Section
6.2.1, below).


                                       10
<PAGE>

        6.2 ENVIRONMENTAL COVENANTS. Landlord and Tenant specifically agree as
follows with respect to the existence or use of any "Hazardous Material" on the
Property:

            6.2.1 DEFINITION OF "HAZARDOUS MATERIAL". The term "Hazardous
Material" means any material, substance or waste that is or becomes regulated by
any government authority as a material, substance or waste that may harm human
health or the environment.

            6.2.2 DEFINITION OF "HAZARDOUS MATERIAL CONTAMINATIONS". The term
"Hazardous Material Contamination" means any Hazardous Material that is located
on, has been generated at, or has emanated from the Property as a result of the
activities of Tenant or any other person acting at the direction, with the
authorization or for the benefit of Tenant.

            6.2.3 DEFINITION OF "PRE-EXISTING CONTAMINATION". The term
"Pre-existing Contamination" means any Hazardous Material that is located on,
has been generated at, or has emanated from the Property before the commencement
of any occupancy or use of the Property by Tenant or any other person acting at
the direction, with the express or implied authorization or for the benefit of
Tenant.

            6.2.4 TENANT'S COMPLIANCE WITH LAWS RELATED TO HAZARDOUS MATERIALS.
As part of Tenant's obligations under Paragraph 6.1, Tenant shall comply with
all applicable laws, ordinances, statutes, standards, rules and regulations
related to Hazardous Materials during any use or occupancy by Tenant of the
Property, including but not limited to the written notice requirement of
California Health & Safety Code Section 25359.7(b).

            6.2.5 TENANT'S COMMUNICATIONS WITH GOVERNMENT AUTHORITIES REGARDING
RELEASES OF PETROLEUM PRODUCTS. Tenant shall provide Landlord with a copy of any
written communication between Tenant and a government authority regarding any
release of a petroleum product or other Hazardous Material not covered by
California Health & Safety Code Section 25359.7(b) into the environment on or
off the Property. If Tenant's communication with a government authority about
this subject is oral, Tenant shall promptly provide Landlord with a written
description of the substance of the communication.

            6.2.6 CONFIDENTIALITY OF INFORMATION RELATED TO HAZARDOUS MATERIALS.
Unless otherwise required by law, Tenant shall not disclose any information
related to Hazardous Materials located on or emanating from the Property to any
person without Landlord's prior written consent.

            6.2.7 LIST OF HAZARDOUS MATERIALS USED BY TENANT. Tenant shall
provide Landlord with written lists of the types and quantities of all Hazardous
Materials used on the Property by Tenant or at the direction, with the
authorization or for the benefit of Tenant. The first list shall be submitted
one year after the commencement date of the Lease and shall cover all Hazardous
Materials used on the Property before the date of the first list. A new list
shall be submitted each year thereafter and upon termination of the Lease and
shall cover all Hazardous Materials used on the Property since the date of the
next previous list.

            6.2.8 TENANT'S SECURING THE PROPERTY AGAINST UNAUTHORIZED HANDLING
OF HAZARDOUS MATERIALS. Tenant shall exercise due care and take all actions that
are reasonably necessary and appropriate to avoid any handling, storage,
treatment, transportation or disposal of a Hazardous Material on the Property
that is not authorized by Tenant. Tenant's actions in this


                                       11
<PAGE>

regard shall include but not be limited to reasonably securing the Property to
prevent trespassers from entering the Property.

            6.2.9 NEGOTIATIONS, SETTLEMENT OR LITIGATION BY TENANT RELATED TO
HAZARDOUS MATERIALS. Tenant has the right to conduct any negotiation, settlement
or litigation with any person (including government authorities) that is related
to Hazardous Material Contamination or Pre-existing Contamination, provided that
Tenant shall obtain Landlord's prior written consent if there is a substantial
likelihood that the negotiation, settlement or litigation will (i) bind Landlord
or affect Landlord's rights in any manner whatsoever; (ii) require Tenant's
occupancy or use of the Property after expiration of the Lease; or (iii)
adversely affect the value of the Property.

            6.2.10 INDEMNIFICATION BY TENANT. Tenant shall indemnify, defend and
hold harmless Landlord, its employees and agents from any and all loss of rents
and/or claims, losses, actions, causes of action, damages, liabilities,
assessments, penalties, fines, and reasonable expenses and costs incident
thereto (including but not limited to attorneys' fees) that arise out of or
result from any of the following: (i) any Hazardous Material Contamination; (ii)
any exacerbation of Preexisting Contamination as a result of an activity by
Tenant or by any other person authorized by Tenant to be on the Property or
perform work in connection with the Property, if and to the extent such
exacerbation adversely impacts the responsibility, if any, that Landlord
otherwise may have for the Pre-Existing Contamination; and (iii) Tenant's breach
of any provision of the Lease, including but not limited to Section 6.2.4.

            6.2.11 INDEMNIFICATION BY LANDLORD. Landlord shall indemnify, defend
and hold harmless Tenant, its employees and agents from any and all claims,
losses, actions, causes of action, damages, liabilities, assessments, penalties,
fines, and reasonable expenses and costs incident thereto (including but not
limited to attorneys' fees) that arise out of or result from any Pre-existing
Contamination. The indemnity in this Paragraph does not extend to any
exacerbation of Preexisting Contamination as a result of an activity by Tenant,
as provided in Section 6.2.10.

            6.2.12 LANDLORD'S RIGHT OF ENTRY FOR ENVIRONMENTAL INVESTIGATION OR
CLEANUP. Landlord's right to enter the Property pursuant to Section 13.9
includes the right to conduct an investigation or cleanup of Pre-existing
Contamination, including the drilling of borings and the installation of wells.
In the event Landlord enters the Property to perform such an investigation or
cleanup, Landlord shall use commercially reasonable efforts to minimize its
disruption of Tenant's use of the Property, including consulting with Tenant on
how best to avoid such disruption. Nothing in this Section 6.2.12 shall be
deemed or construed to impose on Landlord any affirmative obligation to
investigate or clean up Pre-existing Contamination.

            6.2.13 SURVIVAL OF INDEMNITIES. The indemnities provided in Sections
6.2.10 and 6.2.11 shall survive the expiration or termination of this Lease and
shall be operative whether the condition triggering the indemnity is discovered
during or after the Term of this Lease.

        6.3 USE. Tenant shall use the Premises solely for the purposes set forth
under Item 10 of the Fundamental Lease Provisions in compliance with Applicable
Laws and no other purpose whatsoever. Tenant shall keep the Premises in a clean
and safe condition, free from any objectionable noises, odors, or nuisances.


                                       12
<PAGE>

        6.4 SIGNS. Subject to (a) compliance with applicable governmental
statutes, laws, ordinances, rules, regulations and orders, and (b) the
provisions of Sections 7.3, 7.4, 7.5 and 7.7, Tenant may erect signs on the
Property for purposes of corporate identification, provided further (i) the
installation, maintenance, repair, replacement and removal (upon Lease
expiration or earlier termination) shall be at Tenant's sole cost, (ii) upon
removal at Lease expiration or earlier termination, all damage resulting from
such removal shall be immediately repaired at Tenant's cost, and (iii) prior to
installation, such signage shall be subject to Landlord's prior approval, which
shall not be unreasonably withheld.

7.      MAINTENANCE, REPAIRS AND ALTERATIONS.

        7.1 TENANT MAINTENANCE, REPAIR, REPLACEMENT AND RESTORATION OBLIGATIONS.
Subject to the provisions of Sections 7.2, 8 and 9.3, Tenant shall, during the
Term, at Tenant's sole cost and expense, keep the Property and every part
thereof in good, clean, safe, and lawful order, condition and repair. Tenant's
obligations under the immediately preceding sentence shall include, without
limitation, the obligation to maintain, repair, and replace all Alterations, all
Tenant Improvements, all Tenant's Equipment, all landscaping and irrigation
systems (collectively, "Landscaping"), and all Utility Installations. "Utility
Installations" shall mean all parts of all electrical, water, gas, telephone,
security, sewage and plumbing systems, utility systems (including all power
panels, air lines, and electrical distribution systems, fire protection systems
(including sprinklers, (and/or stand pipe and hose or other automatic fire
extinguishing systems, fire alarms and other life-safety systems), communication
systems, located within or serving the Property, and all HVAC. "HVAC" shall mean
collectively all portions of the heating, ventilation and air conditioning
systems serving the Building. The term "Improvements" shall collectively mean
all Tenant Improvements (which shall include the Building General Work, the
Tenant-Specific Work), all Tenant installed above ground and underground tanks
and installations and any other storage tanks and installations used by Tenant
(whether or not installed by Tenant), all cubicles, mezzanines, electrical
hardware, electrical and mechanical rooms, telephone closets, offices and
partitions, all Alterations, all signage, all Landscaping, and all Utilities
Installations. Tenant's obligations under this Section 7.1 shall include
restorations and replacements, whether capital or non-capital (subject only to
Section 7.2, below), whenever necessary or reasonable to keep the Property and
all Improvements or parts thereof in good order, condition and state of repair
and in full compliance with all Applicable Laws. Tenant shall, at Tenant's sole
cost and expense, procure and maintain contracts, with copies to Landlord, in
customary form and substance for, and with contractors specializing and
experienced in the inspection, maintenance and service of the following
equipment and improvements located on the Property: (i) HVAC (the "HVAC
Contract"), (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or stand pipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) roof covering and drain
maintenance (the "Roof Maintenance Contract"), and (v) Landscaping. Tenant shall
also procure and maintain all necessary rubbish disposal contracts necessary for
the disposal of trash and rubbish from the Property in compliance with
Applicable Laws. Tenant shall repaint the exterior of the Building one time
during the initial Term. Additionally, Tenant shall repair the asphalt parking
lot as needed during the Term, and slurry and restripe the parking lot at least
once every three (3) years during the term.


                                       13

<PAGE>


        7.2 LANDLORD MAINTENANCE AND REPAIR. Except as expressly set forth in
this Section 7.2 and in Sections 8 and 9, below, Landlord shall have no
obligation for the maintenance, replacement or repair of the Property or any
portion thereof. Landlord shall, during the Term, at Landlord's sole cost and
expense, (i) maintain in good, clean, safe, and lawful order, condition and
repair, ordinary wear and tear excepted, the structural components of: (a) the
foundation of the Building, (b) all exterior walls of the Building and (c) the
roof of the Building; (ii) provided Tenant has continuously maintained in effect
the approved Roof Maintenance Contract as required above, replace after its
useful life, as reasonably determined by Landlord, the roof membrane of the
Building; and (iii) provided Tenant has continuously maintained the HVAC
Contract as required, above, and has operated the HVAC only at normal levels
during regular business hours, replace the HVAC after its useful life (as
reasonably determined by Landlord), provided the cost of such replacement HVAC
shall be amortized over its useful life and, on that basis, paid by Tenant
during the remainder of the Term as Additional Rent. However, Tenant and not
Landlord shall be responsible for the prompt repair, at Tenant's sole cost, for
any damage to any portion of the foregoing caused by or through Tenant or its
agents, employees, contractors, licensee's or business invitees (whether
intentional, negligent or otherwise). Except as provided in Sections 8 and 9,
there shall be no abatement of Rent and in no case shall there be any liability
of Landlord to Tenant or any other individual or entity by reason of (a) any
injury to or interference with Tenant's business arising from the making of any
repairs, alterations or improvements in or to any portion of the Property or the
Building as required of Landlord (unless such injury is directly caused by
Landlord's own gross negligence or willful act) or (b) any entry onto the
Premises by Landlord for purposes of making such repairs, alterations or
improvements or any other purpose.

        7.3 ALTERATIONS AND ADDITIONS. Following construction of the Tenant
Improvements, Tenant shall not make any structural or exterior alterations,
additions, improvements and/or Utility Installations to the Building
(collectively, "Structural Alterations") and shall not, without Landlord's prior
written consent, which consent shall not be unreasonably withheld, make any
non-structural, interior alterations, additions, or improvements or
("Non-Structural Alterations") in or about the Property. However, Landlord
hereby consents to all Nonstructural Alterations, the cost of which does not
exceed $50,000 in the aggregate in any one Lease Year. Structural Alterations
and Non-Structural Alterations are hereinafter defined as "Alterations." As a
condition to its consent, Landlord may require (i) Alterations to be made under
the supervision of a competent architect or structural engineer in accordance
with plans and specifications approved in advance by Landlord (and all costs
incurred by Landlord from such review shall have been reimbursed by Tenant to
Landlord as Additional Rent), and (ii) Tenant to provide Landlord, at Tenant's
sole cost and expense, with such reasonably adequate assurance as Landlord may
require to insure Landlord against any liability for liens and to insure
completion of such Alterations. In determining whether to grant or deny such
consent, Landlord may also consider the aesthetics of any proposed Alterations
and whether such Alterations would enhance the physical appearance and value of
the Property. Upon completion of any Alterations, Tenant shall cause a Notice of
Completion to be recorded in the Office of the County Recorder in accordance
with Section 3093 of the California Civil Code, and shall provide Landlord with
an "as built" set of such Alterations (whether or not such Alterations require
the express approval of Landlord hereunder). All such Alterations shall be done
in a good, workmanlike manner, shall be diligently prosecuted to completion and
shall be performed and done strictly in accordance with all applicable
governmental statutes, laws, rules, regulations, ordinances and orders. In any
event, Tenant shall give Landlord not less than thirty (30) days' written notice
prior to the


                                       14
<PAGE>


commencement of any Alterations, and Landlord shall have the right to post
notices of non-responsibility on or about the Property.

        7.4 MECHANICS' LIENS. Tenant agrees (i) that it will promptly pay for
all costs of Alterations or other work done or permitted by it or caused to be
done by it on or about the Property, (ii) that it will keep the Property free
and clear of any liens arising out of any such Alterations or otherwise, and C
iii) that should any such lien be made or filed against the Property on account
of such Alterations or other work done or permitted (expressly or through
inaction) by Tenant, Tenant shall, at its sole cost and expense, bond against or
discharge such lien within ten (10) days after receipt of written request to do
so by Landlord.

        7.5 FAILURE. In the event that Tenant fails, refuses or neglects (i) to
commence and complete repairs promptly and adequately, to remove any liens or
pay any costs or expenses, (ii) to reimburse Landlord or (iii) to otherwise
perform any act or fulfill any obligation required of Tenant pursuant to this
Section 7, Landlord may, at its option, make or complete any such repairs,
remove such lien, pay such costs, or perform such act, or the like, upon ten
(10) days' prior written notice to Tenant, at the sole cost and expense of
Tenant; Tenant agrees to reimburse Landlord for all costs and expenses of
Landlord thereby incurred within ten days after receipt by Tenant from Landlord
of a statement setting forth an amount of such costs and expenses. The failure
by Tenant to so make repairs, to remove any lien, to pay any such costs or
expense or to so reimburse Landlord (in the case of reimbursement within such
ten (10) day period), shall constitute a default by Tenant under this Lease and
shall carry with it the same consequences as the failure to pay any installment
of Rent. Landlord's rights and remedies, pursuant to this Section 7.5, shall be
in addition to any and all other rights and remedies provided under this Lease
or by law.

        7.6 TITLE. All right, title and interest in and to the Property and any
Alterations including, without limitation, all Tenant Improvement Work, shall be
held and retained by Landlord and shall be free and clear of any claim or
interest of Tenant upon expiration of this Lease. Tenant shall not waste,
destroy or remove any improvements, fixtures or other property affixed to the
Property without the prior written consent of Landlord, which consent shall not
be unreasonably withheld.

        7.7 SURRENDER.

            7.7.1 REMOVAL OF TENANT'S EQUIPMENT. Upon the expiration or any
sooner termination of this Lease, Tenant shall (a) promptly undo and remove all
of Tenant's Equipment, on or about the Property, (b) repair any damage to
floors, ceilings, walls, or other parts of the Property caused by such removal,
and (c) surrender up and deliver possession of the Premises to Landlord, in
broom clean warehouse condition as may be required by Landlord pursuant to
Section 7.7.2, below. By way of illustration, the removal of Tenant's Equipment
shall include, without limitation, removal of all (i) machinery and equipment
(including bolt removal and repair of damage resulting therefrom, (ii)
horizontal and vertical water and electrical lines, all supporting lines, and
any other utility lines, ducting and/or ventilation systems servicing any
machinery or equipment, (iii) sub-power panels, lines and trenching servicing
any tenant operation, (iv) racks and bins, (v) conveyors and related systems,
(vi) baking ovens, (vii) cranes and tracks, (viii) water tanks, and (ix)
mezzanine and office installations.


                                       15
<PAGE>


            7.7.2 REMOVAL OF IMPROVEMENTS. Subject to Landlord's right to
require their removal as hereinafter provided in this Section 7.7.2, all
Improvements shall be the property of and owned by Lessor and considered a part
of the Property. However, Landlord may require that any or all Improvements be
removed at Tenant's sole cost and expense by the expiration or earlier
termination of this Lease, notwithstanding their installation may have been
consented to by Landlord, such that the interior of the Building will be in the
condition described on attached Exhibit D (the "Warehouse Condition"), clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. "Ordinary wear and tear" as used in this Lease
shall not include any damage or deterioration that would have been prevented by
good maintenance practice or by Tenant performing all of its obligations under
this Lease. Landlord shall provide Tenant with notice, given at least six (6)
months before expiration of the Term, setting forth which Improvements Landlord
will require remain in the Building or on the Property after expiration of the
Term. Landlord may, however, require the removal at any time of all or any part
of any Improvements made without the required consent of Landlord. The
obligation of Tenant shall include the repair of any damage occasioned by the
removal of the Improvements required to be removed by Landlord, as well as the
removal of any above or below ground storage tank installed by or for Tenant,
and the removal, replacement, or remediation of any soil, material or ground
water contaminated by Tenant, all as may then be required by this Lease,
Applicable Laws and good practice. Tenant's Equipment shall remain the property
of Tenant and shall be removed by Tenant as required by Section 7.7.1.

8.      DAMAGE OR DESTRUCTION.

        8.1 DEFINITIONS.

            8.1.1 "Property Partial Damage" shall mean damage or destruction to
the Building and other improvements on the Property (other than the
Tenant-Specific Improvements, Tenant's Equipment, Alterations, and Utility
Installations), the repair cost of which damage or destruction is less than
fifty percent (50Z) of the then Replacement Cost of the Property immediately
prior to such damage or destruction, excluding from such calculation the value
of the Land, Tenant's Equipment, the Tenant-Specific Improvements, Alterations,
and Utility Installations.

            8.1.2 "Property Total Destruction" shall mean damage or destruction
to the Property, other than Tenant Owned Alterations and Utility Installations
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Property immediately prior to such damage or
destruction, excluding from such calculation the value of the Land and Tenant's
Equipment, the Tenant-Specific Improvements, and Utility Installations.

            8.1.3 "Insured Loss" shall mean damage or destruction to the
Building and other improvements on the Property, other than Tenant's Equipment,
the Tenant-Specific Improvements, Alterations, and Utility Installations, which
was caused by an event required to be covered by the insurance described in
Sections 3.2.3 and 3.2.5 above, irrespective of any deductible amounts or
coverage limits involved.

            8.1.4 "Replacement Cost" shall mean the cost to repair or rebuild
the Building and the Building General Work at the time of the occurrence to
their condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the


                                       16
<PAGE>

operation of applicable building codes, ordinances or laws, and without
deduction for depreciation.

        8.2 PARTIAL DAMAGE -- INSURED LOSS. If a Property Partial Damage that is
an Insured Loss occurs, then Landlord shall, at Landlord's expense, repair such
damage (but not Tenant's Equipment, Tenant-Specific Improvements, Alterations,
and Utility Installations) as soon as reasonably possible, and this Lease shall
continue in full force and effect; provided, however, that Tenant shall, at
Landlord's election, make the repair of any damage or destruction the total cost
to repair of which is $5,000 or less, and, in such event, Landlord shall make
the insurance proceeds available to Tenant on a reasonable basis for that
purpose. Tenant shall in no event have any right to reimbursement from Landlord
for any funds contributed by Tenant to repair any such damage or destruction.

        8.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Property Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Tenant (in which event Tenant shall make the repairs at Tenant's expense, and
this Lease shall continue in full force and effect, but subject to Landlord's
rights under Section 12, below), Landlord may at Landlord's option, either: (i)
repair such damage as soon as reasonably possible at Landlord's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Tenant within thirty (30) days after receipt by Landlord of
knowledge of the occurrence of such damage of Landlord's desire to terminate
this Lease as of the date sixty (60) days following the giving of such notice.
In the event Landlord elects to give such notice of Landlord's intention to
terminate this Lease, Tenant shall have the right within ten (10) days after the
receipt of such notice to give written notice to Landlord of Tenant's commitment
to pay for the repair of such damage totally at Tenant's expense and without
reimbursement from Landlord. Tenant shall provide Landlord with the required
funds or satisfactory assurance thereof within thirty (30) days following
Tenant's commitment. In such event this Lease shall continue in full force and
effect, and Landlord shall proceed to make such repairs as soon as reasonably
possible and the required funds are available. If Tenant does not give such
notice and provide the funds or assurance thereof within the times specified
above this Lease shall terminate as of the date specified in Landlord's notice
of termination.

        8.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Property Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Property Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Tenant.

        8.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the Term (which shall include any Extension Periods) there is damage
for which the cost to repair exceeds three (3) month's Base Rent, whether or not
an Insured Loss, Landlord may, at Landlord's option, terminate this Lease
effective sixty (60) days following the date of occurrence of such damage by
giving written notice to Tenant of Landlord's election to do so within thirty
(30) days after the date of occurrence of such damage.

        8.6 ABATEMENT OF RENT; TENANT'S REMEDIES.

            8.6.1 RENT ABATEMENT. In the event of damage described in Section
8.2 (Partial Damage--Insured), whether or not Landlord or Tenant repairs or
restores the Property,


                                       17
<PAGE>

the Basic Monthly Rent, Tenant's Share of Taxes, Tenant's Share of Insurance
Charges, and other charges, if any, payable by Tenant hereunder for the period
during which such damage, its repair or the restoration continues shall be
abated in proportion to the degree to which Tenant's use of the Property is
impaired. Except for abatement of Basic Monthly Rent, Tenant's Share of Real
Estate Taxes, Tenant's Share of Insurance Charges, and other charges, if any, as
aforesaid, all other obligations of Tenant hereunder shall be performed by
Tenant, and Tenant shall have no claim against Landlord for any damage suffered
by reason of any such repair or restoration.

            8.6.2 COMPLETION OF REPAIR OR RESTORATION. If Landlord undertakes or
is obligated to undertake the repair or restoration of the Property after
Property Partial Damage, Landlord shall substantially complete such repair or
restoration within twelve (12) months from the later to occur of the following:
(i) the date of the damage or destruction, and (ii) uninterrupted access to the
Property, subject to Force Majeure Delays and Tenant Delays, as defined in
Section 8.6.3, below (the "Outside Completion Date"). If Landlord fails to
substantially complete repair or restoration of the Property by the Outside
Completion Date, Tenant shall, as Tenant's sole and exclusive remedy, have the
right to terminate this Lease by delivering written notice of such election to
Landlord within fifteen (15) business days after the Outside Completion Date
(the "Termination Date"). If Landlord does not receive Tenant's notice to
terminate this Lease by 5:00 p.m. on the Termination Date, Tenant shall have no
further right to terminate this Lease pursuant to this Section 8.6.2.

            8.6.3 DELAYS. The time for Landlord to substantially complete
repairs or perform other obligations shall be extended by Force Majeure Delays
and/or Tenant Delays as those terms are defined below:

            "Force Majeure Delays" shall be any delays due to strikes, lockouts,
            or other labor disturbance, civil disturbance, riot, sabotage,
            blockage, embargo, inability to secure materials, supplies, or labor
            through ordinary sources by reason of regulation or order of any
            government or regulatory body, delays in the procurement of required
            governmental permits and/or licenses (but which are not attributable
            to the party pursuing such permits and/or licenses), delays caused
            by the insurance adjuster's determination of loss and issuance of
            insurance proceeds (which shall be a condition to commencing
            construction), lightning, rain, earthquake, fire, storm, hurricane,
            tornado, flood, washout, explosion, or any other cause outside of
            Landlord's reasonable control, whether similar or dissimilar to the
            foregoing.

            No Force Majeure Delay shall be deemed to have occurred unless and
            until the party claiming such Force Majeure Delay has provided
            written notice to the other party specifying the action or inaction
            that such notifying party contends constitutes a Force Majeure
            Delay. If such action or inaction is not cured within one (l)
            business day after receipt of such notice, then a Force Majeure
            Delay, as set forth in such notice, shall be deemed to have occurred
            commencing as of the date such notice was received and continuing
            for the number of days the completion was in fact delayed as a
            direct result of such action or inaction.


                                       18
<PAGE>

            "Tenant Delays" shall mean any delays caused in whole or in part by
            or through Tenant and/or Tenant's representatives or contractors,
            including, without limitation, failure to cooperate with Landlord in
            the procurement of required licenses and permits, and/or failure to
            approve any plans and specifications to the extent Tenant's approval
            is required, commercially advisable, or desired by Landlord. Tenant
            shall pay all costs and expenses incurred by Landlord which result
            from Tenant Delays, including, without limitation, any costs of and
            expenses attributable to increases in the cost of labor or
            materials.

            No Tenant Delay shall be deemed to have occurred unless and until
            Landlord has given written notice to Tenant specifying the action or
            inaction which Landlord contends constitutes a Tenant Delay. If such
            action or inaction is not cured within one (l) business day after
            Tenant's receipt of such notice, then a Tenant Delay, as set forth
            in such notice, shall be deemed to have occurred commencing as of
            the date Tenant received such notice and continuing for the number
            of days completion was in fact delayed as a direct result of such
            action or inaction.

        8.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Section 8, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Tenant to Landlord.
Landlord shall, in addition, return to Tenant so much of Tenant's Security
Deposit as has not been, or is not then required to be, used by Landlord
pursuant to Section 2.3, above.

        8.8 WAIVER OF CIVIL CODE SECTIONS. Tenant does hereby waive the benefit
of the provisions of Sections 1932(2) and 1933(4) of the California Civil Code
and the provisions of any successor or other statute of like import with respect
to any partial or total destruction of the Premises.

9.      CONDEMNATION.

        9.1 DEFINITIONS.

            9.1.1 CONDEMNATION. "Condemnation" shall be defined as (i) the
taking of all or any portion of the Premises through the exercise of any
governmental power of condemnation or eminent domain whether by legal
proceedings or otherwise, by any public or quasi-public authority, private
corporation, entity or individual, having the power of condemnation or eminent
domain ("Condemnor") or (ii) any voluntary sale or transfer by Landlord, either
under the threat of Condemnation or while Condemnation proceedings are pending.
Landlord agrees to give Tenant written notice of any Condemnation proceeding.

            9.1.2 TOTAL CONDEMNATION. "Total Condemnation" shall be defined as
the Condemnation of the entire Premises.

            9.1.3 PARTIAL CONDEMNATION. "Partial Condemnation" shall be defined
as any Condemnation that does not constitute a Total Condemnation.


                                       19
<PAGE>


            9.1.4 CONDEMNATION DATE. "Condemnation Date" shall be defined as the
earlier of (i) the date when possession of that portion of the Premises subject
to Condemnation is taken by the Condemnor or (ii) the date when title to that
portion of the Premises subject to Condemnation vests in the Condemnor or its
nominee.

            9.1.5 AWARD. "Award" shall be defined as all compensation awarded,
paid or received in connection with a Condemnation.

        9.2 TOTAL CONDEMNATION. In the event of a Total Condemnation, this Lease
shall terminate as of the Condemnation Date.

        9.3 PARTIAL CONDEMNATION.

            9.3.1 TERMINATION. In the event of any Partial Condemnation of (i)
20% or more of the floor area of the Building, or (ii) 50% of the Property, and
in either case substantially impairing the use of the Premises by Tenant, Tenant
and Landlord each shall have the option to terminate this Lease, exercisable
upon 60 days' prior written notice delivered to the other party at any time
within 30 days after the Condemnation Date.

            9.3.2 ABATEMENT OF RENT. In the event of any Partial Condemnation,
Basic Monthly Rent payable as of the Condemnation Date, but during and only
during the period of such Partial Condemnation, shall be abated by an amount
equal to the then Basic Monthly Rent multiplied by a fraction, the numerator of
which is equal to the total square footage of rentable area of that portion of
the Premises which is subject to Condemnation and the denominator of which is
equal to the total ground floor square footage of the Premises.

            9.3.3 RESTORATION. In the event of any Partial Condemnation where
this Lease is not terminated pursuant to Section 9.3.1, Landlord shall with
reasonable promptness, Restore the Premises to a self-contained unit in a
condition as near as reasonably possible to the condition of the Premises
immediately preceding Condemnation; provided, however, Landlord's obligation to
Restore the Premises shall be limited to that portion of the Award received by
Landlord attributable to severance damages.

        9.4 ALLOCATION OF AWARD. Subject to the provisions of this Section 9.4,
the entire Award made as a result of any Condemnation shall belong solely to,
and shall be the sole property of, Landlord, whether such Award shall be as
compensation for diminution in value of this Lease, for the value of any
unexpired portion of the Term, or as compensation for the fee or for the
Premises, and Tenant shall have no claim against either Landlord or the
Condemnor with respect thereto. Notwithstanding the foregoing, Tenant shall be
entitled to pursue an Award for moving or relocation expenses and for the
unamortized value of any trade fixtures, machinery, equipment or Alterations of
Tenant subject to Condemnation. Tenant does hereby covenant and agree, upon the
request of Landlord, to execute an assignment of any Award in substance
consistent with the provisions of this Section 9.4.

        9.5 WAIVER OF CODE OF CIVIL PROCEDURE SECTION. Each party hereby waives
the provisions of Section 1265.130 of the California Code of Civil Procedure and
the provisions of any successor or other law of like import.


                                       20
<PAGE>



10.     ASSIGNMENT AND SUBLETTING.

        10.1 ASSIGNMENT OR SUBLETTING. Tenant may not assign, transfer,
hypothecate, encumber, by operation of law or otherwise, this Lease, or any of
its interest herein or hereto, nor sublet the Premises, or any portion thereof,
nor grant any license or right of use or occupancy with respect to the Premises,
without the prior written consent of Landlord which consent shall not be
unreasonably withheld subject to Sections 10.5 and 10.6 below. Any attempted
assignment or subletting not in compliance with the terms of this Section 10
shall be absolutely null and void and of no force or effect whatsoever.

        10.2 NOTICE. If Tenant desires to undertake any such assignment or
subletting, it shall provide Landlord with written notice of such desire,
specifying the consideration for, and all other terms and conditions of, such
transaction and identifying the proposed assignee or subtenant (the "Proposed
Party") and including with the notice the current financial statement of the
Proposed Party.

        10.3 INTENTIONALLY OMITTED.

        10.4 ASSIGNMENT/SUBLEASE AMENDMENT. Landlord may condition its consent
to any proposed transaction upon the execution of an assignment or sublease
amendment by Tenant and the Proposed Party, pursuant to which (i) in the case of
any proposed transaction providing for, as consideration to Tenant or any
affiliate of Tenant for the proposed transaction, the payment of any lump sum,
periodic payment or other consideration, other than the payment of rent greater
than the payment of Rent hereunder (the "Non-rent Consideration"), Tenant shall
pay to Landlord in cash an amount equal to sixty percent (60%) of the Non-rent
Consideration upon consummation of the transaction and (ii) in the case of any
proposed transaction providing for the payment of rent in the case of an
assignment in an absolute amount greater than the Rent ("Assignment Excess
Rent"), or, in the case of a sublease, in an amount greater than the Rent
allocable on a square footage basis to that portion of the Premises to be
subleased in the proposed transaction ("Sublease Excess Rent"), the Rent
hereunder shall be increased by an amount equal to sixty percent (60%) of the
annual Assignment Excess Rent or the annual Sublease Excess Rent, as the case
may be.

        10.5 CRITERIA FOR APPROVAL. In connection with any request by Tenant to
assign its interest in this Lease or enter into a sublease, it shall not be
unreasonable for Landlord to withhold its consent to such transaction if:

            10.5.1 the Proposed Party has been required by any prior landlord,
lender or governmental authority to take remedial action in connection with
Hazardous Material contaminating a property if the contamination resulted from
such assignee's or sublessee's actions or use of the property in question;

            10.5.2 the Proposed Party is subject to an enforcement order issued
by any governmental authority in connection with the use, disposal or storage of
a Hazardous Material;

            10.5.3 in the reasonable judgment of Landlord, the Proposed Party
lacks the financial resources necessary to perform the obligations of Tenant
under this Lease;


                                       21
<PAGE>

            10.5.4 in the reasonable judgment of Landlord, the Proposed Party is
not a reputable party; or

            10.5.5 the proposed use of the Premises by the Proposed Party would
be substantially different from the use of the Property by Tenant permitted in
Section 10 of the Fundamental Lease Provisions; or

            10.5.6 The Proposed Party has been negotiating with Landlord during
the preceding twelve (12) month period for a direct lease of the Property;

            10.5.7 The Proposed Party is a real estate developer or landlord
and/or is acting directly or indirectly on behalf of a real estate developer or
landlord; or

            10.5.8 The Proposed Party has been involved in civil, criminal or
administrative litigation or proceedings with its prior landlord or landlords or
is otherwise involved in civil, criminal or administrative litigation or
proceedings which is unsatisfactory in the reasonable opinion of Landlord.

        10.6 MISCELLANEOUS. Notwithstanding any other provision of this Section
10 to the contrary, in connection with any proposed assignment or subletting,
(i) Tenant shall pay to Landlord as Additional Rent all reasonable expenses,
including reasonable attorneys' fees incurred by Landlord in connection with
such transaction (the receipt of which shall be a further material and
reasonable condition to Landlord's consent), (ii) Tenant and its Proposed Party
shall, within 10 days after notice to do so, execute and deliver to Landlord
such documents, and take such further action, as Landlord may reasonably require
to effect such transaction or to protect Landlord's rights, (iii) the acceptance
by Landlord of rent from any person other than Tenant shall not be deemed a
consent to any transaction subject to this Section 10, (iv) the consent to any
particular transaction shall not be deemed a consent to any other transaction
subject to this Section 10, and (v) the consent to any assignment, subletting or
other such transfer (or the consummation of any such transaction) shall not in
any way relieve Tenant of any of its direct and primary obligations under this
Lease, whether arising before or after such consent. If Landlord consents to any
proposed assignment, then Tenant may consummate the proposed assignment or
subletting only at the price, and on the terms and conditions, and with the
parties, specified in the notice to Tenant under Section 10.2. If the proposed
assignment or subletting is not so consummated within ninety (90) days after
delivery of Landlord's consent thereto, it shall again be subject to all of the
provisions of this Section 10.

        10.7 ADDITIONAL TRANSACTIONS. If Tenant is a corporation which is not
the issuer of any security registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, or is an unincorporated association, trust or
partnership, the transfer, sale, assignment, pledge or hypothecation of a
majority or controlling interest in the stock or interest in such corporation,
association, trust or partnership in one or more transactions during the Term
shall be deemed to be an assignment of this Lease for purposes of this Section
10. The involvement of Tenant or its assets in any transaction, or series of
transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-outs or otherwise), which results or will result in a
reduction of the Net Worth of Tenant (as hereinafter defined) by an amount equal
or greater than twenty-five percent (25%) of the Net Worth of Tenant as it was
represented to Landlord at the time of the execution of this Lease by Landlord.
"Net Worth of Tenant" for purposes of this Lease shall be


                                       22
<PAGE>

the net worth of Tenant established under generally accepted accounting
principles consistently applied.

11.     SUBORDINATION.

        11.1 TENANTS AGREEMENT TO SUBORDINATE. Tenant, for itself and its
subtenants, agrees, without the necessity of any further consideration or
action, to subordinate all of its right, title and interest in and to this Lease
to the lien of any mortgage or deed of trust now or hereafter encumbering the
Premises or any portion thereof, and to all advances made or hereafter to be
made upon the security thereof, provided, however, (i) that the beneficiary or
beneficiaries of any such mortgages and/or deeds of trust agree in a writing
delivered to Tenant to recognize all of Tenant's right, title and interest in
and to this Lease so long as Tenant performs and complies with each and all of
its covenants, agreements, terms and conditions under this Lease, which writing
may at Landlord's request be substantially in the form of attached Exhibit E,
(ii) that all terms of such indebtedness, including, without limitation, the
precise amount thereof and the interest rate with respect thereto, shall be as
determined solely by Landlord and such beneficiary or beneficiaries, and (iii)
Tenant, for itself and its subtenants, within 10 days after Landlord or such
beneficiary or beneficiaries provides Tenant with written notice to do so, shall
execute and deliver to Landlord such documents and take such further action as
Landlord or such beneficiary or beneficiaries may deem necessary or advisable to
effect or maintain such subordination. Tenant also agrees that any mortgagee or
beneficiary may elect to have this Lease constitute a lien prior to its mortgage
or deed of trust, and in the event of such election and upon notification by
such mortgagee or beneficiary to Tenant to that effect, this Lease shall be
deemed a prior lien to such mortgage or deed of trust, whether this Lease is
dated prior to or subsequent to the date of said mortgage or deed of trust.

        11.2 ATTORNMENT. Tenant, for itself and its subtenants, agrees that (i)
upon delivery to Landlord of the written election of the beneficiary or
beneficiaries of any encumbrance affecting the Premises which is superior to
this Lease, that such encumbrance shall be deemed subordinate to this Lease, (a)
this Lease shall, without the necessity of any further consideration or action
whatsoever, be deemed superior to such encumbrance, whether this Lease was
executed before or after the execution of such encumbrance, and (b) the
beneficiary or beneficiaries of such encumbrance shall have the same rights with
respect to this Lease as if this Lease had been executed and delivered prior to
execution and delivery of such encumbrance and had thereafter been assigned to
such beneficiary or beneficiaries and (ii) if, by reason of Landlord's default
under any encumbrance now or hereafter affecting the Premises in any way, any or
all of Landlord's interest in and to the Premises is terminated, Tenant (a)
shall waive all rights at law or in equity now or hereafter in effect to
terminate this Lease and surrender Possession of the Premises, (b) shall attorn
to the transferee, whether by foreclosure, judicial or trustees' sale, deed in
lieu of foreclosure or otherwise, of any or all of Landlord's interest in or to
the Premises, (c) shall recognize such transferee and its transferees as the
Landlord under this Lease, and (d) shall execute and deliver to Landlord and to
such transferee and its transferees within 10 days after Landlord, such
transferee or its transferees, provides Tenant with written notice to do so,
such documents and take such further action as Landlord, such transferee and its
transferees may deem necessary or advisable to effect or maintain such
attornment.


                                       23
<PAGE>

12.     DEFAULT AND REMEDIES.

        12.1 DEFAULT. Tenant agrees that the occurrence of any of the following
events shall constitute a material default (each, a "Default") under this Lease
by Tenant:

            12.1.1 FAILURE TO PAY RENT. The continued failure of Tenant to pay
in full when due any installment of Rent, or any other payment required to be
made by Tenant hereunder, for five (5) business days after receipt by Tenant of
written notice from Landlord of such failure; provided, that any notice required
hereunder shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure section 1161, as amended.

            12.1.2 ABANDONMENT. The abandonment or vacation of the Premises by
Tenant for more than ten days without the prior written consent of Landlord,
which consent may be granted or withheld in the discretion of Landlord.

            12.1.3 BANKRUPTCY. The levy or attachment or other judicial seizure
of all or substantially all of the assets of Tenant located in, on or about the
Premises or of the right, title or interest of Tenant in and to this Lease
unless Tenant has commenced to cure or dismiss the action within thirty (30)
days thereafter, the making by or on behalf of Tenant of any general assignment
for the benefit of creditors, the voluntary or involuntary filing of a petition
for adjudication of Tenant as insolvent or bankrupt or for reorganization or
arrangement under an insolvency act or any law relating to bankruptcy, unless
dismissed within thirty (30) days thereafter, the appointment of any receiver or
trustee in any insolvency proceedings for Tenant or for all or substantially all
of the assets of Tenant located in, on or about the Premises or for the right,
title or interest of Tenant in and to this Lease, unless Tenant has commenced to
cure or dismiss the action within thirty (30) days thereafter, or the filing of
any petition for or consent to any of the foregoing insolvency or bankruptcy
matters.

            12.1.4 OTHER. The continued failure by Tenant in the performance of
or compliance with any of the other covenants, terms or conditions of this Lease
for thirty (30) days after Landlord shall have given written notice of such
failure to Tenant, provided, however, that if the nature of such Default is such
that Tenant cannot reasonably cure such Default within said 30-day period, such
failure shall not constitute a Default if Tenant shall, within such 30-day
period, commence such performance and thereafter diligently and continuously
pursue such performance or compliance to completion; and provided further, that
any notice required hereunder shall be in lieu of, and not in addition to, any
notice required under California Code of Civil Procedure Section 1161, as
amended. However, the foregoing shall not extend any period of time by which
Tenant is required by this Lease to deliver to Landlord non-disturbance
agreements, estoppel certificates, or financial statements.

        12.2 REMEDIES. In the event of a Default, Landlord may, in addition to
any and all remedies or means of redress to which it may be lawfully or
equitably entitled, in its discretion, while such Default continues:

            12.2.1 TERMINATION. Terminate this Lease and any and all rights of
Tenant hereunder, by any lawful means, in which event, Landlord, without the
requirement of any further notice to Tenant, shall have the right immediately to
enter the Premises and take actual, full, complete and exclusive possession
thereof, all within the protective scope and ambit of the provisions set forth
in Section 4.5 and 13.1.3 of this Lease, in which event Landlord shall also


                                       24
<PAGE>


have the right to recover from Tenant (i) the worth at the time of award made on
account of the Default resulting in such termination ("Award"), together with
interest thereon at the maximum lawful interest rate per annum, of any unpaid
portion of the Rent which had been earned by Landlord at the time of such
termination, (ii) the worth at the time of Award, together with interest thereon
at the maximum lawful interest rate per annum, of the amount by which any unpaid
portion of the Rent which would have been earned after such termination until
the time of Award exceeds the amount of loss of any unpaid portion of the Rent
which Tenant proves could have reasonably been avoided, (iii) the worth at the
time of Award, discounted at the discount rate of the Federal Reserve Bank of
San- Francisco at the time of the Award plus one percent, of the amount by which
any unpaid portion of the Rent for the balance of the Term exceeds the amount of
loss of an y unpaid portion of the Rent which Tenant proves could have
reasonably been avoided, and (iv) any and all other amounts necessary to
compensate Landlord for any and all detriment proximately caused by such Default
or which in the ordinary course of business would be likely to result therefrom,
including, without limitation, any costs or expenses incurred by Landlord in
maintaining or preserving the Premises after such Default, preparing the
Premises for reletting to a new tenant, accomplishing any repairs or alterations
to the Premises for purposes of such reletting, rectifying any damage thereto
occasioned by the act or omission of Tenant, any unamortized brokers'
commissions and leasehold improvement costs and any other costs necessary or
appropriate to relet the Premises.

            12.2.2 CONTINUATION. Continue this Lease in full force and effect,
but enforce any of its other rights and remedies hereunder, including, without
limitation, the right to recover all of the Rent as it becomes due under this
Lease, in which event the rights of Tenant to possession of the Premises under
this Lease and the right of Tenant to assignment and sublease, if any, pursuant
to the provisions of Section 10 of this Lease shall continue, provided, however,
that any and all acts of maintenance or preservation or efforts to relet the
Premises by Landlord or the appointment of a receiver by Landlord to protect its
interest in and to the Premises or any portion thereof or this Lease, shall
neither constitute termination of this Lease nor interference with such rights
of Tenant to possession, assignment and sublease.

            12.2.3 ADDITIONAL RIGHTS. Pursue all rights and remedies of
Landlord, which shall in any event be cumulative and not alternative, and shall
be in addition to any and all rights provided at law or in equity, in connection
with which Tenant does hereby agree that (i) the waiver of any Default by
Landlord shall be effective only if in writing and signed by Landlord, and shall
not in any event be continuing in nature or otherwise a waiver of any subsequent
Default, (ii) the acceptance of any unpaid but due portion of the Rent shall be
in mitigation of Landlord's damages and shall not, unless specified with
particularity in writing signed and dated by Landlord, (a) constitute a waiver
of any Default, or any of the rights and remedies of Landlord hereunder, at law
or in equity or (b) invalidate or compromise any notice of a Default provided
before such acceptance, or any deadline specified in such notice, and (iii)
Landlord, in its discretion, without prejudice to any other remedies Landlord
may have, may, following the continued failure of Tenant to cure any Default
after receipt of written notice thereof, elect to cure such Default, in which
event Tenant shall, within ten (10) days after Landlord provides Tenant with
written notice to do so, pay to Landlord any and all costs and expenses incurred
by Landlord in connection therewith.


                                       25
<PAGE>

        12.3 LATE CHARGE AND INTEREST.

            12.3.1 LATE CHARGE. In the event that any installment of Rent or any
other sum payable by Tenant hereunder is not received by Landlord within 10 days
of the date when due, a late charge of six percent (6%) of such overdue
installment or other payment shall be immediately and automatically payable by
Tenant to Landlord, without the necessity of delivery of any notice.

            12.3.2 INTEREST. In addition to the late charge payable pursuant to
Section 12.3.1, any and all unpaid but due portion of the Rent and other
payments by Tenant hereunder not received by Landlord within 30 days of the date
when due shall bear interest at the Interest Rate.

        12.4 WAIVER OF REDEMPTION. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future law to Tenant in
connection with the eviction or dispossession of Tenant for any cause or on
account of a Default.

13.     MISCELLANEOUS.

        13.1 DEFAULT BY LANDLORD.

            13.1.1 DEFAULT. Landlord shall not be in default under this Lease
unless Landlord has failed to perform the Obligations required of Landlord
hereunder for more than thirty (30) days after Tenant delivers written notice of
such default to Landlord and to any lender having a secured interest in the
Property or portion thereof; provided, however, that in the event the nature of
Landlord's obligation is such that more than 30 days is required for complete
performance, Landlord shall not be in default pursuant to this Section 13.1 if
Landlord or any other party to whom notice is given commences performance within
such 30-day period and thereafter diligently prosecutes such performance to
completion.

            13.1.2 REMEDIES OF TENANT. Tenant's sole remedies for default by
Landlord under this Lease shall be the right to damages and/or injunctive relief
and in no event shall Tenant have the right to terminate this Lease or abatement
of Rent hereunder as the result of Landlord's default.

            13.1.3 NON-LIABILITY OF LANDLORD PARTIES. In consideration of the
benefits accruing under this Lease, Tenant and all successors and assigns agree
that, in the event of any actual or alleged failure, breach or default under
this Lease by Landlord (a) the sole and exclusive remedy shall be against
Landlord's interest in the Property; (b) no officer, director, shareholder,
trustee, executor, beneficiary, agent or employee of Landlord or of any
shareholder of Landlord shall be named as a party in any suit or proceeding
(except as may be necessary to secure jurisdiction of Landlord, if applicable);
(c) no judgment will be taken against any officer, director, shareholder,
trustee, executor, beneficiary, agent or employee of Landlord or of any
shareholder of Landlord; (d) no writ of execution will ever be levied against
the assets of any officer, director, shareholder, trustee, executor beneficiary,
agent or employee of Landlord or of any shareholder of Landlord; and (f) the
obligations of Landlord under this Lease do not constitute personal obligations
of the individual directors, officers, shareholders, trustees, executors,
beneficiaries, agents or employees of Landlord or of any shareholder of
Landlord, and Tenant shall not seek recourse against the individual directors,
officers, shareholders, trustees, executors, beneficiaries, agents or employees
of Landlord or of any shareholder of Landlord or


                                       26
<PAGE>

any of their personal assets for satisfaction of any liability in respect to
this Lease. Further, any claim, defense, or other right of Tenant arising in
connection with this Lease or negotiations before this Lease was signed shall be
barred unless Tenant files an action or interposes a defense based thereon
within one hundred eighty (180) days after the expiration or earlier termination
of the Term.

        13.2 ESTOPPEL CERTIFICATES. Tenant, for itself and its subtenants,
agrees (i) to execute, acknowledge and deliver to Landlord, from time to time
during the Term within fifteen (15) days after Landlord provides Tenant with a
written request to do so, an estoppel certificate certifying in writing (a) that
this Lease is in full force and effect, unmodified or modified solely as set
forth in such estoppel certificate, including, without limitation, confirmation
of the Term and Rent Commencement Dates, and the date of expiration of the
Lease, (b) the dates to which Rent has been paid, (c) that Landlord has, as of
the date of such estoppel certificate, fully performed all of its obligations
under this Lease, without exception or except only as set forth in such estoppel
certificate, (d) the amount of Basic Monthly Rent currently payable under the
Lease, (e) that Tenant has no option to purchase the Property or right of first
refusal with respect to the Property, or setting forth any such options to
purchase or rights of first refusal, (f) that there are no remaining free rent
periods or specifying any remaining free rent periods, and (g) such other
matters regarding the Lease and Tenant's occupancy of the Premises as Landlord
reasonably may request, (ii) that any such estoppel certificate may be relied
upon by a prospective purchaser or encumbrancer of the Premises (or, at the
election of Landlord, such estoppel certificate shall be addressed directly to
any such prospective purchaser or encumbrancer), and (iii) that the failure of
Tenant to so deliver such estoppel certificate in such period of time shall be
conclusive upon Tenant (a) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (b) that the Rent has not
been prepaid under this Lease except as required pursuant to the provisions of
Section 2 of this Lease, (c) that Landlord has, as of the date on which Tenant
failed to deliver such estoppel certificate, fully performed all of its
obligations under this Lease, without exception, (d) that the amount of Basic
Monthly Rent currently payable under the Lease is as represented by Landlord,
(e) that Tenant has no option to purchase the Property or right of first refusal
with respect to the Property, and (f) that there are no remaining free rent
periods under the Lease. At Landlord's option, the failure to deliver such
statement within such time shall be a material default of this Lease by Tenant.

        13.3 HOLDING OVER. If Tenant holds over in the Property after the
expiration of the Term or any extension thereof, with the express or implied
consent of Landlord, such holding over, in the absence of written agreement on
the subject, shall be deemed to have created a tenancy from month to month
terminable upon thirty (30) days' written notice given at any time by either
party to the other, and otherwise subject to all the terms and provisions of
this Lease. During any such holdover period, Rent shall be paid monthly and
shall be computed on the basis of one hundred twenty-five percent (125%) of the
then total Basic Monthly Rent and other charges estimated by Landlord in its
sole and absolute discretion to be payable by Tenant to Landlord for the next
succeeding twelve-month period. Notwithstanding the foregoing, in the event
Tenant fails to surrender the Premises on the expiration of this Lease, in
addition to any other liabilities to Landlord accruing therefrom, Tenant shall
indemnify and hold Landlord harmless from and against any loss or liability
resulting from such failure to surrender, including, without limitation, any
claims of any succeeding Tenant founded upon such failure to surrender.


                                       27
<PAGE>

        13.4 QUIET ENJOYMENT. So long as Tenant continues to perform and comply
with each and all of the terms and conditions to be performed and complied with
under this Lease, and subject to (i) all federal, state, county and municipal
statutes, laws, ordinances, rules, regulations and orders and (ii) all of the
provisions of (a) this Lease, (b) any encumbrance now or in the future affecting
the Property, (c) any reciprocal easement agreement or conditions, covenants and
restrictions agreement now or in the future affecting the Property and (d) any
policy of insurance now or in the future affecting the Property, Landlord does
hereby covenant and agree that Tenant shall lawfully, peaceably and quietly
have, hold, occupy and enjoy the Property during the Term or any extension
thereof, without hindrance or interference with its quiet enjoyment and
possession by any persons lawfully claiming under Landlord.

        13.5 SALE OF THE PREMISES. In the event of any sale or exchange of the
Property by Landlord or an assignment by Landlord of this Lease, Landlord shall
automatically be relieved of all obligations on the part of Landlord accruing
from and after the date of such sale, exchange, or assignment, including,
without limitation, any obligation to Tenant with respect to the Security
Deposit upon assignment of the same to the transferee; provided, however, that
(i) the interest of the transferor, as Landlord, and any funds then in the hands
of Landlord in which Tenant has an interest shall be turned over, subject to
such interest, to the transferee, and (ii) notice of such sale, transfer,
exchange or lease shall be delivered to Tenant as required by law. No holder of
a mortgage, deed of trust or other encumbrance to which this Lease is or may be
subordinate shall be responsible in connection with the transfer of said
Security Deposit hereunder, unless such mortgagee or holder of such deed of
trust or lessor shall have actually received such Security Deposit.

        13.6 INTENTIONALLY OMITTED.

        13.7 RECORDING. Tenant shall not under any circumstances record this
Lease nor a short form memorandum thereof.

        13.8 FINANCIAL STATEMENTS. Upon Landlord's written request, Tenant shall
promptly furnish Landlord, from time to time, with the most current audited
financial statements of Tenant, also certified by Tenant (or, if Tenant is not
an individual, by an executive officer of Tenant) to be true and correct
reflecting Tenant's then current financial condition. Tenant's financial
statement shall be furnished within ten (10) business days after Landlord's
request therefor. Failure to deliver such financial statements within this
10-day period shall be a material default under this Lease.

        13.9 ACCESS BY LANDLORD. Landlord and Landlord's agents shall have the
right to enter the Premises at reasonable times upon reasonable prior written
notice (which notice shall not be necessary in the case of emergency) and in
such a manner so as not to interfere with Tenant's business to examine the
Building and to show the same to prospective purchasers or tenants of the
Building or the Property, to make such repairs, alterations, improvements or
additions as may be required in connection with the development or maintenance
of the Building, without the same constituting an eviction of Tenant, in whole
or in part, or a trespass; provided, however, that the Rent shall not abate
while said repairs, alterations, improvements or additions are being made, by
reason of loss or interruption of business of Tenant or otherwise. During the
six months prior to the expiration of the Term, Landlord may place upon the
Building "for lease," "for sale" or similar notices or signs which Tenant shall
permit to remain thereon. Nothing herein contained shall be deemed or construed
to impose upon Landlord any obligation,


                                       28
<PAGE>

responsibility or liability whatsoever for the care and maintenance or repair of
the Premises, or any part thereof, except as is specifically provided in this
Lease.

        13.10 [INTENTIONALLY OMITTED]

        13.11 NOTICES. All notices and other communications pertaining to this
Lease shall be in writing and shall be deemed to have been given only when (i)
delivered personally (ii) 72 hours after being mailed from within the State of
California, certified or registered mail, return receipt requested, postage
prepaid, or (iii) one (1) business day after deposit with a nationally
recognized overnight mail courier service (such as Federal Express) to the
respective addresses set forth in Item 10 of the Fundamental Lease Provisions or
to such other addresses as any of the parties hereto may from time to time in
writing designate to the other parties hereto.

        13.12 TIME. Time is of the essence of this Lease with respect to each
and every provision of this Lease in which time is a factor.

        13.13 ENTIRE AGREEMENT. This Lease, including, without limitation, the
exhibits attached hereto and made a part hereof, sets forth the entire agreement
between the parties hereto, fully supersedes any and all prior agreements or
understandings between the parties hereto pertaining to the subject matter
hereof, whether oral or written, and no change in, modification of or addition,
amendment or supplement to this Lease shall be valid unless set forth in writing
and signed by each and all of the parties hereto subsequent to the execution of
this Lease.

        13.14 FURTHER ASSURANCES. Each of the parties hereto, without further
consideration, agrees to execute and deliver such other documents and take such
other action as may be necessary to more effectively consummate the purposes and
subject matter of this Lease.

        13.15 APPLICABLE LAW; SEVERABILITY. The existence, validity,
construction, operation and effect of this Lease, any and all of its covenants,
agreements, terms and conditions and the rights and obligations hereunder of
each of the parties hereto shall be determined in accordance with the laws of
the State of California; provided, however, that any provision of this Lease
which may be prohibited by law or otherwise held invalid shall be ineffective
only to the extent of such prohibition or invalidity and shall not invalidate or
otherwise render ineffective any or all of the remaining provisions of this
Lease and under no circumstances whatsoever shall this Lease be construed as
creating either a partnership, an agency or an employment relationship between
the parties hereto.

        13.16 CONTROVERSY. In the event of any controversy, claim or dispute
between the parties hereto arising out of or relating to this Lease, the
prevailing party shall be entitled to recover from the party, reasonable
expenses, including, without limitation, reasonable accountants', consultants'
and attorneys' fees and court costs. Additionally, Tenant shall reimburse
Landlord for all costs and expenses (including reasonable attorneys' fees and
court costs) which are incurred by Landlord in connection with any action for
relief from automatic stay arising under Bankruptcy Code Section 362(a) (11
U.S.C. Section 362(a)) or any successor statute.

        13.17 HEADINGS, GENDER AND NUMBER. The section heading used in this
Lease are intended solely for convenience of reference and shall not in any way
or manner amplify, limit,


                                       29
<PAGE>

modify or otherwise be used in the interpretation of any of the provisions of
this Lease, and the masculine, feminine or neuter gender and the singular or
plural number shall be deemed to include the others whenever the context so
indicates or requires.

        13.18 SUCCESSORS. Subject to the provisions of Section 10 of this Lease,
the covenants, agreements, terms and conditions contained in this Lease shall be
binding upon and inure to the benefit of the successors and assigns of the
parties hereto.

        13.19 CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation, Tenant and those persons executing
this Lease on behalf of Tenant hereby represent and warrant that: (i) Tenant is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California (or, if a foreign corporation, that such
corporation is duly organized, validly existing and in good standing in the
state of incorporation and is qualified to do business and in good standing in
the State of California); (ii) Tenant has all requisite corporate power and
authority to lease the Property and otherwise perform under this Lease; (iii)
the execution and delivery of this Lease by Tenant and the performance of the
transactions contemplated herein have been duly authorized by all requisite
corporate action and proceedings; (iv) this Lease constitutes the legal, valid
and binding obligation of Tenant and is enforceable against Tenant in accordance
with its terms, and (v) the execution, delivery and performance by Tenant of
this Lease (a) will not require any consent or approval that has not been
validly and lawfully obtained, (b) will not require any authorization, consent,
approval, license, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality of
government except as shall have been lawfully and validly obtained prior to the
date hereof, and (c) will not cause Tenant to violate or contravene any
provision of law or any rule or regulation of any agency or government, domestic
or foreign, now in effect or any provision of any other agreement to which
Tenant is a party. On or before delivery of this Lease, both Landlord and Tenant
shall deliver to one another original secretary's certificates with corporate
resolutions authorizing Landlord and Tenant, respectively, to enter into this
Lease and designating authorized signatories.

        13.20 CONSTRUCTION WARRANTIES. Following delivery of the Property,
Landlord shall, following request by Tenant, assign to Tenant the right to
enforce any warranties or guaranties held by Landlord (and which are assignable)
with respect to portions or components of the Property which Tenant is required
to maintain and repair pursuant to section 7.1; provided, however, that any
expiration or sooner termination of this Lease shall automatically be deemed an
assignment of the same by Tenant back to Landlord and following request by
Landlord, Tenant shall execute and deliver all instruments requested of it to
confirm such assignment.

        13.21 BROKER'S COMMISSION. Each party represents that it has not had
dealings with any real estate broker, finder, or other person, with respect to
this Lease in any manner, except for The Klabin Company. Each party shall hold
harmless the other party from all damages resulting from any claims that may be
asserted against the other party by any broker, finder, or other person, with
whom the other parry has or purportedly has dealt. Landlord shall pay any
commission or fees that are payable to the aforementioned broker with respect to
this Lease in accordance with a separate commission agreement. Under no
circumstances shall The Klabin


                                       30
<PAGE>

Company or any other broker or finder be a third party beneficiary to this Lease
or any amendments or modifications thereto.

14. ADDITIONAL LEASE PROVISIONS. The provisions of this Section 14 shall
supersede and override any other provisions in this Lease to the extent such
other provisions may be inconsistent herewith.

        14.1 OPTIONS TO EXTEND TERM.

            14.1.1 OPTION. Tenant shall have options to extend the Term of this
Lease (the "Extension Options") on the basis of each and all of the provisions
contained in this Lease as then amended for two (2) consecutive periods of five
(5) years each (the "Extension Periods"), the first of which (the "First
Extension Period") commencing on the day after expiration of the initial Term,
and unless sooner terminated pursuant to the provisions hereof, ending on the
last day of the fifth (5th) consecutive year thereafter, and the second of which
(the "second Extension Period") commencing on the day after the expiration of
the First Extension Period, and unless sooner terminated pursuant to the
provisions hereof, ending on the last day of the fifth consecutive year
thereafter. Such option shall be exercised by Tenant, if at all, by giving
written notice of exercise ("Extension Notice") to Landlord (a) in the case of
the First Extension Period, not less than twelve (12) months nor more than
fifteen (15) months prior to the expiration of the initial Term and (b) in the
case of the Second Extension Period, not less than twelve (12) months nor more
than fifteen (15) months prior to the expiration of the First Extension Period.
Notwithstanding the foregoing, in the event (i) Tenant is in Default under this
Lease on the date an Extension Notice is given, or (ii) Landlord has given
Tenant three or more notices regarding Tenant's failure to pay rent when due
during the twelve months preceding the giving of such notice, or (iii) Tenant is
in Default on the date the Initial Lease Term expires (in the case of the First
Extension Period) or is in Default on the date the First Extension Period
expires (in the case of the Second Extension Period), then in any such event the
Extension Option shall be deemed automatically terminated. Tenant shall have no
right to extend the Term for the Second Extension Period unless it shall have
extended the Term for the First Extension Period.

            14.1.2 BASIC MONTHLY RENT DURING EXTENSION PERIODS. For each
Extension Period, the Basic Monthly Rent for each Extension Period shall be the
"Fair Market Rental Rate" at the time the respective Extension Option is
exercised, which shall be established as follows:

                14.1.2.1 FAIR MARKET RENTAL RATE. For the purposes of
determining the rental rate and other considerations during the Extension
Periods, the term "Fair Market Rental Rate" shall mean the annual amount per
square foot that comparable landlords have accepted in then current transactions
between non-affiliated parties from non-equity tenants of comparable
credit-worthiness, for comparable industrial facilities, for a comparable use,
and for a comparable period of time ("Comparable Transactions") within the South
Bay Industrial Market of Los Angeles County (the "Market Area"). In any
determination of Comparable Transactions, appropriate consideration shall be
given to the extent of Tenant's liability under the lease (including Landlord's
payment obligations of casualty insurance premiums and Real Property Taxes
hereunder), length of the lease term, and the size and location of premises
being leased. Corresponding consideration must be given to abatement provisions
reflecting free rent and/or no rent during the period of construction or
subsequent to the commencement date, tenant improvement allowances, brokerage
commissions, if any, all of which would be payable by Landlord in similar
transactions, but which would be offset by the actual cost to Tenant of


                                       31
<PAGE>

relocating its business operations from the Property to other property or
properties (including, without limitation, moving costs, additional construction
costs, employee relocation costs, negotiation costs, administrative expenses,
and costs of business down-time). The determination of Fair Market Rental Rate
shall also include the determination of any periodic rental adjustments in
methodology, frequency, and amount during the Extension Periods. The intent is
that Tenant will receive the same effective net economic benefit in the exercise
of an Extension Option that Tenant would receive if Tenant should Tenant decide
to enter into a Comparable Transaction.

                14.1.2.2 DELIVERY OF EXTENSION NOTICE. Concurrently with and as
a condition to the effectiveness of a timely delivery Extension Notice, Tenant
shall provide Landlord with its good faith written estimate of the Fair Market
Rental Rate. Landlord shall have ten (10) business days ("Landlord's Review
Period") after receipt of the Extension Notice with Tenant's good faith estimate
of the Fair Market Rental Rate within which to accept such rental or to
reasonably object thereto in writing. Failure of Landlord to so object in
writing within Landlord's Review Period shall conclusively be deemed its
disapproval of the Fair Market Rental Rate determined by Tenant. In the event
Landlord objects, Landlord and Tenant shall attempt to agree upon such Fair
Market Rental Rate, using their best good faith efforts. If Landlord and Tenant
fail to reach agreement within twenty (20) days following Landlord's Review
Period ("Outside Agreement Date"), then each party shall have the right within
five (5) business days after the Outside Agreement Date (the "Cancellation
Period") to cancel its respective obligation to lease the Property for the
applicable Extension Period, in which case the Lease shall expire at the end of
the then-existing Term. However, if neither party has exercised the foregoing
cancellation rights by delivery of written notice thereof to the other party
such that the other party is in actual receipt of that notice (notwithstanding
Section 13.11, above) by 5:00 p.m. (California time) on the last day of the
Cancellation Period (the "Cancellation Date"), then the Tenant shall be
irrevocably bound to lease the Property from Landlord for the applicable
Extension Period, and each party shall place in a separate sealed envelope their
final proposal as to Fair Market Rental Rate and such determination shall be
submitted to arbitration in accordance with subsections (a) through (e) below.

                (a) Landlord and Tenant shall meet with each other within five
CS) business days of the Cancellation Date and exchange the sealed envelopes and
then open such envelopes in each other's presence. If Landlord and Tenant do not
mutually agree upon the Fair Market Rental Rate within five (5) business days of
the exchange and opening of envelopes, then, within ten (10) business days of
the exchange and opening of envelopes Landlord and Tenant shall each appoint a
single arbitrator who shall by profession be an industrial real estate broker
who shall have been active on a full-time basis over the immediately preceding
five (5) year period ending on the date of such appointment in the leasing of
industrial properties in the Market Area. Landlord's broker and Tenant's broker
shall then together appoint a single arbiter with the foregoing qualifications
within five (5) business days thereafter (the "Arbiter"). Neither Landlord nor
Tenant shall consult with the Arbiter as to his or her opinion as to Fair Market
Rental Rate prior to the appointment. The determination of the Arbiter shall be
limited solely to the issue of whether Landlord's or Tenant's submitted Fair
Market Rental Rate for the Property is the closest to the actual Fair Market
Rental Rate for the Property as determined by the Arbiter taking into account
the requirements of Section 14.1.2.1. The Arbiter may hold such hearings and
require such briefs as the Arbiter, in his or her sole discretion, determines is
necessary. In addition, Landlord or Tenant may submit to the Arbiter with a copy
to the other party within five


                                       32
<PAGE>


(5) business days after the appointment of the Arbiter any market data and
additional information that such party deems relevant to the determination of
Fair Market Rental Rate ("FMRR Data") and the other party may submit a reply in
writing within five (5) business days after receipt of such FMRR Data.

            (b) The Arbiter FMRR, within thirty (30) days of his or her
appointment, reach a decision as to whether the parties shall use Landlord's or
Tenant's submitted Fair Market Rental Rate, and shall notify Landlord and Tenant
of such determination.

            (c) The decision of the Arbiter shall be binding upon Landlord and
Tenant.

            (d) If Landlord's broker and Tenant's broker fail to agree upon and
appoint an arbitrator as set for in (a) above, then the appointment of the
arbitrator shall be made by the Presiding Judge of the Los Angeles County
Superior Court, or, if he or she refuses to act, by any judge having
jurisdiction over the parties.

            (e) The cost of arbitration shall be paid by the party whose
estimate of Fair Market Rental Value is determined to be the farther from the
actual Fair Market Rental Value.

        14.2 CONDITIONS TO TENANT'S OBLIGATIONS. Tenant's obligations under this
Lease shall be expressly conditioned upon the timely satisfaction or waiver of
the following conditions, each of which conditions is for the sole and exclusive
benefit of Tenant (and if any of such conditions is not satisfied or waived,
Tenant shall have no further obligations or liability to Landlord whatsoever
except as expressly set forth in this Section 14.2):

            14.2.1 ENVIRONMENTAL INVESTIGATION. At any time after Tenant's
execution of this Lease, Landlord shall provide Tenant and its agents and
contractors with access to the Property for the purpose of conducting
environmental investigations of the Property (collectively, the "Environmental
Investigations") and in accordance with the terms and conditions attached hereto
as Exhibit F. Additionally, Tenant acknowledges receipt of the environmental
documents attached hereto as Exhibit G (the "Environmental Documents"). Based on
the foregoing, Tenant shall have the following contingencies:

            (a) On or before 5:00 p.m. (California time) May 9, 1994 (the "First
Environmental Review Date"), if the Environmental Documents reveal conditions on
or within the Property not previously known or disclosed to Tenant that would
have a material adverse effect on Tenant, Tenant may elect to terminate this
Lease and all of Tenant's obligations hereunder (including any arising under
Section 14.4, below) by delivering a written notice of that election to
Landlord. If Tenant fails to deliver such notice to Landlord on or before the
First Environmental Review Date, Tenant shall have no further right to terminate
this Lease under this subparagraph (a); and

            (b) On or before 5:00 p.m. (California time) July 29, 1994 (the
"Environmental Review Outside Date"), if the Environmental Investigations
reveals conditions on or within the Property not previously known or disclosed
to Tenant that would have a material adverse effect on Tenant, Tenant may elect
to terminate this Lease and Tenant's obligations hereunder, except for Tenant's
Termination Obligations (as defined below) which shall survive


                                       33
<PAGE>


such termination, by delivering to Landlord a written notice of that election
which shall set forth in detail the reason(s) for such termination. If Tenant
fails to deliver to Landlord written notice of such election by the
Environmental Review Outside Date, Tenant shall have no further right to
terminate this Lease based on Environmental Investigations.

            All Environmental Documents are and shall remain the property of
Landlord, and their delivery shall be subject to the terms and conditions of the
Confidentiality Agreement, between Landlord and Tenant. Tenant agrees to
prominently mark any copies made of the Environmental Documents as
"Confidential," and to return the originals and all copies of the Environmental
Documents to Landlord no later than May 12, 1994.

            14.2.2 RECEIPT OF GOVERNMENTAL APPROVALS AND PERMITS. Tenant shall
have received all necessary governmental approvals and permits necessary for the
operation of Tenant's business at the Property (collectively, "Government
Permits"). On or before 5:00 p.m. (California time) November 1, 1994 (the
"Government Permit Outside Date"), Tenant may elect to terminate this Lease and
Tenant's obligations hereunder, except for Tenant's Termination Obligations
which shall survive such termination, by delivering to Landlord a written notice
of that election. If Tenant fails to deliver to Landlord written notice of such
election by the Government Permit Outside Date, Tenant shall have no further
right to terminate this Lease based on its failure to obtain Government Permits
or any other reason.

        14.3 ASSUMPTION OF THE HARPERS OBLIGATIONS. Pursuant to section 7.4 of
the existing Lease dated January 23, 1992 (the "Existing Lease") between
Landlord and Harpers, Inc., a Delaware corporation ("Harpers"), Harpers is
responsible for the complete removal of all Tenant's Equipment, and Utility
Installations, machinery and equipment (collectively, ("Harper's Equipment")
from the Building on expiration of the Existing Lease and surrender of the
Property, such that, on surrender, the Premises are in broom clean warehouse
condition with only overhead lighting and sprinkler systems at the glu-lam
beams. By way of illustration, the removal of Harper's Equipment shall include,
without limitation, removal of all (i) machinery and equipment (including bolt
removal and repair of damage resulting therefrom), (ii) horizontal and vertical
water, air and electrical lines, all supporting lines, and any other utility
lines servicing any machinery or equipment, (iii) sub-power panels, lines, and
trenching servicing any tenant operation, (iv) racks and bins, (v) conveyors and
related systems servicing Tenant's equipment, (vi) baking ovens, (vii) washing
machines, dry-off ovens, cranes and tracks, (viii) water tanks, (ix) mezzanine
and office installations, and (x) duct and ventilation systems that service
Tenant's Equipment. Tenant desires to utilize some or all of Harper's Equipment
that would otherwise be removed by Harpers pursuant to the Existing Lease; and
commence occupancy of the Building prior to expiration of the Existing Lease.
Accordingly, Landlord has negotiated with Harpers, for Tenant's benefit, to
relieve Harpers of certain of its obligations to remove Harper's Equipment on
surrender of the Premises and to provide an early termination of the Existing
Lease. Therefore, Tenant hereby agrees to assume, as direct and primary
obligations to Landlord, Harpers' obligations to remove Harper's Equipment and
to restore the Building to the Warehouse Condition required by section 7.4 of
the Existing Lease to the extent Harpers is relieved of those removal
obligations by Landlord and to pay to Landlord any amount of base monthly rent
and other charges of which Harpers is relieved by Landlord (collectively, the
"Harper Obligations"). Tenant's assumption of the Harper Obligations shall
continue for Landlord's benefit should the parties not enter into a binding
Lease for any reason.


                                       34
<PAGE>

        14.4 SURVIVAL OF TENANT'S TERMINATION OBLIGATIONS. If Tenant elects to
terminate this Lease pursuant to the provisions of Section 14.2.1 or Section
14.2.2, above, then Tenant shall be responsible for the following
notwithstanding such termination (collectively, the "Tenant Termination
Obligations"):

        (i) Continue to be responsible for all the Harper Obligations until such
are completely satisfied, as reasonably determined by Landlord;

        (ii) Pay to Landlord an amount equal to the aggregate of all "Advances"
paid pursuant to the Work Letter; and

        (iii) Upon and to the extent requested by Landlord, no later than thirty
(30) days after Tenant's termination of the Lease as set forth above, at
Tenant's sole cost, remove the Tenant Improvements from the Building to the
extent necessary (as directed by Landlord) to leave the Building in the
Warehouse Condition. Tenant shall repair any and all damage caused by such
removal of the Tenant Improvements from the Building.

        14.5 CONSTRUCTION OF TENANT IMPROVEMENTS AND ROOF WORK. Tenant shall
construct those improvements on and within the Building in accordance with the
terms and conditions of attached Exhibit A-1, and Landlord shall construct the
Roofing Work in accordance with attached Exhibit A-2.

        14.6 RIGHT OF FIRST NOTICE. Provided Tenant is not in default under this
Lease, if at any time during the Term Landlord decides to offer the Property for
sale, Landlord shall first contact Tenant and advise Tenant of Landlord's
intention to sell the Property ("Landlord's Notice"). For the period of thirty
(30) days after delivery of Landlord's Notice (the "Negotiation Period"), Tenant
shall have the exclusive right to negotiate with Landlord for the purchase of
the Property on terms and conditions which are, in Landlord's sole and
subjective discretion, acceptable to Landlord. If Landlord and Tenant have not
entered into a binding agreement by the last day of the Negotiation Period,
Landlord shall thereafter have the absolute right to offer the Property and sell
the Property to any third party on any terms and conditions Landlord may
thereafter negotiate.

        IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the Fundamental Lease Provisions, the Standard Lease Provisions
and Exhibits A-l, A-2, B, C, D, E, F and G, each of which is incorporated herein
by this reference, as of the date set forth above.



                                       "LANDLORD"

                                       FHL GROUP, a California corporation



                                       By:
                                            ------------------------------------
                                            Henry J. Harper, Jr., President


                                       35
<PAGE>


                                       "TENANT"

                                       VIRCO MFG. CORPORATION, a Delaware



                                       By:
                                            ------------------------------------
                                            Robert A. Virtue, President




                                       36
<PAGE>



                              EXHIBIT A-1 TO LEASE
                              WORK LETTER AGREEMENT
                              (TENANT IMPROVEMENTS)

        This Work Letter Agreement ("Agreement") is hereby attached to and made
a part of the lease dated April 25, 1994 ("Lease") between FHL Group, a
California corporation, as Landlord ("Landlord") and Virco Mfg. Corporation, a
Delaware corporation, as Tenant ("Tenant") for the property located at 2027
Harpers Way, Torrance, CA 90501 (the "Property"). Except as otherwise defined
herein, capitalized terms are as defined in the Lease.

        1. Description of Tenant Improvements.

        Landlord shall engage Neil Stanton & Palmer as architect ("Architect")
and Millie Severson or another licensed general contractor, as general
contractor (the "Contractor"), to design and construct those tenant improvements
within the Building described on attached Schedule 1 (the "Building General
Work"). "Tenant Improvements" for the purposes of the Lease and this Agreement
shall mean collectively the Building General Work and any additional
improvements required by Tenant for the operation of its business on the
Property (the "Tenant-Specific Improvements").

        2. Approval Procedure and Permitting.

           2.1 As soon as reasonably practicable after execution of the Lease,
Architect shall deliver to Tenant for Tenant's review and approval five (5)
sets, plus one (l) reproducible set of preliminary drawings and specifications
for the Building General Work (the "Preliminary Plans"). Tenant shall review and
approve or disapprove the Preliminary Drawings within five (5) days after
receipt, which approval shall not be unreasonably withheld. Tenant's failure to
disapprove the Preliminary Plans within this 5-day period shall be deemed to be
Tenant's approval. If Tenant disapproves the Preliminary Plans, Tenant shall
provide Landlord and Architect with reasonably specific reasons for such
disapproval, and Architect shall revise the Preliminary Plans to address
Tenant's objections. The parties shall repeat the preceding procedure until the
Preliminary Plans have been approved.

           2.2 Within thirty (30) days of the approval of the Preliminary Plans,
Architect shall prepare and deliver to Tenant for Tenant's review and approval
five (5) sets, plus one (1) reproducible set, of all of the final working
drawings for the Building General Work ("BGW Drawings"), which shall be
consistent in all material respects with the Preliminary Plans, including such
mutually approved changes as are necessary to comply with applicable
governmental building requirements taking into account the permitted use under
the Lease. Upon the completion of Tenant's review, Architect shall resubmit, if
necessary, revised BGW Drawings. If Tenant and Landlord are unable to agree on
the BGW Drawings, such dispute shall be resolved by the Architect whose
determination shall be final. Following such approval of the BGW Drawings, both
parties shall sign and deliver to each other duplicate copies of the BGW
Drawings. Thereafter changes may be made only in strict accordance with
paragraph 13, below, and the term "Approved Drawings" shall include such
changes.

           2.3 Landlord shall proceed with the Approved Plans to obtain all
necessary permits and licenses to commence construction of the Building General
Work.


<PAGE>


            2.4 All costs of the design and permitting of the Building General
Work as set forth in paragraph 2.1, 2.2 and 2.3, above, shall be borne by
Landlord.

        3. Election to Construct the Building General Work.

            3.1 Upon receiving all necessary permits to commence construction of
the Building General Work based on the Approved Plans, Landlord shall obtain
from Contractor a reasonably acceptable guaranteed maximum price for
construction of the Building General Work (the "Guaranteed Maximum Price").
Landlord shall immediately thereafter submit the Guaranteed Maximum Price to
Tenant, whereupon Tenant shall, within five CS) business days thereafter, elect
to either (i) require Landlord to commence and complete construction of the
Building General Work (the "First Option") or (ii) assume Landlord's direct
obligations to the Contractor and itself construct the Building General Work
(the "second Option"). If Tenant fails to respond within the above five (5)
business day period, Tenant shall be deemed to have elected the First Option.

            3.2 Should Tenant elect the Second Option, construction of the
Building General Work shall not commence before the Early Possession Date, and,
whether or not Tenant elects the Second Option, construction of any
Tenant-Specific Improvements shall not commence before the Early Possession
Date. Landlord shall have no responsibility for construction of the Tenant
Improvements or any portions thereof undertaken by Tenant pursuant to this Lease
and this Agreement, and Tenant shall remedy, at Tenant's expense, and will be
responsible for any and all defects in all such construction that may appear
during or after the completion thereof. Tenant shall reimburse Landlord, as
additional rent, for any extra expense incurred by Landlord by reason of faulty
work done by Tenant or by Tenant's contractors or by reason of inadequate
clean-up.

            3.3 Whether or not Tenant elects the First Option or the Second
Option, in order to ensure consistency with the electrical, plumbing, life
safety and heating ventilation and air conditioning systems within the Building,
Landlord shall have the sole right, if Landlord so elects, to designate the life
safety, plumbing, electrical, heating, ventilation, and air conditioning,
mechanical, and structural subcontractors to construct the Tenant Improvements.

        4. Construction Cost For Building General Work.

            4.1 It is the intention of the parties that Landlord shall pay for
the construction cost of the Building General Work (the "Construction Cost")
only and that Tenant shall pay for all costs arising from construction of the
Tenant-Specific Improvements and any other construction on the Property.

            4.2 If Tenant should elect the Second Option, Landlord shall pay for
the Construction Cost up to the Guaranteed Maximum Price (the "Construction
Allowance") through the procedures set forth in section 5, below. Otherwise, if
Tenant elects the First Option, Landlord shall pay for the Construction Cost
directly as invoices, mechanics' lien releases are presented to Landlord or
Landlord's authorized agent. Landlord makes no representations or warranties
that the Construction Allowance will be sufficient to complete construction of
the Building General Work in accordance with the Preliminary Plans or the
Approved Plans. Tenant shall pay for (i) all costs to construct the Building
General Work to the extent the Construction Cost exceeds the Construction
Allowance, and (ii) subject to paragraph 4.3 below, all costs to



                                       2
<PAGE>

construct certain Tenant-Specific Improvements. Subject to paragraph 4.3 below,
to the extent of any Excess Funds (as defined below), that amount shall be
retained by Landlord, and Tenant shall receive no payment, rent reduction, or
credit for any unused portion of the Construction Allowance.

            4.3 If Tenant elects the Second Option and, during the course of
construction achieves costs savings such that the final Construction Cost is
less than the Guaranteed Maximum Price ("Excess Funds"), Tenant shall be
entitled to utilize such Excess Funds toward the payment of the actual costs of
labor and materials for any Tenant Specific Improvements, provided (i) Tenant
has submitted for Landlord's approval (which approval shall not be unreasonably
withheld) all working drawings and specifications for such Tenant-Specific
Improvements to which the Excess Funds are intended to apply, (ii) the
Tenant-Specific Improvements, in Landlord's reasonable opinion, enhance the
value of the Property, and (iii) the Excess Funds shall be disbursed in
accordance with Section 5, below.

            4.4 Notwithstanding the foregoing, Tenant shall be solely
responsible, at its cost but with Landlord's reasonable cooperation (without the
requirement that Landlord incur any costs or liability), for obtaining all
required licenses and permits in connection with the permitted use of the
Property, including, without limitation, any certificate of occupancy or
equivalent permit.

        5. Disbursement of Construction Allowance.

            5.1 Subject to paragraphs 5.2 and 5.3, below, Landlord shall either
directly or through an industry-recognized reputable third party construction
disbursement company (such as Builders Disbursement, Inc.), selected by
Landlord, disburse portions of the Construction Allowance (each, an "Advance")
directly to the Architect, Contractor and any subcontractors, as Landlord may
elect, only after receiving written authorization therefor signed by Tenant and
the Contractor. That written authorization shall be accompanied by construction
and other cost vouchers and invoices, together with (i) a detailed list and
description of all work for which payment is sought, and (iii) such other
supporting documentation as Landlord may reasonably require (ii) conditional
lien releases from the subcontractors in the form required by California Civil
Code section 3262 for the portion of the Tenant Improvements constructed. Each
of the foregoing documents shall be initialed by the Architect, Tenant and the
Contractor. The initials shall indicate approval of all such documents. All
presentations of requests for an Advance and all vouchers and invoices for any
portion of the Construction Cost presented by Tenant to Landlord shall
constitute a representation on the part of .Tenant that the funds referred to
therein have been used solely for paying only the direct costs of construction
of the Building General Work. Tenant shall indemnify, defend and hold Landlord
and Landlord's agents, employees, and contractors harmless from and against all
liability, claims, causes of action, suits, costs and expenses (including
attorneys' fees), judgments, and damages (collectively, "Claims") arising in
connection with the payment of any voucher presented. All checks representing an
Advance shall be made payable jointly to Tenant and the Contractor or the
Subcontractor, as Landlord may elect. In the event a third party disbursement
agent is used, the disbursement agent shall act in Landlord's place (and shall
act only after receiving Landlord's written approval to any requested Advance)
under the disbursement provisions of this Agreement, and Landlord and Tenant
shall each pay one-half (1/2) of the costs and fees of such disbursement agent.


                                       3
<PAGE>


            5.2 Payment of each Advance shall be less a retainage equal to ten
percent (10?) of the requested disbursement (the "Retainage"). The total
Retainage shall not be paid until the conditions set forth in paragraph 5.3,
below, have all been satisfied in full.

            5.3 The Retainage withheld in accordance with the provisions of
section 5.2 shall be disbursed only at such time as the Tenant Improvements have
been fully completed, including, without limitation, the issuance of a
certificate of occupancy (or equivalent permit) and the Expiration of the Lien
Period, provided there are no unpaid Claims or other liens filed against the
Property as a result of work undertaken by or through Tenant. "Expiration of the
Lien Period" shall mean (i) thirty-five C35) days after the filing for
recordation by Tenant of the Notice of Completion for the Tenant Improvements
and the complete, unconditional releases by the Contractor and all
subcontractors and materialmen of their respective lien rights against the
Property, or (ii) if no Notice of Completion is filed, then ninety-five (95)
days after "completion" (as that term is defined in California Civil Code
section 3086) of the Tenant Improvements to the satisfaction of Landlord and
Landlord's title insurance company.

        6. Inspection of Progress of Construction. Landlord and its agents shall
have the right at all times during construction of the Tenant Improvements to
enter upon the Property during construction. If the construction is not in
substantial compliance with the Approved Plans or with Applicable Laws, Landlord
may direct the Contractor to conform construction, to such standards.
Notwithstanding the foregoing, Landlord is under no obligation to construct or
supervise construction of the Tenant Improvements. Any inspection by Landlord
shall be for the sole purpose of protecting Landlords' interests and is not to
be relied upon in any regard by Tenant. Furthermore, any inspection by Landlord
shall not be a representation that there has been or will be compliance with the
plans and specifications, applicable laws, regulations, or ordinances or that
the construction is free from faulty material or workmanship. Tenant shall make
or cause to be made any and all such other inspections as Tenant may desire for
its own protection and/or as required by Applicable Laws.

        7. Indemnification of Landlord. Tenant shall indemnify, defend, and hold
Landlord and Landlord's agents, employees, and contractors harmless from and
against all Claims arising from or in connection with construction of the
Building General Work (should Tenant elect the Second Option) as well as in
connection with the construction of any Tenant-Specific Improvements, including
without limitation any and all personal injuries and all mechanics' and
materialmen's liens arising therefrom. This indemnity shall survive expiration
or earlier termination of this Lease, including, without limitation, termination
pursuant to Section 14.2.1 or Section 14.2.2 of the Lease.

        8. Bonds. At Landlord's election, before Contractor commences
construction of any Tenant-Specific Improvements, Tenant shall obtain and
maintain in effect through completion of construction: (i) a Performance Bond
(also sometimes known as a completion bond) covering performance of the
contractor's obligations under its contract with Tenant, and/or (ii) a Labor and
Material Bond (also sometimes called a payment bond, or a lien-free completion
bond) covering payment of all claims of suppliers of labor and material in
connection with construction of the Tenant-Specific Improvements. The
Performance Bond shall specifically name Landlord as a primary obligee, and the
Labor and Material Bond shall cover as obligee all claimants who would be
entitled to file mechanic's liens under applicable California law. The form and
provisions of such bonds shall be subject to Landlord's prior approval.



                                       4
<PAGE>

        9. Notices. Tenant shall provide Landlord with at least fifteen (15)
days prior written notice of the commencement of construction which Tenant
undertakes pursuant to this Agreement. Tenant irrevocably appoints Landlord as
agent to file for record any notices of completion, cessation of labor, or other
notice that Landlord deems necessary to file for record to protect any of
Landlord's interests under this Agreement.

        10. Insurance. Before commencing the construction and as a condition to
Tenant's right to commence any construction, certificates of insurance shall be
delivered to Landlord evidencing (i) that all insurance required to be procured
and maintained by Tenant pursuant to Section 4 of the Lease is in place, and
(ii) the Contractor, any other general contractors, and all major trade
subcontractors have named Landlord as additional insured on their
course-of-construction insurance.

        11. Assignment of Warranties. Upon completion of construction, Tenant
shall assign to Landlord all construction warranties Tenant may have obtained
that may be necessary or beneficial for Landlord to perform its obligations
under Section 7.2 of the Lease.

        12. Construction Schedule. Before beginning construction of any Tenant
Improvements which Tenant undertakes pursuant to this Agreement. Tenant shall
furnish Landlord for approval in writing a schedule setting forth projected
completion dates and showing the deadlines for any actions required to be taken
by Tenant during construction. Landlord's and Tenant's representatives shall
meet at least once weekly to review the progress of construction, and Landlord's
representatives shall be given at least 48-hours prior notice of and entitled to
attend any construction progress meetings between Tenant and any general
contractor or any subcontractors.

        13. Chance Orders. If Tenant requests any change, addition or alteration
to the Approved Drawings, Tenant shall give Landlord a written estimate of the
increase in the Construction Cost necessary to accomplish the change and the
resulting time delay, if any. If Landlord, in writing, approves the written
estimate, Tenant shall immediately have working drawings prepared. If Landlord
approves such a change and if the change increases the estimated Construction
Cost, then the increase shall be borne by Tenant and shall not be paid through
the Construction Allowance. Under no circumstances shall any delays arising from
or in connection with such change orders extend the Term Commencement Date.

        14. Construction of Tenant-Specific Improvements. At any time after the
Early Possession Date, whether Tenant elects the First Option or the Second
Option, Tenant shall be entitled, at Tenant's sole cost, expense and liability,
to construct any Tenant-Specific Improvements concurrently with construction of
the Building General Work, provided, (i) Tenant's contractor and subcontractors
for the Tenant-Specific Improvements shall not interfere in any way with
Contractor's construction of the Building General Work, (ii) construction of the
Building General Work shall be given priority for access, staging, and materials
storage, (iii) Tenant shall not claim (and hereby waives any claim of) any
Landlord Delay resulting from the concurrent construction of any Tenant-Specific
Improvements and the Building General Work, and (iv) construction of the
Tenant-Specific Improvements shall be subject to the terms and conditions of
Section 7.3 of the Lease.

        15. Term Commencement Date. Under no circumstances shall any delay
(other than a Landlord Delay) in completion of construction of the Tenant
Improvements or the obtaining of


                                       5
<PAGE>


a certificate of occupancy or equivalent certificate delay or extend the Term
Commencement Date.

        16. Property of Landlord. Subject to Section 7.7 of the Lease, all
Tenant Improvements shall become and remain the property of Landlord.


                                       6
<PAGE>


                       SCHEDULE 1 TO WORK LETTER AGREEMENT
                              BUILDING GENERAL WORK

        The following is the "Building General Work" to be performed by Tenant
and the direct construction costs of which shall be reimbursed to Tenant as set
forth in this Exhibit A-l:

        1. Addition of nine (9) additional 48 inch dock high doors on the
southeast end of the building including a 50 foot concrete apron; relocation of
the fences to isolate the newly expanded loading area from the car parking area,
and the addition of a sliding gate; widening of the existing curb cut onto
Harpers Way to accommodate increased truck traffic; install guard shack by the
curb cut onto Harpers Way with electric and telephonic service to the facility:

        2. Addition of an approximately twelve (12) foot wide by fourteen (14)
foot high ground level truck door on the east wall of the facility, the exact
location of which shall be subject to mutual approval and structural engineering
and cost feasibility;

        3. If required, by law or code, installation of lights and/or sprinklers
above the existing loading door awnings;

        4. The cutting of two (2) openings in the non-structural walls of the
existing mezzanine/woodshop area in the center of the western section of the
facility to accommodate the Tenant's product flow;

        5. All parking lot asphalt shall be repaired as is reasonably necessary
and as of the Early Possession Date; and

        6. Certain retrofitting of restrooms and other interior improvements to
provide reasonable access to disabled persons.


<PAGE>


                              EXHIBIT A-2 TO LEASE
                              WORK LETTER AGREEMENT
                                     (ROOF)

        This Work Letter Agreement ("Agreement") is hereby attached to and made
a part of the lease dated April 25, 1994 ("Lease") between FHL Group, a
California corporation, as Landlord ("Landlord") and Virco Mfg. Corporation, a
Delaware corporation, as Tenant ("Tenant") for the property located at 2707
Harpers Way, Torrance, CA 90501 (the "Property"). Except as otherwise defined
herein, capitalized terms are as defined in the Lease.

        1. Description of the Roof Construction.

        Landlord, at Landlord's sole cost and expense, shall employ a qualified
roofer (the "Roofer"), to (i) design and construct the new roof membrane and
drainage system for the westerly portion ("phase 1") of the Building and (ii)
patch and water-tight the roof membrane on the eastern ("phase 2") portion of
the Building (collectively the "Roof Work").

        2. Construction of the Roof Work.

        Landlord may commence construction of the Roofing Work at any time on or
after execution of this Lease and shall complete the Roofing Work prior to the
Term Commencement Date. Tenant shall not claim (and hereby waives any claim of)
Landlord Delay resulting from any concurrent construction of Tenant Improvements
and of the Roofing Work. Notwithstanding section 7.2 of the Lease, Tenant shall
be solely responsible for any penetrations or other modifications required to
any portion of the roof membrane of the Building as may be directed or permitted
by Tenant from time to time during the Term, whether before, during, or after
construction of the Roof Work.

<PAGE>
                         SUBORDINATION, NON-DISTURBANCE
                            AND ATTORNMENT AGREEMENT


        THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
("Agreement") is entered into as of _________________, 19__, between VIRCO MFG
CORPORATION, a Delaware corporation ("Tenant"), FHL GROUP, a California general
corporation ("Borrower"), 1219 Morningside Drive, Suite 213, Manhattan Beach,
California 90266 and _____________________________________ ("Lender"),
________________________________________________________________.

                                    RECITALS:

        A. Tenant is the lessee or successor to the lessee and Borrower is the
lessor or successor to the lessor of a certain lease dated ____________________,
1994 (the "Lease").

        B. Lender has made, or will make, to Borrower a mortgage loan to be
secured by a Mortgage, Deed to Secure a Debt, or Deed of Trust and Security
Agreement from Borrower to Lender (the "Mortgage") on the fee title and/or
leasehold interest in the real estate, wherein the premises covered by the Lease
are located, as described in Exhibit A attached hereto.

        C. Borrower and Lender have executed, or will execute, an Absolute
Assignment of Leases and Rents (the "Assignment") pursuant to which the Lease is
assigned to Lender.

        D. Lender has required the execution of this Agreement by Borrower and
Tenant as a condition to Lender making the requested mortgage loan or consenting
to the Lease.

        E. Tenant acknowledges as its consideration for entering into this
Agreement that Tenant will benefit by entering into an agreement with Lender
concerning their relationship in the event of foreclosure of the Mortgage by
Lender.

                                   AGREEMENT:

        NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce Lender to
make the requested mortgage loan or consent to the Lease, Tenant, Borrower, and
Lender hereby agree and covenant as follows:

        1. Assignment of Rents.

        Borrower hereby acknowledges, confirms, and agrees that the Lease has
been, or will be, assigned to Lender pursuant to the Assignment, and Lender
acknowledges that the Assignment contains a license back to Borrower permitting
Borrower to collect all rents, income, and other sums payable under the Lease.

        2. Revocation of License-Back.

        Upon revocation, pursuant to the Assignment, of the license back,
Borrower acknowledges that all rents, income, and other sums payable under the
Lease shall be paid to Lender.

        3. Covenants for Benefit of Lender.

        Tenant and Borrower agree for the benefit of Lender that:

            (a) Tenant shall not pay and Borrower shall not accept, any rent or
additional rent more than one month advance; and

            (b) Tenant and Borrower will not enter into any agreement for the
cancellation, surrender, amendment, or modification of the Lease without
Lender's prior written consent. Tenant will not terminate the Lease because of a
default thereunder by Borrower unless Tenant shall have first given Lender
notice and a reasonable opportunity to cure such default.


                                      -1-
                                   EXHIBIT E
<PAGE>


        4. Subordination.

        Tenant and Lender hereby agree that the Lease is and shall at all times
be subject and subordinate in all respects to the Mortgage and to all renewals,
modifications, and extensions thereof, subject to the terms and conditions
hereinafter set forth in this Agreement.

        5. Non-Merger.

        Borrower, Tenant, and Lender agree that unless Lender shall otherwise
consent in writing, the fee title to, or any leasehold interest in, the real
estate and the leasehold estate created by the Lease shall not merge but shall
remain separate and distinct, notwithstanding the union of said estates either
in the Borrower or the Tenant or any third party by purchase, assignment, or
otherwise.

        6. Non-Disturbance and Attornment.

            If the interests of Borrower in the real estate are acquired by
Lender by foreclosure, deed in lieu of foreclosure, or any other method:

            (a) If Tenant shall not then be in default in the payment of rent or
other sums due under the Lease or be otherwise in material default under the
Lease, Lender agrees that the Lease and the rights of Tenant thereunder shall
continue in full force and effect and shall not be terminated or disturbed
except in accordance with the terms of the Lease or this Agreement;

            (b) Tenant agrees to attorn to Lender as its lessor; Tenant shall be
bound under all of the terms, covenant, and conditions of the Lease for the
balance of the term thereof remaining, including any renewal options which are
exercised in accordance with the terms of the Lease;

            (c) The interests so acquired shall not merge with any other
interests of Lender in the real estate if such merger would result in the
termination of the Lease; and

            (d) If, notwithstanding any other provisions of this Agreement, the
acquisition by Lender of the interest of Borrower in the real estate results, in
whole or in part, in the termination of the Lease, there shall be deemed to have
been created a lease between Lender and Tenant on the same terms and conditions
as the Lease for the remainder of the term of the Lease, with renewal options,
if any.

The provisions of this paragraph shall be effective and self-operative
immediately upon Lender succeeding to the interests of Borrower without the
execution of any other instrument.

        7. Liability of Lender as Landlord.

        If the interests of Borrower in the real estate are acquired by Lender
by foreclosure, deed in lieu of foreclosure or any other method, Lender shall be
bound to Tenant under all of the terms, covenants, and conditions of the Lease,
and Tenant shall, from and after Lender's acquisition of the interests of
Borrower in the real estate, have the same remedies against Lender for the
breach of the Lease that Tenant would have had under the Lease against Borrower
if Lender had not succeeded to the interests of Borrower, provided, however,
that Lender shall not be:

        (a)    Liable for any act or omission of any landlord (including
               Borrower) prior to the date of Lender's acquisition of the
               interests of Borrower in the real estate; or

        (b)    Subject to any offsets or defenses which Tenant might have
               against any landlord (including Borrower) prior to the date of
               Lender's acquisition of the interests of Borrower in the real
               estate; or

        (c)    Liable for the return of any security deposit under the Lease
               unless such security deposit shall have been actually deposited
               with Lender; or

        (d)    Liable to Tenant, whether before or after Lender acquires
               Borrower's interest in the real estate, (i) under any
               indemnification provisions set forth in the


                                      -2-
                                   EXHIBIT E
<PAGE>


               Lease (including, without limitation, any environmental
               indemnification) or (ii) for any damages Tenant may suffer as a
               result of any representation set forth in the Lease, the breach
               of any warranty set forth in the Lease, or any act of, or failure
               to act by any party other than Lender and its agents, officers,
               and employees.

        8. Miscellaneous.

        This Agreement may not be modified orally or in any other manner except
by an agreement in writing signed by the parties hereto or their respective
successors-in-interest. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective heirs, successors, and
assigns. Upon recorded satisfaction of the Mortgage this Agreement shall become
null and void and be of no further effect.

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

        TENANT:                           VIRCO MFG. CORPORATION, a
                                          Delaware corporation

                                          By:________________________________
                                                Its:_________________________

        BORROWER:                         FHL GROUP, a California corporation


                                          By:________________________________
                                                 Henry J. Harper, Jr.
                                                 Its:  President

        LENDER:                           ___________________________________
                                          ___________________________________


                                          By:________________________________
                                                 Its:________________________


                                      -3-
                                   EXHIBIT E
<PAGE>


                                    EXHIBIT F

                                LICENSE AGREEMENT
                          (ENVIRONMENTAL INVESTIGATION)

        THIS LICENSE AGREEMENT is attached to and made a party of that certain
Lease (the "Lease") between FHL GROUP, ("Licensor"), and VIRCO MFG. CORPORATION,
a Delaware corporation ("Licensee").

                                    ARTICLE 1
                                    RECITALS

        Section 1.1 Property and Parties. Licensor is the owner of certain real
property and improvements thereon commonly known as 2027 Harpers Way, Torrance,
California (collectively, the "Property") and more particularly described as
Parcel 1 in the City of Torrance, County of Los Angeles, State of California, as
shown on Parcel Map 8389 file in Book 88, Pages 1 to 4, inclusive, of Parcel
Maps in the Office of the Country Recorder of Los Angeles County.

        Section 1.2 Purpose. The limited purpose of this license is to provide
Licensee with access to the Property for purposes of undertaking environmental
studies and inspections by licensed California contractors (collectively, the
"Site Investigations") to determine whether Tenant is entitled to exercise its
rights of termination pursuant to Section 14.21 of the Lease.

                                    ARTICLE 2
                              TERMS AND CONDITIONS

        Section 2.1 Permission to Enter Property. Licensor hereby grants to
Licensee for the term provided in Section 2.9, a non-exclusive license to enter
upon the Property for the purposes set forth above and for no other purpose,
subject to Licensee's strict compliance with all the terms of this License
Agreement. Licensee's use of the Property permitted hereunder shall not
interfere with the use thereof by Licensor or any lessees, occupants or person
claiming through or under Licensor. Licensee shall not permit any other party,
except Licensee's duly authorized representatives, agents, and independent
contractors (collectively, "Representatives"), to enter or use the Property
during the term of this License Agreement without Licensor's prior written
consent.

        Section 2.2 Compliance with Government Regulations, Plans and Other
Obligations of Licensee. As a condition precedent to this license granted by
Licensor to Licensee, Licensee shall obtain at its sole cost and expense all
governmental permits and authorizations of whatever nature required by any and
all applicable governmental agencies for the Site Investigations, including, but
not limited to, all permits from the City of Torrance. Licensee will furnish
Licensor evidence of such permission prior to its entry on the Property. While
on the Property, Licensee will comply and will cause all of its Representatives
on the Property to comply with all applicable governmental laws and regulations
and the terms and conditions of the License Agreement. All persons who enter
upon the Property pursuant to this License Agreement do so at their own risk,
and shall comply with any and all instructions and directions of Licensor.
Licensee shall cause such persons to observe strict safety precautions, as may
be required from time to time by Licensor.

        Section 2.3 Maintenance and Condition of Property. During the term of
this License Agreement, Licensee and its Representatives will be responsible for
any damage done to the Property by Licensee or its Representatives. Upon
completion of any work authorized hereunder or upon termination or expiration of
this License Agreement or upon departing from the Property, Licensee will pay
the costs of removing any installations, filling all drill holes, borings or
other exposed openings, repairing any damaged asphalt and cement, replacing any
damaged landscaping, repairing or replacing any damaged underground pipes or
other improvements, and otherwise repairing and restoring the Property and every
portion thereof to at least as good condition as existed prior to Licensee's
entry onto the Property.

        Section 2.4 No Construction or Signs without Permission. Except for
those activities generally undertaken by licensed California environmental
contractors (and subject to compliance with this License Agreement) in
connection with a "Phase 2" environmental audit,


                                      -1-
                                   EXHIBIT F
<PAGE>

no structure, signs or other improvement of any kind shall be constructed and no
moving of earth shall be undertaken on the Property by the Licensee or its
Representatives as part of the Site Investigations without the express prior
permission of Licensor in each case, which approval may be withheld in Licensor
sole discretion.

        Section 2.5 Liens. Licensee shall not suffer or permit to be enforced
against the Property, or any part thereof, any mechanics', material man's,
contractors' or subcontractors' liens, or any claim for damage arising from the
work of any construction, excavation, survey, tests, drilling, repair,
restoration, or replacement by Licensee or its Representatives (collectively,
"Liens"), but Licensee shall pay or cause to be paid all such obligations or
purported obligations before any action is brought to enforce the Liens against
the Property. Licensee expressly agrees to indemnify, defend and hold Licensors,
its officers, directors, shareholders, agents, employees and the Property
harmless from and against all claims, demands, causes of action, liabilities,
costs and expenses (including attorneys fees) airing from or connected with any
and all Liens. Licensee shall cooperate fully with Licensor's title insurance
company to permit the title company to insure against any Liens against the
Property. Licensee's duty of cooperation shall include, without limitation, the
execution of indemnification agreements in favor of the title company and the
payment of appropriate title policy endorsements required by Licensor. Licensor
reserves the right at any time and from time to time to post and maintain on the
Property, or any portion thereof or improvement thereon, such notices of
nonresponsibility or otherwise as may be necessary to protect Licensor against
liability for any Liens.

        Section 2.6 Licensor Not Liable. As a material part of the consideration
for this License Agreement, Licensee hereby waives and agrees to indemnify,
defend and hold Licensor, its officers, directors, shareholders, agents and
employees entirely harmless from and against any loss, damage, injury, accident,
fire or other casualty, liability, claim, cost or expense (including, but not
limited to, attorneys' fees and court costs) of any kind or character to any
person or property arising from or caused by (i) any use of the Property by
Licensee or its Representatives, (ii) any act or omission of Licensee or any of
its Representatives, (iii) any bodily injury, property damage, accident, fire,
or other casualty on the Property, (iv) any violation or alleged violation by
Licensee or its Representatives of any law, ordinance, or regulation now or
hereafter enacted, (v) any failure of Licensee to maintain the Property in a
safe, decent, and sanitary condition, (vi) any loss or theft whatsoever of any
property or anything placed or stored by Licensee or its Representatives on or
about the Property, and (vii) any enforcement by Licensor of any provision of
this Agreement and any costs of removing Licensee from the Property or restoring
the same as provided herein.

        Section 2.7 Licensor Payment of Claims. In addition to and not in
limitation of Licensor's other rights and remedies under this License Agreement,
should Licensee fail within ten (10) days of a written request from Licensor
either (i) to pay and discharge any Lien arising out of Licensee's use of the
Property or to have bonded around such Liens as provided above, or (ii) to
indemnify and defend Licensor, its officers, directors, shareholders, agents and
employees from and against any loss, damage, injury, liability, or claim arising
out of Licensee's use of the Property as provided above, then in any such case
Licensor may, at its option, pay any such claim, loss, demand, injury, liability
or damages in connection with such Lien, post any required bonds, or settle or
discharge any action there for or satisfy any judgment thereon, and all costs,
expenses and other sums incurred by Licensor, its officers, directors,
shareholders, agents and employees in connection therewith (including but not
limited to reasonable attorneys' fees) shall be paid to Licensor by Licensee
upon written demand, together with interest thereon at the maximum contract rate
permitted by law from the date incurred or paid until repaid, and any default
either in such initial failure to pay or subsequent repayment to Licensor shall
at Licensor's option constitute a material breach under this License Agreement.

        Section 2.8 Insurance. Before and at all times after entering upon the
Property, Tenant shall at its sole expense maintain a policy or policies of
comprehensive general liability insurance with respect to the Property and the
operation of or on behalf of Tenant on or about the Property, in full compliance
with Section 4 of the Lease, and provide Landlord with satisfactory written
evidence thereof.

        Section 2.9 Term and Remedies. The right or entry granted by this
License Agreement and this License Agreement shall automatically terminate on
July 29, 1994. In addition, if Licensee is in breach of any of its obligations
under this License Agreement and should Licensee fail to cure such breach within
two (2) business days of written notice from Licensor specifying


                                      -2-
                                   EXHIBIT F
<PAGE>


the nature of such breach, Licensor shall have the right to terminate this
License agreement by written notice to Licensee. Licensee acknowledges that this
License Agreement is solely a license, that all rights conveyed hereunder are
personal property only and convey no interest in real property, and that
Licensee has no rights as a tenant of the Property by virtue hereof. In the
event of termination hereof due to a breach or threatened breach by Licensee of
any provision hereunder, Licensor may re-enter and take exclusive possession of
the Property and remove all persons or things therefrom, without legal process
to the maximum extent permitted by law, or by such legal process as Licensor may
deem appropriate. Licensor may also seek any other remedy available at law or in
equity, including but not limited to a suit for damages for any compensable
breach or non-compliance herewith or an action for specific performance or
injunction. All remedies provided herein or by law or equity shall be cumulative
and not exclusive. No termination or expiration of this License Agreement shall
relieve Licensee of its obligations to perform those acts required to be
performed hereunder either prior to or after its termination.

        Section 2.10 Inspection. Licensor and any authorized representative,
employee, agent or independent contractor, shall be entitled to enter and
inspect the Property or any portion thereof or improvements or work of Licensee
thereon at any time and from time to time. However, any such inspection shall be
for the sole purpose of protecting Licensor's interests and is not to be relied
upon in any regard by Licensee.

        Section 2.11 Non-Assignability. This License Agreement cannot be
assigned, whether voluntarily or by operation of law, and Licensee shall not
permit the use of the Property, or any part thereof, except in strict compliance
with the provisions hereof, and any attempt to do so shall be null and void.

        Section 2.12 Costs of Enforcement. If it becomes necessary for Licensor
to employ as attorney or other person or commence action to enforce any of the
provisions of this License Agreement or to remove Licensee from the Property,
Licensee agrees to pay all costs of enforcement in connection therewith,
including but not limited to, court costs and attorneys' fees.

        Section 2.13 Notices. All notices and other communications required or
permitted in this License Agreement shall be given in conformation with Section
13.11 of the Lease.

        Section 2.14 Miscellaneous. The terms and conditions of the Lease, to
the extent not inconsistent herewith, are incorporated herein by reference.



                                      -3-
                                   EXHIBIT F
<PAGE>

                                    EXHIBIT G

                      ENVIRONMENTAL DOCUMENTS DELIVERED BY
                               LANDLORD TO TENANT

        1.     ENSR Phase I Investigation dated October 1991 Document #4049-001.

        2.     ENSR Phase II Investigation dated October 1991 Document
               #4049-002-300.1.

        3.     RMT Phase III Site Assessment dated June 1992.

        4.     ENSR Assessment Workplan dated December 1992 Document
               #4049-004-100.

        5.     ENSR Addendum to Workplan Sections 3.2, 3.3 & r.1 of December
               1992. June 1993 Document #4049-004-101.

        6.     ENSR Site Assessment Report dated November 1993 Document
               #5415-012.5000.

        7.     Refinery Subsurface Clean-up Progress Report, Second Semester
               1993. Prepared by Mobil Oil Corporation January 15, 1994.


<PAGE>
                               EXHIBIT B TO LEASE
                    CONDITIONS AND COVENANTS FOR EARLY ENTRY

        These conditions and covenants for early entry onto the Property by
Tenant are attached to and made a part of the Lease of even date ("Lease")
between FHL Group, a California corporation ("Landlord") and Virco Mfg.
Corporation, a Delaware corporation ("Tenant") as follows (defined terms are as
defined in the Lease):

                                    ARTICLE 1
                                    RECITALS


        Section 1.1 Property and Parties. Although Landlord and Tenant have
executed the Lease, which is in full force and effect, the Term does not
commence until February 1, 1994.

        Section 1.2 Purpose. Tenant desires to enter onto the property for the
Permitted Purchases (as defined in Section 1.2 of the Lease).

        Section 1.3 Transition. Landlord desires to accommodate Tenant to
facilitate the orderly leasehold transition of the Property to Tenant.

        Therefore, based on the foregoing and for other valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:

                                    ARTICLE 2
                              TERMS AND CONDITIONS

        Section 2.1 Permission to Enter Property. Landlord hereby grants to
Tenant for the term provided in Section 2.9, a non-exclusive license to enter
upon the Property from and after the Early Possession Date for Permitted
Purposes and for no other purpose, subject to Tenant's strict compliance with
all the terms of this Exhibit B. Tenant's use of the Property permitted
hereunder shall not interfere with the use thereof by Landlord or any lessees,
occupants or person claiming through or under Landlord. Tenant shall not permit
any other party, except Tenant's duly authorized representatives, agents, and
independent contractors (collectively, "Representatives"), to enter or use the
Property without Landlord's prior written consent.

        Section 2.2. Compliance with Government Regulations, Plans and Other
Obligations of Tenant. As a condition precedent to this license granted by
Landlord to Tenant, Tenant shall obtain at its sole cost and expense all
governmental permits and authorizations of whatever nature required by any and
all applicable governmental agencies for the Permitted Purposes, including, but
not limited to, all permits from the City of Torrance. Tenant will furnish
Landlord evidence of such permission prior to its entry on the Property. While
on the Property, Tenant will comply and will cause all of its Representatives on
the Property to comply with all Applicable Laws and all terms and conditions of
the Lease (other than payment of rent), whether or not expressly set forth
below. All persons who enter upon the Property pursuant to this License
Agreement do so at their own risk, and shall comply with any and all
instructions and directions of Landlord. Tenant shall cause such persons to
observe strict safety precautions, as may be required from time to time by
Landlord.

        Section 2.3 Maintenance and Condition of Property. Tenant and its
Representatives will be responsible for any damage done to the Property by
Tenant or its Representatives. Upon completion of any work authorized hereunder
or upon termination or expiration of this License Agreement or upon departing
from the Property, Tenant will pay the costs of removing any installations,
filling all drill holes, borings or other exposed openings, repairing any
damaged asphalt and cement, replacing any damaged landscaping, repairing or
replacing any damaged underground pipes or other improvements, and otherwise
repairing and restoring the Property and every portion thereof to at least as
good condition as existed prior to Tenant's entry onto the Property.

        Section 2.4 No Construction or Signs without Permission. Except for
those activities generally undertaken by licensed California environmental
contractors (and subject to compliance with this Exhibit B) in connection with a
"Phase 2" environmental audit, no


                                       1
<PAGE>

structure, signs or other improvement of any kind shall be constructed and no
moving of earth shall be undertaken on the Property by Tenant or its
Representatives as part of the Site Investigations without the express prior
permission of Landlord in each case, which approval may be withheld in
Landlord's sole discretion.

        Section 2.5 Liens. Tenant shall not suffer or permit to be enforced
against the Property, or any part thereof, any mechanics', material men's,
contractors' or subcontractors' liens, or any claim for damage arising from the
work of any construction, excavation, survey, tests, drilling, repair,
restoration, or replacement by Tenant or its Representatives (collectively,
"Liens"), but Tenant shall pay or cause to be paid all such obligations or
purported obligations before any action is brought to enforce the Liens against
the Property. Tenant expressly agrees to indemnify, defend and hold Landlord,
its officers, directors, shareholders, agents and employees and the Property
harmless from and against all claims, demands, causes of action, liabilities,
costs and expenses (including attorneys fees) arising from or connected with any
and all Liens. Tenant shall cooperate fully with Landlord's title insurance
company to permit the title company to insure against any Liens against the
Property. Tenant's duty of cooperation shall include, without limitation, the
execution of indemnification agreements in favor of the title company and the
payment of appropriate title policy endorsements required by Landlord. Landlord
reserves the right at any time and from time to time to post and maintain on the
Property, or any portion thereof or improvement thereon, such notices of
nonresponsibility or otherwise as may be necessary to protect Landlord against
liability for any Liens.

        Section 2.6 Landlord Not Liable. As a material part of the consideration
for this License Agreement, Tenant hereby waives and agrees to indemnify, defend
and hold Landlord, its officers, directors, shareholders, agents and employees
entirely harmless from and against any loss, damage, injury, accident, fire or
other casualty, liability, claim, cost or expense (including, but not limited
to, attorneys' fees and court costs) of any kind or character to any person or
property arising from or caused by (i) any use of the Property by Tenant or its
Representatives, (ii) any act or omission of Tenant or any of its
Representatives, (iii) any bodily injury, property damage, accident, fire, or
other casualty on the Property, (iv) any violation or alleged violation by
Tenant or its Representatives of any law, ordinance, or regulation now or
hereafter enacted, (v) any failure of Tenant to maintain the Property in a safe,
decent, and sanitary condition, (vi) any loss or theft whatsoever of any
property or anything placed or stored by Tenant or its Representatives on or
about the Property, and (vii) any enforcement by Landlord of any provision of
this Agreement and any costs of removing Tenant from the Property or restoring
the same as provided herein.

        Section 2.7 Landlord Payment of Claims.

        In addition to and not in limitation of Landlord's other rights and
remedies under this License Agreement, should Tenant fail within ten (10) days
of a written request from Landlord either (i) to pay and discharge any Lien
arising out of Tenant's use of the Property or to have bonded around such Liens
as provided above, or (ii) to indemnify and defend Landlord, its officers,
directors, shareholders, agents and employees from and against any loss, damage,
injury, liability, or claim arising out of Tenant's use of the Property as
provided above, then in any such case Landlord may, at its option, pay any such
claim, loss, demand, injury, liability or damages in connection with such Lien,
post any required bonds, or settle or discharge any action there for or satisfy
any judgment thereon, and all costs, expenses and other sums incurred by
Landlord, its officers, directors, shareholders, agent and employees in
connection therewith (including but not limited to reasonable attorney's fees)
shall be paid to Landlord by Tenant upon written demand, together with interest
thereon at the maximum contract rate permitted by law from the date incurred or
paid until repaid, and any default either in such initial failure to pay or
subsequent repayment to landlord shall at Landlord's option constitute a
material breach under the License Agreement.

        Section 2.8 Insurance.

        Before and at all times after entering upon the Property Tenant shall at
its sole expense maintain a policy or policies of comprehensive general
liability insurance with respect to the Property and the operation of or on
behalf of Tenant on or about the Property, in full compliance with Section 4 of
the Lease, and provide Landlord with satisfactory written evidence thereof.


                                       2
<PAGE>

        Section 2.9. Remedies. If Tenant is in breach of any of its obligations
under this Exhibit B and should Tenant fail to cure such breach within five (5)
business days of a written notice from Landlord specifying the nature of such
breach, Landlord shall have the remedies set forth in Section 12.2 of the Lease.
Landlord may also seek any other remedy available at law or in equity, including
but not limited to a suit for damages for any compensable breach or
non-compliance herewith or an action for specific performance or injunction. All
remedies provided herein or by law or equity shall be cumulative and not
exclusive. No termination or expiration of this Exhibit B shall relieve Tenant
of its obligations to perform those acts required to be performed hereunder or
under the Lease either prior to or after its termination.

        Section 2.10 Inspection. Landlord and any authorized representative,
employee, agent or independent contractor, shall be entitled to enter and
inspect the Property or any portion thereof or improvements or work of Tenant
thereon at any time and from time to time. However, any such inspection shall be
for the sole purpose of protecting Landlord's interests and is not to be relied
upon in regard by Tenant.

        Section 2.11 Costs of Enforcement. If it becomes necessary for Landlord
to employ an attorney or other person or commence an action to enforce any of
the provisions of this License Agreement or to remove Tenant from the Property,
Tenant agrees to pay all costs of enforcement in connection therewith, including
but not limited to, court costs and attorneys' fees.

        Section 2.12 Notices. All notices and other communications required or
permitted in this License Agreement shall be given in conformation with Section
13.11 of the Lease.

        Section 2.13 Miscellaneous. The terms and conditions of the Lease, to
the extent not inconsistent herewith, are incorporated herein by reference.


                                       3
<PAGE>


                                    Exhibit C


                       CONDITION OF BUILDING UPON DELIVERY


        On or before the Early Possession Date, the following shall be
substantially completed by or through Landlord, or to the extent any of the
following are the obligations of Harpers of which Harpers is released by
Landlord and, therefore, become Harpers Obligations (as those terms are defined
in Section 14.3 of the Lease), shall be assumed by Tenant:

            1. Complete removal of all equipment and venting associated with the
paint room and paint pumping room, including, removal of all spray booths,
exhaust stacks, water curtains, storage and mixing containers, pumps, and paint
lines;

            2. Cleaning of the paint room and pumping room such that all excess
paint overspray is removed from all surfaces to Tenant's reasonable
satisfaction;

            3. Removal of the de-ionizing rinse section of the wash system and
the repair to the etched floor surrounding it. (Landlord shall be responsible
for the removal of the de-ionizing equipment, and Tenant agrees to provide the
associated plumbing connections to cap off or budge around the removed
equipment);

            4. Removal of all booths used to apply paint, oil, stains, or glue
and the cleanup of the areas surrounding them;

            5. Cleanup of the blue surf oven in the northern area of Building;

            6. Removal of all drums storage;

            7. Bolt removal at old machine locations and patching;

            8. Delivery of HVAC system in good working order on the delivery
date (without any further representation or warranty regarding continued
operations during the Term);

            9. Repair, to the extent mutually agreed upon, the etched floor in
the water treatment area of the Building.

            Other item nos. 1 through 9, above, and subject to (i) Landlord's
obligation to provide the Tenant Improvement Allowance (as set forth in attached
Exhibit A-1) and the Roofing Allowance (as set forth in attached Exhibit A-2),
and (ii) Landlord's obligations set forth in Section 7.2 of the Lease, Tenant
has agreed to take the Property on a complete "AS IS" "WHERE IS" and "WITH ALL
FAULTS" basis without any warranties express or implied and subject to all
matters of record and all matters disclosed by Landlord to Tenant or that are
otherwise known to Tenant or Tenant's agents, employees, or contractors.

            Further Tenant acknowledges that the following items will remain in
the Building and the following conditions will exist as of the delivery of
Building to Tenant.

                a. The finishing systems, including:

                    i. Overhead parts conveyor and safety pan and chain;

                    ii. Multi-stage washing system (complete);

                    iii. Parts Dry-off Oven; and

                    iv. Baking ovens.

                b. Blue surf paint burnoff oven and associated conveyor;

                c. Cooling tower on northern section of Building roof;


                                       1
<PAGE>


                d. Horizontal and vertical distribution of process-related
electrical, air, and water to all areas of the western section of the Building
("Phase I") including the press room, welding areas, assembly areas, and wood
shop. It is intended that Harpers will disconnect their equipment and cap the
supply lines at either the point of connection to the machine or at the overhead
supply. Bolts will be cut off at floor and epoxy-patched if required; and

                e. The eastern section ("Phase II") of the Building will be
warehouse-ready with all overhead process distribution piping cleared to the
lowest of the lights, sprinklers, or glu lam beams. The rails and bracing for
the old crane will be removed.


                                       2
<PAGE>


                                    Exhibit D

                    THE "WAREHOUSE CONDITION" UPON SURRENDER

            The "Warehouse Condition" shall mean the condition of the eastern
warehouse section of the Building as of the Early Possession Date (with all
overhead process distribution piping cleared to the lowest of the ceiling
lights, ceiling sprinklers or glu lam beams) and item nos. 1 and 2 only of
Schedule 1 to attached Exhibit A-1.




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>v81125ex10-7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>
<PAGE>
                                                                    Exhibit 10.7

                                CREDIT AGREEMENT

        THIS AGREEMENT is entered into as of December 1, 2000, by and 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 Credit
Agreement dated as of January 19, 2000 (as amended from time to time, the "Prior
Credit Agreement"), pursuant to which Bank executed to Borrower a line of credit
(the "Prior Line of Credit") with a subfeature for the issuance of letters of
credit (the "Prior Letters of Credit").

        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.

        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. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including October 1, 2003, not to exceed at any time the aggregate
principal amount of Fifty Million Dollars ($50,000,000.00) from December 1, 2000
through and including April 30, 2001, Sixty Million Dollars ($60,000,000.00)
from May 1, 2001 through and including August 31, 2001 and Fifty Million Dollars
($50,000,000.00) from September 1, 2001 through the maturity date referred to
above ("Line of Credit"), the proceeds of which shall be used to finance
Borrower's working capital requirements and to refinance a portion of the
amounts outstanding under the Prior Line of Credit (which shall be deemed
cancelled hereby). 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 sight
commercial or standby letters of credit for the account of Borrower (each, a
"Letter of Credit" and collectively, "Letters of Credit"); provided however,
that the form and substance of each Letter of Credit shall be subject to
approval by Bank, in its sole discretion; and provided further, that the
aggregate undrawn amount of all outstanding Letters of Credit shall not at any
time exceed Fifteen Million Dollars ($15,000,000.00). 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 maturity date of the Line of
Credit. Each standby Letter of Credit shall be issued for a term not to exceed
three (3) years, as designated by Borrower; provided however, that no standby
Letter of Credit shall have


                                      -1-
<PAGE>

an expiration date subsequent to the maturity date of the Line of Credit. The
undrawn amount of all Letters of Credit shall be reserved under the Line of
Credit and shall not be available for borrowings thereunder. Each Letter of
Credit shall be subject to the additional terms and conditions of the Letter of
Credit Agreement and related documents, if any, required by Bank in connection
with the issuance thereof (each, a "Letter of Credit Agreement" and
collectively, "Letter of Credit Agreements"). Each draft paid by Bank 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 draft is
paid by Bank, then Borrower shall immediately pay to Bank the full amount of
such draft, together with interest thereon from the date such amount is paid by
Bank 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 demand deposit account
maintained by Borrower with Bank for the amount of any such draft. 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
term of the Line of Credit 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. TERM LOAN.

        (a) Term Loan. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make a loan to Borrower in the principal amount of Thirty
Million Dollars ($30,000,000.00) ("Term Loan"), the proceeds of which shall be
used to refinance the portion of the balance outstanding under the Prior Line of
Credit which assisted with the expansion of Borrower's plant in Arkansas.
Borrower's obligation to repay the Term Loan shall be evidenced by a promissory
note substantially in the form of Exhibit B attached hereto ("Term Note'), all
terms of which are incorporated herein by this reference. Bank's commitment to
grant the Term Loan shall terminate on December 31, 2000.

        (b) Repayment. The principal amount of the Term Loan shall be repaid in
accordance with the provisions of the Term Note.

        (c) Prepayment. Borrower may prepay principal on the Term Loan solely in
accordance with the provisions of the Term Note.

        SECTION 1.3. INTEREST/FEES.

        (a) Interest. The outstanding principal balance of each credit subject
hereto shall bear interest at the rates of interest set forth in each promissory
note or other instrument executed in connection therewith.

        (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 required hereby.


                                      -2-
<PAGE>


        (c) Unused Commitment Fee. Borrower shall pay to Bank a fee on the
average daily unused amount of the Line of Credit. Initially, such fee shall be
...375%. Bank shall adjust such percentage on a fiscal quarterly basis, commencing
with Borrower's fiscal quarter ending January 31, 2001, if required, to reflect
a change in Borrower's ratio of Funded Debt to EBITDA (as defined in Section 4.9
(e) below) in accordance with the following grid:

<TABLE>
<CAPTION>
             Funded Debt to EBITDA               Percentage Fee
             ---------------------               --------------
<S>                                              <C>
             at least 2.0 to 1.0 but less
             than or equal to 3.0 to 1.0             .375%

             less than 2.0 to 1.0                     .25%
</TABLE>

Each such adjustment shall be effective on the first Business Day (as defined in
the Line of Credit Note) of Borrower's fiscal quarter following the quarter
during which Bank receives and reviews Borrower's most current fiscal
quarter-end financial statements in accordance with the provisions of Section
4.3 below. Such fee shall be due and payable by Borrower quarterly in arrears on
the fifteenth day of the month immediately following each fiscal quarter end.

        (d) 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.

        (e) Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the
issuance of each standby Letter of Credit equal to one and three-quarters
percent (1.75%) per annum (computed on the basis of a 360-day year, actual days
elapsed) of the face amount thereof, (ii) fees upon the payment or negotiation
by Bank of each draft under any standby Letter of Credit and fees upon the
occurrence of 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.

        SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all interest and fees due under each credit subject hereto by charging
Borrower's demand deposit account number 4648-052785 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit account
to pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.

        SECTION 1.5. COLLATERAL.

        As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's accounts receivable, rights to payment, general intangibles,
inventory and equipment.

        All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank. Borrower
shall reimburse Bank immediately upon


                                      -3-
<PAGE>

demand for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and recording fees and
costs of appraisals and audits.


                                   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.

        SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Delaware, 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 effect on Borrower.

        SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each
promissory note, contract, instrument and other document required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.

        SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower 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, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.

        SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated July 31, 2000, 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, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.

        SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.


                                      -4-
<PAGE>


        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 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
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.

        SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, 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 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.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.


                                   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:


                                      -5-
<PAGE>


        (i)    This Agreement and each promissory note or other instrument
               required hereby.

        (ii)   Corporate Borrowing Resolution.

        (iii)  Certificate of Incumbency.

        (iv)   Articles of Incorporation.

        (v)    Continuing Security Agreement: Rights to Payment and Inventory.

        (vi)   Security Agreement: Equipment

        (vii)  Financing Statement (Form UCC-1).

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

        (c) 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.

        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, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.

        (b) 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, unless Bank otherwise consents in
writing:

        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, including without limitation the
amount by which the outstanding principal balance under the Line of Credit
exceeds the maximum principal amount available thereunder, as set forth in
Section 1.1 (a) above.

        SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.


                                      -6-
<PAGE>


        SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:

        (a) not later than 90 days after and as of the end of each fiscal year,
an audited consolidated and unqualified financial statement of Borrower,
prepared by a certified public accountant acceptable to Bank, to include a
balance sheet, an income statement, a statement of cash flows and appropriate
footnotes and supporting consolidating information;

        (b) not later than 120 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;

        (c) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include a
balance sheet and an income statement;

        (d) 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; and

        (e) 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 is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.

        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.

        SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business 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. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower in which the aggregate
potential loss amount exceeds insurance coverage by $1,000,000.00.


                                      -7-
<PAGE>

        SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein), with compliance determined commencing with
Borrower's financial statements for the period ending January 31, 2001:

        (a) Current Ratio not at any time less than 1.75 to 1.0 as of each
second fiscal quarter end (July 31) and as of each third fiscal quarter end
(October 31), and not at any time less than 2.0 to 1.0 as of each first fiscal
quarter end (April 30) and as of each fourth fiscal quarter end (January 31),
with "Current Ratio" defined as total current assets divided by total current
liabilities.

        (b) Total Liabilities divided by Tangible Net Worth not greater than 1.3
to 1.0 as of each fiscal year end (January 31), and not greater than 1.5 to 1.0
as of each second fiscal quarter end (July 31), with "Total Liabilities" defined
as the aggregate of current liabilities and non-current liabilities less
subordinated debt, and with "Tangible Net Worth" defined as the aggregate of
total stockholders' equity plus subordinated debt less any intangible assets.

        (c) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less than $1.00 on
a year-to-date basis, determined as of the end of the second fiscal quarter of
each fiscal year.

        (d) Fixed Charge Coverage Ratio not less than 1.10 to 1.0 as of each
fiscal quarter end, calculated on a rolling four-quarter basis, with "Fixed
Charge" defined as net profit after taxes paid in cash plus interest expense
(net of capitalized interest expense), depreciation expense and amortization
expense, less $7,500,000.00 maintenance capital expenditures, and with "Fixed
Charge Coverage Ratio" defined as Fixed Charge divided by the aggregate of total
interest expense plus the prior period current maturity of long-term debt and
the prior period current maturity of subordinated debt.

        (e) Funded Debt to EBITDA Ratio not greater than 3.0 to 1.0 as of each
fiscal quarter end, calculated on a rolling four-quarter basis, with "Funded
Debt" defined as the principal balance outstanding under the credits hereunder,
and with "EBITDA" defined as net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense and amortization expense.

        SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an 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; or (d) any 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 $1,000,000.00.


                                      -8-
<PAGE>


                                    ARTICLE V
                               NEGATIVE COVENANTS

        Borrower further 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 without Bank's prior written
consent:

        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 $18,000,000.00 for the fiscal year
ending January 31, 2001, in excess of an aggregate of $14,000,000.00 for the
fiscal year ending January 31, 2002, or in excess of an aggregate of
$16,000,000.00 for the fiscal year ending January 31, 2003.

        SECTION 5.3. LEASE EXPENDITURES. Incur operating lease expense in excess
of an aggregate of $2,000,000.00 in any fiscal year.

        SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof and (c) additional borrowings not to exceed an
aggregate of $2,500,000.00 during any fiscal year.

        SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business 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 all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.

        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, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.

        SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except (a) any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, and (b) asset
acquisitions of companies engaged in businesses similar to that of Borrower for
purchase prices not to exceed $1,000,000.00 in the aggregate during any fiscal
year for all such purchases combined.

        SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding, except
(a) Borrower may pay cash or stock dividends to its shareholders not to exceed
$300,000.00 in the aggregate during any given fiscal quarter, and (b) Borrower
may spend up to $4,500,000.00 in the aggregate during the fiscal


                                      -9-
<PAGE>

year ending January 31, 2001 to repurchase its shares and up to $3,000,000.00 in
the aggregate during each fiscal year thereafter to repurchase its shares.

        SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor of
Bank or which is existing as of, and disclosed to Bank in writing prior to, the
date hereof.


                                   ARTICLE VI
                                EVENTS OF DEFAULT

        SECTION 6.1. 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 herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) 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 its occurrence.

        (d) 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 has incurred any debt
or other liability to any person or entity, including Bank.

        (e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or 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 the entry of a judgment against Borrower; provided,
however, that Borrower may have mechanics' liens against its property securing
claims not to exceed $250,000.00 in the aggregate so long as such mechanics'
liens are released prior to any foreclosure thereunder.

        (f) Borrower 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 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 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 Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("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 Borrower


                                      -10-
<PAGE>

shall file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against Borrower 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.

        (g) 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 of its obligations under any of the Loan
Documents.

        (h) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.

        (i) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of Borrower.

        SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option 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 accommodation from Bank 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:


                                      -11-
<PAGE>



        BORROWER:         VIRCO MFG. CORPORATION
                          2027 Harpers Way
                          Torrance, CA  90501
                          Attn:  Robert E. Dose

        BANK:             WELLS FARGO BANK, NATIONAL ASSOCIATION
                          San Gabriel Valley Regional Commercial Banking Office
                          1000 Lakes Drive, Suite 250
                          West Covina, CA 91790

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 extended by Bank to Borrower, 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 any extension of credit by Bank 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.

        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

                                      -12-
<PAGE>


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. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration in accordance with the terms of this Agreement.
A "Dispute" shall mean any action, dispute, claim or controversy of any kind,
whether in contract or tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with, or in any way
pertaining to, any of the Loan Documents, or any past, present or future
extensions of credit and other activities, transactions or obligations of any
kind related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary or other remedies pursuant to any of the Loan
Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.

        (b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that 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. Section 91 or any similar applicable state law.

        (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,


                                      -13-
<PAGE>

garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.

        (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
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. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more 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.

        (e) 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.

        (f) 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, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. 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.


                                      -14-
<PAGE>


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

                                                   WELLS FARGO BANK,
VIRCO MFG. CORPORATION                                 NATIONAL ASSOCIATION


By: ______________________                         By: _______________________
                                                          Randy Repp
Title: _____________________                              Vice President



                                      -15-
<PAGE>

                             THIRD AMENDMENT TO CREDIT AGREEMENT

        THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of March 1, 2002, by and between VIRCO MFG. CORPORATION, a Delaware
corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").


                                    RECITALS

        WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 1, 2000, as amended from time to time ("Credit Agreement");

        WHEREAS, Bank and Borrower wish to amend the Credit Agreement as set
forth herein;

        NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:

        1. Section 1.1(a) is hereby amended and restated in its entirety to read
as follows:

                (a) Line of Credit. Subject to the terms and conditions of this
            Agreement, Bank hereby agrees to make advances to Borrower from time
            to time up to and including October 1, 2003, not to exceed at any
            time the aggregate principal amount of Fifty Million Dollars
            ($50,000,000.00) from March 1, 2002 through and including April 30,
            2002, Seventy Million Dollars ($70,000,000.00) from May 1, 2002
            through and including July 31, 2002, Sixty-five Million Dollars
            ($65,000,000.00) from August 1, 2002 through and including August
            31, 2002, Sixty Million Dollars ($60,000,000.00) from September 1,
            2002 through and including September 30, 2002, and Forty Million
            Dollars ($40,000,000.00) from October 1, 2002 through the maturity
            date referred to above ("Line of Credit"), the proceeds of which
            shall be used to finance Borrower's working capital requirements and
            to refinance a portion of the amounts outstanding under the Prior
            Line of Credit (which shall be deemed cancelled hereby). 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.

        2. The promissory note attached to this Amendment, as Exhibit A shall be
deemed the Line of Credit Note referred to in the Credit Agreement.

        3. Section 1.1(c) is hereby amended and restated in its entirety to read
as follows:

                (c) Borrowing and Repayment. Borrower may from time to time
            during the term of the Line of Credit borrow, partially or wholly
            repay its outstanding borrowings, and reborrow, subject to


                                      -1-
<PAGE>

            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. Notwithstanding the foregoing, for a period of at
            least thirty (30) consecutive days during each fourth fiscal quarter
            of Borrower, borrowings outstanding under the Line of Credit shall
            not exceed Twenty-five Million Dollars ($25,000,000.00).

        4. Section 4.9 is hereby amended and restated in its entirety to read as
follows:

                SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
            condition as follows using generally accepted accounting principles
            consistently applied and used consistently with prior practices
            (except to the extent modified by the definitions herein), with
            compliance determined commencing with Borrower's financial
            statements for the period ending January 31, 2002:

                (a) Current Ratio not less than 1.1 to 1.0 as of the fiscal
            quarters ending April 30, 2002 and July 31, 2002, and not less than
            1.20 to 1.00 as of the fiscal quarter ending October 31, 2002 and
            each fiscal quarter end thereafter, with "Current Ratio" defined as
            total current assets divided by total current liabilities (including
            without limitation the balance outstanding under the Line of
            Credit).

                (b) Total Liabilities divided by Tangible Net Worth not greater
            than 1.5 to 1.0 as of each first fiscal quarter end (April 30), and
            as of each second fiscal quarter end (July 31), and not greater than
            1.25 to 1.00 as of each third fiscal quarter end (October 31) and
            each fiscal year end (January 31), with "Total Liabilities" defined
            as the aggregate of current liabilities and non-current liabilities
            (including without limitation the undrawn amount of any issued and
            outstanding Letters of Credit, guaranties and any other contingent
            liabilities) less subordinated debt, and with "Tangible Net Worth"
            defined as the aggregate of total stockholders' equity plus
            subordinated debt less any intangible assets.

                (c) Fixed Charge Coverage Ratio not less than 1.50 to 1.0 as of
            each fiscal quarter end through and including October 31, 2002, and
            not less than 1.60 to 1.00 at any fiscal quarter end thereafter,
            calculated on a rolling four-quarter basis, with "Fixed Charge"
            defined as net profit after taxes paid in cash less dividends and
            distributions, less stock repurchases, less any gain on the sale of
            assets, plus interest expense (net of capitalized interest expense),
            depreciation expense and amortization expense, and with "Fixed
            Charge Coverage Ratio" defined as Fixed Charge divided by the
            aggregate of total interest expense


                                      -2-
<PAGE>


            plus the prior period current maturity of long-term debt (excluding
            the current portion of the Term Loan) and the prior period current
            maturity of subordinated debt.

                (d) Funded Debt to EBITDA Coverage Ratio not greater than 2.0 to
            1.0 as of January 31, 2002, not greater than 3.0 to 1.0 as of April
            30, 2002, not greater than 3.25 to 1.0 as of July 31, 2002, not
            greater than 1.5 to 1.0 as of October 31, 2002 and as of January 31,
            2003, not greater than 2.75 to 1.0 as of each April 30 and July 31
            thereafter, and not greater than 1.5 to 1.0 as of each October 31
            and January 31 thereafter, with "Funded Debt" defined as the
            principal balance outstanding under all interest bearing liabilities
            of Borrower, and with "EBITDA" defined as net profit before tax plus
            interest expense (net of capitalized interest expense), depreciation
            expense and amortization expense, less any gain on the sale of
            assets.

        5. Section 5.2 is hereby amended and restated in its entirety to read as
follows:

                SECTION 5.2. CAPITAL EXPENDITURES. Make any additional
            investment in fixed assets in excess of an aggregate of
            $10,000,000.00 for the fiscal year ending January 31, 2002, in
            excess of an aggregate of $8,000,000.00 for the fiscal year ending
            January 31, 2003, or in excess of an aggregate of $8,000,000.00 for
            the fiscal year ending January 31, 2004.

        6. Section 5.8 is hereby amended and restated in its entirety to read as
follows:

                SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any
            dividend or distribution in cash on Borrower's stock now or
            hereafter outstanding in excess of $300,000.00 in the aggregate
            during any given fiscal quarter.

        7. In consideration of the changes set forth herein and as a condition
to the effectiveness hereof, immediately upon executing this Amendment Borrower
shall pay to Bank a non-refundable fee of $10,000.00.

        8. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.

        9. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.


                                      -3-
<PAGE>


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

                                                   WELLS FARGO BANK,
VIRCO MFG. CORPORATION                                 NATIONAL ASSOCIATION


By: ______________________                         By: ______________________
                                                          Randall J. Repp
Title: _____________________                              Vice President



                                      -4-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>5
<FILENAME>v81125ex13-1.txt
<DESCRIPTION>EXHIBIT 13.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 13.1

MANAGEMENT'S STATEMENT

The financial statements of Virco Mfg. Corporation were prepared by management,
which is responsible for the integrity and objectivity of the financial
information presented, including amounts that must necessarily be based on
judgments and estimates. The statements were prepared in conformity with
accounting principles generally accepted in the United States, and in situations
where acceptable alternative accounting principles exist, management selected
the method that it believed was most appropriate in the circumstances.

Virco depends upon the Company's system of internal controls in meeting its
responsibilities for reliable financial statements. This system is designed to
be cost-effective while providing reasonable assurance that assets are
safeguarded and transactions are properly recorded and executed in accordance
with management's authorization. Judgments are required to assess and balance
the relative cost and expected benefits of these controls.

The financial statements have been audited by our independent auditors, Ernst &
Young LLP. The independent auditors provide an objective, independent review as
to management's discharge of its responsibilities insofar as they relate to the
fairness of reported operating results and financial condition. They obtain and
maintain an understanding of Virco's accounting and financial controls, and
conduct such tests and procedures as they deem necessary to arrive at an
opinion on the fairness of the financial statements.

The Audit Committee of the Board of Directors, which is composed of Directors
from outside the Company, maintains an ongoing appraisal of the effectiveness of
audits and the independence of the auditors. The Committee meets periodically
with the auditors and management. The independent auditors have free access to
the Committee, without management present, to discuss the results of their audit
work and their opinions on the adequacy of internal financial controls and the
quality of financial reporting.

Based on a review and discussions of the Company's 2001 audited consolidated
financial statements with management and discussions with the independent
auditors, the Audit Committee recommended to the Board of Directors that the
Company's 2001 audited consolidated financial statements be included in the
Company's annual report on Form 10-K. The Board of Directors concurred.

MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements that reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed herein, in Item 1, and elsewhere in this report on
Form 10-K, that could cause actual results to differ materially from historical
results or those anticipated. In this report, words such as "anticipates,"
"believes," "expects," "future," "intends," "plans," "potential," "may," "could"
and similar expressions identify forward-looking


                                       1
<PAGE>


statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This discussion and analysis of Virco's financial condition and results of
operations is based upon our financial statements which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires Virco management to make
estimates and judgments that affect the Company's reported assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, management evaluates such estimates,
including those related to allowance for doubtful accounts, valuation of
inventory including LIFO reserves, self-insured retention for products and
general liability insurance, self-insured retention for workers compensation
insurance, liabilities under defined benefit and other compensation programs,
and estimates related to deferred tax assets and liabilities. Management bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. This forms the basis of
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Factors that could cause or
contribute to these differences include the factors discussed above under Item
1, Business, and elsewhere in this report on Form 10-K. Virco's critical
accounting policies are as follows:

Revenue Recognition: Effective February 1, 2000, the Company changed its method
of accounting for revenue recognition in accordance with Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." Under the
new accounting method adopted, the Company recognizes all sales when title
passes under its various shipping terms. The Company reports sales as net of
sales returns and allowances.

Allowances for Doubtful Accounts: Considerable judgment is required when
assessing the ultimate realization of receivables, including assessing the
probability of collection, current economic trends, historical bad debts and the
current creditworthiness of each customer. The Company maintains allowances for
doubtful accounts that may result from the inability of our customers to make
required payments. The primary reason that Virco's allowance for doubtful
accounts represents such a small percentage of accounts receivable is that a
large portion of the accounts receivable are attributable to low-credit-risk
governmental entities, giving Virco's receivables a high degree of
collectability.

Inventory Valuation: The Company uses the LIFO method of accounting for the
material component of inventory. The Company maintains allowances for estimated
obsolete inventory to reflect the difference between the cost of inventory and
the estimated market value. If market conditions are less favorable than those
anticipated by management, additional allowances may be required.


                                       2
<PAGE>


Self-Insured Retention: For 2001, the Company was self-insured for Product
Liability losses up to $100,000 per occurrence. The Company obtains annual
actuarial estimates of total expected future losses for liability claims and
records the net present value of losses.

Defined Benefit Obligations: The Company has three defined benefit plans, the
Virco Employees Retirement Plan, the Virco Important Performers (VIP) Plan and
the Non-Employee Directors Retirement Plan, which provide retirement benefits to
employees and outside directors. Virco discounts the pension obligations under
the plans using a 7.75% discount rate and estimating an 8.00% return on plan
assets. The Company obtains annual actuarial valuations for all three plans.
Although the Company does not anticipate any change in these rates in the coming
year, any change would not have a significant effect on the Company's financial
position, results of operations or cash flows.

Deferred Tax Assets and Liabilities: The Company has not provided an allowance
against the deferred tax assets recorded in the financial statements. The
Company had a net deferred tax liability of $590,000 at January 31, 2002.
Management believes that it is more likely than not that future earnings will be
sufficient to recover deferred tax assets.

RESULTS OF OPERATIONS (2001 VS. 2000)

For the year ended January 31, 2002, the Company had a modest net income of
$246,000 on net sales of $257,462,000 compared to a net income of $4,016,000 on
net sales of $287,342,000 in the same period last year. Prior year results
included a pre-tax gain of $7,945,000 on the sale of real estate and other
income of $4,052,000 related to the settlement of a dispute. The settlement was
a non-recurring payment unrelated to the Company's ongoing operations. Earnings
were $0.02 per share for the year ended January 31, 2002, compared to $0.32 in
the same period last year, after giving effect to the 10% stock dividend
declared August 21, 2001. For 2001, furniture operations provided net income of
$246,000 on net sales of $257,462,000. This compares to a loss on furniture
operations of $3,391,000 (which excludes the one-time items mentioned above) on
substantially higher sales of $287,342,000 in fiscal 2000. In addition, cash
flow from operations reached a historical high of $35,037,000, due largely to a
$19,356,000 reduction in inventories made possible by our Assemble-to-Ship
Program and the decrease in net sales due to the lingering effects of a decline
in the commercial furniture market.

Sales

In recent years, Virco's sales force has been organized into two groups,
"Education" and "Commercial". During November of 2001, the Company announced a
reorganization of the sales force. Instead of having two representatives
pursuing separate customers within the same geographical territory, Virco now
has only one National Sales Group. It became increasingly clear that the needs
of Virco's commercial and educational customers were evolving towards greater
similarity and that combining the Company's sales efforts would allow individual
representatives to plow more deeply in a smaller field. In addition, Virco also
established a Corporate Sales Group to pursue wholesalers, mail order accounts
and national chains where management believes that it would be more efficient to
have a single sales representative or group approach such persons, as


                                       3
<PAGE>


they tend to have needs that transcend the geographic boundaries established for
our local accounts.

By traditional measures, Virco's 2001 results may not look impressive, but
viewed in the context of the worst recorded recession in recent history of the
commercial furniture industry, management is reasonably satisfied. As a group,
the members of BIFMA (the Business and Institutional Manufacturer's Association)
reported a sales decline of 17.4% for calendar 2001, with an even more dramatic
29.2% decline in the fourth quarter. This compares with only a 10.4% decline at
Virco. The Company's core public school customers appear to have been affected
less by the overall recession. Sales to public schools declined modestly during
2001, but management believes that many of them will be functioning under
reduced budgets next year. Commercial sales were substantially less than the
prior year, more closely reflecting the statistical results recorded by BIFMA.
The reduction in commercial sales experienced in the recent year is expected to
continue in the next fiscal year. Virco's quarterly reports on Form 10-Q and
related press releases will provide updated information on order volume.

Because of the recession in the furniture industry, the Company experienced
substantial price competition in its primary markets. During 2001, the Company
adhered to a policy of turning down low margin and unprofitable business.
Although this policy had an adverse effect on unit volume, the Company achieved
a net increase in selling prices. Consequently, the gross margin percentage for
the year increased modestly compared to 2000, despite unfavorable manufacturing
variances related to reductions in production levels.

Subsequent to year end, Virco signed a letter of intent to purchase the assets
of Furniture Focus, a reseller that offers complete package solutions for the
Furniture, Fixtures and Equipment (FF&E) segments of bond-funded public school
construction projects. We expect the acquisition to add between $5,000,000 and
$7,000,000 in sales over the remainder of fiscal 2002.

Cost of Sales

Virco began 2001 with a plan to reduce inventory levels and to implement the
Assemble-to-Ship (ATS) model. The effect of the reduction in sales volume,
combined with management's decision to implement the ATS model to reduce
inventories, resulted in a substantial reduction in production hours. In effort
to match spending to the lower levels of output, Virco reduced headcount,
capital expenditures, and other discretionary spending. Despite reductions in
spending, the Company incurred increased manufacturing variances compared to the
prior year. These variances were more than offset by the effects of reduced
costs for certain raw materials, and an increase in selling prices. The net
effect was a modest increase in gross margins for the year.

In 2002, the Company intends to more fully implement the ATS model and further
reduce levels of inventory. The intended reduction in inventory will not be as
significant as achieved in 2001. Production levels, which will vary depending
upon selling volumes, are anticipated to be approximately level with the prior
year.


                                       4
<PAGE>
Inflation rates did not have a significant net impact on the Company's cost of
sales in 2001. Material costs decreased, offset by increased costs for certain
utilities and employee benefits. The Company anticipates upward pressure on
costs, particularly in the areas of certain raw materials, transportation,
energy, and benefits in the coming year and others. For more information, please
see the section entitled "Inflation and Future Change in Prices" in the
Management's Discussion and Analysis section contained in Virco's Annual Report
to Shareholder for the year ended January 31, 2002.

Selling, General and Administrative and Others

Selling, general and administrative expense for the year ended January 31, 2002,
decreased by approximately $11,376,000 compared to the same period last year.
These costs decreased both in absolute dollars and as a percentage of sales.
Freight costs declined by approximately $3,500,000 due to a reduction in selling
volume, and were slightly lower as a percentage of sales. Other SG&A costs were
lower in absolute dollars and as a percentage of sales due to reductions in
staffing, reduced sales incentives, and other reductions in spending, including
a temporary 10% reduction in salaries and wages during the fourth quarter.

Interest expense was approximately $400,000 less than in the prior year due to
reduced levels of borrowing and lower interest rates. The Company expects to
continue to reduce borrowing levels in 2002. The Company has entered into a swap
agreement with Wells Fargo Bank, which has the effect of establishing a fixed
rate of interest for $20,000,000 of loans for both 2001 and 2002. The balance of
borrowing is based upon LIBOR, and will fluctuate with the market rate of
interest.

In the current year, Virco realized an $86,000 loss on disposition of fixed
assets. This compares to a gain on sale of assets of approximately $7,667,000 in
the prior year, and a prior year pre-tax gain of $4,052,000 on a settlement.

RESULTS OF OPERATIONS (2000 VS. 1999)

Sales

For the year ended January 31, 2001, sales increased 7.2% to $287,300,000,
compared to $268,100,000 for the same period last year. Approximately 90% of the
increase in sales for the year ended January 31, 2001, was from education sales,
with the balance from commercial sales. The increase in revenues was
attributable to the Company pursuing an aggressive pricing policy during the
educational bidding season of late 1999/early 2000. The attained sales growth
was substantially less than the Company had planned to achieve with this pricing
strategy.

Education sales, which were primarily composed of sales to publicly funded K-12
schools and represent 64% of corporate revenues, increased by $17,300,000 to
$184,100,000 from $166,800,000 in the prior year. Sales of our newer computer
furniture, Plateau(R) tables, Core-a-Gator(R) lightweight folding tables, mobile
tables and mobile cabinets improved, as did many of our older product lines. Due
to aggressive pricing, the sales increase was achieved primarily by unit volume,
not price increases.


                                       5
<PAGE>


Virco's commercial sales included private schools, pre-schools, churches,
convention centers, agencies at city, county, state and federal levels,
furniture distributors, retailers and catalog retailers. Commercial sales, which
represented 36% of corporate revenues, increased by $1,900,000 to $103,200,000
from $101,300,000 in the prior year. The breadth of Virco's product line for
target niche markets, and the continuing success of its Quick Ship stocking
program favorably affected sales for the commercial sales channels.

Cost of Sales

During the 1999 fiscal year, the Company initiated production at a new
manufacturing plant and implemented a new enterprise resources planning system.
The combined effect of these two significant events resulted in inadequate
levels of customer service during the summer of 1999. In addition, the new
manufacturing facility provided the Company with enhanced capacity to support a
substantial sales increase. In order to address both of these concerns, the
Company pursued two objectives in 2000 which adversely affected gross margins.
The first objective was to substantially improve the level of customer service
by increasing the stocking plan for inventories to ensure better service during
the summer delivery season. The second objective was to increase sales and
utilize the new factory capacity through aggressive pricing. To support these
two objectives, the Company ran its factories at high levels of output for the
first eight months of the year in order to build to the enhanced stocking plan
and in anticipation of increased sales. The aggressive pricing strategy did
increase sales, but not to the extent anticipated. In order to return
inventories to more normal levels, the Company significantly reduced production
in the third and fourth quarters, resulting in unfavorable manufacturing
variances. The Company reduced its work force and spending in the fourth
quarter, but not in time to prevent the decline in manufacturing efficiency
related to the sharply curtailed production levels. The aggressive pricing
strategy affected the entire sales volume, not only at the margin, and the
Company experienced a slight reduction in prices for the year, while absorbing
cost increases related to some materials, labor and benefit costs, and
additional capacity from the plant expansion. As a result of the events
described above, gross profits for the year ended January 31, 2001, as a percent
of sales, decreased by 5.5% to 29.1% from 34.6% in the prior year.

Selling, General and Administrative

Selling, general and administrative expense for the year ended January 31, 2001,
increased both in total dollars and as a percentage of sales compared to the
same period last year. The higher selling, freight and warehousing expense was
primarily attributable to growth in unit sales volume, increased freight rates,
costs incurred during the consolidation of our Conway warehouses, and reduction
in selling prices, which increased these costs as a percentage of sales. The
increase in general and administration expense was primarily attributable to
greater depreciation expense, as well as system maintenance services, training
costs and other expenses relating to the implementation of sales force
automation, a business-to-business website, and an upgrade of the Company's SAP
enterprise resource planning system

In December, the Company announced a corporate reorganization and reduction in
force. As part of this reorganization, the Company reduced its workforce by 141
employees. This reduction was


                                       6
<PAGE>


distributed proportionately among managerial, administrative, and support
positions at both divisions and at the Corporate headquarters. The reduction in
force did not include any direct labor. In the fourth quarter, the Company
incurred approximately $1,500,000 in severance costs related to this reduction
in force.

Interest expense increased by $2,577,000 for the year ended January 31, 2001,
compared to the same period last year. This was attributable to increases in
interest rates during the year and a larger average borrowing balance due to
increased levels of inventory and the completion of the Company's capital
expansion in Conway, Arkansas.

During 2000, the Company benefited from two one-time events which favorably
affected income. In the first quarter the Company sold a warehouse located in
Torrance, California, that had been held as rental property. The sale resulted
in a pre-tax gain of approximately $7,945,000. In the third quarter, the Company
realized a $4,052,000 pre-tax gain from a settlement of certain claims.

LIQUIDITY AND CAPITAL RESOURCES

Virco addresses liquidity and capital requirements in the context of short-term
seasonal requirements and the long-term capital requirements of the business.
The Company's core business of selling furniture to publicly funded educational
institutions is extremely seasonal. The seasonal nature of this business
permeates most of Virco's operational, capital, and financing decisions.

The Company's working capital requirements during and in anticipation of the
peak summer season require management to make estimates and judgments that
affect our assets, liabilities, revenues and expenses. Virco's management
expends a significant amount of time during the year, and especially in the
first quarter, developing a stocking plan and estimating the number of
employees, the amount of raw materials, and the types of components and products
that will be required during the peak season. If management underestimates any
of these requirements, Virco's ability to timely meet customer orders or to
provide adequate customer service may be diminished. If management overestimates
any of these requirements, the Company may be required to absorb higher storage,
labor and related costs, each of which may affect profitability. On an ongoing
basis, management evaluates such estimates, including those related to market
demand, labor costs, and inventory levels, and continually strives to improve
Virco's ability to correctly forecast business requirements during the peak
season each year.

As part of Virco's efforts to address seasonality, financial performance and
quality without sacrificing service or market share, management has been
refining the Company's ATS operating model. ATS is Virco's version of
mass-customization, which assembles standard, stocked components into customized
configurations before shipment. The Company's ATS program reduces the total
amount of inventory and working capital needed to support a given level of
sales. It does this by increasing the inventory's versatility, delaying costly
assembly until the last moment, and reducing the amount of warehouse space
needed to store finished goods.


                                       7
<PAGE>


In addition, Virco finances its largest balance of accounts receivable during
the peak season. This occurs for two primary reasons. First, accounts receivable
balances naturally increase during the peak season as shipments of products
increase. Second, many customers during this period are government institutions,
which tend to pay accounts receivable more slowly than commercial customers.

As the capital required for this summer season generally exceeds cash available
from operations, Virco has historically relied on third party bank financing to
meet seasonal cash flow requirements. Virco has established a long-term
relationship with its primary lender, Wells Fargo Bank. On an annual basis, the
Company prepares a forecast of seasonal working capital requirements, and renews
its revolving line of credit. For the next fiscal year, we have entered into a
revolving credit facility with Wells Fargo Bank, amended and restated March
2002, but effective at January 31, provides a secured revolving line of credit
that varies from $40,000,000 to $70,000,000. This credit facility is
intentionally structured to provide additional working capital during the
Company's traditional peak period. At October 1, 2002, the available commitment
reduces to $40,000,000. This is a three-year non-amortizing line with interest
payable monthly at a fluctuating rate equal to the Bank's prime rate plus a
fluctuating margin of 0.25% to 0.50% (4.75% at January 31, 2002). The line also
allows the Company the option to borrow under 30- 60- and 90-day fixed term
rates at LIBOR plus a fluctuating margin of 1.50% to 2.50%. Approximately
$25,175,000 was available for borrowing as of January 31, 2002.

In addition to short-term liquidity considerations, the Company continually
evaluates long-term capital requirements. In 1997, the Company initiated two
large capital projects, which had significant cash flow effects on the 1998,
1999, and 2000 fiscal years. The first project was the implementation of the SAP
enterprise resources planning system, initiated in October 1997. The Company
went live with the new system in March 1999, implemented a business-to-business
website along with sales force automation in the first quarter of 2000, and
upgraded to the most current version of SAP in the fourth quarter of 2000.
General Electric Capital Corporation (GECC) financed the initial portion of this
project under a lease arrangement, which is treated as a capital lease for book
purposes and an operating lease for tax purposes. As of January 31, 2002, the
Company had expended $13,100,000 relating to this project. Capital and training
costs not funded by the lease are financed by cash flows from operations and
from the loan facility with Wells Fargo Bank.

The second project was the expansion and re-configuration of the Conway,
Arkansas, manufacturing and distribution facility. During the fourth quarter of
1997, the Company expended approximately $1,200,000 to acquire roughly 70 acres
of land for the expansion. In 1998, the Company expended approximately
$20,600,000 to buy an additional 30 acres of land, initiate construction of a
400,000 sq. ft. manufacturing facility and purchase production equipment for the
Conway, Arkansas location. During 1999, the Company expended approximately
$29,200,000 to complete construction of the factory, purchase additional
production equipment, construct and complete the first 400,000 sq. ft. segment
of the planned 800,000 sq. ft. distribution facility, and initiate the
construction of a second 400,000 sq. ft. segment of that facility. In 2000, the
Company expended approximately $15,974,000 to complete the expansion and to
acquire high-density racking and material handling systems. To finance this
project, the Company borrowed


                                       8
<PAGE>


$30,000,000 from Wells Fargo Bank that was scheduled to be repaid in three
annual $10,000,000 installments, the first of which was paid on January 31,
2001; moreover, as explained below, the Company paid off the entire balance of
this loan prior to January 31, 2002. In addition to the loan from Wells Fargo,
the Company acquired equipment with operating leases from GE Capital, and used
operating cash flow.

As phases of the Conway expansion were completed, the Company was able to vacate
several leased warehouses, sell a small production facility, and convert a
second production facility into a warehouse. In addition, Virco sold a warehouse
located in Torrance, California, which had been held as rental property.

Upon the completion of these substantial capital projects, the Company
significantly reduced capital spending in 2001, with depreciation expense
exceeding capital spending by approximately $10,584,000. Management intends to
limit future capital spending until growth in sales volume fully utilizes the
new plant and distribution capacity. The Company has established a goal of
limiting capital spending to between $5,000,000 to $7,000,000 for 2002, which is
approximately one-half of anticipated depreciation expense. Subsequent to
year-end, the Company entered into an agreement to purchase the assets of
Furniture Focus Corporation for $2,400,000. The $2,400,000 purchase price is
included in the $5,000,000 to $7,000,000 the Company has budgeted for capital
expenditures.

In the fourth quarter of 2001, primarily due to the reduction in inventory
related to the implementation of the previously described ATS model and the
reduced levels of capital expenditures, Virco was able to pay off the
$20,000,000 balance on the loan facility with Wells Fargo Bank which was used to
finance the Conway expansion.

The Company is currently marketing three properties for sale or lease, which
have a cumulative estimated market value of approximately $8,000,000. One of
these properties, a former production facility in Conway, Arkansas, is currently
being utilized as a finished goods warehouse. A second property, located in Los
Angeles, California, is vacant. The third property, a former production facility
located in Newport, Tennessee, has been leased to a third party who has an
option to purchase the property at any time during the first three years of the
lease.

In April 1998, the Board of Directors approved a stock buy-back program giving
authorization to buy back up to $5,000,000 of Company stock. The authorization
of this stock buy-back program was increased to $7,000,000, $14,000,000 and
$20,000,000 in January 1999, April 1999 and December 2001, respectively. As of
the end of January 2002 and 2001, the Company had repurchased approximately
884,000 and 690,000 shares at a cost of approximately $13,505,000 and
$11,539,000 respectively. The Company intends to continue buying back shares of
Virco common stock as long as the Company feels the shares are undervalued and
either operating cash flow or borrowing capacity under the Wells Fargo Bank line
is available.

Management believes cash generated from operations and from the previously
described sources will be adequate to meet its capital requirements.


                                       9
<PAGE>


ENVIRONMENTAL AND CONTINGENT LIABILITIES

The Company and other furniture manufacturers are subject to federal, state, and
local laws and regulations relating to the discharge of materials into the
environment and the generation, handling, storage, transportation, and disposal
of waste and hazardous materials. The Company has expended, and can be expected
to expend, significant amounts in the future for the investigation of
environmental conditions, installation of environmental control equipment, and
remediation of environmental contamination.

In 2001, the Company was self-insured for Product Liability losses up to
$100,000 per occurrence. For the insurance year beginning April 1, 2002, the
Company is self-insured for Products and General Liability losses up to $250,000
per occurrence and a Workers Compensation deductible of $200,000 per occurrence.
In prior years the Company has been self-insured for Workers Compensation,
Automobile, Product, and General Liability losses. The Company has purchased
insurance to cover losses in excess of the self-insured retention or deductible
up to a limit of $30,000,000. In 1993, the Company initiated a program to reduce
product liability losses and to more aggressively litigate product liability
cases. This program has continued through 2001 and has resulted in reductions in
litigated product liability cases. Management does not anticipate that any
related settlement, after consideration of the existing reserves for claims and
potential insurance recovery, would have a material adverse effect on the
Company's financial position, results of operations, or cash flows.

INFLATION AND FUTURE CHANGE IN PRICES

Inflation rates in the U.S. did not have a significant net impact on the
Company's operating results for the fiscal year just ended. Material costs
decreased, offset by increased costs for certain utilities and employee
benefits. The Company anticipates upward pressure on costs, particularly in the
areas of certain raw materials, transportation, energy and employee benefits in
the coming year. In April 2002, under section 201 steel sanction, a 30% tariff
was imposed on imported steel. In addition, domestic steel manufacturers have
filed a dumping claim against certain international suppliers. The effect of
these actions could cause the Company to incur at least $2,000,000 of
incremental steel costs in year 2002. Total material costs for 2002, as a
percentage of sales, could be higher than in 2001. However, no assurance can be
given that the Company will experience stable, modest or substantial increases
in prices in 2002. The Company is working to control and reduce costs by
improving production and distribution methodologies, investigating new packaging
and shipping materials, and searching for new sources of purchased components.

The Company uses the LIFO method of accounting for the material component of
inventory. Under this method, the cost of products sold as reported in the
financial statements approximates current cost, and reduces the distortion in
reported income due to increasing costs. Depreciation expense represents an
allocation of historic acquisition costs and is less than if based on the
current cost of productive capacity consumed. In 2001, the Company significantly
reduced its expenditures for capital assets, but in the prior three fiscal years
(1998, 1999, and 2000) the Company made the significant fixed asset acquisitions
described above. The assets acquired result in higher depreciation charges, but
due to technological advances should result in operating cost savings and
improved product quality. In addition, some depreciation charges will be offset
by a reduction in lease expense.


                                       10
<PAGE>


The Company is also subject to interest rate risk related to its $28,708,000 of
borrowings as of January 31, 2002, and any seasonal borrowings used to finance
additional inventory and receivables during the summer. Fluctuating interest
rates may adversely affect the Company's results of operations and cash flows
related to its variable rate bank borrowings. Accordingly, a 100 basis point
upward fluctuation in the lender's base rate would cause the Company to incur
additional interest charges of approximately $476,000 for the twelve months
ended January 31, 2002. The Company would benefit from a similar interest
savings if the base rate were to fluctuate downward by a like amount.

In February 2000, the Company entered into an interest rate swap agreement with
Wells Fargo Bank to reduce exposure due to changes in interest rates. The
initial notional swap amount is $30,000,000 for the period February 22, 2000,
through February 28, 2001. The notional swap amount then decreased to
$20,000,000 until the end of the swap agreement, March 3, 2003. Under this
agreement, interest is payable monthly at 7.23% plus a fluctuating margin of
1.50% to 2.50%. At January 31, 2002, the carrying value approximated the fair
value of $1,103,000. During the year ended January 31, 2002, the Company
recorded an additional loss amount of $662,000 (net of an applicable income tax
benefit of $441,000) in other comprehensive loss in order to account for the
change in fair value. The fair value of the swap is estimated on pricing models
using current assumptions.

FINANCIAL STRATEGY

Virco's financial strategy is to continue to increase levels of profitability by
targeting specific profitable market segments and customers. The Company has
organized its sales force, developed products, and acquired production and
distribution facilities for the specific needs of these customers. During the
fiscal years 1998, 1999, and 2000, the Company made significant capital
expenditures to support future sales growth in these targeted markets. For the
next several years, the Company intends to increase sales to these markets, and
to service these sales without making further significant investments in
facilities or working capital.

ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets," which supersedes Accounting Principles Board Opinion No. 17. SFAS No.
141 is effective for any business combination completed subsequent to June 30,
2001, and SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. Under SFAS No. 142, goodwill deemed to have an indefinite life will no
longer be amortized and will be subjected to annual impairment tests. Other
intangible assets will continue to be amortized over their useful lives.
Accordingly, the Company will apply the provisions of SFAS No. 141 should it
enter into any business combinations. The Company believes SFAS No. 142 will not
have a significant effect on the Company's financial position, results of
operations or cash flows.


                                       11
<PAGE>
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs, and requires such obligations and costs to be recognized
at fair value in the period in which they are incurred. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002, although earlier application is encouraged. The Company expects to
adopt SFAS No. 143 as of February 1, 2003, and has not yet determined what
impact, if any, the adoption of the Statement will have on the Company's
financial position and results of operations.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and superseded
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations for a
Disposal of a Segment of a Business." FAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The
Company expects to adopt FAS 144 as of February 1, 2002, and it does not expect
that the adoption of the Statement will have a significant impact on the
Company's financial position and results of operations.


                                       12
<PAGE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
in thousands except per share data                   2001            2000            1999          1998         1997
- ----------------------------------                ---------      -----------      ---------     ---------     ---------
<S>                                               <C>            <C>              <C>           <C>           <C>
SUMMARY OF OPERATIONS

Net sales(4)(5)                                   $ 257,462      $   287,342      $ 268,079     $ 275,096     $ 259,586

Net income before cumulative effect of
change in accounting principle                    $     246      $     4,313      $  10,166     $  17,630     $  13,852

Cumulative effect of change in accounting
principle, net of $191 tax benefit(5)                                   (297)
                                                  ---------      -----------      ---------     ---------     ---------
Net income                                        $     246      $     4,016      $  10,166     $  17,630     $  13,852
                                                  =========      ===========      =========     =========     =========
Per share data

Income before cumulative effect of change in
accounting principle(1)

           Basic                                  $    0.02      $      0.34      $    0.81     $    1.35     $    1.06
           Assuming dilution                           0.02             0.34           0.79          1.32          1.04

Cumulative effect of change in
accounting principle(1)
           Basic                                         --            (0.02)            --            --            --
           Assuming dilution                             --            (0.02)            --            --            --

Net income(1)
           Basic                                       0.02             0.32           0.81          1.35          1.06
           Assuming dilution                           0.02             0.32           0.79          1.32          1.04

Pro forma amounts assuming the accounting
change is applied retroactively

Net income(5)                                     $     246      $     4,313      $  10,186     $  17,663     $  13,963

Per share data
Net income

           Basic                                       0.02             0.35           0.81          1.35          1.07
           Assuming dilution                           0.02             0.34           0.80          1.32          1.04

Dividends declared per share, adjusted for
10% stock dividend

           Cash dividends                         $    0.08      $      0.07      $    0.06     $    0.06     $    0.05

OTHER FINANCIAL DATA

           Total assets                           $ 161,372      $   199,549      $ 190,863     $ 151,380     $ 122,015
           Working capital                        $  34,464      $    43,173      $  51,423     $  47,405     $  43,784
           Current ratio                              2.2/1            1.9/1          2.3/1         2.4/1         2.5/1
           Total long-term obligations            $  40,853      $    55,075      $  53,995     $  25,690     $  13,512
           Stockholders' equity                   $  90,223      $    94,141      $  93,834     $  88,923     $  77,077
           Shares outstanding at year-end(3)         12,223           12,411         12,500        12,836        13,011
           Stockholders' equity per share(2)      $    7.38      $      7.59      $    7.51     $    6.93     $    5.92
</TABLE>

- --------------------------------------------------------------------------------

(1)      Based on average number of shares outstanding each year after giving
         retroactive effect for stock dividends and 3 for 2 stock split.

(2)      Based on number of shares outstanding at year-end after giving effect
         for stock dividends and 3 for 2 stock split.

(3)      Adjusted for stock dividends and 3 for 2 stock split.

(4)      The prior period statements of operations contain certain
         reclassifications to conform to the presentation required by EITF
         No. 00-10, "Accounting for Shipping and Handling Fees and Costs,"
         which the Company adopted during the fourth quarter of the year ended
         January 31, 2001.

(5)      During the fourth quarter of 2000, the Company changed its method of
         accounting for revenue recognition in accordance with Staff Accounting
         Bulletin No. 101, "Revenue Recognition in Financial Statements."
         Pursuant to Financial Accounting Standards Board Statement No. 3,
         "Reporting Accounting Changes in Interim Financial Statements,"
         effective February 1, 2000, the Company recorded the cumulative effect
         of the accounting change.


<PAGE>


                         Report of Independent Auditors

The Board of Directors and Stockholders
Virco Mfg. Corporation

We have audited the accompanying consolidated balance sheets of Virco Mfg.
Corporation as of January 31, 2002 and 2001, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended January 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Virco Mfg.
Corporation at January 31, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 2002, in conformity with accounting principles generally accepted in
the United States.

As discussed in Note 1 to the consolidated financial statements, during the year
ended January 31, 2001, the Company changed its method of revenue recognition
for certain of its product sales.

                                               /s/ Ernst & Young LLP

Long Beach, California
March 15, 2002, except for
Note 10 as to which the date is
March 28, 2002


                                       1
<PAGE>


                             Virco Mfg. Corporation

                           Consolidated Balance Sheets
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                JANUARY 31
                                                                           --------------------
                                                                            2002         2001
                                                                          --------     --------
<S>                                                                       <C>          <C>
ASSETS
Current assets
   Cash                                                                   $  1,704     $    351
   Trade accounts receivable (less allowance for doubtful accounts of
     $200 in 2002 and 2001)                                                 19,251       24,559
   Other receivables                                                           175          586

   Inventories
     Finished goods                                                         16,159       27,009
     Work in process                                                        12,322       14,442
     Raw materials and supplies                                             10,202       16,588
                                                                          --------     --------
                                                                            38,683       58,039

   Income taxes receivable                                                      --        2,508
   Prepaid expenses and other current assets                                   935        1,150
   Deferred income taxes                                                     1,711        1,780
                                                                          --------     --------
Total current assets                                                        62,459       88,973

Property, plant and equipment
   Land and land improvements                                                3,548        3,880
   Buildings and building improvements                                      50,245       50,382
   Machinery and equipment                                                 100,999       98,024
   Leasehold improvements                                                    1,375        1,218
                                                                          --------     --------
                                                                           156,167      153,504
   Less accumulated depreciation and amortization                           72,761       58,859
                                                                          --------     --------
Net property, plant and equipment                                           83,406       94,645
Other assets                                                                15,507       15,931
                                                                          --------     --------
Total assets                                                              $161,372     $199,549
                                                                          ========     ========
</TABLE>


                                       2
<PAGE>


<TABLE>
<CAPTION>
                                                                                     JANUARY 31
                                                                              ------------------------
                                                                                2002            2001
                                                                              ---------      ---------
<S>                                                                           <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

   Checks released but not yet cleared bank                                   $   2,930      $   2,216
   Accounts payable                                                               8,816         13,930
   Income tax payable                                                             1,282             --
   Accrued compensation and employee benefits                                     8,602         11,471
   Current portion of long-term debt                                              2,061         12,101
   Other accrued liabilities                                                      4,304          6,082
                                                                              ---------      ---------
Total current liabilities                                                        27,995         45,800

Noncurrent liabilities

   Accrued self-insurance retention                                               2,777          2,598
   Accrued pension expenses                                                      11,429          8,736
   Long-term debt, less current portion                                          26,647         43,741
                                                                              ---------      ---------
Total noncurrent liabilities                                                     40,853         55,075

Deferred income taxes                                                             2,301          4,533

Commitments and contingencies

Stockholders' equity
   Preferred stock:
     Authorized 3,000,000 shares, $.01 par value;
       none issued or outstanding                                                    --             --
   Common stock:
     Authorized 25,000,000 shares, $.01 par value; issued 13,167,399
       shares in 2002 and 12,032,233 shares in 2001                                 132            120
   Additional paid-in capital                                                   109,638         97,656
   Retained (deficit) earnings                                                   (2,006)        10,645
   Less treasury stock at cost (944,352 shares in 2001 and 749,246 shares
     in 2000)                                                                   (13,975)       (12,009)
   Less unearned ESOP shares                                                         --           (696)
   Less accumulated comprehensive loss                                           (3,566)        (1,575)
                                                                              ---------      ---------
Total stockholders' equity                                                       90,223         94,141
                                                                              ---------      ---------
Total liabilities and stockholders' equity                                    $ 161,372      $ 199,549
                                                                              =========      =========
</TABLE>

See accompanying notes.


                                       3
<PAGE>


                             Virco Mfg. Corporation

                        Consolidated Statements of Income
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED JANUARY 31
                                                                               --------------------------------------
                                                                                 2002           2001           2000
                                                                               ---------     ---------      ---------
<S>                                                                            <C>           <C>            <C>
Net sales                                                                      $ 257,462     $ 287,342      $ 268,079
Costs of goods sold                                                              180,275       203,765        175,247
                                                                               ---------     ---------      ---------
Gross profit                                                                      77,187        83,577         92,832

Selling, general and administrative expenses                                      71,816        83,192         73,360
Provision for doubtful accounts                                                      288           156            188
Interest expense                                                                   4,561         4,962          2,385
Loss (Gain) on sale of assets                                                         86        (7,667)           206
Other income                                                                          --        (4,052)            --
                                                                               ---------     ---------      ---------
Income before income taxes and cumulative effect of change in
   accounting principle                                                              436         6,986         16,693
Provision for income taxes                                                           190         2,673          6,527
                                                                               ---------     ---------      ---------
Income before cumulative effect of change in
   accounting principle                                                              246         4,313         10,166
Cumulative effect of change in accounting principle                                   --          (297)            --
                                                                               ---------     ---------      ---------
Net income                                                                     $     246     $   4,016      $  10,166
                                                                               =========     =========      =========

AMOUNTS PER COMMON SHARE -- BASIC
Income before cumulative effect of change in
   accounting principle                                                        $    0.02     $    0.34      $    0.81
Cumulative effect of change in accounting principle                                   --         (0.02)            --
                                                                               ---------     ---------      ---------
Net income                                                                     $    0.02     $    0.32      $    0.81
                                                                               =========     =========      =========

AMOUNTS PER COMMON SHARE -- ASSUMING DILUTION
Income before cumulative effect of change
   in accounting principle                                                     $    0.02     $    0.34      $    0.79
Cumulative effect of change in accounting principle                                   --         (0.02)            --
                                                                               ---------     ---------      ---------
Net income                                                                     $    0.02     $    0.32      $    0.79
                                                                               =========     =========      =========

Pro forma amounts assuming the accounting change is applied retroactively:
     Net income                                                                $     246     $   4,313      $  10,186
     Net income per common share -- basic                                           0.02          0.35           0.81
     Net income per common share -- assuming dilution                               0.02          0.34           0.80

Weighted average shares outstanding:
   Basic                                                                          12,259        12,497         12,629
   Assuming dilution                                                              12,432        12,623         12,806
</TABLE>

See accompanying notes.


                                       4
<PAGE>


                             Virco Mfg. Corporation

                 Consolidated Statements of Stockholders' Equity

                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                     Common Stock                 Additional        Retained
                                             ------------------------------        Paid-In          Earnings        Comprehensive
                                                Shares            Amount           Capital          (Deficit)        Income(Loss)
                                             ------------      ------------      ------------      ------------      ------------
<S>                                          <C>               <C>               <C>               <C>               <C>
Balance at January 31, 1999                     9,643,927      $        100      $     68,361      $     26,928                --
   Net income                                          --                --                --            10,166      $     10,166
   Minimum pension liability, net of tax               --                --                --                --               (14)
                                                                                                                     ------------
   Comprehensive income                                                                                              $     10,152
                                                                                                                     ============
   Unearned ESOP shares                                --                --                --                --                --
   Stock issued under option plans                 33,261                --               232                --                --
   Stock dividend (10%)                           947,704                10            16,042           (16,052)               --
   Cash dividends                                      --                --                --              (800)               --
   Purchase of treasury stock                    (294,416)               --                --                --                --
                                             ------------      ------------      ------------      ------------      ------------
Balance at January 31, 2000                    10,330,476               110            84,635            20,242                --
   Net income                                          --                --                --             4,016      $      4,016
   Minimum pension liability, net of tax               --                --                --                --            (1,155)
                                                                                                                     ------------
   Comprehensive income                                --                --                --                --      $      2,861
                                                                                                                     ============
   Unearned ESOP shares                                --                --                --                --                --
   Stock issued under option plans                 49,783                --               284                --                --
   Stock dividend (10%)                         1,030,100                10            12,737           (12,747)               --
   Cash dividends                                      --                --                --              (866)               --
   Purchase of treasury stock                    (127,372)               --                --                --                --
                                             ------------      ------------      ------------      ------------      ------------
Balance at January 31, 2001                    11,282,987               120            97,656            10,645                --
   Net income                                          --                --                --               246      $        246
   Minimum pension liability, net of tax               --                --                --                --            (1,329)
   Derivative instrument, net of tax                   --                --                --                --              (662)
                                                                                                                     ------------
   Comprehensive loss, net of tax                      --                --                --                --      $     (1,745)
                                                                                                                     ============
   Unearned ESOP shares
   Stock issued under option plans                 13,847                --                30                --                --
   Stock dividend (10%)                         1,120,268                12            11,952           (11,952)               --
   Cash dividends                                      --                --                --              (945)               --
   Purchase of treasury stock                    (194,055)               --                --                --                --
                                             ------------      ------------      ------------      ------------      ------------
Balance at January 31, 2002                    12,223,047      $        132      $    109,638      $     (2,006)               --
                                             ============      ============      ============      ============      ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                 Accumulated
                                              Treasury            ESOP          Comprehensive
                                                Stock             Trust              Loss             Total
                                             ------------      ------------      ------------      ------------
<S>                                          <C>               <C>               <C>               <C>
Balance at January 31, 1999                  $     (5,814)     $       (246)     $       (406)     $     88,923
   Net income                                          --                --                --            10,166
   Minimum pension liability, net of tax               --                --               (14)              (14)

   Comprehensive income

   Unearned ESOP shares                                --               205                --               205
   Stock issued under option plans                     --                --                --               232
   Stock dividend (10%)                                --                --                --                --
   Cash dividends                                      --                --                --              (800)
   Purchase of treasury stock                      (4,878)               --                --            (4,878)
                                             ------------      ------------      ------------      ------------
Balance at January 31, 2000                       (10,692)              (41)             (420)           93,834
   Net income                                          --                --                --             4,016
   Minimum pension liability, net of tax               --                --            (1,155)           (1,155)

   Comprehensive income

   Unearned ESOP shares                                --              (655)               --              (655)
   Stock issued under option plans                     --                --                --               284
   Stock dividend (10%)                                --                --                --                --
   Cash dividends                                      --                --                --              (866)
   Purchase of treasury stock                      (1,317)               --                --            (1,317)
                                             ------------      ------------      ------------      ------------
Balance at January 31, 2001                       (12,009)             (696)           (1,575)           94,141
   Net income                                                                                               246
   Minimum pension liability, net of tax               --                --            (1,329)           (1,329)
   Derivative instrument, net of tax                   --                --              (662)             (662)

   Comprehensive loss, net of tax

   Unearned ESOP shares                                --               696                --               696
   Stock issued under option plans                     --                --                --                30
   Stock dividend (10%)                                --                --                --                12
   Cash dividends                                      --                --                --              (945)
   Purchase of treasury stock                      (1,966)               --                --            (1,966)
                                             ------------      ------------      ------------      ------------
Balance at January 31, 2002                  $    (13,975)     $         --      $     (3,566)     $     90,223
                                             ============      ============      ============      ============
</TABLE>

See accompanying notes.


                                       5
<PAGE>


                             Virco Mfg. Corporation
                      Consolidated Statements of Cash Flows
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                        YEAR ENDED JANUARY 31
                                                                ------------------------------------
                                                                  2002          2001          2000
                                                                --------      --------      --------
<S>                                                             <C>           <C>           <C>
OPERATING ACTIVITIES
Net income                                                      $    246      $  4,016      $ 10,166
Adjustments to reconcile net income to net cash provided by
   operating activities
     Cumulative effect of accounting change                           --           297            --
     Depreciation and amortization                                15,813        13,412         9,993
     Provision for doubtful accounts                                 288           156           188
     Loss (Gain) on sale of property, plant and equipment
                                                                      86        (7,667)          112
     Deferred income taxes                                        (1,722)         (407)        2,735
     Changes in assets and liabilities:
       Trade accounts receivable                                   5,020         1,742         3,820
       Other receivables                                             411           341          (619)
       Inventories                                                19,356          (981)       (8,589)
       Income taxes                                                3,790          (755)       (2,557)
       Prepaid expenses and other current assets                     215           138          (347)
       Accounts payable and accrued liabilities                   (8,230)          560         8,182
       Other                                                        (236)       (4,383)       (2,506)
                                                                --------      --------      --------
Net cash provided by operating activities                         35,037         6,469        20,578

INVESTING ACTIVITIES

Capital expenditures                                              (5,229)      (22,711)      (38,849)
Proceeds from sale of property, plant and equipment                  570        10,258           128
Net investment in life insurance                                   1,385            --          (956)
                                                                --------      --------      --------
Net cash used in investing activities                             (3,274)      (12,453)      (39,677)
</TABLE>


                                       6
<PAGE>


                             Virco Mfg. Corporation
                Consolidated Statements of Cash Flows (continued)
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                YEAR ENDED JANUARY 31
                                                        ------------------------------------
                                                          2002          2001          2000
                                                        --------      --------      --------
<S>                                                     <C>           <C>           <C>
FINANCING ACTIVITIES
Dividends paid                                          $   (945)     $   (866)     $   (800)
Issuance of long-term debt                                    --        19,817        26,794
Repayment of long-term debt                              (28,237)      (12,000)       (2,468)
Proceeds from issuance of common stock                        30           284           232
Purchase of treasury stock                                (1,954)       (1,317)       (4,878)
ESOP loan                                                    696          (655)          205
                                                        --------      --------      --------
Net cash (used in) provided by financing activities      (30,410)        5,263        19,085
                                                        --------      --------      --------
Net increase (decrease) in cash                            1,353          (721)          (14)
Cash at beginning of year                                    351         1,072         1,086
                                                        --------      --------      --------
Cash at end of year                                     $  1,704      $    351      $  1,072
                                                        ========      ========      ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the year for
   Interest, net of amounts capitalized                 $  4,805      $  4,953      $  2,277
   Income tax, net                                        (1,935)        3,835         6,416
</TABLE>

See accompanying notes.


                                       7
<PAGE>


                             Virco Mfg. Corporation

                   Notes to Consolidated Financial Statements

                                January 31, 2002


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Virco Mfg. Corporation, which operates in one business segment, is engaged in
the design, production and distribution of quality furniture for the commercial
and education markets. Over 50 years of manufacturing has resulted in a wide
product assortment. Major products include student desks, computer furniture,
chairs, activity tables, folding chairs and folding tables. The Company
manufactures its products in Torrance, California, and Conway, Arkansas, for
sale primarily in the United States.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Virco Mfg.
Corporation and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the 2000 and 1999 information to conform to
the 2001 presentation.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of accounts receivable. The Company performs
ongoing credit evaluations of its customers and maintains allowances for
potential credit losses. The Company purchases insurance on receivables from
commercial sales to minimize the Company's credit risk. A substantial
percentage of the Company's receivables comes from low-risk government entities.
No customers exceeded 10% of the Company's sales for each of the three years in
the period ended January 31, 2002. Foreign sales were less than 5% for each of
the three years in the period ended January 31, 2002.

DERIVATIVES

The Company uses derivative financial instruments to reduce interest rate risks.
The Company does not hold or issue derivative financial instruments for trading
purposes. All derivatives are recognized as either assets or liabilities in the
statement of financial condition and are measured at fair value. At January 31,
2002, the only derivative instrument is an interest rate swap that qualifies as
a cash flow hedge. Changes in the fair value of the swap are recorded in other
comprehensive income/loss as the hedge is effective in achieving offsetting
changes in the fair value of cash flows of the liability.


                                       8
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method of valuation for the material content of
inventories and the first-in, first-out (FIFO) method for labor and overhead.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation and amortization is computed on the straight-line method for
financial reporting purposes based upon the following estimated useful lives:

<TABLE>
<S>                                              <C>
Land improvements                                5 to 25 years
Buildings and building improvements              5 to 40 years
Machinery and equipment                          3 to 10 years
Leasehold improvements                           Life of lease
</TABLE>

Certain assets are depreciated under accelerated methods for income tax
purposes.

Interest costs, amounting to $55,000, $453,000 and $1,461,000 for the years
ended January 31, 2002, 2001 and 2000, respectively, have been capitalized as
part of the acquisition cost of property, plant and equipment.

The Company capitalizes costs associated with software developed for its own
use. Such costs are amortized over three to seven years from the date the
software becomes operational. The net book value of capitalized software was
$7,593,000 and $10,004,000 at January 31, 2002 and 2001, respectively.

The book value of assets held under capital leases included in machinery and
equipment amounted to $2,294,000 and $2,856,000 at January 31, 2002 and 2001,
respectively. Amortization of capital leases is included in depreciation
expense.


                                       9
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

An impairment loss is recognized in the event facts and circumstances indicate
the carrying amount of an asset may not be recoverable, and an estimate of
future undiscounted cash flows is less than the carrying amount of the asset.
Impairment is recorded based on the excess of the carrying amount of the
impaired asset over the fair value. Generally, fair value represents the
Company's expected future cash flows from the use of an asset or group of
assets, discounted at a rate commensurate with the risks involved.

NET INCOME PER SHARE

Basic net income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding. Diluted net income per
share is calculated by dividing net income by the weighted-average number of
common shares outstanding plus the dilution effect of convertible securities.
The following table sets forth the computation of basic and diluted earnings per
share before cumulative effect of the accounting change:

<TABLE>
<CAPTION>
                                                  2001            2000            1999
                                              -----------     -----------     -----------
<S>                                           <C>             <C>             <C>
Numerator:
   Income before cumulative effect of the
     accounting change                        $   246,000     $ 4,313,000     $10,166,000
                                              ===========     ===========     ===========
Denominator:
   Denominator for basic earnings
     per share -- weighted-average shares      12,259,000      12,497,000      12,629,000
   Dilutive potential common shares               173,000         126,000         177,000
                                              -----------     -----------     -----------
   Denominator for diluted earnings per
     share -- adjusted weighted-average
     shares and assumed conversions            12,432,000      12,623,000      12,806,000
                                              ===========     ===========     ===========
</TABLE>

On August 21, 2001, the Company's Board of Directors authorized a 10% stock
dividend payable on September 28, 2001, to stockholders of record as of
September 6, 2001. This resulted in the issuance of approximately
1,120,000 additional shares of common stock. All per share and weighted-average
share amounts have been restated to reflect this stock dividend and any splits
or dividends previously declared.


                                       10
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INTANGIBLE ASSETS

Intangible assets, which consist principally of deferred pension assets and
which are included in other noncurrent assets, are recorded at cost and are
amortized over their estimated useful lives using the straight-line method.

ENVIRONMENTAL COSTS

Costs incurred to investigate and remediate environmental waste are expensed as
incurred, unless the remediation extends the useful life of the assets employed
at the site. Remediation costs that extend the useful life of assets are
capitalized and amortized over the useful life of the assets.

ADVERTISING COSTS

Advertising costs are expensed in the period in which they occur. Selling,
general and administrative expenses include advertising costs of $4,237,000 in
2001, $3,517,000 in 2000 and $3,775,000 in 1999.

SELF-INSURANCE

The Company has a self-insured retention for workers' compensation, automobile
and general and product liability claims. Consulting actuaries assist the
Company in determining its liability for the self-insured component of claims,
which have been discounted to their net present value.

STOCK-BASED COMPENSATION PLANS

Stock-based compensation is recognized using the intrinsic-value method. For
disclosure purposes, pro forma net income and earnings per share impacts are
provided as if the fair-value method had been applied. The Financial Accounting
Standards Board issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation." The Interpretation addressed
implementation practice issues in accounting for compensation costs under
existing rules prescribed by Accounting Principles Board No. 25. The new rules
were applied by the Company prospectively after July 1, 2000.


                                       11
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

REVENUE RECOGNITION

Effective February 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements." Previously, the Company had
recognized revenue upon shipment of merchandise to the customer even though at
each fiscal year-end and quarter a portion of its merchandise was shipped FOB
destination. The company believes it had given up substantially all the risks
and rewards of ownership upon shipment. Under the new accounting method adopted
retroactive to February 1, 2000, the Company now recognizes all sales when title
passes under its various shipping terms. The cumulative effect of the change on
prior years resulted in a charge to income of $297,000 (net of income taxes of
$191,000), which is included in income for the year ended January 31, 2001.
There was no effect on the Company's net income for the year ended January 31,
2001, before the cumulative effect of the accounting change was made. The pro
forma amounts presented in the income statement were calculated assuming the
accounting change was made retroactively to prior periods.

Shipping and handling fees are included as revenue in net sales. Costs related
to shipping and handling are included in operating expenses. For the years ended
January 31, 2002, 2001 and 2000, shipping and handling costs of approximately
$27,491,000, $31,903,000 and $24,656,000, respectively, were included in
selling, general and administrative expenses.

FISCAL YEAR END

Fiscal years 2001, 2000 and 1999, refer to the years ended January 31, 2002,
2001 and 2000, respectively.


                                       12
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FUTURE ACCOUNTING REQUIREMENTS

In June 2001 the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets," which supersedes Accounting Principles Board Opinion No. 17. SFAS No.
141 is effective for any business combination completed subsequent to June 30,
2001, and SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. Under SFAS No. 142, goodwill deemed to have an indefinite life will no
longer be amortized and will be subjected to annual impairment tests. Other
intangible assets will continue to be amortized over their useful lives.
Accordingly, the Company will apply the provisions of SFAS No. 141 should it
enter into any business combinations. The Company believes the adoption of SFAS
No. 142 will not have a material effect on the Company's financial position,
results of operations or cash flows.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs, and requires such obligations and costs to be recognized
at fair value in the period in which they are incurred. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002, although earlier application is encouraged. The Company expects to
adopt SFAS No. 143 as of February 1, 2003, and has not yet determined what
impact, if any, the adoption of the Statement will have on the Company's
financial position and results of operations.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and superseded
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations for a
Disposal of a Segment of a Business." FAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The
Company expects to adopt FAS 144 as of February 1, 2002 and it does not expect
that the adoption of the Statement will have a significant impact on the
Company's financial position and results of operations.


                                       13
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



2. INVENTORIES

The current material cost for inventories exceeded LIFO cost by $2,048,000 and
$3,585,000 at January 31, 2002 and 2001, respectively. Liquidation of prior year
LIFO layers due to a reduction in certain inventories (decreased) increased
income by ($825,000), $111,000 and $59,000 in the years ended January 31, 2002,
2001 and 2000, respectively.

Details of inventory amounts, including the material portion of inventory which
is valued at LIFO, at January 31, 2002 and 2001, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                         JANUARY 31, 2002
                                 ------------------------------------------------------
                                  MATERIAL                       LABOR,
                                 CONTENT AT       LIFO          OVERHEAD
                                    FIFO         RESERVE        AND OTHER        TOTAL
                                 ----------      -------        ---------       -------
<S>                               <C>            <C>             <C>            <C>
Finished goods                    $10,583        $  (493)        $ 6,069        $16,159
Work in process                     6,081           (586)          6,827         12,322
Raw materials and supplies         11,171           (969)             --         10,202
                                  -------        -------         -------        -------
Total                             $27,835        $(2,048)        $12,896        $38,683
                                  =======        =======         =======        =======
</TABLE>

<TABLE>
<CAPTION>
                                                         JANUARY 31, 2001
                                 ------------------------------------------------------
                                  MATERIAL                       LABOR,
                                 CONTENT AT       LIFO          OVERHEAD
                                    FIFO         RESERVE        AND OTHER        TOTAL
                                 ----------      -------        ---------       -------
<S>                               <C>            <C>             <C>            <C>
Finished goods                    $18,858        $(1,211)        $ 9,362        $27,009
Work in process                     8,626         (1,059)          6,875         14,442
Raw materials and supplies         17,903         (1,315)             --         16,588
                                  -------        -------         -------        -------
Total                             $45,387        $(3,585)        $16,237        $58,039
                                  =======        =======         =======        =======
</TABLE>


                                       14
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



3. NOTES PAYABLE

Outstanding balances (in thousands) for the Company's long-term debt were as
follows:

<TABLE>
<CAPTION>
                                                             JANUARY 31
                                                       ----------------------
                                                        2002           2001
                                                       -------        -------
<S>                                                    <C>            <C>
Revolving credit line with Wells Fargo Bank (a)        $22,414        $28,555
Term loan with Wells Fargo Bank(a)                          --         20,000
IRB with the City of Torrance (b)                        3,165          4,124
Equipment credit line with GECC(c)                         884          1,857
Derivative instrument (a)                                1,103             --
Other                                                    1,142          1,306
                                                       -------        -------
                                                        28,708         55,842
Less current portion                                     2,061         12,101
                                                       -------        -------
                                                       $26,647        $43,741
                                                       =======        =======
Outstanding stand-by letters of credit                 $ 2,411        $ 3,163
</TABLE>

     (a) A revolving credit facility with Wells Fargo Bank, amended and restated
         in March 2002, but effective at January 31, provides a secured
         revolving line of credit that ranged from $40,000,000 to $70,000,000 to
         allow for additional working capital requirements during the Company's
         traditional peak period. At October 1, 2002, the available commitment
         reduces to $40,000,000. This is a three-year non-amortizing line with
         interest payable monthly at a fluctuating rate equal to the Bank's
         prime rate, plus a fluctuating margin of 0.25% - 0.50% (4.75% at
         January 31, 2002). The line also allows the Company the option to
         borrow under 30- 60- and 90-day fixed term rates at LIBOR plus a
         fluctuating margin of 1.50% to 2.50%. Approximately $25,175,000 was
         available for borrowing as of January 31, 2002.

         On February 22, 2000, the Company entered into an interest rate swap
         agreement with Wells Fargo Bank. The initial notional swap amount was
         $30,000,000 for the period February 22, 2000 through February 28, 2001.
         The notional swap amount decreased to $20,000,000 until expiration on
         March 3, 2003. The swap agreement is in consideration for a fixed rate
         at 7.23% plus a fluctuating margin of 1.50% to 2.50%. The Company
         adopted SFAS No. 133 "Accounting for Derivatives and Hedging
         Activities" on February 1, 2001. The adjustment to adopt SFAS 133
         resulted in recording a liability of $920,000 and an offset to other
         comprehensive loss, which was $552,000 net


                                       15
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



         3. NOTES PAYABLE (CONTINUED)

         of applicable income tax benefit of $368,000. At January 31, 2002, the
         carrying value of the swap approximated the fair value of $1,103,000,
         with an offset to other comprehensive loss of $662,000 net of an
         applicable tax benefit of $441,000. The revolving credit facility and
         the term loan with Wells Fargo Bank are subject to various financial
         covenants including a liquidity requirement, a leverage requirement, a
         cash flow coverage requirement and profitability requirements. The
         agreement also places certain restrictions on capital expenditures,
         dividends and the repurchase of the Company's common stock. The
         revolving credit facility and the term loan are secured by the
         Company's accounts receivable, inventory and equipment.

     (b) Ten-year $8,900,000 IRB issued through the City of Torrance. This
         5.994% fixed interest rate bond is payable in monthly installments of
         $99,000, including interest, through December 2004.

     (c) In October 1998, the Company finalized a credit agreement with General
         Electric Capital Corporation (GECC) to finance the initial portion of
         the new business information system. This is a four-year amortizing
         capital lease with principal and interest (approximately 7.5%) payable
         of $87,500 monthly. The Company has the option of buying out the lease
         three years into the lease period. As of January 31, 2002, the Company
         has not exercised the buy-out option.

Long-term debt repayments are approximately as follows (in thousands):

<TABLE>
<CAPTION>
Year ending January 31
- ----------------------
<S>                                    <C>
2003                                   $ 2,061
2004*                                   25,592
2005                                     1,055
                                       -------
                                       $28,708
                                       =======
</TABLE>


     *  The $22,414,000 due under Wells Fargo Bank's line of credit will be
        payable in the fiscal year ending January 31, 2004, if the agreement is
        not renewed. The Company intends to renew the agreement.


                                       16
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



3. NOTES PAYABLE (CONTINUED)

The Company believes that the carrying value of debt under the Wells Fargo
credit facility approximates fair value at January 31, 2002 and 2001, as the
majority of the long-term debt bears interest at variable rates or is fixed for
periods equal to or less than 90 days. The carrying value of other debt
instruments approximates their fair value given the Company's incremental
borrowing rate for similar types of financing arrangements.

For fiscal year 2000, the Company guaranteed a $1,500,000 line of credit from
Wells Fargo Bank to the Virco Employee Stock Ownership Plan (ESOP), of which
$696,000 was outstanding under the line at January 31, 2001. The ESOP plan was
dissolved during the year ended January 31, 2002.

4. RETIREMENT PLANS

The Company and its subsidiaries cover all employees under a noncontributory
defined benefit retirement plan, the Virco Employees' Retirement Plan (the
Plan). Benefits under the Plan are based on years of service and career average
earnings. The Company's general funding policy is to contribute amounts
deductible for federal income tax purposes. Minimum pension liability
adjustments for the years 2001, 2000 and 1999 were $1,329,000, $1,155,000 and
$14,000, respectively (net of taxes of $1,026,000, $716,000 and $9,000,
respectively), and are included in comprehensive loss. Assets of the Plan are
invested in common trust funds.


                                       17
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



4. RETIREMENT PLANS (CONTINUED)

The following table sets forth (in thousands) the funded status of the Plan at
December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                       PENSION BENEFITS
                                                  -------------------------
                                                    2001             2000
                                                  --------         --------
<S>                                               <C>              <C>
Change in benefit obligation
   Benefit obligation at beginning of year        $ 19,435         $ 15,916
   Service cost                                      1,017              930
   Interest cost                                     1,515            1,425
   Plan amendments                                     438            2,384
   Actuarial loss                                      748              384
   Benefit paid                                     (1,990)          (1,604)
                                                  --------         --------
   Benefit obligation at end of year              $ 21,163         $ 19,435
                                                  ========         ========
Change in plan assets
   Fair value at beginning of year                $ 10,193         $ 11,657
   Actual return on plan assets                     (2,116)          (1,099)
   Company contributions                             2,721            1,239
   Benefits paid                                    (1,990)          (1,604)
                                                  --------         --------
   Fair value at end of year                      $  8,808         $ 10,193
                                                  ========         ========
   Funded status of plan                          $(12,355)        $ (9,242)
   Unrecognized net transition amount                 (225)            (267)
   Unrecognized prior service cost                   4,430            4,555
   Unrecognized net actuarial loss                   8,702            5,415
                                                  --------         --------
   Net amount recognized                          $    552         $    461
                                                  ========         ========
Statements of financial position
   Accrued benefit liability                      $ (8,680)        $ (6,718)
   Intangible asset                                  4,430            4,555
   Accumulated other comprehensive income            4,802            2,624
                                                  --------         --------
   Net amount recognized                          $    552         $    461
                                                  ========         ========
</TABLE>


                                       18
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



4. RETIREMENT PLANS (CONTINUED)

<TABLE>
<CAPTION>
                                            2001         2000
                                            -----        -----
<S>                                         <C>          <C>
Weighted average assumptions
   Discount rate                            7.75%        8.00%
   Expected return on plan assets           8.00%        9.75%
   Rate of compensation increase            5.00%        5.00%
</TABLE>

The total pension expense for the Plan (in thousands) included the following
components:

<TABLE>
<CAPTION>
                                                             DECEMBER 31
                                             ---------------------------------------
                                               2001            2000           1999
                                             -------         -------         -------
<S>                                          <C>             <C>             <C>
Components of net cost
   Service cost                              $ 1,017         $   930         $   752
   Interest cost                               1,515           1,425           1,091
   Expected return on plan assets               (821)         (1,089)           (936)
   Amortization of transition amount             (42)            (42)            (42)
   Amortization of prior service cost            562             528             294
   Recognized net actuarial loss                 398             148             128
                                             -------         -------         -------
   Benefit cost                              $ 2,629         $ 1,900         $ 1,287
                                             =======         =======         =======
</TABLE>

The Company also provides a supplementary retirement plan for certain key
employees, the VIP Retirement Plan (VIP Plan). The VIP Plan provides a benefit
up to 50% of average compensation for the last five years in the VIP Plan,
offset by benefits earned under the Virco Employees' Retirement Plan. The VIP
Plan is funded by a life insurance program. The cash surrender values of the
policies funding the VIP Plan were $2,138,000 and $1,977,000 at January 31, 2002
and 2001, respectively. These cash surrender values are included in other assets
in the consolidated balance sheets.

The following table sets forth (in thousands) the funded status of the VIP Plan
at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                   NONQUALIFIED PENSION
                                                  -----------------------
                                                   2001            2000
                                                  -------         -------
<S>                                               <C>             <C>
Change in benefit obligation
   Benefit obligation at beginning of year        $ 4,298         $ 4,004
   Service cost                                       490             417
   Interest cost                                      323             299
   Plan amendments                                   (438)         (1,240)
   Actuarial loss                                     492           1,166
   Benefit paid                                      (344)           (348)
                                                  -------         -------
   Benefit obligation at end of year              $ 4,821         $ 4,298
                                                  =======         =======
</TABLE>


                                       19
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



4. RETIREMENT PLANS (CONTINUED)

<TABLE>
<CAPTION>
                                           NONQUALIFIED PENSION
                                          -----------------------
                                           2001             2000
                                          -------         -------
<S>                                       <C>             <C>
Change in plan assets
   Company contributions                  $   344         $   348
   Benefits paid                             (344)           (348)
                                          -------         -------
   Fair value at end of year              $    --         $    --
                                          =======         =======
   Funded status of plan                  $(4,821)        $(4,298)
   Unrecognized prior service cost         (3,035)         (2,964)
   Unrecognized net actuarial loss          2,718           2,420
                                          -------         -------
   Accrued benefit cost                   $(5,138)        $(4,842)
                                          =======         =======
Statements of financial position
   Accrued benefit liability              $(5,138)        $(4,842)
                                          -------         -------
   Net amount recognized                  $(5,138)        $(4,842)
                                          =======         =======
</TABLE>

<TABLE>
<CAPTION>
                                            2001          2000
                                           ------       -------
<S>                                        <C>          <C>
Weighted average assumptions
   Discount rate                            7.75%        8.00%
   Expected return on plan assets           8.00%        9.75%
   Rate of compensation increase            5.00%        5.00%
</TABLE>

The total plan expense for the VIP retirement plan included the following
components (in thousands):

<TABLE>
<CAPTION>
                                                         DECEMBER 31
                                             ---------------------------------
                                             2001          2000          1999
                                             -----         -----         -----
<S>                                          <C>           <C>           <C>
Components of net cost
   Service cost                              $ 490         $ 417         $ 296
   Interest cost                               323           299           254
   Amortization of prior service cost         (366)         (314)         (181)
   Recognized net actuarial loss               193           157           369
                                             -----         -----         -----
   Benefit cost                              $ 640         $ 559         $ 738
                                             =====         =====         =====
</TABLE>


                                       20
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



4. RETIREMENT PLANS (CONTINUED)

The Company's retirement plan, which covers all U.S. employees, allows
participants to defer from 1% to 15% of their eligible compensation through a
401(k) retirement program. Through December 31, 2001, the plan included an
employee stock ownership component. The Plan continues to include the Virco
Stock Fund as one of the investment options. Shares owned by the plan are held
by the Plan Trustee, Security Trust Company. At January 31, 2002, the Plan held
577,476 shares of Virco Stock. While these shares were included in the employee
stock ownership component prior to the dissolution of the ESOP Plan, allocated
shares held by the Trust were included in shares outstanding and the related
dividends were charged to retained earnings. For the fiscal years ended January
31, 2002, 2001 and 2000, there was no employer match and therefore no
compensation cost to the Company.

The Company provides current and post-retirement life insurance to certain
salaried employees with split dollar life insurance policies under the Dual
Option Life Insurance Plan. Cash surrender values of these policies, which are
included in other assets in the consolidated balance sheets, were $3,523,000 and
$3,550,000 at January 31, 2002 and 2001, respectively.

The Company established, effective January 1, 1997, a Deferred Compensation
Plan, which allows certain key employees to defer up to a maximum of 90% of
their base annual salary and/or up to 90% of their annual bonus on a pretax
basis. The total participant deferrals were $1,461,000 and $1,226,000 for the
years ended January 31, 2002 and 2001, respectively. The Deferred Compensation
Plan is funded with investment funds held in the Rabbi Trust and are included in
other assets in the consolidated balance sheets.

The Company maintains a Rabbi Trust to hold assets related to the VIP Retirement
Plan, the Dual Option Life Insurance Plan, and the Deferred Compensation Plan.
Substantially all assets funding these Plans are held in the Rabbi Trust.

In April 2001, the Board of Directors established a non-qualified plan for
non-employee directors of the Company. The Plan provides a lifetime annual
retirement benefit equal to the director's annual retainer fee for the fiscal
year in which the director terminates his or her position with the Board,
subject to the director providing 10 years of service to the Company. At January
31, 2002, the Plan did not hold any assets.


                                       21
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



4. RETIREMENT PLANS (CONTINUED)

The following table sets forth (in thousands) the funded status of the
Non-Employee Directors Retirement Plan at December 31, 2001:

<TABLE>
<CAPTION>
                                                               NONQUALIFIED
                                                                 PENSION
                                                                  2001
                                                               ------------
<S>                                                            <C>
Change in benefit obligation
   Benefit obligation at beginning of year                       $ 461
   Service cost                                                     24
   Interest cost                                                    36
   Plan amendments                                                  --
   Actuarial loss                                                  (36)
   Benefits paid                                                    --
                                                                 -----
   Benefit obligation at end of year                             $ 485
                                                                 =====
Change in plan assets
   Fair value of plan assets at inception and end of year        $  --
                                                                 =====
   Funded status of plan                                         $(485)
   Unrecognized prior service cost                                 373
   Unrecognized net actuarial loss                                 (36)
                                                                 -----
   Net amount recognized                                         $(148)
                                                                 =====
Statements of financial position
   Accrued benefit liability                                     $(485)
   Intangible asset                                                337
                                                                 -----
   Net amount recognized                                         $(148)
                                                                 =====
</TABLE>


<TABLE>
<CAPTION>
                                                                  2001
                                                               ----------
<S>                                                            <C>
Weighted average assumptions
   Discount rate                                                  7.75%
   Expected return on plan assets                                   --
   Rate of compensation increase                                    --
</TABLE>


                                       22
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



4. RETIREMENT PLANS (CONTINUED)

The total plan expense for the Non-Employee Directors retirement plan included
the following components (in thousands):

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                                  2001
                                               ------------
<S>                                            <C>
Components of net cost
   Service cost                                   $ 24
   Interest cost                                    36
   Amortization of prior year service cost          88
   Recognized net actuarial gain/loss               --
                                                  ----
   Benefit Cost                                   $148
                                                  ====
</TABLE>

5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS

The Company's two stock plans are the 1997 Employee Incentive Plan (the 1997
Plan) and the 1993 Employee Incentive Stock Plan (the 1993 Plan). Under these
stock plans, the Company may grant an aggregate of 1,301,921 shares (as adjusted
for the stock split and stock dividends) to its employees in the form of stock
options. Non-employee directors automatically receive a grant for options to
purchase 2,000 shares of common stock on the first business day following each
annual meeting of the Company's stockholders.

As of January 31, 2002, 313,768 shares remain available for future grant.
Options granted under the plans have an exercise price equal to the market price
at the date of grant, have a maximum term of 10 years and generally become
exercisable ratably over a five-year period. During the year, certain optionees
satisfied the exercise price of their options by exchanging shares already owned
rather than paying cash. As a result, 1,051 and 983 shares were recorded as
treasury stock for the years ended January 31, 2002 and 2001, respectively.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair-value method of SFAS No. 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following ranges of weighted-average assumptions:
risk-free interest rates of 4.69% to 6.26%; dividend yield of 0.10% to 0.98%;
volatility factor of the expected market price of the Company's common stock of
0.26 to 0.39; and a weighted-average expected life of the option of five years.


                                       23
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The pro forma effect
only takes into account options granted since January 1, 1993, and is likely to
increase in future years as additional options are granted and amortized ratably
over the vesting period. The Company's pro forma information follows (in
thousands except for net income per share information):

<TABLE>
<CAPTION>
                                                        YEAR ENDED JANUARY 31
                                                 --------------------------------
                                                   2002        2001        2000
                                                 -------     -------     --------
<S>                                              <C>         <C>         <C>
Pro forma net income                             $   204     $ 3,914     $  9,698
Pro forma net income per share -- assuming
   dilution                                      $  0.02     $  0.31     $   0.76
</TABLE>

A summary of the Company's stock option activity, and related information for
the years ended January 31 are as follows:

<TABLE>
<CAPTION>
                                     2002                   2001                   2000
                            ---------------------------------------------------------------------
                                         WEIGHTED-               WEIGHTED-              WEIGHTED-
                                          AVERAGE                AVERAGE                 AVERAGE
                                         EXERCISE                EXERCISE               EXERCISE
                               OPTIONS      PRICE      OPTIONS      PRICE     OPTIONS      PRICE
                               -------   --------     -------    --------    -------    ---------
<S>                            <C>        <C>         <C>        <C>         <C>           <C>
Outstanding at beginning       649,708    $ 10.27     699,063    $  9.87     618,698       7.09
   of year
     Granted                    35,200       9.21       6,050      10.35     155,727      12.15
     Exercised                 (14,998)      2.42     (55,405)      5.10     (75,362)      3.08
     Forfeited                 (70,387)     13.50          --                     --
                               -------                -------                -------
Outstanding at end of year     599,523      10.00     649,708      10.27     699,063       9.87
                               =======                =======                =======
Exercisable at end of year     525,524       9.86     542,878       9.79     584,075       9.55

Weighted-average fair value
   of options granted
   during the year             $ 3.80                 $ 3.60                 $ 5.13
</TABLE>

The data included in the above table have been retroactively adjusted, if
applicable, for stock dividends and the stock split.


                                       24
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS (CONTINUED)

Information regarding stock options outstanding as of January 31, 2002, is as
follows:

<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING                  OPTIONS EXERCISABLE
                        --------------------------------------       ------------------------
                                        WEIGHTED
                                         AVERAGE      WEIGHTED                       WEIGHTED
                                        REMAINING     AVERAGE                        AVERAGE
                         NUMBER OF     CONTRACTUAL    EXERCISE        NUMBER OF      EXERCISE
      PRICE RANGE         SHARES          LIFE         PRICE           SHARES         PRICE
    ---------------     ----------     -----------   ---------        ---------     ---------
    <S>                 <C>            <C>           <C>              <C>           <C>
    $ 2.06 TO  9.70      272,745        2.59 YEARS   $   5.34          240,896      $  4.80
     11.16 TO 15.29      217,739        7.22            12.57          179,031        12.46
     18.22 TO 19.44      109,039        5.69            16.60          107,575        16.58
                        --------                                      --------
                         599,523        4.83            10.00          527,502         9.80
                        ========                                      ========
</TABLE>

On October 15, 1996, the Board of Directors declared a dividend of one preferred
stock purchase right (a Right) for each outstanding share of the Company's
common stock. Each Right entitles a stockholder to purchase for an exercise
price of $50.00 ($22.77, as adjusted for the stock split and stock dividend),
subject to adjustment, one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock of the Company, or under certain
circumstances, shares of common stock of the Company or a successor company with
a market value equal to two times the exercise price. The Rights are not
exercisable, and would only become exercisable for all other persons when any
person has acquired or commences to acquire a beneficial interest of at least
20% of the Company's outstanding common stock. The Rights expire on October 25,
2006, have no voting privileges, and may be redeemed by the Board of Directors
at a price of $.001 per Right at any time prior to the acquisition of a
beneficial ownership of 20% of the outstanding common shares. There are 200,000
shares (439,230 shares as adjusted by the stock split and stock dividend) of
Series A Junior Participating Cumulative Preferred Stock reserved for issuance
upon exercise of the Rights.

6. PROVISION FOR INCOME TAXES

The Company uses the liability method to determine the provision for income
taxes. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.


                                       25
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



6. PROVISION FOR INCOME TAXES (CONTINUED)

The provisions for the last three years are reconciled to the statutory federal
income tax rate using the liability method as follows:

<TABLE>
<CAPTION>
                                                   JANUARY 31
                                        ------------------------------
                                        2002         2001         2000
                                        ----         ----         ----
<S>                                     <C>          <C>          <C>
Statutory                               34.0%        34.0%        35.0%
State taxes (net of federal tax)         4.1          3.2          3.1
Nondeductible expenses and other         5.5          1.1          1.0
                                        ----         ----         ----
                                        43.6%        38.3%        39.1%
                                        ====         ====         ====
</TABLE>

Significant components of the provision for income taxes (in thousands)
attributed to income before income taxes and cumulative effect of the accounting
change are as follows:

<TABLE>
<CAPTION>
                                 JANUARY 31
                  ---------------------------------------
                   2002            2001            2000
                  -------         -------         -------
<S>               <C>             <C>             <C>
Current:
   Federal        $ 1,562         $ 2,690         $ 2,952
   State              350             390             840
                  -------         -------         -------
                    1,912           3,080           3,792
Deferred:
   Federal         (1,449)           (350)          2,347
   State             (273)            (57)            388
                  -------         -------         -------
                   (1,722)           (407)          2,735
                  -------         -------         -------
                  $   190         $ 2,673         $ 6,527
                  =======         =======         =======
</TABLE>


                                       26
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



6. PROVISION FOR INCOME TAXES (CONTINUED)

Deferred tax assets and liabilities (in thousands) are comprised of the
following:

<TABLE>
<CAPTION>
                                                        JANUARY 31
                                                 -----------------------
                                                  2002             2001
                                                 -------         -------
<S>                                              <C>             <C>
Deferred tax assets
   Accrued vacation and sick leave               $ 1,090         $ 1,242
   Retirement plans                                3,308           2,678
   Insurance reserves                              1,306           1,410
   Inventory                                         244             322
   Other                                           1,068             216
                                                 -------         -------
                                                   7,016           5,868
Deferred tax liabilities
   Tax in excess of book depreciation             (4,288)         (4,381)
   Capitalized software development costs         (3,318)         (4,240)
                                                 -------         -------
                                                  (7,606)         (8,621)

Net deferred tax liability                       $  (590)        $(2,753)
                                                 =======         =======
</TABLE>

7. COMMITMENTS

The Company has long-term leases on real property and equipment, which expire at
various dates. Certain of the leases contain renewal, purchase options and
require payment for property taxes and insurance.

Minimum future lease payments (in thousands) for operating leases in effect as
of January 31, 2002, are as follows:

<TABLE>
<CAPTION>
Year ending January 31
- ----------------------
<S>                                                    <C>
             2003                                        $     10,314
             2004                                               7,914
             2005                                               6,064
             2006                                               3,200
             2007                                                 906
          Thereafter                                              868
                                                       ----------------
                                                         $     29,266
                                                       ================
</TABLE>


                                       27
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



7. COMMITMENTS (CONTINUED)

Rent expense relating to operating leases was as follows (in thousands):

<TABLE>
<CAPTION>
Year ending January 31
- ----------------------
<S>                                                      <C>
             2002                                        $     11,042
             2001                                              12,937
             2000                                              10,516
</TABLE>

The Company leases machinery and equipment from GECC under a 10-year operating
lease arrangement. The Company has the option of buying out the leases three to
five years into the lease period.

Minimum future lease-receipts (in thousands) for leases relating to properties
owned or subleased as of January 31, 2002, are as follows:

<TABLE>
<CAPTION>
Year ending January 31
- ----------------------
<S>                                                      <C>
             2003                                          $         33
             2004                                                    33
             2005                                                    33
             2006                                                    33
             2007                                                    33
             Thereafter                                             147
                                                         ----------------
                                                           $        312
                                                         ================
</TABLE>

8. CONTINGENCIES

The Company and other furniture manufacturers are subject to federal, state and
local laws and regulations relating to the discharge of materials into the
environment and the generation, handling, storage, transportation and disposal
of waste and hazardous materials. The Company has expended, and may be expected
to expend significant amounts for the investigation of environmental conditions,
installation of environmental control equipment and remediation of environmental
contamination.

The Company is subject to contingencies pursuant to environmental laws and
regulations that in the future may require the Company to take action to correct
the effects on the environment of prior disposal practices or releases of
chemical or petroleum substances by the Company or other parties. At January 31,
2002 and 2001, there are no required reserves for such environmental
contingencies.


                                       28
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



8. CONTINGENCIES (CONTINUED)

The Company has a self-insured retention for product and general liability
losses up to $100,000 per occurrence. The Company has purchased insurance to
cover losses in excess of $100,000 up to a limit of $30,000,000. The Company has
obtained an actuarial estimate of its total expected future losses for liability
claims and recorded the net present value of $3,908,000 at January 31, 2002,
based upon the Company's estimated payout period of four years using a 10%
discount rate.

Workers' compensation, automobile, general and product liability claims may be
asserted in the future for events not currently known by management. Management
does not anticipate that any related settlement, after consideration of the
existing reserve for claims incurred and potential insurance recovery, would
have a material adverse effect on the Company's financial position, results of
operations or cash flows.

The Company and its subsidiaries are defendants in various legal proceedings
resulting from operations in the normal course of business. It is the opinion of
management that the ultimate outcome of all such matters will not materially
affect the Company's financial position, results of operations or cash flows.

9. GAIN ON SALE OF ASSETS AND OTHER INCOME

On April 25, 2000, the Company completed the sale of its Torrance, California,
warehouse, which was held as rental property. The Company received $9,385,000 in
cash and recorded a $7,945,000 pre-tax gain on disposition during the quarter
ended April 30, 2000.

In October 2000, the Company entered into a confidential settlement of a dispute
involving past services related to the installation of non-manufacturing
equipment for which it received a final cash payment in November 2000. This
payment is a non-recurring amount unrelated to the Company's ongoing operations.
In the third quarter ended October 31, 2000, the Company recognized $4,052,000
in other income from this settlement.


                                       29
<PAGE>


                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)



10. SUBSEQUENT EVENT

Subsequent to the year ended January 31, 2002, the Company entered into an
agreement with Dew El to purchase Furniture Focus, Inc., an Ohio reseller that
offers complete package solutions for the Furniture, Fixtures and Equipment
(FF&E) segments of bond-funded public school construction projects, primarily in
the upper Midwest. Pending the successful completion of due diligence, the
Company will pay $2,400,000 in cash for certain assets of the corporation.

11. QUARTERLY RESULTS (UNAUDITED)

The Company's quarterly results for the years ended January 31, 2002 and 2001
are summarized as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                         APRIL 30         JULY 31         OCTOBER 31     JANUARY 31
                                         --------         --------        ----------     ----------
<S>                                      <C>              <C>             <C>            <C>
Year ended January 31, 2002
  Net sales                              $ 42,457         $ 89,193        $ 86,232        $ 39,580
  Gross profit                             11,483           28,349          28,591           8,764
  Net (loss) income                        (3,765)           4,490           3,912          (4,391)

  Per common share(1) (2):
    Net income

      Basic                                 (0.30)            0.37            0.32           (0.36)
      Assuming dilution                     (0.30)            0.36            0.32           (0.36)

Year ended January 31, 2001
  Net sales                              $ 46,432         $ 96,578        $ 99,016        $ 45,316
  Gross profit                             14,481           31,768          29,593           7,735
  Income (Loss) before cumulative
    effect of accounting change             2,617            4,262           4,713          (7,279)
  Cumulative effect of accounting
    change, net of tax
    Revenue recognition                      (297)              --              --              --
                                         --------         --------        --------        --------
  Net income (loss)                      $  2,320         $  4,262        $  4,713        $ (7,279)
                                         ========         ========        ========        ========
</TABLE>


                                       30
<PAGE>
                             Virco Mfg. Corporation

             Notes to Consolidated Financial Statements (continued)


11. QUARTERLY RESULTS (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
                                          APRIL 30          JULY 31         OCTOBER 31        JANUARY 31
<S>                                      <C>                <C>             <C>               <C>
 Per common share(1) (2):
   Income (Loss) before cumulative
     effect of accounting changes:
       Basic                             $    0.21          $  0.34           $  0.38          $ (0.59)
       Assuming dilution                      0.21             0.34              0.37            (0.59)
   Net income:
       Basic                                  0.19             0.34              0.38            (0.59)
       Assuming dilution                      0.18             0.34              0.37            (0.59)
</TABLE>


(1) Net income per share has been adjusted to reflect the 10% stock dividend
    declared in August 2001 and 2000.

(2) Per common share amounts for the quarters and full years have each been
    calculated separately. Accordingly, quarterly amounts may not add to the
    annual amounts because of differences in the average common shares
    outstanding during each period and with regard to diluted per common share
    amounts only, because of the effect of potentially dilutive securities only
    in the periods in which the effect would have been dilutive.


                                       31
<PAGE>
SUPPLEMENTAL STOCKHOLDERS' INFORMATION

ANNUAL MEETING

The Annual Meeting of Virco stockholders will be held on Tuesday, June 18, 2002,
at 2:00 p.m., at 2027 Harpers Way, Torrance, California. The record date for
this meeting is May 3, 2002. The Proxy Statement and Proxy pertaining to this
meeting will be mailed on or about May 24, 2002.

SEC FORM 10-K

A copy of the annual report to the Securities and Exchange Commission on Form
10-K may be obtained without charge upon written request to:

Corporate Secretary
Virco Mfg. Corporation
2027 Harpers Way
Torrance, CA 90501

VIRCO COMMON STOCK

The American Stock exchange is the principal market on which Virco Mfg.
Corporation (VIR) stock is traded. As of April 23, 2002, there were
approximately 350 registered stockholders according to the transfer agent
records. There are approximately 1,500 beneficial stockholders.

STOCKHOLDER RECORDS

Records pertaining to stockholdings and dividends are maintained by Mellon
Investor Services. Inquiries with respect to these matters, as well as notices
of address changes, should be directed to: Mellon Investor Services, 85
Challenger Road, Ridgefield Park, NJ 07660, telephone 1-800-356-2017.

If a stock certificate is lost or mutilated, immediately communicate with Mellon
Investor Services at the above address.

ADDITIONAL SERVICES FOR STOCKHOLDERS

Information about the Company is now available to stockholders at the Company's
website (www.virco.com). A brief description of Virco's product line is offered
together with illustrations showing a sampling of our furniture.


<PAGE>


QUARTERLY DIVIDEND AND STOCK MARKET INFORMATION

<TABLE>
<CAPTION>
                   Cash Dividends Declared                        Common Stock Range
                  1-31-2002         1-31-2001           1-31-2002                 1-31-2001
                  -----------------------------------------------------------------------------
                                                     High       Low            High        Low
                                                    ------    -------         ------     ------
<S>                    <C>            <C>           <C>       <C>             <C>        <C>
1st Quarter            $0.02          $0.02         $10.00    $  8.86         $10.69     $ 8.06
2nd Quarter             0.02           0.02           9.68       8.95          12.29       8.26
3rd Quarter             0.02           0.02          10.40       9.32          12.05      10.68
4th Quarter             0.02           0.02          10.20       8.15          10.23       7.73
</TABLE>


The data included in the above table has been retroactively adjusted, if
applicable, for the stock split and stock dividends.


<PAGE>


DIRECTORS, OFFICERS AND FACILITIES

DIRECTORS

Robert A. Virtue
President, Chairman of the Board and Chief Executive Officer

Donald S. Friesz
Former Vice President - Sales and Marketing

Evan M. Gruber
Chairman and Chief Executive Officer, Modtech Holdings, Inc.

Robert K. Montgomery
Partner, Gibson, Dunn & Crutcher

George W. Ott
President, Ott and Hansen, Inc.

Glen D. Parish
Vice President and General Manager, Conway Division

Donald A. Patrick
Management Consultant, Diversified Business Resources, Inc.

Douglas A. Virtue
Executive Vice President

Dr. James R. Wilburn
Dean of the School of Public Policy, Pepperdine University


<PAGE>


OFFICERS

Robert A. Virtue
President, Chairman of the Board and Chief Executive Officer

Douglas A. Virtue
Executive Vice President

Robert E. Dose
Vice President - Finance, Secretary and Treasurer

Robert J. Mills
Vice President - Engineering and Product Development

Glen D. Parish
Vice President and General Manager - Conway Division

Wesley D. Roberts
Vice President and Chief Information Officer

D. Randal Smith
Vice President - Marketing

Lori L. Swafford
Vice President - Legal Affairs

Larry O. Wonder
Vice President - Sales

INDEPENDENT AUDITORS

Ernst & Young LLP
One World Trade Center
Long Beach, California 90831

LEGAL COUNSEL

Gibson, Dunn & Crutcher
2029 Century Park East
Los Angeles, California 90067


<PAGE>


CORPORATE HEADQUARTERS

2027 Harpers Way
Torrance, California 90501
(310) 533-0474

MAJOR FACILITIES

Torrance Division
2027 Harpers Way
Torrance, California 90501

Conway Division
Highway 65, South
Conway, Arkansas 72032
<PAGE>
                     VIRCO MFG. CORPORATION AND SUBSIDIARIES

          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

               FOR THE YEARS ENDED JANUARY 31, 2000, 2001 AND 2002
                                 (In Thousands)

<TABLE>
<CAPTION>
       Col. A                    Col. B                Col. C            Col. D             Col. E              Col. F
                                                     Additions
                         Balance at Beginning    Charged to Costs   Charged to Other   Deductions from   Balance at Close of
Description                    of Period            and Expenses        Accounts           Reserves             Period
- -----------              --------------------    ----------------   ----------------   ---------------   -------------------
<S>                      <C>                     <C>                <C>                <C>               <C>
Allowance for Doubtful
Accounts:

Year Ended:

January 31, 2000                 $ 200                 $ 188                               $ 188 (1)             $ 200

January 31, 2001                 $ 200                 $ 156                               $ 156 (1)             $ 200

January 31, 2002                 $ 200                 $ 288                               $ 288 (1)             $ 200
</TABLE>


(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
in thousands, except per share data               2001             2000              1999             1998             1997
                                                ---------        ---------         ---------        ---------        ---------
<S>                                             <C>              <C>               <C>              <C>              <C>
Summary of Operations

Net sales - continuing operations (3, 4)        $ 257,462        $ 287,342         $ 268,079        $ 275,096        $ 259,586

Net income
  Continuing operations                               246            4,313            10,166           17,630           13,852
  Discontinued operations                              --               --                --               --               --
  Change in accounting methods                         --             (297)               --               --               --
                                                ---------        ---------         ---------        ---------        ---------
                                                $     246        $   4,016         $  10,166        $  17,630        $  13,852
                                                =========        =========         =========        =========        =========
Net income per share (1)                        $    0.02        $    0.32         $    0.79        $    1.32        $    1.04
Stockholder's equity                               90,223           94,141            93,834           88,923           77,077
Stockholder's equity per share (2)                   7.38             7.59              7.51             6.93             5.92
</TABLE>


<TABLE>
<CAPTION>
in thousands, except per share data               1996             1995             1994             1993               1992
                                                ---------        ---------        ---------        ---------         ---------
<S>                                             <C>              <C>              <C>              <C>               <C>
Summary of Operations

Net sales - continuing operations (3, 4)        $ 237,551        $ 225,559        $ 216,822        $ 206,738         $ 192,356

Net income
  Continuing operations                             9,326            5,209            5,001            4,302             3,827
  Discontinued operations                              --               --               --               --              (668)
  Change in accounting methods                         --               --               --             (275)               --
                                                ---------        ---------        ---------        ---------         ---------
                                                $   9,326        $   5,209        $   5,001        $   4,027         $   3,159
                                                =========        =========        =========        =========         =========
Net income per share (1)                        $    0.71        $    0.40        $    0.38        $    0.31         $    0.24
Stockholder's equity                               63,921           55,386           50,466           45,637            41,937
Stockholder's equity per share (2)                   4.93             4.27             3.90             3.53              3.24
</TABLE>


(1) Based on average number of shares outstanding each year after giving
    retroactive effect for stock dividends and 3 for 2 stock split.

(2) Based on number of shares outstanding at year-end giving effect for stock
    dividends and 3 for 2 stock split.

(3) The prior period statements of operations contain certain reclassifications
    to conform to the presentation required by EITF No. 00-10, Accounting for
    Shipping and Handling Fees and Costs, which the Company adopted during the
    fourth quarter of the year ended January 31, 2001.

(4) During the fourth quarter of 2000, the Company changed its method of
    accounting for revenue recognition in accordance with Staff Accounting
    Bulletin No. 101, "Revenue Recognition in Financial Statements." Pursuant to
    Financial Accounting Standards Board Statement No. 3, "Reporting Accounting
    Changes in Interim Financial Statements," effective February 1, 2000, the
    Company recorded the cumulative effect of the accounting change.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>6
<FILENAME>v81125ex21-1.txt
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
<PAGE>
                                                                    Exhibit 21.1

                              LIST OF SUBSIDIARIES


                           Virtue of California, Inc. (INACTIVE)
                           2027 Harpers Way
                           Torrance, CA 90501

                           Delkay Plastics (INACTIVE)
                           2027 Harpers Way
                           Torrance, CA 90501

                           Virco Inc.
                           2027 Harpers Way
                           Torrance, CA  90501

                           Virco Mgmt. Corporation
                           2027 Harpers Way
                           Torrance, CA  90501


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>7
<FILENAME>v81125ex23-1.txt
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.1

                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Virco Mfg. Corporation of our report dated March 15, 2002, included in the
2001 Annual Report to Stockholders of Virco Mfg. Corporation.

Our audits also include the financial statement schedule of Virco Mfg.
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-65096, Form S-8 No. 333-32539, Form S-8 No. 333-51717 and Form
S-8 No. 333-74832) pertaining to the Virco Mfg. Corporation 1993 Stock Incentive
Plan, the Virco Mfg. Corporation 1997 Stock Incentive Plan, the Virco Mfg.
Corporation Employee Stock Ownership Plan, and the Virco Mfg. Corporation 401(K)
Savings Plan, respectively, of our report dated March 15, 2002, with respect to
the consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Virco Mfg.
Corporation for the year ended January 31, 2002.


                                               /s/ Ernst & Young LLP

Long Beach, California
April 26, 2002

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
