<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>3
<FILENAME>v96066exv99w1.txt
<DESCRIPTION>EXHIBIT 99.1
<TEXT>
<PAGE>

EXHIBIT 99.1

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

           Virco(R) Announces New Financing Agreement With Wells Fargo

Torrance, California - January 29, 2004: Virco Mfg. Corporation (AMEX: VIR)
announced today that it has completed its new financing agreement with Wells
Fargo in the following letter to shareholders from Robert A. Virtue, President
and CEO:

I'm pleased to report that under the terms of a new hybrid loan structure, we
will be continuing the financial partnership we have enjoyed with Wells Fargo
since 1989. The loan combines elements of traditional cash flow and asset-based
financing and has been carefully designed to provide adequate liquidity for
fiscal 2004.

The loan package provides for $57,500,000 of working capital, $12,500,000 of
which is a term loan. The balance of $45,000,000 is a seasonal revolver that
will be used to finance inventories and peak season receivables.

Although demand in our core public school market remains soft because of state
budget shortfalls, covenants in the new loan are structured for current levels
of business. For investors with access to the SEC's EDGAR system, the loan
package can be reviewed on-line.

All statements in this press release that do not directly and exclusively relate
to historical facts constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements
represent the Company's intentions, plans, expectations and beliefs, and are
subject to risks, uncertainties and other factors, many of which are outside the
Company's control. These factors could cause actual results to differ materially
from such forward-looking statements. For a written description of these
factors, see the section titled "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" in the Company's Form 10-Q for
the quarter ended October 31, 2003. The Company disclaims any intention or
obligation to update these forward-looking statements whether as a result of
subsequent events or otherwise except as required by law.

                                       1

<PAGE>

                                                                  EXECUTION COPY

Exhibit 99.2

                              AMENDED AND RESTATED

                                CREDIT AGREEMENT

                          Dated as of January 27, 2004

                                     between

                             VIRCO MFG. CORPORATION,

                                  as Borrower,

                                       and

                     WELLS FARGO BANK, NATIONAL ASSOCIATION,

                                     as Bank

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
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<S>                                                                                                                   <C>
ARTICLE I  CREDIT TERMS..........................................................................................       1

         Section 1.1.      Line Of Credit; Term Loan.............................................................       1

         Section 1.2.      Interest/Fees.........................................................................       2

         Section 1.3.      Collection Of Payments................................................................       3

ARTICLE II  REPRESENTATIONS AND WARRANTIES.......................................................................       4

         Section 2.1.      Legal Status..........................................................................       4

         Section 2.2.      Authorization And Validity............................................................       4

         Section 2.3.      No Violation..........................................................................       4

         Section 2.4.      Litigation............................................................................       4

         Section 2.5.      Correctness Of Financial Statement....................................................       4

         Section 2.6.      Income Tax Returns....................................................................       5

         Section 2.7.      No Subordination......................................................................       5

         Section 2.8.      Permits, Franchises...................................................................       5

         Section 2.9.      ERISA.................................................................................       5

         Section 2.10.     Other Obligations.....................................................................       5

         Section 2.11.     Environmental Matters.................................................................       5

         Section 2.12.     No Encumbrances.......................................................................       6

         Section 2.13.     Eligible Accounts.....................................................................       6

         Section 2.14.     Eligible Inventory....................................................................       6

         Section 2.15      Solvency..............................................................................       6

         Section 2.16.     Indebtedness..........................................................................       6

         Section 2.17.     Inactive Subsidiaries.................................................................       6

ARTICLE III  CONDITIONS..........................................................................................       7
</TABLE>

                                                                               i

<PAGE>

                                TABLE OF CONTENTS
                                  (CONTINUED)

<TABLE>
<CAPTION>
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<S>                                                                                                                <C>
         Section 3.1.      Conditions Of Initial Extension Of Credit............................................     7

         Section 3.2.      Conditions Of Each Extension Of Credit...............................................     9

ARTICLE IV  AFFIRMATIVE COVENANTS...............................................................................     9

         Section 4.1.      Punctual Payments....................................................................     9

         Section 4.2.      Accounting Records...................................................................     9

         Section 4.3.      Financial Statements and Reports.....................................................     9

         Section 4.4       Collateral Reporting.................................................................    10

         Section 4.5.      Compliance...........................................................................    11

         Section 4.6.      Insurance............................................................................    12

         Section 4.7.      Facilities...........................................................................    12

         Section 4.8.      Taxes And Other Liabilities..........................................................    12

         Section 4.9       Existence............................................................................    12

         Section 4.10.     Interest Rate Hedging Arrangements...................................................    12

         Section 4.11.     Notice To Bank.......................................................................    13

         Section 4.12.     Right to Inspect.....................................................................    13

ARTICLE V  NEGATIVE COVENANTS...................................................................................    13

         Section 5.1.      Use Of Funds.........................................................................    13

         Section 5.2.      Capital Expenditures.................................................................    13

         Section 5.3.      Lease Expenditures...................................................................    13

         Section 5.4.      Other Indebtedness...................................................................    14

         Section 5.5       Liens................................................................................    14

         Section 5.6.      Merger, Consolidation, Transfer Of Assets............................................    14

         Section 5.7.      Guaranties...........................................................................    15
</TABLE>

                                                                              ii

<PAGE>

                                TABLE OF CONTENTS
                                  (CONTINUED)

<TABLE>
<CAPTION>
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                                                                                                                   ----
<S>                                                                                                                <C>
         Section 5.8.      Loans, Advances, Investments.........................................................    15

         Section 5.9.      Dividends, Distributions.............................................................    15

         Section 5.10      Transactions with Affiliates.........................................................    15

         Section 5.11.     LC Usage Amount......................................................................    15

         Section 5.12.     Total Liabilities to Tangible Net Worth Ratio........................................    15

         Section 5.13.     Adjusted EBITDA Coverage Ratio.......................................................    16

         Section 5.14.     Leverage Ratio.......................................................................    16

         Section 5.15.     Quarterly Consolidated EBITDA........................................................    16

         Section 5.16      Inactive Subsidiaries................................................................    17

ARTICLE VI  EVENTS OF DEFAULT...................................................................................    17

         Section 6.1.      Events of Default....................................................................    17

         Section 6.2.      Remedies.............................................................................    19

ARTICLE VII  MISCELLANEOUS......................................................................................    20

         Section 7.1       No Waiver............................................................................    20

         Section 7.2.      Notices..............................................................................    20

         Section 7.3.      Costs, Expenses And Attorneys' Fees..................................................    20

         Section 7.4.      Successors, Assignment...............................................................    21

         Section 7.5.      Entire Agreement; Amendment..........................................................    21

         Section 7.6.      No Third Party Beneficiaries.........................................................    21

         Section 7.7.      Time.................................................................................    21

         Section 7.8.      Severability Of Provisions...........................................................    21

         Section 7.9.      Counterparts.........................................................................    22

         Section 7.10.     Governing Law........................................................................    22
</TABLE>

                                                                             iii

<PAGE>

                                TABLE OF CONTENTS
                                  (CONTINUED)

<TABLE>
<CAPTION>
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                                                                                                           ----
<S>                                                                                                        <C>
Section 7.11.     Arbitration..........................................................................    22

Section 7.12.     Restatement of Prior Credit Agreement................................................    24
</TABLE>

EXHIBITS AND SCHEDULES

EXHIBIT A-1       FORM OF LINE OF CREDIT NOTE

EXHIBIT A-2       FORM OF TERM NOTE

EXHIBIT B         FORM OF BORROWING BASE CERTIFICATE

EXHIBIT C         FORM OF COMPLIANCE CERTIFICATE

SCHEDULE 2.11     ENVIRONMENTAL MATTERS

SCHEDULE E-1      EQUIPMENT/INVENTORY LOCATIONS

SCHEDULE R-1      REAL PROPERTY COLLATERAL

                                                                              iv

<PAGE>

                      AMENDED AND RESTATED CREDIT AGREEMENT

         AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 27, 2004
("Agreement") between VIRCO MFG. CORPORATION, a Delaware corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").

                                    RECITALS

         A.       Bank and Borrower previously entered into that certain Credit
Agreement dated as of February 1, 2003 (as amended from time to time, the "Prior
Credit Agreement"), pursuant to which Bank extended 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.

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

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

                                    ARTICLE I

                                  CREDIT TERMS

Section 1.1. Line Of Credit; Term Loan.

         (a)      Line of Credit. During the Line of Credit Period, Bank hereby
agrees, subject to the terms and conditions of this Agreement, to make advances
("Advances") to Borrower from time to time in an aggregate principal amount at
any time outstanding not to exceed the lesser of (i) the Maximum Line of Credit
Amount minus the Letter of Credit Usage or (ii) the Borrowing Base minus the
Letter of Credit Usage ("Line of Credit"). The proceeds of all advances made
hereby shall be used to finance Borrower's working capital requirements and to
refinance the amount 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-1 attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.

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

                                                                               1

<PAGE>

amount of outstanding Advances, or (ii) the Letter of Credit Usage would exceed
$10,000,000, or (iii) the Letter of Credit Usage would exceed the Maximum Line
of Credit Amount less the then extant amount of outstanding Advances. The form
and substance of each Letter of Credit shall be subject to approval by Bank, in
its sole discretion. Each commercial Letter of Credit shall be issued for a term
not to exceed one hundred eighty (180) days, as designated by Borrower;
provided, however, that no commercial Letter of Credit shall have an expiration
date subsequent to the Line of Credit Termination Date. Each standby Letter of
Credit shall be issued for a term not to exceed twelve (12) months, as
designated by Borrower; provided, however, that no standby Letter of Credit
shall have an expiration date subsequent to the Line of Credit Termination Date.
Each Letter of Credit shall be subject to the additional terms and conditions of
the Letter of Credit agreements, applications and any related documents required
by Bank in connection with the issuance thereof. Each drawing paid under a
Letter of Credit shall be deemed an Advance under the Line of Credit and shall
be repaid by Borrower in accordance with the terms and conditions of this
Agreement applicable to such advances; provided, however, that if Advances under
the Line of Credit are not available, for any reason, at the time any drawing is
paid, then Borrower shall immediately pay to Bank the full amount drawn,
together with interest thereon from the date such drawing is paid to the date
such amount is fully repaid by Borrower, at the rate of interest applicable to
advances under the Line of Credit. In such event Borrower agrees that Bank, in
its sole discretion, may debit any account maintained by Borrower with Bank for
the amount of any such drawing. All Prior Letters of Credit which are
outstanding as of the date hereof shall be deemed "Letters of Credit" hereunder.

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

         (d)      Bank agrees, on the terms and conditions set forth in this
Agreement, to make a term loan (a "Term Loan") to the Borrower in a single
borrowing on the Closing Date, in a principal amount not to exceed $12,500,000.
Borrower's obligation to repay the Term Loan shall be evidenced by a promissory
note substantially in the form of Exhibit A-2 attached hereto ("Term Note"), all
terms of which are incorporated herein by this reference. Once the Term Loan has
been repaid it may not be reborrowed.

Section 1.2. Interest/Fees.

         (a)      Interest. The outstanding principal balance of the Line of
Credit and the Term Loan shall bear interest at the rate of interest set forth
in the Line of Credit Note or the Term Note, as the case may be.

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

         (c)      Unused Commitment Fee. Borrower shall pay to Bank an unused
commitment fee on the 15th day of the month immediately following each fiscal
quarter end in an amount

                                                                               2

<PAGE>

equal to 0.375% per annum times the result of (i) the Maximum Line of Credit
Amount, less (ii) the sum of (A) the average daily balance of Advances that were
outstanding during the immediately preceding quarter, plus (B) the average daily
balance of Letters of Credit outstanding during the immediately preceding
quarter.

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

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

         (f)      Upfront Line of Credit Commitment Fee. Borrower shall pay to
Bank, on the Closing Date, an upfront Line of Credit commitment fee in an amount
equal to $112,500, such fee shall be fully earned and non-refundable when paid.

         (g)      Upfront Term Loan Commitment Fee. Borrower shall pay to Bank,
on the Closing Date, an upfront Term Loan commitment fee in an amount equal to
$31,250, such fee shall be fully earned and non-refundable when paid.

         (h)      Collateral Audits. Borrower shall pay to Bank its customary
fees plus reasonable out-of-pocket expenses for each financial or collateral
analysis and examination (i.e., audit) of Borrower and its Subsidiaries
performed by personnel employed by Bank (or the actual charges paid or incurred
by Bank if it elects to employ the services of one or more Persons to perform
such audits); provided, however that so long as no Event of Default has occurred
and is continuing, Borrower shall not be obligated to reimburse Bank the fees
and costs of more than two (2) audits in any fiscal year.

Section 1.3. Collection Of Payments.

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

                                                                               3

<PAGE>

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

Section 2.2. Authorization And Validity.

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

Section 2.3. No Violation.

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

Section 2.4. Litigation.

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

Section 2.5. Correctness Of Financial Statement.

         The financial statements of Borrower dated October 31, 2003, a true
copy of which has been delivered by Borrower to Bank prior to the date hereof,
(a) is complete and correct and presents fairly the financial condition of
Borrower and its Subsidiaries, (b) discloses all liabilities of Borrower and its
Subsidiaries that are required to be reflected or reserved against under GAAP,
whether liquidated or unliquidated, fixed or contingent, and (c) has been
prepared in accordance with GAAP consistently applied. Since October 31, 2003
there has been no Material Adverse Change in the financial condition of
Borrower, nor has Borrower or any of its

                                                                               4

<PAGE>

Subsidiaries mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank.

Section 2.6. Income Tax Returns.

         Borrower has filed all federal, national, state, provincial, municipal,
and other tax returns and reports, if any, which are required to be filed (or
appropriate extensions have been timely filed) and has paid all taxes due
pursuant to such returns and reports or pursuant to any assessment received by
Borrower, except such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided in accordance with GAAP and as to
which no Lien, other than a Permitted Lien, exists. The charges, accruals and
reserves on the books of Borrower in respect of any taxes or other governmental
charges are adequate.

Section 2.7. No Subordination.

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

Section 2.8. Permits, Franchises.

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

Section 2.9. ERISA.

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

Section 2.10. Other Obligations.

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

Section 2.11. Environmental Matters.

         Except as set forth on Schedule 2.11, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental

                                                                               5

<PAGE>

Response, Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower or its Subsidiaries is the subject of any federal or state
investigation evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste or
substance into the environment. Neither the Borrower nor any of its Subsidiaries
has any material contingent liability in connection with any release of any
toxic or hazardous waste or substance into the environment.

Section 2.12. No Encumbrances.

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

Section 2.13. Eligible Accounts.

         The Eligible Accounts are bona fide existing payment obligations of
Account Debtors created by the sale and delivery of Inventory or the rendition
of services to such Account Debtors in the ordinary course of Borrower's
business, owed to Borrower without any known defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. As to each Account that is
identified by Borrower as an Eligible Account in a Borrowing Base Certificate
submitted to Bank, such Account is not excluded as ineligible by virtue of one
or more of the defining criteria set forth in the definition of Eligible
Accounts.

Section 2.14. Eligible Inventory.

         All Eligible Inventory is of good and merchantable quality, free from
known defects. As to each item of Inventory that is identified by Borrower as
Eligible Inventory in a Borrowing Base Certificate submitted to Bank, such
Inventory is not excluded as ineligible by virtue of one or more of the defining
criteria set forth in the definition of Eligible Inventory.

Section 2.15 Solvency.

         Borrower and each of its Subsidiaries is Solvent.

Section 2.16. Indebtedness.

         Immediately following the Closing Date Borrower has no Indebtedness
outstanding other than the Obligations and the IRB Indebtedness.

Section 2.17. Inactive Subsidiaries.

         Each of Delkay Plastics and Virtue of California, Inc. have no
Indebtedness or other liabilities, conduct no operations or business or own any
assets or properties.

                                                                               6

<PAGE>

                                   ARTICLE III

                                   CONDITIONS

Section 3.1. Conditions Of Initial Extension Of Credit.

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

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

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

                  (i)      This Agreement.

                  (ii)     The Line of Credit Note.

                  (iii)    The Term Note.

                  (iv)     Each Guaranty.

                  (v)      The Security Agreement.

                  (vi)     The Mortgages and Mortgage Related Documents.

                  (vii)    The Loan Disbursement Order.

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

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

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

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

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

                                                                               7

<PAGE>

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

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

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

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

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

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

         (f)      Appraisals. Bank shall have received an appraisal of the
Borrower's and its Subsidiaries' Equipment and the Real Property Collateral, the
results of which shall be satisfactory to Bank.

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

         (h)      Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies

                                                                               8

<PAGE>

satisfactory to Bank, and where required by Bank, with loss payable endorsements
in favor of Bank.

Section 3.2. Conditions Of Each Extension Of Credit.

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

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

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

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

                                   ARTICLE IV

                              AFFIRMATIVE COVENANTS

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

Section 4.1. Punctual Payments.

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

Section 4.2. Accounting Records.

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

Section 4.3. Financial Statements and Reports.

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

                                                                               9

<PAGE>

         (a)      Annual Financial Statements. Not later than 90 days after and
as of the end of each fiscal year (i) audited financial statements of Borrower,
prepared by a certified public accountant acceptable to Bank and certified,
without any qualifications, by such accountants to have been prepared in
accordance with GAAP; and, if issued, a copy of such accountant's management
letter (such audited financial statements to include a balance sheet,
consolidated statements of income, a statement of cash flows and appropriate
footnotes and supporting consolidating information); and (ii) a certificate of
such accountants addressed to Bank stating that such accountants do not have
knowledge of the existence of any Default or Event of Default under Sections
5.2, 5.11, 5.12, 5.13, 5.14 or 5.15;

         (b)      Form 10-K. Not later than 90 days after and as of the end of
each fiscal year, Borrower's Annual Report Form 10-K as filed with the
Securities and Exchange Commission;

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

         (d)      Form 10-Q. Not later than 45 days after and as of the end of
each fiscal quarter, Borrower's Quarterly Report Form 10-Q as filed with the
Securities and Exchange Commission;

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

         (f)      Compliance Certificates. For each fiscal quarter that is a
date on which a financial covenant in Sections 5.2, 5.11, 5.12, 5.13, 5.14 or
5.15 is to be tested, a Compliance Certificate demonstrating in reasonable
detail, compliance with the applicable financial covenant for the date or period
covered thereby;

         (g)      Account Debtor Information. Not later than 30 days after July
31 and January 31 of each year, a detailed report setting forth a true and
complete list of all Account Debtors of Borrower and its Subsidiaries as of July
31 and January 31, respectively, together with the address, phone number and
name of the primary relationship contact for each Account Debtor;

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

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

Section 4.4 Collateral Reporting.

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

                                                                              10

<PAGE>

         (a)      Weekly Reports. If the date of determination is between April
1 and July 31, not later than Monday of each week for the week most recently
ended:

                  (i)      an aging of the Accounts of Borrower, together with a
         reconciliation to the detailed calculation of the Borrowing Base
         previously provided to Bank,

                  (ii)     an aging, by vendor, of the accounts payable and any
         book overdraft of Borrower and its Subsidiaries,

                  (iii)    Inventory reports specifying the cost of the
         Inventory of Borrower and its Subsidiaries, by category (i.e., by
         reference to whether such Inventory is raw material, work-in-process,
         "assemble-to-ship" component or finished goods Inventory), as adjusted
         to reflect the market value of such Inventory if lower than the cost
         thereof, with additional detail showing additions to and deletions
         therefrom, and

                  (iv)     a detailed calculation of the Borrowing Base
         (including detail regarding those Accounts of Borrower that are not
         Eligible Accounts), in the form of the Borrowing Base Certificate.

         (b)      Monthly Reports. If the date of determination is between
August 1 and March 31, not later than the 10th day of each month for the month
most recently ended:

                  (i)      an aging of the Accounts of Borrower, together with a
         reconciliation to the detailed calculation of the Borrowing Base
         previously provided to Bank,

                  (ii)     an aging, by vendor, of the accounts payable and any
         book overdraft of Borrower and its Subsidiaries,

                  (iii)    Inventory reports specifying the cost of the
         Inventory of Borrower and its Subsidiaries, by category (i.e., by
         reference to whether such Inventory is raw material, work-in-process,
         "assemble-to-ship" component or finished goods Inventory), as adjusted
         to reflect the market value of such Inventory if lower than the cost
         thereof, with additional detail showing additions to and deletions
         therefrom, and

                  (iv)     a detailed calculation of the Borrowing Base
         (including detail regarding those Accounts of Borrower that are not
         Eligible Accounts), in substantially the form of the Borrowing Base
         Certificate.

         (c)      Supplemental Information. Upon the request of Bank (i) copies
of invoices, purchase orders, credit memos, remittance advices, deposit slips,
shipping and delivery documents and (ii) such other reports as to the Collateral
or the financial condition of Borrower and its Subsidiaries as Bank may request.

Section 4.5. Compliance.

         Preserve and maintain all licenses, permits, governmental approvals,
rights, privileges and franchises necessary for the conduct of its business; and
comply with the provisions of all documents pursuant to which Borrower or a
Subsidiary is organized and/or which govern the

                                                                              11

<PAGE>

continued existence of Borrower or a Subsidiary and with the requirements of all
laws, rules, regulations and orders of any Governmental Authority applicable to
Borrower, its Subsidiaries and/or their businesses.

Section 4.6. Insurance.

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

Section 4.7. Facilities.

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

Section 4.8. 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 4.9 Existence.

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

Section 4.10. Interest Rate Hedging Arrangements.

         At Bank's request, maintain interest rate Hedging Agreements
satisfactory to Bank (including, with respect to the term thereof, which term
shall not expire prior to the Term Loan Termination Date) in respect of not less
than 50% of the average principal balance of the Term Loan outstanding from time
to time. It being understood that the obligations of Borrower under such Hedging
Agreements shall be secured pari passu with the Obligations of the Borrower
under this Agreement and the other Loan Documents.

                                                                              12

<PAGE>

Section 4.11. Notice To Bank.

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

Section 4.12. Right to Inspect.

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

                                    ARTICLE V

                               NEGATIVE COVENANTS

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

Section 5.1. Use Of Funds.

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

Section 5.2. Capital Expenditures.

         Make any additional investment in fixed assets in excess of an
aggregate of $3,500,000 for the fiscal year ending January 31, 2004, or in
excess of an aggregate of $5,000,000 during any subsequent fiscal year.

Section 5.3. Lease Expenditures.

         Incur new operating lease expense in excess of an aggregate of
$2,000,000 in any fiscal year; provided, however, that refinancings of existing
operating leases shall be excluded from the foregoing determination unless the
amounts due in respect of the new operating lease exceeds the amounts that were
payable under the refinanced lease.

                                                                              13

<PAGE>

Section 5.4.      Other Indebtedness.

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

                  (a)      the Obligations;

                  (b)      the IRB Indebtedness;

                  (c)      $2,000,000 aggregate principal amount of Capital
         Lease Obligations owing to General Electric Capital Corporation (or an
         Affiliate thereof) so long as (i) such obligations are incurred solely
         in connection with the conversion of operating leases in effect on the
         Closing Date and (ii) the terms and conditions of such obligations are
         in all material respects identical to the converted operating leases.

Section 5.5 Liens.

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

                  (a)      Liens in favor of Bank;

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

                  (c)      Liens arising by operation of law in favor of
         warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
         suppliers, incurred in the ordinary course of an Issuer's or
         Subsidiary's business and not in connection with the borrowing of
         money, and which Liens either (i) are for sums not yet delinquent or
         (ii) are being contested in good faith, and in any event do not secure
         liabilities greater than $250,000 in the aggregate;

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

                  (e)      Liens securing the obligations described in Section
         5.4(c).

Section 5.6. Merger, Consolidation, Transfer Of Assets.

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

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

                                                                              14

<PAGE>

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

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

Section 5.7. Guaranties.

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

Section 5.8. Loans, Advances, Investments.

         Make any loans or advances to or Investments in any Person.

Section 5.9. Dividends, Distributions.

         Make any distribution or declare or pay any dividends (in cash or other
property, including stock of Borrower) on, or purchase, acquire, redeem, or
retire any of Borrower's stock, of any class, whether now or hereafter
outstanding.

Section 5.10 Transactions with Affiliates.

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

Section 5.11. LC Usage Amount.

         Permit the LC Usage Amount to exceed (i) $30,000,000 for a period of 30
consecutive days during the period commencing on August 1, 2004 through and
including October 30, 2004 or (ii) $15,000,000 for a period of 30 consecutive
days during the period commencing on November 1, 2004 through and including
January 31, 2005.

Section 5.12. Total Liabilities to Tangible Net Worth Ratio.

         Permit the ratio of Total Liabilities to Tangible Net Worth at any time
during any fiscal quarter of Borrower specified below to exceed the ratio
specified below for such fiscal quarter:

                                                                              15

<PAGE>

<TABLE>
<CAPTION>
                FISCAL QUARTER:                       RATIO:
--------------------------------------------------------------
<S>                                                <C>
               January 31, 2004                    1.75 : 1.00
--------------------------------------------------------------

                April 30, 2004                     2.25 : 1.00
--------------------------------------------------------------

                 July 31, 2004                     2.25 : 1.00
--------------------------------------------------------------

               October 31, 2004                    1.50 : 1.00
--------------------------------------------------------------

               January 31, 2005                    1.50 : 1.00
--------------------------------------------------------------

Each Fiscal Quarter Ended April 30 and July 31     2.00 : 1.00
                  thereafter
--------------------------------------------------------------

 Each Fiscal Quarter Ended July 31 and October     1.50 : 1.00
                 31 thereafter
--------------------------------------------------------------
</TABLE>

Section 5.13. Adjusted EBITDA Coverage Ratio.

         Permit the Adjusted EBITDA Coverage Ratio, as of January 31, 2005 to be
less than 1.25 : 1.00 and as of April 30, 2005 and as of the end of each fiscal
quarter of Borrower thereafter, to be less than 1.50 : 1.00.

Section 5.14. Leverage Ratio.

         Permit the Leverage Ratio at any time during any fiscal quarter of
Borrower specified below to be more than the ratio specified below for such
fiscal quarter:

<TABLE>
<CAPTION>
                FISCAL QUARTER:                     RATIO:
-------------------------------------------------------------
<S>                                              <C>
               October 31, 2004                  10.00 : 1.00
-------------------------------------------------------------

               January 31, 2005                   3.00 : 1.00
-------------------------------------------------------------

Each Fiscal Quarter Ended April 30 and July 31    4.00 : 1.00
                  thereafter
-------------------------------------------------------------

 Each Fiscal Quarter Ended July 31 and October    2.50 : 1.00
                 31 thereafter
-------------------------------------------------------------
</TABLE>

Section 5.15. Quarterly Consolidated EBITDA.

         Permit Consolidated EBITDA for any fiscal quarter of Borrower to be
less than the amount specified below for such fiscal quarter:

                                                                              16

<PAGE>

<TABLE>
<CAPTION>
             FISCAL QUARTER:                    AMOUNT:
---------------------------------------------------------
<S>                                           <C>
            January 31, 2004                  ($9,250,000)
---------------------------------------------------------

             April 30, 2004                   ($2,000,000)
---------------------------------------------------------

              July 31, 2004                    $5,000,000
---------------------------------------------------------

            October 31, 2004                   $4,500,000
---------------------------------------------------------

January 31, 2005 and each Fiscal Quarter      ($3,000,000)
               thereafter
---------------------------------------------------------
</TABLE>

Section 5.16 Inactive Subsidiaries.

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

         Section 5.17 Licensing Agreements.

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

                                   ARTICLE VI

                                EVENTS OF DEFAULT

Section 6.1. Events of Default.

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

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

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

         (c)      Any default in the performance of or compliance with any
obligation, agreement or other provision contained in Section 4.1, 4.3, 4.4,
4.5, 4.8, 4.9, 4.10 or Article V of this Agreement.

                                                                              17

<PAGE>

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

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

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

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

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

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

         (j)      A Change of Control shall occur.

                                                                              18

<PAGE>

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

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

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

         (n)      If a notice of Lien, levy, or assessment is filed of record
with respect to any of Borrower's or any of its Subsidiaries' assets by the
United States, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any Borrower's or any of its Subsidiaries'
assets and the same is not paid before such payment is delinquent, except in the
case of a notice of lien, levy or assessment filed by, or any taxes or debts
owing to, any state, county or other local governmental authority wherein the
obligation owing to such governmental authority does not exceed $10,000.

Section 6.2. Remedies.

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

                                                                              19

<PAGE>

                                   ARTICLE VII

                                  MISCELLANEOUS

Section 7.1 No Waiver.

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

Section 7.2. Notices.

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

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

         BANK:            WELLS FARGO BANK, NATIONAL ASSOCIATION
                          San Gabriel Valley Regional Commercial Banking Office
                          1000 Lakes Drive, Suite 250
                          West Covina, CA 91790
                          Attn: Randall J. Repp
                          Vice President

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

Section 7.3. Costs, Expenses And Attorneys' Fees.

         Borrower shall pay to Bank immediately upon demand the full amount of
all payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of
Bank's in-house counsel), expended or incurred by Bank in connection with (a)
the negotiation and preparation of this Agreement and the other Loan Documents,
Bank's continued administration hereof and thereof, and the preparation of any
amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights
and/or the collection of any amounts which become due to Bank under any of the
Loan Documents and

                                                                              20

<PAGE>

(c) the prosecution or defense of any action in any way related to any of the
Loan Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to
Borrower or any other person or entity.

Section 7.4. Successors, Assignment.

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

Section 7.5. Entire Agreement; Amendment.

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

Section 7.6. No Third Party Beneficiaries.

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

Section 7.7. Time.

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

Section 7.8. Severability Of Provisions.

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

                                                                              21

<PAGE>

Section 7.9. Counterparts.

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

Section 7.10. Governing Law.

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

Section 7.11. Arbitration.

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

         (b)      Governing Rules. Any arbitration proceeding will (i) proceed
in a location in California selected by the American Arbitration Association
("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the documents between the parties; and (iii) be conducted by the AAA, or such
other administrator as the parties shall mutually agree upon, in accordance with
the AAA's commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000 exclusive of claimed interest, arbitration
fees and costs in which case the arbitration shall be conducted in accordance
with the AAA's optional procedures for large, complex commercial disputes (the
commercial dispute resolution procedures or the optional procedures for large,
complex commercial disputes to be referred to, as applicable, as the "Rules").
If there is any inconsistency between the terms hereof and the Rules, the terms
and procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. ss.91 or any
similar applicable state law.

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

                                                                              22

<PAGE>

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

         (e)      Discovery. In any arbitration proceeding discovery will be
permitted in accordance with the Rules. All discovery shall be expressly limited
to matters directly relevant to the dispute being arbitrated and must be
completed no later than 20 days before the hearing date and within 180 days of
the filing of the dispute with the AAA. Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.

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

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

         (h)      Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no dispute shall be submitted to arbitration if
the dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such

                                                                              23

<PAGE>

indebtedness and obligations, shall remain fully valid and enforceable. If any
such dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

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

Section 7.12. Restatement of Prior Credit Agreement.

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

                            [Signature Page Follows]

                                                                              24

<PAGE>

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

VIRCO MFG. CORPORATION                          WELLS FARGO BANK, NATIONAL
                                                ASSOCIATION

By:  /S/ Robert E. Dose                         By: /s/ Randall J. Repp
     Robert E. Dose                                 Randall J. Repp
     Vice President - Finance, Secretary and        Vice President
     Treasurer

                                                                              25

</TEXT>
</DOCUMENT>
