Meetings and Independence

Each director of the Company serving in fiscal 20092011 attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and committees on which he served. The Board of Directors held six meetings in fiscal 2009.2011. In addition, the independent directors hold two regularly scheduled executive session meetings each fiscal year outside the presence of management as well as additional meetings as are necessary. Directors are expected to attend the Annual Meeting of Stockholders. Last year all of the directors attended the 20092011 Annual Meeting of Stockholders.

The Board of Directors has determined that the following directors, who constitute a majority of the Board of Directors, are “independent directors” as defined by the NASDAQ Stock Market listing standards: Messrs. Friesz, Beer, Moyer, Montgomery, Patrick, Parish, Schulte and Wilburn. Mr. Robert A. Virtue is Mr. Douglas A. Virtue’s father.

Currently, Mr. Robert Virtue serves as Chairman and Chief Executive Officer (“CEO”) of the Company. Because the Board also believes that strong, independent Board leadership is a critical component of effective corporate governance, the Board has established the position of lead independent director. The lead independent director position rotates among the independent directors periodically as determined by the independent directors. Mr. Moyer currently functions as the lead independent director. The lead independent director’s responsibilities and authority include providing input to the Chairman and CEO on preparation of agendas for Board and committee meetings and communicating to the Chairman and CEO the substance of the discussions and consensus reached at the meetings of independent directors. In addition, the Company has strong governance structures and processes in place to ensure the independence of the Board, eliminate conflicts of interest, and prevent dominance of the Board by management. For example, all Directors,directors, with the exception of Mr. Robert Virtue and Mr. Douglas Virtue, are independent as defined by the listing standards of the NASDAQ Stock Market, and all committees are made up entirely of independent directors.

The Board is actively involved in the oversight of risks that could affect the Company. The Board administers its risk oversight role primarily through its committee structure. In 2010, theThe Audit Committee assumed primary responsibilityis primarily responsible for overseeing the Board’s execution of its risk management oversight responsibility. The Compensation Committee is responsible for the oversight of risks arising from compensation policies and practices. During fiscal year 2011, the Compensation Committee assessed the risks, if any, arising from the Company’s compensation policies and practices for its employees. In performing its risk assessment, the Compensation Committee considered the balance between fixed and variable income, the balance between short-term and long-term performance-based incentive programs, and the linkage of performance incentives to the Company’s strategic and annual operating plans.

While the Board and its committees oversee risk management strategy, management is responsible for implementing and supervising day-to-day risk management processes. We believe this division of risk management responsibilities is the most effective approach for addressing the risks that the Company faces. The existing Board leadership structure discussed above encourages communication between management, including the Chairman of the Board, Lead Independent Directorthe lead independent director and the independent directors. We believe that this communication improves the Company’s identification and implementation of effective risk management strategies.

The Board of Directors has a standing Audit Committee that which is composed of Messrs. Schulte (Chair), Friesz,Wilburn, Moyer and Patrick. The Audit Committee held twofour on-site meetings and fourone telephonic meetingsmeeting in fiscal 2009.2011. The Audit Committee acts pursuant to a written charter adopted by the Board of Directors. The functions of

The Board of Directors has a standing Compensation Committee which is composed of Messrs. Moyer (Chair), Patrick, Montgomery and Wilburn,Friesz, all of whom are “independent directors” as defined in the listing standards of the NASDAQ Stock Market. The function of the Compensation Committee is, among other things, to: set the Company’s compensation policy and administer the Company’s compensation plans; make decisions on the compensation of key Company executives (including the review and approval of merit/other compensation budgets and payouts under the Company’s incentive plans); review and approve compensation and employment agreements of the Company’s executive officers; and recommend pay levels for members of the Board of Directors for consideration and approval by the full Board of Directors. As discussed above under “The Board’s Role in Risk Oversight,” the Compensation Committee oversees the design and implementation of the incentives and risks associated with the Company’s compensation policies and practices. The Compensation Committee may consult with the Chief Executive Officer and other members of senior management as it deems necessary and engage the assistance of outside consultants to assist in determining and establishing the Company’s compensation policies. [DuringDuring fiscal 2009,2011, the Company did not engage the assistance of compensation consultants.] The Compensation Committee held threetwo on-site meetings in fiscal 2009.2011. The Compensation Committee acts pursuant to a written charter adopted by the Board of Directors, a copy of which is available on the Company’s website at www.virco.com.

The Board of Directors has a standing Corporate Governance/Governance and Nominating Committee which is composed of Messrs. Montgomery (Chair), Friesz, Moyer, Patrick, Parish, Schulte, Wilburn and Wilburn, allBeer. All members of whomthe Corporate Governance and Nominating Committee are “independent directors” as defined in the listing standards of the NASDAQ Stock Market. During fiscal 2009,2011, the Corporate Governance/Governance and Nominating Committee held fourthree meetings. Each of these meetings was held outside the presence of management.

Any stockholder interested in communicating with individual members of the Board of Directors, the Board of Directors as a whole, any of the committees of the Board or the independent directors as a group may send written communications to the Board of Directors, any committee of the Board of Directors or any director or directors of the Company at 2027 Harpers Way, Torrance, California 90501, Attention: Robert E. Dose, Secretary. Communications received in writing are forwarded to the Board of Directors, or the committee or individual director or directors to whom the communication is directed, unless, at his discretion, the Secretary determines that the communication is of a commercial or frivolous nature, is unduly hostile, threatening, illegal, does not reasonably relate to the Company or its business, or is otherwise inappropriate for the Board of Directors’ consideration. In such cases, such correspondence may be forwarded elsewhere in the Company for review and possible response. The Secretary has the authority to discard or disregard any inappropriate communications or to take other appropriate actions with respect to any such inappropriate communications.

The Company has adopted a “CodeCode of Conduct and Ethics” which is applicable for Directors, Officers and Employees (the “Code”). The Code applies to its chief executive officerall Company directors, employees and officers, including the Company’s Chief Executive Officer and senior financial officers, including the principal financial and accounting officer.officers. The “Code of Ethics”Code is available on the Company’s website at www.virco.com.www.virco.com in the Corporate Governance section of the About Virco webpage. The Company intends to post amendments to or waivers under the Code of Ethicsthat apply to its Chief Executive Officer, principal financial officer and principal accounting officer on its website. Upon written request, the Company will provide a copy of the Code of Ethics free of charge. Requests should be directed to Virco Mfg. Corporation, 2027 Harpers Way, Torrance, California 90501, Attention: Robert E. Dose, Secretary.

The following table sets forth information as of April 16, 201023, 2012 (unless otherwise indicated), relating to the beneficial ownership of the Company’s Common Stockcommon stock by (i) by each person known by the Company to own beneficially more than 5% of the outstanding shares of Common Stockcommon stock of the Company, (ii) by each director or nomineeand director-nominee of the Company, (iii) by each Named Executive Officer of the Company, as named in the Summary Compensation Table and (iv) by all executive officers and directors of the Company as a group. Unless otherwise indicated, the mailing address of each of the persons named is c/o Virco Mfg. Corporation, 2027 Harpers Way, Torrance, California 90501.

The objectives of the Company’s executive compensation program are to: 1) attract, motivate and retain highly qualified executives; 2) link total compensation to stockholder returns; 3) reflect individual contributions to the performance of the Company; 4) insureachieve appropriate balance between long-term value creation and short-term performance by including equity as part of total compensation; and 5) maintain internal fairness and morale by comparing executive compensation, including perquisites and non-cash benefits, to the aggregated average compensation and benefits of the Company’s top 25 managers.

The Compensation Committee recommends and the Board approves the base salaries, annual bonus plan, and long-term incentives of the Company’s Chief Executive Officer (the “CEO”), Chief Financial Officer (the “CFO”), and the three other most highly compensated executives.executive officers. Throughout this Compensation Discussion & Analysis (“CD&A”), the CEO, CFO andChief Executive Officer (“CEO”), Principal Financial Officer (“PFO”), three other most highly compensated executives, and two former executive officers who resigned during fiscal 2011 are referred to collectively as the “Named Executive Officers.”

The program is designed to support annual and long-term business goals that create profitable growth and long-term value for stockholders.

The Company’s executive compensation program consists of three main elements: 1) base salary, which is tied to individual job duties; 2) annual bonus plan cash incentives, which are mathematically linked to the Company’s Annual Operating Plan, and specifically to pre-tax profits and annual sales volume;profits; and 3) long-term equity incentives, the value of which are linked to the Company’s stock price. Ancillary benefits such as health insurance, retirement benefits, and an automobile allowance are also part of the executive compensation program. As with the three main elements of the program, these ancillary benefits are compared toconsistent with similar benefits provided to the Company’s top 25 managers.

The combination of base salary, annual incentive, long-term incentive, and ancillary benefits is referred to as Total“Total Compensation.” The Company historically has established a target of “market median” for the Total Compensation of Named Executive Officers as determined by scale-, geography- and date-adjusted national compensation surveys from Wyatt Total Reward, Wyatt CQ Survey, Mercer Manufacturing Compensation Survey, Mercer Manufacturing Industry Market View, National Assoc. of Manufacturers, and Employers Group Research Services Survey.

In determining the finaltarget Total Compensation for Named Executive Officers, the Compensation Committee attempts to balance “external equity” as defined by “market median,” with “internal equity” as defined by the aggregated average Total Compensation for the Company’s top 25 managers. It is the Company’sCompensation Committee’s belief that this approach to establishing Total Compensation for Named Executive Officers results in better teamwork and morale among the entire management team, thus linking executive and management compensation with short- and long-term value creation for stockholders.

Base salary is intended to reward Named Executive Officers and other employees for their roles within the Company and their performance in those roles. The Company determines the base salary range for a particular position by evaluating 1) the duties, complexities and responsibilities of the position; 2) the level of experience required; and 3) the compensation for positions having similar scope and accountability within and outside the Company (through survey data as described above). The Company did not increase base salaries for the Named Executive Officers for fiscal 20082009, 2010, or 20092011. In 2011 Robert A. Virtue and Douglas A. Virtue voluntarily took reductions in base salary. The Company does not anticipate increasing base salaries for Named Executive Officers in fiscal 2010.

The Named Executive Officers are eligible for annual cash incentives under the Company’s Annual Bonus Plan, which is approved by the Board of Directors at the beginning of the Company’s fiscal year as part of its Annual Operating Plan. To reward Named Executive Officers and other salaried managers for achieving the financial performance set forth in the Annual Operating Plan, the Board of Directors establishes a minimum level of financial performance above which a cash bonus will be paid. ForIn 2011, for achieving the minimum threshold performance level, the Named Executive Officers were entitled to receive a cash bonus equal to 15% of their base salary. For achieving the “target” pre-tax profit,target performance level, Named Executive Officers were entitled to receive a cash bonus equal to 35% cash bonus.of their base salary. The maximum possible cash bonus for Named Executive Officers iswas capped at 50% of base salary. The threshold, target and maximum bonus levels for each Named Executive Officer were determined by reference to the survey data and other factors described above.

For fiscal 2009,2011, the minimum threshold for receiving a minimum bonusperformance level under the Annual Bonus Plan was achieving $210 million in annual sales and $4,000,000 in pre-tax earnings after accruing an earned bonus provision of approximately $206,000 for the Named Executive Officers.earnings. No cash bonus payment was made to the Named Executive Officers under the Annual Bonus Plan for fiscal 20092011 as the Company’s sales and pre-tax earnings did not exceed this threshold.

The Company believes that the most powerfullargest incentive to focus Named Executive Officers on long-term value creation is long-term ownership of Company stock. Under the Company’s current long-term incentive program, Named Executive Officers and top managers receive periodic grants of Restricted Stock Units (“RSUs”). The Company uses RSUs rather than options because it has been the Company’s experience that RSUs are more likely to result in a growing ownership position of Company stock and thereby align the interests of executives and stockholders.

On the date of the 2009 Annual Meeting of Stockholders and Board of Directors meeting, June 16, 2009, each Named Executive Officer was granted 20,000 RSUs, vesting ratably over a five-year period. The number of RSUs granted to each Named Executive Officer in fiscal 2009 was determined by reference to historical grant levels provided to Company executives, as well as the factors described above. Each Named Executive Officer received the same number of RSUs in order to foster internal pay equity and the Company’s “one-team” management approach. The Company did not grant RSUs to Named Executive Officers in fiscal 2008. On the date of the 2007 Annual Meeting of Stockholders and Board of Directors meeting on June 19, 2007, each Named Executive Officer was granted 15,000 RSUs, vesting ratably over a five-year period.

Perquisites— The Company provides Named Executive Officers with a Company automobile or cash allowance of $22,800 per year under a program available to all officers of the Company. In the fourth quarter of 2010 the cash allowance was reduced from $22,800 per year to $12,000 per year and the executive automobiles were replaced with automobiles that are generally available to sales managers. The Company does not

Other Benefits— Executives participate in the same health, disability and life insurance programs as are provided to other Company employees. In addition, the Named Executive Officers participate in the Company’s tax-qualified defined benefit pension plan (the Virco Mfg. Corporation Employees Retirement Plan) and nonqualified supplementsupplemental retirement plan (the Virco Important Performers (VIP) Plan). As more fully disclosed in the MD&A and Footnote 4 to the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2010 (“Form 10-K”),2012, these retirement plans were frozen effective December 31, 2003, and additional benefit accruals for all Named Executive Officers ceased on that date.

The Company does not have employment agreements with any of the Named Executive Officers, and is not obligated to provide termination pay or other severance benefits to any of its Named Executive Officers. In general, the benefits provided or available to Named Executive Officers upon retirement, death, disability or other

termination of employment or upon the occurrence of a change-in-control event are the same as those provided or made available to salaried employees generally.

Pursuant to the Company’s 19972007 and 20072011 Stock Incentive Plans, vesting of all outstanding stock and option awards is accelerated upon a change-in-control. In addition, under the Virco Important Performers (VIP) Plan, vesting of retirement benefits is accelerated upon the occurrence of a change-in-control or the death of the participant. All Named Executive Officers are currently fully vested in all retirement programs, and would receive no additional benefit upon occurrence of a change-in-control. These benefits are provided to salaried employees generally and are intended to ensure thathelp management remainsremain focused on stockholder value when evaluating strategic alternatives.

The Company seeks to structure its compensation arrangements to maximize the tax deductibility of all components of executive compensation unless the benefit of such deductibility is outweighed by the need for flexibility or the attainment of other corporate objectives. The Compensation Committee will continue to monitor issues concerning the deductibility of executive compensation and will take appropriate action if and when it is warranted. Since corporate objectives may not always be consistent with the requirements for full deductibility, the Compensation Committee is prepared, if it deems appropriate, to enter into compensation arrangements under which payments may not be fully deductible. Thus, deductibility will not be the sole factor used by the Compensation Committee in ascertaining appropriate levels or modes of compensation. In fiscal 2008,2009, 2010, and 2011, we believe that all compensation paid to executives was fully deductible;deductible and that no executive officer exceeded the $1 million limit under Section 162(m) of the Internal Revenue Code of 1986, as amended, with regard to non-performance-based compensation.

Prior compensation of the Named Executive Officers does not impact how the CompanyCompensation Committee sets elements of current compensation. The Compensation Committee believes that the competitive environment thatin which the Company operates in mandates that current total compensation be set at levels sufficient to attract, motivate and retain top management, which requires the CompanyCompensation Committee to set compensation amounts based on current Company and business conditions.

The CompanyCompensation Committee has not adopted executive stock ownership guidelines. While there are no guidelines, two of the Named Executive Officers, Robert A. Virtue and Douglas A. Virtue, beneficially own 2.2%2.43% and 4.39%4.54%, respectively, of the outstanding shares of the Company’s Common Stock.common stock. Messrs. R. Virtue and D. Virtue are members of the Virtue Familyfamily and subject to the terms of the Virtue Family Agreement discussed in the “Security Ownership”Ownership of Certain Beneficial Owners and Management” section of this Proxy Statement. The Virtue Familyfamily owns approximately 40%38.89% of the Company’s outstanding Common Stock.