-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F7z2PT0IMXYvRKHwzm92WmwC8F3F4//BbLCDRfRXjXtr5ufuEeroRrZeRRMc2YcT WnowZsrMONRy4rLhX4wfNg== 0001047469-09-008322.txt : 20090914 0001047469-09-008322.hdr.sgml : 20090914 20090914165555 ACCESSION NUMBER: 0001047469-09-008322 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090914 DATE AS OF CHANGE: 20090914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUIXOTE CORP CENTRAL INDEX KEY: 0000032870 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 362675371 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08123 FILM NUMBER: 091067971 BUSINESS ADDRESS: STREET 1: 35 E. WACKER DRIVE STREET 2: SUITE 1100 CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3124676755 MAIL ADDRESS: STREET 1: 35 E. WACKER DRIVE STREET 2: SUITE 1100 CITY: CHICAGO STATE: IL ZIP: 60601 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY ABSORPTION SYSTEMS INC DATE OF NAME CHANGE: 19800815 10-K 1 a2194436z10-k.htm 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


(Mark One)
ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2009
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period to
Commission file number 001-08123

QUIXOTE CORPORATION
(Exact name of registrant as specified in its charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		36-2675371 (I.R.S. Employer Identification No.)
THIRTY FIVE EAST WACKER DRIVE, CHICAGO, ILLINOIS (Address of principal executive offices)		60601 (Zip Code)
Registrant's telephone number including area code: (312) 467-6755
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock ($.01²/3 Par Value)		The NASDAQ Stock Market LLC
(Title of Class)		(Name of Exchange on Which Registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. o Yes ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o Yes ý No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ý.

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


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

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

As of December 31, 2008, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $54,246,888, based on the closing sale price as reported on the NASDAQ Global Market.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

9,333,867 shares of the Company's Common Stock ($.01²/3 par value) were outstanding as of September 9, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 19, 2009 which will be filed with the Commission on or about October 13, 2009 is incorporated by reference at Part III.

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PART I
Item 1.	Business	3-9
Item 1A.	Risk Factors	10-16
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
PART II
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	20
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21-36
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 8.	Financial Statements and Supplementary Data	37-68
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	69
Item 9A.	Controls and Procedures	69-70
Item 9B.	Other Information	70
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	71
Item 11	Executive Compensation	71
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	72
Item 13.	Certain Relationships, Related Transactions, and Director Independence	72
Item 14.	Principal Accountant Fees and Services	72
PART IV
Item 15.	Exhibits and Financial Statement Schedule	73-76
SIGNATURES		77

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PART I
THE COMPANY

Forward Looking Statements

Various statements made within this report constitute "forward-looking statements" for purposes of the SEC's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended. Except for historical information, any statement that addresses expectations or projections about the future, including statements about our strategy for growth, product development, market position, expenditures, financial results or changes in governmental legislation, policies and conditions, is a forward-looking statement. Readers are cautioned not to place undue reliance on these forward-looking statements and that all forward-looking statements involve risks and uncertainties, including those detailed in our public filings with the SEC, news releases and other communications, which speak only as of the dates of those filings or communications. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. There can be no assurance that actual results will not differ materially from our expectations.

Item 1. Business

Overview of the Company

Quixote Corporation was originally incorporated under the laws of the State of Delaware in 1969 as Energy Absorption Systems, Inc. In June 1980, Energy Absorption Systems, Inc. changed its name to Quixote Corporation. When we use the terms "Quixote Corporation", "the Company", "we", "our" or "us" in this report, we refer to Quixote Corporation and its subsidiaries, unless otherwise provided by the context in which the term is used.

Through our subsidiaries, we develop, manufacture and market highway and transportation safety products to protect, direct and inform motorists and road workers in both domestic and international markets. Our continuing operations are comprised of two reportable segments within the highway and transportation safety industry. Our two reportable segments are: the manufacture and sale of highway and transportation safety products that Protect and Direct and the manufacture and sale of highway products and services which Inform motorists and highway personnel. The Protect and Direct segment provides solutions for improving safety on roads either by minimizing the severity of crashes that occur or by preventing crashes from occurring by directing or guiding traffic. The primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck and trailer mounted attenuators, sand filled-barrels and water-filled barriers, and directing and guiding products such as flexible post delineators and glare screen systems. The Inform segment provides solutions for improving traffic flow and safety on roads and runways by providing information. The primary product lines within the Inform segment include advanced sensing products which measure distance, count and classify vehicles; weather sensing systems; and computerized highway advisory radio transmitting systems. Our products are sold worldwide through a distribution network and supplemented by a direct sales force, to customers in the highway construction and safety business, state and municipal departments of transportation and other governmental transportation agencies.

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authorization bill becomes law, the transportation safety allotment in federal and state budgets may be uncertain and we believe that prolonged uncertainty may adversely impact sales of our products and our financial performance in fiscal 2010.

Federal transportation spending is funded through a highway trust fund which derives most of its money from gasoline tax revenue. The highway trust fund was depleted in 2008, when gasoline tax revenue shrank because the number of miles driven in the United States was reduced in direct response to the higher price of gasoline. In September 2008, $8 billion was transferred from the federal government's general fund to the highway trust fund in an attempt to keep the highway fund solvent through September 2009. In August 2009, a short-term highway authorization bill that included a transfer of $7 billion to the highway trust fund was enacted. We expect that before September 30, 2009, Congress and the Obama Administration will agree to extend the highway authorization law for a limited time (perhaps 12 to 18 months) at current levels, and will transfer funds to the highway trust fund as needed in order to provide ample time for the adoption of a new multi-year highway authorization law. Delayed legislation, reduced gasoline tax revenues and altered driving patterns will impact the future solvency of the highway trust fund. Failure to replenish the highway trust fund expeditiously may have an adverse effect on the sales of our products and our financial performance in fiscal 2010.

In February 2009, the American Recovery and Reinvestment Act of 2009 was enacted to increase jobs through infrastructure projects by providing approximately $27 billion in stimulus funding for highway and bridge improvements. We believe that our business was modestly affected in late fiscal 2009 by this stimulus spending but we can not quantify that impact. We anticipate that our fiscal 2010 results will further benefit from this stimulus spending, but we believe that this one-time spending package can not substitute for enactment of the multi-year highway authorization legislation and the long term funding of the highway trust fund. Even after federal legislation is enacted, funding appropriations may be revised in future congressional sessions, and federal funding for infrastructure projects may be reduced in the future. Changes in the availability of federal funds and the timing of the release of those funds to state and local governments can have an adverse impact on our business as we have experienced in the past. In addition, state budgetary constraints and deficit issues are expected to continue into fiscal 2010, which may negatively impact our performance in fiscal 2010.

As of June 30, 2009, we employed approximately 460 people.

Description of Business

Our continuing operations are comprised of two reportable segments:

•: The Protect and Direct segment provides solutions for improving safety on the roads either by minimizing the severity of crashes that occur or by preventing crashes from occurring by directing or guiding traffic.
•: The Inform segment provides solutions for improving traffic flow and safety on roads and runways by providing information.

Our products are sold world-wide through a distribution network, and supplemented by a direct sales force, to customers in the highway construction and safety business, state and municipal departments of transportation and other governmental transportation agencies.

Financial information relating to industry segments appears in Note 17 of the notes to our consolidated financial statements incorporated by reference herein.

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Protect and Direct Segment

Our Protect and Direct segment of products include our patented highway crash cushions which were first conceived and developed in 1969. These products were developed and sold in response to the high number of fatalities and serious injuries suffered by occupants of errant vehicles in collisions with roadside hazards, such as bridge abutments, overpass piers, overhead sign supports, lane dividers, traffic islands and toll booths. Since 1969, various types of highway crash cushions have been installed in front of thousands of life-threatening roadside hazards. The Federal Highway Administration (FHWA) endorses the installation of highway crash cushions as an effective safety program and they are mandatory on interstate roads in the U.S.

We develop, manufacture and market lines of patented highway crash cushion systems, truck-mounted and trailer-mounted attenuators (TMA's) and other barriers which absorb and dissipate the force of impact in collisions between vehicles and fixed roadside objects or slow moving highway construction vehicles. The product lines utilize the principles of momentum transfer and kinetic energy to safely decelerate errant vehicles. Energy absorption or energy dissipation is accomplished by using different combinations of water, aluminum, steel, urethane foam systems, cardboard, plastic structures, elastometric cylinders and sand.

We also manufacture and sell products that prevent crashes and help control the flow of traffic by directing or guiding. These products consist of a line of flexible sign and guide post systems (delineators) and a glare screen system. The guide posts are used to delineate a travel way, channel vehicles or mark the location of an object. The post features an in-ground anchor system that permits inexpensive repair and replacement. The glare screen system, made from polyethylene, is installed on top of median barriers to eliminate the distraction of lights from oncoming vehicles.

Our products within the Protect and Direct segment also include a crashworthy barrier arm for use at areas such as railroad crossings and toll roads and as security for access ways, driveways and parking lots.

Inform Segment

In 1998 we began to acquire Intelligent Transportation System (ITS) products which provide information to improve traffic flow and safety. Products sold by our Inform segment include weather and traffic sensing products and highway advisory radio products.

These products include portable and permanent sensors that record traffic volume, speed, and length classification of vehicles. These sensors also collect, analyze and store traffic, road surface conditions and freezing point data which can be relayed on a real-time basis to a transportation department's base computer or control center via telephone, cellular link, fiber optic connection or a wireless link. We also manufacture and market road/runway weather information systems. Using a tower equipped with weather instruments and special detectors, these systems can detect freezing conditions and provide valuable weather information to transportation departments or airports in order to dispatch salt trucks or automatically activate anti-icing systems. In addition, we market a FreezeFree® anti-icing system which automatically or manually dispenses deicing liquids in advance of ice formation on bridges, roads and overpasses.

We are a leading manufacturer of highway advisory radio (HAR) systems that broadcast traffic information using an AM radio frequency with reception up to six miles from the unit. HAR systems, in connection with flashing lights and message signs, advise drivers to tune into a particular AM station to hear messages about traffic, road conditions and weather. These HAR systems can be permanent or mobile. Our Intellizone® system is designed to provide real-time information to motorists by integrating traffic and/or weather sensors, variable message signs and computer controlled software.

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Across both segments, we may provide product education, selection and application assistance. In limited cases, we perform site preparation and installation services for our products.

Discontinued Operations

Marketing and Competition

Our products are sold in all 50 U.S. states and internationally. Domestically, we sell either through a distribution network or through a direct sales force. Regional managers supervise domestic distributors and make direct sales in areas not covered by distributors. We had approximately 35 domestic distributors on June 30, 2009. We sell our products principally to distributors, contractors (on behalf of state and local governments), state departments of transportation, state agencies, local governments, municipalities, and airports. Although the federal government provides matching funds for the purchase of certain highway safety products by state and local governmental agencies, the federal government is usually not a direct purchaser of our domestic products. For certain products, we sell through catalogs and inside sales personnel.

Many foreign governments are beginning to recognize the need for our products as a method of reducing traffic congestion and improving safety. Our products are sold outside of the U.S through a network of distributors who make sales to municipal and national governments and contractors who are responding to bids from their respective governments. We had approximately 90 international distributors on June 30, 2009.

Although we experience competition in many of our product lines, we believe that we are a leading U.S. manufacturer of transportation safety products. Within the Protect and Direct segment, we believe that no other company presently markets as broad a line of highway crash cushion systems designed to shield as large a variety of fixed roadside hazards as we do. However, many of our competitors in both of our business segments offer products similar to those supplied by us. We experience some competition in most product lines. We compete in the market for permanent and work-zone crash cushions with Barrier Systems, Inc. (a subsidiary of Lindsay Corporation (NYSE: LNN)), Trinity Industries, Inc. (NYSE: TRN), TrafFix Devices, Inc., and other smaller regional companies. A number of other companies manufacture flexible sign and guide post systems. Within the Inform segment, we experience competition in selling our product lines, particularly our road weather information systems (RWIS). There are a few companies that compete with us in selling HAR systems. In addition, we compete with many different companies that sell traffic sensors using different technologies, including microwave and infra-red sensors and machine-vision (video), with each technology offering its own advantages.

Competition may have an adverse effect on our selling prices and profit margins of certain product lines, and depending on the product mix sold, can adversely affect our financial results. We believe that we compete effectively through our own in-house product development, patent protection, quality and price, and the effectiveness of our strong distribution network.

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Government Policies and Funding

The United States domestic market for highway and transportation safety products is directly affected by federal, state, and local governmental policies.

Historically, federal funds have been allocated and highway policy has been developed through six-year federal highway authorization bills. A significant portion of our sales is ultimately financed by funds provided by the federal government to the states pursuant to the federal highway authorization bills. Typically these funds cover 75% to 90% of the cost of highway safety projects on roads constructed or maintained with federal assistance.

The current federal highway authorization law, the Safe, Accountable, Flexible and Efficient Transportation Equity Act-A Legacy for Users, or SAFETEA-LU, expires September 30, 2009. We anticipate delays in the enactment of a new highway authorization bill. (SAFETEA-LU was delayed nearly two years after the earlier authorization bill expired.) Until a new highway authorization bill becomes law, the transportation safety allotment in federal and state budgets will be uncertain and we believe that prolonged uncertainty may adversely impact sales of our products and our financial performance in fiscal 2010.

Federal transportation spending is funded through a highway trust fund which derives most of its money from gasoline tax revenue. The highway trust fund was depleted in 2008, when gasoline tax revenue shrank because the number of miles driven in the United States was reduced in direct response to the higher price of gasoline. In September 2008, $8 billion was transferred from the federal government's general fund to the highway trust fund in an attempt to keep the highway fund solvent through September 2009. In August 2009 a short-term highway authorization bill that included a transfer of $7 billion to the highway trust fund was enacted. We expect that before September 30, 2009, Congress and the Obama Administration will agree to extend the highway authorization law for a limited time (perhaps 12 to 18 months) at current levels, and will transfer funds to the highway trust fund as needed in order to provide ample time for the adoption of a new multi-year highway authorization law. Delayed legislation, reduced gasoline tax revenues and altered driving patterns will impact the future solvency of the highway trust fund. Failure to replenish the highway trust fund expeditiously may have an adverse effect on the sales of our products and our financial performance in fiscal 2010.

Even after federal legislation is enacted, funding appropriations may be revised in future congressional sessions, and federal funding for infrastructure projects may be reduced in the future. Changes in the availability of federal funds and the timing of the release of those funds to state and local governments can have an adverse impact on our business, as we have experienced in the past.

Many of our products are approved as acceptable highway hardware according to procedures in the National Cooperative Highway Research Program number 230 or 350 that provide various test levels depending on the application. This Federal Highway Administration approval makes the products eligible for federal funds for certain highway projects. We are obligated to seek such approval for improvements or upgrades to such products or any new products.

State and local governments utilize funds from the federal government and from their own revenues to build and maintain highways, streets, and other transportation projects. Reductions in the

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availability of federal funds or delays in releasing those funds have a direct impact on state and local government spending for highway and transportation projects, and their demand for our products. Loss of tax revenues and other budget constraints of state and local governments can also reduce their highway and transportation spending. Like the federal highway trust fund, state highway revenues are dependent on state gasoline taxes. Some states also contribute a portion of sales tax revenue from automobile sales to their highway funds. The majority of states have been experiencing budgetary constraints and deficits which are expected to continue into our fiscal 2010.

Foreign government policies and funding for highway and transportation safety are a significant factor in our international business, and those policies and funding mechanisms vary by country. In many cases, foreign governments condition purchases of our products on additional testing and compliance with certification procedures.

Backlog

As of June 30, 2009, 2008 and 2007, our continuing businesses had a backlog of unfilled orders for our products of $19,171,000, $17,390,000 and $16,411,000, respectively. We generally can fill an order for our products within two days to eight weeks of receipt depending on the type of product, but some products may not be shipped for up to one year depending on order requirements.

Research and Development; Patents

Many of our products have patented features and we conduct our own research, development and testing of new products before introducing them to the marketplace. The expenditures for research and development activities on our continuing products were $3,039,000, $3,650,000 and $3,453,000 for the fiscal years 2009, 2008 and 2007, respectively. We maintain a crash test facility in California for Protect and Direct products.

We develop new products by working with customers as well as federal, state and local highway officials to determine transportation safety needs, and then we design products to satisfy those needs. We are also active in promoting cooperation among state highway agencies, contractors and engineers to encourage comprehensive repair and maintenance of roadside crash attenuating systems. In addition to developing new products, we also seek to acquire new products which can be sold through our distribution networks to our existing customers.

We own a number of U.S. and foreign patents covering our major products. We actively seek patent and trademark protection for new developments.

Raw Materials

The principal raw materials used in the production of transportation safety devices are plastic and plastic resins, steel, aluminum and electronic components. These raw materials are purchased from various suppliers and have been readily available throughout the last year. We believe that adequate supplies of these materials will continue to be available.

In fiscal 2009, 2008 and 2007 we were affected by increased prices for certain commodities, particularly steel, aluminum and resin, which can be a significant component of the cost of certain of our products. We attempt to reduce the negative impact of increasing prices by entering into fixed price arrangements and by passing along price increases to our customers. However, increased commodity prices have negatively impacted our gross margin for certain products. In addition, increasing fuel and freight costs adversely affected our results particularly in the first half of fiscal 2009 and also in fiscal 2008 and 2007. Material, fuel and freight costs may continue to increase in fiscal 2010.

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Major Customers

No single customer represents a significant portion of our total revenues. However, approximately 7%, 6% and 6% of our consolidated revenues resulted from sales to customers in the states of New York, Texas and Illinois respectively, in fiscal 2009. Our customers are typically distributors, contractors, departments of transportation, state agencies, local governments or municipalities and, therefore, a change in policy in state spending could materially affect our sales in that state.

Seasonality

Our sales are historically seasonal with domestic highway construction and maintenance projects typically peaking in our fourth fiscal quarter.

Foreign and Domestic Operations and Revenues

Our business is conducted principally in the United States, with sales outside of the United States as follows: $25,938,000, $24,642,000 and $20,432,000 in 2009, 2008 and 2007 respectively. Our assets outside of the United States (see Properties at Item 2) are not material to our consolidated financial position.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, special reports, proxy and information statements, and amendments to those reports, with the Securities and Exchange Commission (SEC). The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 100 F. Street, N.E., Washington D.C. Information about the operation of the SEC Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our filings can also be obtained for free on the SEC's Internet site at sec.gov. We also maintain an internet website at http://www.quixotecorp.com that contains access to our public filings and other information regarding us. We make our public filings available as soon as reasonably practicable after such material is filed, or furnished, to the SEC. A copy of our filings will also be furnished free of charge upon request to our Corporate Secretary, Joan R. Riley, at our address listed on the cover of this Form 10-K.

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Item 1A. Risk Factors

There are many factors that pose material risks to our business, operating results and financial condition which are frequently beyond our control. These factors include, but are not limited to, those listed below. These risk factors include forward-looking statements that involve risks and uncertainties. All forward-looking statements, including those detailed in our public filings with the SEC, news releases and other communications, speak only as of the dates of those filings or communications. There can be no assurance that actual results will not differ materially from our expectations.

Our business could be adversely affected by reduced levels of cash, whether from operations or pursuant to the terms of our debt, as well as our ability to refinance our existing debt.

Reduced levels of cash generated from operations as well as our ability to refinance our existing debt could adversely impact our current business and our ability to grow.

Historically, our principal sources of cash have been cash flows from operations and borrowings from banks and other sources. Given the continued weak global economic conditions, operations may continue to generate less cash. Our current bank credit agreement expires in November 2009. There can be no assurance that we will be able to negotiate a new bank credit agreement with satisfactory terms and conditions on a timely basis.

In addition, the holders of our $40,000,000 of 7% Senior Subordinated Convertible Notes may, as of February 2010, require us to repurchase those Notes at 100% of the principal plus unpaid interest, and we expect that they will do so. Our existing cash balance and the cash we generate from operations will not be sufficient to pay the principal amount of these Notes. As further discussed in Note 3 to the Consolidated Financial Statements, we believe that the credit markets are improving and we are working with an advisor to explore other financing alternatives. However, there is no assurance that we will be able to refinance this debt on a timely basis and on satisfactory terms, if at all.

The effects of the weak global economic conditions and the distressed financial markets may continue to adversely affect our sales, capital structure and liquidity.

The current weak global economic conditions and the distressed financial markets have generally resulted in reduced demand for products, volatility in the capital markets, and constricted credit availability. Continuation of these economic conditions can further reduce our sales, and the uncertainty in the capital and credit markets may adversely affect our ability to access necessary capital, whether by refinancing our existing debt, or obtaining agreements for new debt, or by issuing securities as well as increase the cost of such capital. Reduced access to capital and credit markets combined with reduced cash flow from operations would adversely affect our liquidity.

The downturn in the global economy and the transportation safety and highway construction industries may continue to adversely affect our operating results.

General economic downturns, including downturns in the transportation safety and highway construction industries, could result in a material decrease in our revenues and operating results. We believe that the current downturn of global economic conditions and the related reduction in government funding adversely impacted our performance in fiscal years 2008 and 2009. Sales of our products are sensitive to foreign, domestic and regional economies in general, and in particular, changes in government infrastructure spending which can be adversely impacted by reduced tax revenues. In addition, trends toward privatization of highways may impact the nature of spending on transportation safety products. Many of our costs are fixed and cannot be quickly reduced in response to decreased demand.

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A decrease or delay in federal government funding of transportation safety and highway construction and maintenance may cause our revenues, profits and cash flow to decrease.

We depend substantially on federal, state and local funding for transportation safety, highway construction and maintenance and other related infrastructure projects. Federal government funding for infrastructure projects is usually accomplished through highway authorization bills, which establish funding over a multi-year period. The most recent highway authorization legislation, SAFETEA-LU, expires September 30, 2009. We anticipate that delays in the passage of a new highway bill will occur, which may increase uncertainty in state and local governments and delays in commencing infrastructure projects. SAFETEA-LU was delayed nearly two years after the previous law had expired. Even after federal legislation is enacted, funding appropriations may be revised in future congressional sessions, and federal funding for infrastructure projects may be reduced in the future.

Federal transportation spending is funded through a highway trust fund which derives most of its money from gasoline tax revenue. When the price of gasoline increased in 2008, the number of miles driven decreased significantly which depleted the surplus in the federal highway trust fund. In September, 2008, legislation was enacted to transfer $8 billion from the general fund to the highway trust fund in an attempt to keep the fund solvent through September 2009. However, reduced tax revenues and altered driving patterns further impacted the solvency of the highway trust fund, and in August 2009 legislation was enacted that included a transfer of $7 billion to the highway trust fund so that critical infrastructure projects will remain funded through September 30, 2009. We expect that before September 30, 2009, Congress and the Obama administration will agree to extend the highway authorizations for a limited time (perhaps 12 to 18 months) at current levels, and will transfer funds to the highway trust fund to provide ample time for the adoption of a new multi-year highway authorization law. Failure to replenish the highway trust fund expeditiously may have an adverse impact on our sales and financial performance in fiscal 2010. Congress enacted the American Recovery and Reinvestment Act in February 2009 which includes approximately $27 billion in stimulus funding for highway and bridge improvements, aimed at increasing jobs through infrastructure projects. There is no assurance that this stimulus spending program will positively affect the demand for our products in fiscal 2010, or thereafter.

Constraints on state and local government budgets and decreases in state highway funding adversely affect our financial performance.

States and municipalities may continue to reduce spending on highways due to reduced tax revenues and other budget constraints and priorities. Loss of tax revenues and such budgetary constraints adversely affect the ability of states to fund transportation, highway and infrastructure projects, and therefore reduce the demand for our products. Municipalities also suffer from budget constraints that can reduce transportation safety spending.

Like the federal highway trust fund which depends on gasoline tax revenue, state highway funds also are dependent on revenue from state gasoline taxes. A number of states also contribute a portion of their sales tax on new car purchases into their state highway funds. A decrease in miles driven or new car sales may adversely affect the ability of states to fund transportation projects, and correspondingly, reduce the demand for our products. The majority of states have been experiencing budgetary constraints and deficits which are expected to continue into our fiscal 2010.

We depend on principal customers.

Although we depend on principal customers, no single customer of Quixote represents a significant portion of total revenues. In fiscal 2009, approximately 7%, 6% and 6% of our consolidated revenues resulted from sales to customers in the States of New York, Texas and Illinois, respectively. Customers may include distributors, contractors, departments of transportation, state agencies, local governments

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or municipalities. Any reduction in state transportation safety spending could materially affect our sales in those states, whether caused by reduced tax revenues or other budget constraints or priorities. The loss of, or a significant reduction in, orders from our customers in these states could have a material adverse effect on our financial condition and results of operations. Many state governments, including New York, Texas and Illinois, have announced budget short-falls, which could further adversely affect sales of our products.

Our customers and suppliers may be adversely affected by the current global economic conditions, reduced government spending on transportation and highway projects, and the distressed credit markets. In turn, delays in placing orders and payment for products and higher default rates by our customers, as well as increased costs and imposition of more stringent terms and conditions by our suppliers could adversely affect our financial performance.

We are in a competitive marketplace.

To the extent one or more of our current or future competitors introduce products that better address customer requirements, or are less expensive than our products, our business could be adversely affected and we may be unable to maintain our leadership position in certain product lines. Competition may adversely affect the selling prices and the profit margins on our products. We may not be successful in developing and marketing our existing products or new products or incorporating new technology on a timely basis or at a reduced cost. If we are unable to timely develop and introduce new products, or enhance existing products, or reduce costs in response to changing market conditions or customer requirements or demands, our business and results of operations could be materially and adversely affected.

We have acquired complementary businesses in the past and, as a part of our strategy, may continue to acquire complementary businesses. The gross profit margins of certain acquired product lines are lower than our historical gross profit margin, which adversely affects our gross profit margin. Given competitive conditions, we may be unable to improve our gross profit margins for these products.

We have been affected by increased prices for certain commodities, particularly steel, aluminum and resin, which are a significant component of the cost of certain of our products. Such price increases negatively impact our gross margin for certain products, if we are unable to pass along to our customers cost increases. Increasing fuel and freight costs may also adversely affect our performance.

Our products often are subject to government testing, inspection and approval.

We frequently supply products and services pursuant to agreements with general contractors or government agencies. The successful completion of our obligations under these contracts is often subject to satisfactory testing, inspection and approval of such products and services. Although we endeavor to satisfy the requirements of each of these contracts to which we are a party, no assurance can be given that the necessary approval of our products and services will be granted on a timely basis or at all, and that we will receive any payments due to us. In some cases, we may be dependent on others to complete these projects which may also delay payments to us. Any failure to obtain these approvals and payments may have a material adverse effect on our business and future financial performance.

Global economic conditions, as well as difficulties in managing and expanding in international markets, could affect future growth in these markets.

In fiscal year 2009, international sales were $25,938,000 or 28%, of our total sales and we believe international markets are an important source of our growth. We plan to continue to increase our presence in these markets. However, the current deterioration of the global economy has had an

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adverse impact on our international sales, and we anticipate, will continue to adversely affect our international sales, as foreign governments reduce spending for transportation and infrastructure projects.

In connection with an increase in international sales efforts, we need to hire, train and retain qualified personnel in countries where language, cultural or regulatory barriers may exist. Moreover, funding and government requirements vary by country with respect to transportation safety. In a number of countries there are no governmental requirements or funding for transportation safety and we must educate officials and demonstrate the need for and the benefits of our products. In addition, our international revenues are subject to the following risks:

•: fluctuating currency exchange rates could reduce the demand for or profitability of foreign sales by affecting the pricing of our products;
•: the burden of complying with a wide variety of foreign laws and regulations, including the requirements for additional testing of our products;
•: dependence on foreign sales agents;
•: difficulty collecting foreign receivables,
•: political and economic instability of foreign governments; and
•: imposition of protective legislation such as import or export barriers.

If we are unable to protect our proprietary technology from infringement or if our technology infringes technology owned by others, then the demand for our products may decrease or we may be forced to modify our products which could increase our costs.

We hold numerous patents covering technology and applications related to many of our products and systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in foreign countries. Our existing and future patents and trademarks may not adequately protect us against infringements, especially in certain foreign countries, and pending patent or trademark applications may not result in issued patents or trademarks. Our patents, registered trademarks and patent applications may not be upheld if challenged, and competitors may develop similar or superior methods or products outside the protection of our patents. This could increase competition for our products and materially decrease our revenues. If our products are deemed to infringe the patents or proprietary rights of others, we could be required to modify the design of our products, change the name of our products or obtain a license for the use of some of the technologies used in our products. We may be unable to do any of the foregoing in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do so could cause us to incur additional costs or lose expected revenue.

Past and future acquisitions involve risks that could adversely affect our future financial results.

Historically we have grown by acquisitions and we may acquire additional businesses in the future. We may be unable to achieve the benefits expected to be realized from our acquisitions. We may incur additional costs and our management's attention may be diverted because of unforeseen expenses, complications, delays and other risks inherent in acquiring businesses, including the following:

•: we may have difficulty integrating the acquired businesses as planned, which may include integration of systems of internal controls over financial reporting and other financial and administrative functions;
•: acquisitions may divert management's attention from our existing operations;

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•: we may have difficulty in competing successfully for available acquisition candidates, completing future acquisitions or accurately estimating the financial effect of any businesses we acquire;
•: we may have delays in realizing the benefits of our strategies for an acquired business;
•: we may not be able to retain key employees necessary to continue the operations of an acquired business;
•: acquisition costs may be met with cash or debt, increasing the risk that we will be unable to satisfy current financial obligations;
•: we may acquire businesses that are less profitable or have lower profit margins than our historical profit margins; and
•: companies we acquire may have unknown liabilities that could require us to spend significant amounts of additional capital.

Management's estimates and assumptions affect reported amounts of expenses and changes in those estimates could impact operating results.

Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually, and the results of such testing may adversely affect our financial results. We recorded a goodwill impairment charge of $9,246,000 in the Inform segment in the third quarter of fiscal 2009. We use a variety of valuation techniques in determining fair value. The impairment review is highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact on the amount of any impairment charge recorded. Estimates of fair value are primarily determined using discounted cash flow methods and are dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several years. Actual results may differ significantly from the estimates and assumptions used.

We recognize deferred tax assets and liabilities for the expected future tax consequences of events which are included in the financial statements or tax returns. In assessing the realizability of the deferred tax assets, management makes certain assumptions about whether the deferred tax assets will be realized. Realization of deferred tax assets assumes that we will be able to generate sufficient future taxable income so that the assets will be realized. The factors that we consider in assessing the likelihood of realization include the forecast of future taxable income, available tax planning strategies that could be implemented to realize the deferred tax assets as well as certain federal and state laws that impose restrictions on the utilization of net operating loss and tax credit carryforwards. During the fourth quarter of fiscal 2009, we performed an Internal Revenue Code Section 382 analysis with respect to our net operating loss and credit carryforwards and determined that there was currently no such limitation. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. Although we assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, there is no assurance that such determinations by us are in fact adequate. Changes in our effective tax rates or amounts assessed upon examination of our tax returns may have a material adverse impact on our results and our financial condition. We currently expect the net deferred tax assets of $21,255,000 recorded as of June 30, 2009 to be fully realizable in part based upon expected future projected income and the significant length of time to utilize net operating losses. However, changes in expectations related to the extent and duration of the economic downturn and its impact on our operating results as well as a subsequent change in ownership which may limit the utilization of net operating losses and tax credit carryforwards could cause us to further review the realizability of our deferred tax assets. It is possible that the review would result in an increased valuation allowance, increasing income tax expense, which would adversely affect our net income.

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Our success depends on our management and other employees.

To execute our business plans, we need to attract, develop and retain qualified personnel. Our success in attracting qualified people is dependent on the resources available in individual geographic areas and the impact on the labor supply due to general economic conditions as well as our ability to provide a competitive compensation package and work environment. Our ability to attract and retain executives, qualified engineers, skilled manufacturing and marketing personnel and other professionals, either through direct hiring or acquisition of other businesses employing such professionals, is an important factor in determining our future success.

Our facilities or facilities of our customers and suppliers could be susceptible to natural disasters.

One of our major manufacturing facilities is located in the Southeastern U.S. Should a natural disaster such as a hurricane, tornado, earthquake or flood severely damage one of our major manufacturing facilities, or damage a major facility of one or more of our significant customers or suppliers, our business could be materially disrupted.

Our insurance coverage could be inadequate.

In accordance with risk management practices, we continually re-evaluate risks, their potential costs and the cost of minimizing them. To reduce our exposure to material risks, we purchase insurance in certain circumstances. We believe that we maintain adequate insurance coverage to effectively mitigate risk when possible. However, certain risks are inherent in our business and our insurance may not be adequate to cover potential claims or may be unavailable.

Our quarterly operating results are likely to fluctuate, which may affect our stock price.

Our quarterly revenues, expenses, operating results and gross profit margins vary significantly from quarter to quarter. As a result, our operating results may fall below the expectations of securities analysts and investors in some quarters, which could result in a decrease in the market price of our common stock. The reasons our quarterly results may fluctuate include:

•: seasonality inherent in the transportation safety and highway construction and maintenance industry;
•: variations in profit margins attributable to product mix;
•: changes in the general competitive and economic conditions;
•: delays in, or uneven timing in the delivery of, customer orders;
•: the introduction of new products by us or our competitors; and
•: delays in federal highway funding and budgetary restraints on state and local government spending.

Period to period comparisons of our results should not be relied on as indications of future performance.

We may experience volatility in our stock price.

The market price of our common stock may be subject to significant fluctuations in response to various factors, including:

•: the relatively small public float of our stock;
•: quarterly fluctuations in our operating results, as described in the prior risk factor;

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•: continued suspension of our semi-annual dividend;
•: changes in securities analysts' estimates of our future earnings; and
•: loss of significant customers or significant business developments relating to us or our competitors.

Our failure to meet analysts' expectations, even if minor, could cause the market price of our common stock to continue to decline. In addition, stock markets have generally experienced a high level of price and volume volatility, and the market prices of equity securities of many companies have experienced wide price fluctuations not necessarily related to the operating performance of such companies. These broad market fluctuations may adversely affect our common stock's market price. In the past, securities class action lawsuits have been instituted against companies following periods of volatility in the market price of such companies' securities. If any such litigation is instigated against us, it could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on our business, results of operations and financial condition.

Acts of war or terrorism could adversely impact our business and operating results.

Acts of war or terrorism (wherever located around the world) may cause damage or disruption to our employees, facilities, suppliers, distributors or customers, which could significantly impact our sales, costs, expenses and financial condition. The potential for acts of war or hostility or terrorism may create many economic and political uncertainties, which could adversely affect our business and results of operations in ways that cannot presently be predicted. We are uninsured for losses and interruption caused by acts of war.

* * *

The foregoing list is not exhaustive. There can be no assurance that we have correctly identified and evaluated all factors affecting our business. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact us. Should any risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations. For these reasons, the reader is cautioned not to place undue reliance on our forward-looking statements.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

We believe that our principal plants are suitable and adequate for manufacturing and other activities performed by our continuing operations at those sites. In addition to the principal facilities listed below, we have other small facilities, including international locations, used primarily for sales activities.

Location	Available Space	Purpose	Owned or Leased

35 East Wacker Drive Chicago, Illinois	21,000 sq. ft.	Executive Offices	Leased
250 Bamberg Drive Pell City, Alabama	300,000 sq. ft.	Manufacture of Protect and Direct transportation safety products	Owned
3617 Cincinnati Avenue Rocklin, California	22,000 sq. ft.	Research and development facility for Protect and Direct transportation safety products	Owned
No. 16 Guanghua Road Township Zhangijawan, District Tongzhou, Beijing City, People's Republic of China *	16,000 sq. ft.	Sale and manufacture of Protect and Direct transportation safety products	Leased
4021 Stirrup Creek Drive Durham, North Carolina	13,000 sq. ft.	Sale of Inform products	Leased
Route 119 University Drive Uniontown, Pennsylvania	26,000 sq. ft.	Sale and manufacture of Inform products	Owned
1862 Craig Park Court St. Louis, Missouri	10,000 sq. ft.	Sale and service of Inform products	Leased

*: To be closed by December 31, 2009.

Item 3. Legal Proceedings

In January, 2008 we were served in a lawsuit entitled Olga Mata, Individually as Representative of the Estate of Elpido Mata et al. vs. Energy Absorption Systems, Inc., Quixote Transportation Safety, Inc., William Brothers Construction, Keller Crash Cushions d/b/a Contractors Barricade Service, J.I.T. Distributing Inc. and Gustavo Reyes d/b/a Cerrito Trucking, State of Texas, District Court of Brazoria County, No. 44361. This case involves a tractor-trailer collision with a crash cushion. The plaintiffs allege various theories of liability against all defendants, including negligence, misrepresentations and breach of warranty. The case has been tendered to our insurance carrier. Pursuant to Texas law, we have accepted the defense and indemnity of our distributor who was also named in the complaint. A trial date of October 5, 2009 has been scheduled.

We are involved in several pending judicial proceedings for product liability and other damages arising out of the conduct of our business. While the outcome of litigation is subject to uncertainties, we believe, after consultation with counsel, that the outcome of these proceedings, based on current available information and after taking into account the availability and limits of our insurance coverage, will not have a material effect on our consolidated financial condition and results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2009.

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PART II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NASDAQ Global Market, under the symbol QUIX. Set forth are the daily high and low sales prices for our common stock for the periods indicated, as reported by the NASDAQ.

	Three Months Ending

	9/30		12/31		3/31		6/30
FISCAL 2009:
High	$	10.54	$	8.21	$	6.72	$	3.69
Low		7.17		4.43		1.77		2.35
FISCAL 2008:
High	$	20.36	$	20.25	$	19.33	$	12.70
Low		17.26		17.00		7.00		7.88

As of September 8, 2009, there were 921 shareholders of record.

Dividend Policy

In December 2008, our Board of Directors voted to suspend our semiannual cash dividend to conserve cash resources. In February 2009 our bank credit agreement was amended and the bank credit agreement now prohibits payments of cash dividends. During fiscal 2008, we declared two semi-annual cash dividends of twenty cents per share. $1,829,000 was paid in July 2009 for the last cash dividend declared in fiscal 2008.

Issuer Purchases of Equity Securities

During fiscal 2008, our Board of Directors authorized an increase in the Company's stock repurchase plan to up to 500,000 shares of the Company's common stock, which included approximately 185,000 shares remaining under the previous authorization. However, the amendment to our bank credit agreement dated February 2009 prohibits payments for the purchase of our common stock for the treasury. During fiscal 2008, we purchased 4,550 shares at an average price of $8.53. No shares were repurchased in fiscal 2009 or in fiscal 2007.

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Stock Performance Graph

The line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ Non-Financial Index, the Russell MicroCap Index (our new peer group) and the Russell 2000 Index (our old peer group) for the five fiscal years ended June 30, 2009. We added the Russell MicroCap Index because our market capitalization is now more in line with the companies in that index. The graph and table assume that $100 was invested on the last day of trading for the fiscal year ended June 30, 2004 in each of our common stock, the NASDAQ Non-Financial Index, the Russell MicroCap Index and the Russell 2000 Index, and that all dividends were reinvested.

*$100 invested on 6/30/04 in stock or index, including reinvestment of dividends. Fiscal year ending June 30.



Quixote Corporation	100.00	99.59	93.21	98.70	44.71	15.47
Russell 2000	100.00	109.45	125.40	146.01	122.36	91.76
Russell MicroCap	100.00	104.18	119.06	135.98	101.35	76.56
NASDAQ Non-Financial	100.00	98.97	104.99	126.49	112.46	90.81

Source: Research Data Group, Inc.

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Item 6. Selected Financial Data

		For the years ended June 30,

(Dollar amounts in thousands, except share data)		2009			2008			2007			2006			2005
Operating Results:
Net sales		$	94,093		$	101,806		$	107,774		$	104,940		$	94,738
Gross profit			27,696			36,839			43,519			41,200			38,414
Selling and administrative expenses			25,738			24,845			28,346			27,044			28,452
Research and development expenses			3,039			3,650			3,453			3,570			3,198
Gain on sale of assets									518			846			1,126
Severance costs			1,342
Goodwill impairment charge			9,246
Operating (loss) profit			(11,669	)		8,344			12,238			11,432			7,890
Other expense			(3,501	)		(4,000	)		(4,459	)		(4,646	)		(3,264	)
(Loss) earnings from continuing operations			(10,352	)		3,119			4,815			4,525			2,744
Loss from discontinued operations, net of income taxes			(758	)		(2,648	)		(8,394	)		(14,627	)		(3,394	)
Net (loss) earnings			(11,110	)		471			(3,579	)		(10,102	)		(650	)
Cash dividends declared per common share			—		$	0.40		$	0.38		$	0.37		$	0.36
Per Share Data:
Basic EPS:
(Loss) earnings from continuing operations		$	(1.12	)	$	0.34		$	0.54		$	0.51		$	0.31
Loss from discontinued operations, net of income taxes			(0.08	)		(0.29	)		(0.94	)		(1.65	)		(0.38	)
Net (loss) earnings		$	(1.20	)	$	0.05		$	(0.40	)	$	(1.14	)	$	(0.07	)
Weighted average common
	shares outstanding		9,248,084			9,092,139			8,945,855			8,850,884			8,800,421
Diluted EPS:
(Loss) earnings from continuing operations		$	(1.12	)	$	0.34		$	0.54		$	0.51		$	0.31
Loss from discontinued operations, net of income taxes			(0.08	)		(0.29	)		(0.94	)		(1.65	)		(0.38	)
Net (loss) earnings		$	(1.20	)	$	0.05		$	(0.40	)	$	(1.14	)	$	(0.07	)
Weighted average common and common equivalent
	shares outstanding		9,248,084			9,121,103			8,945,855			8,850,884			8,800,421
Financial Position:
Total assets		$	85,592		$	121,543		$	119,374		$	125,203		$	136,790
Working capital			(10,081	)		30,224			38,128			43,781			42,933
Property, plant and equipment, net			15,920			16,711			16,223			17,830			18,680
Long-term debt			41,000			57,600			52,122			51,587			50,014
Shareholders' equity			34,165			43,837			45,208			48,946			61,846
Book value per common share			3.66			4.79			5.00			5.50			6.96

Note: The results of the Intersection Control segment are reflected as discontinued operations for all periods presented. The assets and liabilities of the segment were classified as assets and liabilities held for sale within our consolidated balance sheets as of June 30, 2008 and for all prior periods presented.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We develop, manufacture and market highway and transportation safety products to protect, direct and inform motorists and road workers in both domestic and international markets. Our continuing operations are comprised of two reportable segments within the highway and transportation safety industry. Our two reportable segments are: the manufacture and sale of highway and transportation safety products which Protect and Direct and the manufacture and sale of highway products and services which Inform motorists and highway personnel. The Protect and Direct segment provides solutions for improving safety on the roads either by minimizing the severity of crashes that occur or by preventing crashes from occurring by directing or guiding traffic. The primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck-mounted attenuators, sand-filled barrels and water-filled barriers, and directing and guiding products such as flexible post delineators and glare screen systems. The Inform segment provides solutions for improving traffic flow and safety on roads and runways by providing information. The primary product lines within the Inform segment include advanced sensing products which measure distance, count and classify vehicles; weather sensing systems and computerized highway advisory radio transmitting systems.

Our products are sold worldwide primarily through a distribution network and supplemented by a direct sales force to customers in the highway construction and safety business, state and municipal departments of transportation, and other governmental transportation agencies. The domestic market for highway and transportation safety products is directly affected by federal, state and local governmental policies and budgets. A portion of our domestic sales is ultimately financed by funds provided to the states by the federal government. Historically, these funds have covered 75% to 90% of the cost of highway safety projects on roads constructed or maintained with federal assistance. Seasonality affects our business with generally a higher level of sales in our fourth fiscal quarter.

DISCONTINUED OPERATIONS

RESULTS OF CONTINUING OPERATIONS

Summary

Sales decreased 8% to $94,093,000 for fiscal 2009 compared to $101,806,000 for fiscal 2008 due to decreased sales for the Protect and Direct segment. Overall, domestic sales decreased 12% to $68,155,000 for fiscal 2009 from $77,164,000 for fiscal 2008 due to decreased sales in our Protect and Direct segment, which were somewhat offset by increased sales in our Inform segment. Domestic sales for the Protect and Direct segment decreased 17% for fiscal 2009 compared to fiscal 2008. During fiscal 2008, we began to see a general economic slowdown in the United States, which worsened during fiscal 2009, causing many states and municipalities to face budgetary constraints and deficits. In addition, basic material costs including steel, asphalt and other materials for building and maintaining roads and bridges increased beginning in fiscal 2008 into the first half of fiscal 2009. Facing these issues, many states postponed or cancelled many transportation projects which adversely impacted the domestic demand for our products. Beginning in the fourth quarter of fiscal 2009 we began to see increased sales activity, in part due to the Federal Stimulus funding, which resulted in our profitable fourth quarter.

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Given the softness in the domestic economy, we focused our efforts on international sales opportunities during fiscal 2008 and fiscal 2009. However, during fiscal 2009 the economic downturn adversely impacted our international markets as well. While our international sales increased 5% to $25,938,000 for fiscal 2009 compared to $24,642,000 for fiscal 2008, the increase was not in line with our historical growth rate, nor was it in line with our expectations. International sales for the Protect and Direct segment increased 4% and increased 15% for the Inform segment for fiscal 2009 compared to fiscal 2008. The increases in international sales were driven by growth in all international regions except in the Asia-Pacific region, where sales decreased 33%.

The overall lower sales volumes in fiscal 2009, unfavorable product sales mix and increased product costs resulted in lower gross profit margin for both segments in fiscal 2009. Due to the continuing difficult economic condition and its impact on infrastructure spending, we increased our emphasis on reducing costs and also implemented several reductions in our workforce which resulted in severance costs of $1,342,000 in fiscal 2009. In addition, we performed an interim goodwill impairment review in the third quarter of fiscal 2009, as further discussed in Footnote 8 to our Consolidated Financial Statements, which resulted in a goodwill impairment charge for the Inform segment of $9,246,000. As a result of these factors, we recorded an operating loss in fiscal 2009 after reporting an operating profit from continuing operations in fiscal 2008. See FUTURE OUTLOOK for further information.

The following table sets forth selected key operating statistics relating to the financial results of our continuing operations:

		For the Years Ended June 30

(Dollar amounts in thousands, except per share data)		2009			2008			2007
Revenues by Segment:
	Protect and Direct	$	71,511		$	80,523		$	83,593
	Inform		22,582			21,283			24,181

		$	94,093		$	101,806		$	107,774

Geographic Revenues:
	Domestic	$	68,155		$	77,164		$	87,342
	International		25,938			24,642			20,432

		$	94,093		$	101,806		$	107,774

Operating (Loss) Earnings by Segment:
	Protect and Direct	$	3,833	(1)	$	14,165		$	16,965	(4)
	Inform		(8,309	)(2)		1,441			3,445	(5)
	Unallocated Corporate		(7,193	)(3)		(7,262	)		(8,172	)

		$	(11,669	)	$	8,344		$	12,238

Gross profit percentage			29.4	%		36.2	%		40.4	%

Selling and administrative expenses as a percentage of sales			27.4	%		24.4	%		26.3	%

Diluted (loss) earnings per share from continuing operations		$	(1.12	)(6)	$	0.34		$	0.54

(1): Includes $462 in severance costs.
(2): Includes a $9,246 goodwill impairment charge and $98 in severance costs.
(3): Includes $782 in severance costs.
(4): Includes a $236 gain on sale of assets.
(5): Includes a $282 gain on sale of assets.
(6): Includes a goodwill impairment charge of $0.74 per diluted share and severance costs of $0.09 per diluted share.

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Revenues

Our net sales for fiscal 2009 decreased 8% to $94,093,000 from $101,806,000 for 2008 primarily due to lower sales in our Protect and Direct segment. Sales in our Inform segment increased particularly in our traffic and weather sensing product lines. Our net sales for fiscal 2008 decreased 6% to $101,806,000 from $107,774,000 for 2007 due to lower sales in both segments

Geographic—International sales for fiscal 2009 increased by $1,296,000, or 5%, to $25,938,000 compared to $24,642,000 for fiscal 2008, due to increases in both the Protect and Direct and the Inform segments. International sales increased 4% to $23,166,000 for fiscal 2009 in the Protect and Direct segment, with increases in all regions except the Asia-Pacific region. In the Asia-Pacific region, sales for the Protect and Direct segment decreased primarily in Australia due to lower sales of Triton® water-filled barriers. International sales increased 15% to $2,772,000 for fiscal 2009 in the Inform segment primarily due to increased sales of sensing products in Canada, Latin America and the Asia-Pacific region. Domestic sales for fiscal 2009 decreased 12% to $68,155,000 from $77,164,000 due to a 17% decrease in the Protect and Direct segment, which was partially offset by a 5% increase in the Inform segment.

International sales for fiscal 2008 increased by $4,210,000, or 21%, to $24,642,000 compared to $20,432,000 for fiscal 2007, primarily due to increases in the Protect and Direct segment, where international sales increased 22% to $22,236,000 for fiscal 2008 from $18,273,000 for fiscal 2007. The increase in international sales in the Protect and Direct segment was primarily due to increased sales of Triton water-filled barriers and crash cushions in the Asia-Pacific region, including China, and to increased sales in Europe. International sales for the Inform segment increased 11% to $2,406,000 primarily due to increased sales of sensing products in Europe and Latin America. Domestic sales for fiscal 2008 decreased 12% to $77,164,000 from $87,342,000 due to an 11% decrease in the Protect and Direct segment and a 14% decrease in the Inform segment.

Protect and Direct—Net sales for the Protect and Direct segment for fiscal 2009 decreased 11% to $71,511,000 from $80,523,000 for fiscal 2008 due principally to lower domestic sales of permanent crash cushions, truck-mounted attenuators (TMA's), parts and delineators, offset somewhat by increased sales of barrels. The domestic sales decreases were attributable to decreased spending on highway safety projects due to funding issues related to the worsening economy. The segment continued to have strong sales in many international regions in fiscal 2009 as those markets are increasingly recognizing the importance of our safety devices However, sales of Triton® water-filled barriers to the Asia-Pacific region fell significantly from the record level attained in fiscal 2008, in part due to currency fluctuations in Australia. Sales of our ABC Terminals increased $3,437,000 in international markets, with sales particularly strong in Europe.

Net sales for the Protect and Direct segment for fiscal 2008 decreased 4% to $80,523,000 from $83,593,000 for fiscal 2007 due principally to lower domestic sales of permanent crash cushions, truck-mounted attenuators (TMA's) and barrels, offset somewhat by increased sales of parts and delineators. The domestic sales decreases were attributable to decreased spending on highway safety projects due to funding issues related to the soft economy. In addition, fiscal 2007 included a $3 million order from the state of Illinois for TMA's which was not repeated in fiscal 2008. The segment had strong sales internationally in fiscal 2008 as those markets are increasingly recognizing the importance of our safety devices. The Quest crash cushion product line reached targeted record sales aided by $1.2 million in sales in China. Sales of Triton® water-filled barriers to international markets were also at record levels in fiscal 2008.

Inform—Net sales for the Inform segment for fiscal 2009 increased 6% to $22,582,000 from $21,283,000 for fiscal 2008, with increases in most product lines except highway advisory radios. Domestic sales increased 5% to $19,810,000. International sales increased 15% to $2,772,000, primarily

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due to increases in sales in Canada, Latin America and the Asia-Pacific region. Despite the difficult economic conditions, the Inform segment began fiscal 2009 with a strong backlog of orders which aided their sales effort during the year.

Net sales for the Inform segment for fiscal 2008 decreased 12% to $21,283,000 from $24,181,000 for fiscal 2007, due to lower domestic sales of highway advisory radios, offset somewhat by increased sales of sensing products. Sales of highway advisory radios were at record levels in fiscal 2007 and included several large contracts.

Gross Profit Margin

Our gross profit margin for fiscal 2009 was 29.4% compared to 36.2% for fiscal 2008. The gross margin in the Protect and Direct segment decreased primarily due to volume-related inefficiencies caused by the fixed nature of certain expenses, increased product costs and unfavorable product sales mix with increased sales of ABC Terminals which have lower gross margins. The gross margin for the Inform segment decreased due to unfavorable product sales mix as sales of higher-margin highway advisory radio products decreased and sales of lower-margin traffic and weather sensing products increased.

Our gross profit margin for fiscal 2008 was 36.2% compared to 40.4% for fiscal 2007. The gross margin in the Protect and Direct segment decreased due to volume-related inefficiencies related to the fixed nature of certain expenses, increased raw material costs, higher freight costs and unfavorable product sales mix as sales of higher-margin permanent crash cushions decreased and sales of lower-margin products such as the Triton barriers and delineators increased. The gross margin for the Inform segment decreased due to volume-related inefficiencies and unfavorable product sales mix as sales of higher-margin highway advisory radio products decreased and sales of lower-margin weather sensing products increased.

Selling and Administrative Expenses

Selling and administrative expenses for fiscal 2009 increased $893,000, or 4%, to $25,738,000 from $24,845,000 for fiscal 2008. Our cost saving initiatives, which included a 12% reduction in personnel count, were offset primarily by a $1,226,000 increase in bad debt expense across both segments compared to fiscal 2008. Selling and administrative expenses increased as a percentage of sales to 27.4% for fiscal 2009 compared to 24.4% for 2008.

Selling and administrative expenses for fiscal 2008 decreased $3,501,000, or 12%, to $24,845,000 from $28,346,000 for fiscal 2007. This was primarily due to decreased selling costs related to our lower sales volume along with decreased bad debt expense in both segments. Selling and administrative expenses in the Protect and Direct segment increased $924,000 relating to our facility in Beijing, China, opened near the end of fiscal 2007. Selling and administrative expenses decreased as a percentage of sales to 24.4% for fiscal 2008 compared to 26.3% for 2007.

Research and Development

Research and development expenditures decreased 17% to $3,039,000 for fiscal 2009 from $3,650,000 for fiscal 2008. The decrease is in part due to our focus on investing primarily in critical projects to support our long-term growth. We expect to continue this focus into fiscal 2010 and expect to invest in research and development at approximately the same level as in fiscal 2009.

Research and development expenditures increased 6% to $3,650,000 for fiscal 2008 from $3,453,000 for fiscal 2007, due to increases in both segments for new product extensions.

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Severance Costs

We recorded and paid $1,342,000 in severance costs in fiscal 2009 due to headcount reductions resulting from our cost savings initiatives and to the retirement of a few senior executives. Severance costs of $462,000, $98,000 and $782,000 were recorded in the Protect and Direct segment, the Inform segment and at Corporate, respectively. No severance costs were recorded in fiscal 2008 or fiscal 2007.

Goodwill Impairment Charge

As further discussed in Note 8 to the Consolidated Financial Statements, a non-cash goodwill impairment charge of $9,246,000 was recorded in the Inform segment in fiscal 2009 resulting from an interim goodwill impairment test performed in the third quarter. There was no impairment charge recorded in the Protect and Direct segment during fiscal 2009 due to the relatively low level of long-lived assets within the segment as compared to the Inform segment with a higher relative level of long-lived assets. No impairment charges were recorded in fiscal 2008 or fiscal 2007.

Gain on Sale of Assets

As further discussed in Note 5 to the consolidated financial statements, we recorded a gain on the sale of assets of $518,000 in fiscal 2007. This gain included a gain of $236,000 on the sale of a former manufacturing facility of the Protect and Direct segment and a gain of $282,000 resulting from final contingent proceeds relating to the sale of the weather forecasting product line in the Inform segment. No gains on sales of assets were recorded in fiscal 2009 or fiscal 2008.

Operating (Loss) Profit

The operating loss was $11,669,000 for fiscal 2009 compared to operating profit of $8,344,000 for fiscal 2008. The operating loss was due to the lower sales levels, unfavorable product mix, higher bad debt expenses, severance costs and the goodwill impairment charge as discussed above. Operating profit for the Protect and Direct segment decreased $10,332,000 to $3,833,000 from $14,165,000 for fiscal 2008, primarily due to lower sales and gross margins, increased bad debt expense and severance costs of $462,000 as discussed above. The operating loss for the Inform segment was $8,309,000 compared to an operating profit of $1,441,000 for fiscal 2008 due to the $9,246,000 goodwill impairment charge, unfavorable product sales mix and severance costs of $98,000 as discussed above.

Operating profit decreased to $8,344,000 for fiscal 2008 from operating profit of $12,238,000 for fiscal 2007. The decreased operating profit was primarily due to the lower sales levels, offset somewhat by lower selling and administrative costs in fiscal 2008 as discussed above. The fiscal 2007 operating profit included gains on sales of assets of $518,000. Operating profit for the Protect and Direct segment decreased $2,800,000 to $14,165,000 from $16,965,000 for fiscal 2007, which included a gain on sale of assets of $236,000, primarily due to lower gross margins, offset somewhat by lower selling and administrative expenses as discussed above. Operating profit for the Inform segment decreased $2,004,000 to $1,441,000 for fiscal 2008 due to lower gross margins, offset somewhat by lower selling and administrative costs as discussed above. The fiscal 2007 operating profit included a $282,000 gain on sale of assets.

Net Interest Expense

Net interest expense for fiscal 2009 decreased to $3,501,000 from $4,000,000 in fiscal 2008. The decrease was due primarily to the lower average level of revolving debt as we used the proceeds from the sale of the Intersection Control segment in July 2008 to pay down our revolving bank debt. The interest rate on our bank credit facility is based on prime or LIBOR, plus a margin. Our overall weighted average interest rate was 6.9% as of June 30, 2009 compared to our weighted average rate of 6.0% as of June 30, 2008. The interest rate on the Company's convertible debt is 7%.

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Net interest expense for fiscal 2008 decreased to $4,000,000 from $4,459,000 in fiscal 2007. The decrease was due primarily to lower interest rates on our revolving bank debt and due to interest income received on an income tax refund in fiscal 2008.

Income Taxes

The income tax benefit for fiscal 2009 was $4,818,000 compared to the income tax provision for fiscal 2008 of $1,225,000. The effective tax rate was 32% for fiscal 2009 due primarily to the utilization of R&D credits. We expect to provide for income taxes at a rate of 38% for fiscal 2010. However, this rate may be negatively impacted based on management's ongoing evaluation as to whether it is more likely than not that some or all of the deferred tax assets recorded are realizable.

The income tax provision for fiscal 2008 was $1,225,000, reflecting a 28% effective tax rate due to the utilization of R&D credits.

(Loss) Earnings from Continuing Operations

The loss from continuing operations for fiscal 2009 was $10,352,000, or $1.12 per diluted share compared to earnings of $3,119,000, or $0.34 per diluted share, for 2008. Included in the loss for fiscal 2009 was $9,246,000, or $0.74 per diluted share, in goodwill impairment charges and $1,342,000, or $0.09 per diluted share, in severance costs.

Earnings from continuing operations for fiscal 2008 were $3,119,000, or $0.34 per diluted share, compared to earnings of $4,815,000, or $0.54 per diluted share, for 2007.

Loss from Discontinued Operations, Net of Income Taxes

The loss from discontinued operations, net of income taxes for fiscal 2009 was $758,000, or $0.08 per diluted share, compared to a loss of $2,648,000, or $0.29 per diluted share, for fiscal 2008. Included in the loss for fiscal 2009 was a loss of $712,000 from the sale of the Intersection Control business, net of income taxes. Included in the loss for fiscal 2008 was a $1,326,000 loss from the write-down of assets held for sale, net of income taxes.

The loss from discontinued operations, net of income taxes for fiscal 2008 was $2,648,000, or $0.29 per diluted share, compared to a loss of $8,394,000, or $0.94 per diluted share, for 2007. Included in the loss for fiscal 2008 was a $1,326,000 loss from the write-down of assets held for sale, net of income taxes. Included in the net loss for fiscal 2007 was a gain on sales of assets, restructuring costs and related inventory write-offs totaling $6,566,000, net of income taxes.

Net (Loss) Earnings

The net loss for fiscal 2009 was $11,110,000, or $1.20 per diluted share compared to net earnings for fiscal 2008 of $471,000, or $0.05 per diluted share.

Net earnings for fiscal 2008 were $471,000, or $0.05 per diluted share, compared to a net loss of $3,579,000, or $0.40 per diluted share, for 2007.

FINANCIAL CONDITION

Liquidity and Capital Resources

Our principal sources of funds historically have been cash flows from operations and borrowings from banks and other sources. We had cash and cash equivalents of $98,000 as of June 30, 2009. As of June 30, 2009, we had $1,000,000 outstanding against our bank credit facility and $40,000,000 in 7% Convertible Senior Subordinated Notes due February 2025 (the "Convertible Notes"), as discussed further in Note 9 to our Consolidated Financial Statements.

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Our current amended bank credit agreement with our senior bank (the "Credit Agreement") provides for a $15 million secured revolving credit facility and includes both fixed and floating interest rate options, at the LIBOR and British Bankers Association LIBOR rate, plus a margin. The Credit Agreement also contains affirmative and negative covenants including requirements that we meet certain consolidated financial criteria including leverage ratios and a fixed charge ratio. The covenants also limit the incurrence of additional indebtedness, acquisitions, liens and encumbrances and other matters customarily restricted in such agreements.

We were in violation of certain financial covenants as of the fourth quarter of fiscal 2008 and the first quarter of fiscal 2009 and we received waivers from our senior bank for those violations. Accordingly, we amended the Credit Agreement with an amendment dated November 7, 2008. As of December 31, 2008, we were in violation of certain financial covenants, for which we received a waiver and an amendment dated February 9, 2009. This amendment to the Credit Agreement reduced the amount of the revolver commitment from $40 million to $15 million, changed the expiration date from February 2010 to November 1, 2009, prohibited payments for dividends and the purchase of our common stock for the treasury and increased the interest rate margin and certain fees. As of March 31, 2009, we were in violation of certain financial covenants, for which we received a waiver and an amendment dated May 7, 2009. This amendment modified several financial covenants which eliminated certain financial ratio covenants and added a monthly borrowing base formula to restrict borrowings based on eligible accounts receivable, inventory and fixed assets as well as a minimum earnings covenant. We were in compliance with these covenants at June 30, 2009. There are no financial covenants for the quarter ended September 30, 2009. The Credit Agreement expires in November 2009. Our ability to obtain an extension to the Credit Agreement or to successfully negotiate a new bank credit agreement is dependent upon our future performance and may be affected in part by events beyond our control, including the current economic downturn. Reduced cash flows from operations, regardless of cause, may make it more difficult to obtain an extension of our Credit Agreement or negotiate a new bank credit agreement. Continuing uncertainty in the credit markets may affect our ability to access those markets and may increase costs associated with borrowing and issuing debt instruments.

Although the variable interest rates under our revolving credit facility have been volatile due to the current credit environment, the financial effect on us has not been significant as the amount outstanding against the facility was only $1,000,000 as of June 30, 2009. Currently, we do not believe that our operating cash flow needs will require us to significantly increase our net bank borrowings in the near term. Our $40 million of 7% Convertible Notes accounted for the majority of our $41.0 million in outstanding debt as of June 30, 2009.

There are currently no default interest provisions in connection with a default on our Credit Agreement. The provisions of our Credit Agreement and Convertible Notes each include cross-default provisions such that a default on any individual payment obligation greater than $5 million is a default under both agreements.

The holders of our $40,000,000 of 7% Senior Subordinated Convertible Notes may require us to repurchase the Notes in February 2010, which we expect they will do. In connection with the potential put option of the Notes to the Company by its holders on February 15, 2010, we are working with an advisor to explore financing alternatives. We have also taken several actions to reduce our cost structure and we continue to investigate other potential cost savings alternatives. To conserve cash, we have suspended our semiannual dividend and we have reduced capital expenditures.

Based on our preliminary discussions and expected operating results for fiscal 2010, we believe that we will be able to refinance our existing debt obligations including the Notes. However, should we be unsuccessful in obtaining such refinancing on a timely or satisfactory basis or executing other planned actions, the lenders could avail them themselves of remedies under those agreements and there is no

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assurance that cash flows from operations or other liquidity sources would provide sufficient liquidity to fund operations through June 2010.

Our outstanding borrowings were $41,000,000, or 54.5% of total capitalization, as of June 30, 2009, of which $1,000,000 was outstanding on our bank credit facility. This compares to $57,600,000, or 56.8% of total capitalization, as of June 30, 2008, of which $17,600,000 was outstanding on our bank credit facility. Subsequent to June 30, 2008, we used the proceeds from the sale of the Intersection Control business to pay down substantially all of our bank debt. Included in short-term debt as of June 30, 2009 and in long-term debt as of June 30, 2008 was $40 million in 7% Convertible Senior Subordinated Notes due February 2025. The amount of standby letters of credit outstanding was $1,120,000 as of June 30, 2009 and $1,012,000 as of June 30, 2008.

Cash Flows

Cash flows provided by continuing operations were $1,685,000 during fiscal 2009. This compares with $8,949,000 in fiscal 2008 and $7,176,000 in fiscal 2007. In each of the past three years, cash flow from operations was primarily derived from earnings before non-cash expenses such as depreciation, amortization, goodwill impairment charges and share-based compensation expense. The decrease in cash generated from operating activities in fiscal 2009 is primarily due to decreased earnings from continuing operations. Due to the decreased earnings in fiscal 2009 we focused on improving cash flow by reducing working capital and accordingly reduced inventory levels by $3,413,000 during fiscal 2009.

Cash flows used in discontinued operations were $1,545,000 during fiscal 2009. This compares with $6,546,000 used in fiscal 2008 and $5,683,000 used in fiscal 2007. In each of the past three years, cash used in discontinued operations was primarily due to losses before non-cash expenses such as depreciation, amortization and non-cash inventory disposals.

Investing activities of continuing operations provided cash of $18,004,000 during fiscal 2009, compared to $3,453,000 cash used in fiscal 2008 and $967,000 used in fiscal 2007. We received $20,000,000 in cash upon the sale of the Intersection Control segment in fiscal 2009. We made expenditures during fiscal 2009 of $1,996,000 for capital and patent expenditures. We made expenditures during fiscal 2008 of $3,453,000 for capital and patent expenditures. Expenditures during fiscal 2007 were $2,672,000 for capital and patent expenditures, which were offset somewhat by proceeds received from the sale of assets.

Investing activities of discontinued operations used cash of $25,000 for capital expenditures during fiscal 2009 and $1,437,000 for capital expenditures during fiscal 2008. In fiscal 2007, discontinued operations generated $484,000 in cash as capital expenditures of $310,000 were more than offset by cash received from the sale of the automated traffic enforcement product line.

Financing activities used cash of $18,429,000 during fiscal 2009 compared to cash generated of $2,047,000 in fiscal 2008 and cash used of $1,615,000 during fiscal 2007. During fiscal 2009, we used the proceeds from the sale of the Intersection Control segment to pay down substantially all of our revolving bank debt. Our net payments on revolving debt during fiscal 2009 were $16,600,000. The payment of our cash dividend used cash of $1,829,000 during fiscal 2009. During fiscal 2008, we borrowed a net $10,600,000 on our outstanding revolving credit facility and paid $5,122,000 on other notes payable. The payment of our semi-annual cash dividend used cash of $3,533,000. During fiscal 2007, we borrowed a net $1,000,000 on our outstanding revolving credit facility and paid $465,000 on other notes payable. We received cash of $970,000 from the exercise of common stock options in fiscal 2007. The payment of our semi-annual cash dividend used cash of $3,381,000.

For 2010, we anticipate spending approximately $2,000,000 in cash for capital expenditures as we manage our capital spending in this difficult environment. We currently believe that future operating and capital cash needs will be financed either through cash on-hand, cash generated from operations,

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from proceeds resulting from the sale of assets or other financing alternatives. We currently believe that these sources of cash should be sufficient for all planned operating and capital requirements in the near term. However, our current bank credit agreement expires in November 2009. In addition, the holders of our $40,000,000 of 7% Senior Subordinated Convertible Notes may require us to repurchase the Notes in February 2010, which we expect they will do. We have implemented a series of cost control measures to improve our financial performance and also have suspended our semi-annual dividend and reduced capital expenditures to conserve cash. As further discussed in Note 3 to the Consolidated Financial Statements, we believe that the credit markets are improving and we are working with an advisor to explore other financing alternatives. However, there is no assurance that we will be able to refinance this debt on a timely basis and on satisfactory terms, if at all.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We are subject to certain debt obligations, guarantees, commitments and contingent liabilities further described in the notes to the consolidated financial statements. The following table presents our non-cancellable contractual obligations to make future payments under contracts, such as debt and lease agreements, as of June 30, 2009:

(Dollar amounts in thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years

Long-term debt(1)	$	41,000	$	41,000
Estimated interest payments(2)		1,800		1,800
Operating leases, net		4,416		1,089	$	1,395	$	1,932
Minimum royalty payments		1,110		510		600
Uncertain tax benefits		182		71		111
Purchase obligations(3)		1,001		1,001

Total	$	49,509	$	45,471	$	2,106	$	1,932	—

(1): Amount includes expected cash payments on long-term debt based upon current and effective maturities. Amount does not include renewals relating to refinancing of long-term debt currently outstanding as future terms are unknown at this time and difficult to estimate.
(2): Amount includes estimated interest payments based on interest rates as of the current period. Interest rates on variable-rate debt are subject to change in the future. Interest is estimated based upon current and effective maturities of long-term debt currently outstanding and does not include an estimate of future interest payments relating to refinancing of long-term debt per (1) above. Cash paid for interest was $3,519,000 in fiscal 2009 and we currently expect cash for interest to be approximately that amount or higher in fiscal 2010.
(3): Purchase obligations include non-cancellable orders with suppliers in the normal course of business on a short-term basis.

As disclosed in the footnotes to the consolidated financial statements, we have entered into bid and performance related bonds associated with various contracts. Potential payments due under these bonds are related to our performance under the applicable contracts. The total amount of bid and performance related bonds that was available and undrawn as of June 30, 2009 was $2,115,000. We also have standby letters of credit covering potential workers' compensation liabilities and other liabilities. The total standby exposure relating to letters of credit as of June 30, 2009 was $1,120,000.

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FUTURE OUTLOOK

Looking forward, we remain cautious given the weak global economic conditions and the difficult financial markets. This unfavorable market environment may continue to negatively affect demand for our products indefinitely.

The United States domestic market for highway and transportation safety products is directly affected by federal, state, and local governmental policies. Historically, federal funds have been allocated and highway policy has been developed through six-year federal highway authorization bills. The current federal highway authorization law, the Safe, Accountable, Flexible and Efficient Transportation Equity Act-A Legacy for Users, or SAFETEA-LU, expires September 30, 2009. We anticipate delays in the enactment of a new highway authorization bill. We expect that before September 30, 2009, Congress and the Obama Administration will agree to extend the highway authorization law for a limited time (perhaps 12 to 18 months) at current levels, and will transfer funds to the highway trust fund as needed in order to provide ample time for the adoption of a new multi-year highway authorization law.

We are optimistic about the potential positive impact from the federal funding for transportation projects enacted as part of the American Recovery and Reinvestment Act, signed into law in February 2009, which includes approximately $27 billion in stimulus funding for highways and bridges. We are encouraged that as of the end of June, approximately 60% of the $27 billion had been obligated by the States, but only a small portion of the $27 billion had been paid. We believe that the relatively low level of payments to date could mean that many projects require the completion of specific deliverables, or in some cases, completion of the full project before payments are made. We anticipate that our fiscal 2010 results will benefit from this stimulus spending, but we believe that this one-time spending package can not substitute for enactment of the multi-year highway authorization legislation and the long term funding of the highway trust fund. Until a new multi-year highway authorization bill becomes law, the transportation safety allotment in federal and state budgets may be uncertain and we believe that prolonged uncertainty may adversely impact sales of our products and our financial performance in fiscal 2010. In addition, state budgetary constraint and deficit issues are expected to continue into fiscal 2010, which may negatively impact our performance in fiscal 2010.

We expect international sales to continue to be an important driver of our sales growth and we plan to continue to focus on these markets to offset the softness in the domestic market. International sales in fiscal 2009 modestly outpaced last year's international sales and partially offset the softness in domestic sales this fiscal year. We are cautiously optimistic that international sales will increase modestly in fiscal 2010 over fiscal 2009. However, there can be no assurance that international sales will continue to increase.

In summary, we are cautiously optimistic about the domestic funding outlook and we anticipate modest near-term domestic sales growth. We believe we will continue to see growth in international sales. We believe that we have strong market share positions, outstanding brand name recognition and a talented employee base and that we are well positioned with our leaner cost structure. However it is difficult to predict when and to what extent we will see increased spending for our products and there can be no assurance that either domestic or international sales will increase.

Our fiscal 2010 operating outlook will be affected by our ability to extend or refinance our senior bank debt on terms attractive to us and our ability to reach an acceptable arrangement with the holders of the 7% Convertible Senior Subordinated Notes by February 2010. See our discussion at Liquidity and Capital Resources for further information.

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SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Management's estimates also affect the reported amounts of revenues and expenses during the reporting period. In addition, certain normal and recurring estimates are made including estimates in determining the allowance for doubtful accounts receivable, inventory valuation reserves, valuation allowance on deferred tax assets, health care liabilities and determining stock-based compensation expense. These estimates are made using management's best judgment given relevant factors and available data. Actual results could differ materially from those estimates. Note 2 to our June 30, 2009 consolidated financial statements includes a summary of the significant accounting policies, methods and estimates used in the preparation of the Company's consolidated financial statements. There have been no material changes in accounting policies, methods and estimates used by management during this fiscal year except for the adoption of accounting pronouncements as described below. In most instances, we must use an accounting policy or method because it is the only policy or method permitted under U.S. GAAP. We believe the following significant accounting policies and methods used by the Company are the most important to the presentation of our financial statements:

Discontinued Operations and Assets Held for Sale: We consider businesses to be held for sale when management approves and commits to a formal plan to actively market a business for sale. Upon designation as held for sale, the carrying value of the assets of the business are recorded at the lower of their carrying value or their estimated fair value, less costs to sell. Results of operations of a business classified as held for sale are reported as discontinued operations when (a) the operations and cash flows of the business will be eliminated from ongoing operations as a result of the sale and (b) the Company will not have any significant continuing involvement in the operations of the business after the sale. The assets of the Intersection Control business are classified as held for sale as of June 30, 2008 and the results of operations of the Intersection Control business are classified as discontinued operations for all periods presented. The sale of the Intersection Control business was completed in July 2009.

Revenue Recognition: Revenues, net of discounts and allowances, are recognized when either services have been rendered or both title and risk of loss of products have been transferred to unaffiliated customers. We ensure that collection of the resulting receivable is probable, persuasive evidence that an arrangement exists, and the revenue is fixed or determinable. The majority of our sales are for standard products and services with customer acceptance occurring upon shipment of the product or performance of the service. We also enter into agreements that contain multiple elements (such as equipment, installation and service) or non-standard terms and conditions. For multiple-element arrangements, we recognize revenue for a delivered element when it has stand-alone value to the customer, the fair values of undelivered elements are known, customer acceptance of the delivered element has occurred and there are only customary refund or return rights related to the delivered element. In addition, equipment revenue is not recorded until the installation has been completed if equipment acceptance is dependent upon installation, or if installation is essential to the functionality of the equipment. Provision for estimated uncollectible amounts and credits is made based upon management's analysis of bad debts, credit and returns.

Inventories: Inventories are valued at the lower of cost (first-in, first-out method) or market. Actual costs are used to value raw materials and supplies. Standard costs, which approximate actual costs, are used to value finished goods and work-in-process. Standard costs include raw materials, direct labor and manufacturing overhead. Provision for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels, ages and salability.

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Long-lived Assets: Long-lived assets include such items as goodwill, patents, product rights, other intangible assets and property, plant and equipment. For purposes of evaluating the recoverability of long-lived assets, we assess the possibility of obsolescence, demand, new technology, competition, and other pertinent economic factors and trends that may have an impact on the value or remaining lives of these assets. In performing our impairment assessments, we first assess our indefinite-lived intangibles; second, assess our amortized long-lived assets (including amortized intangible assets and property, plant and equipment); and third, assess our goodwill. Additionally, we reassess the remaining useful lives of our amortized long-lived assets.

Amortized long-lived assets (including amortized intangible assets and property, plant and equipment) held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in relation to future undiscounted cash flows of underlying asset groups. The net carrying value of assets not recoverable is reduced to fair value. Fair values of amortized long-lived assets are determined based upon the performance of a fair value appraisal. Patents and other finite-lived intangible assets are amortized on a straight-line or systematic method over the life of the patent or intangible asset.

Goodwill and other indefinite-lived intangible assets are tested for impairment annually or when a triggering event occurs. The indefinite-lived intangible asset impairment test is performed by comparing the fair value of the intangible asset to its carrying value in a one-step analysis. If the fair value of the intangible asset is less than its carrying value, the intangible asset is written down to its fair value. The goodwill impairment test is performed at the reporting unit level and is a two-step analysis. First, the fair value of the reporting unit is compared to its book value. If the fair value of the reporting unit is less than its book value, we perform a hypothetical purchase price allocation based on the reporting unit's fair value to determine the implied fair value of the reporting unit's goodwill. If the implied fair value of the goodwill is less than its carrying value, the goodwill is written down to its implied fair value. Fair values are determined using discounted cash flow methodologies.

The impairment review is highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact on the amount of any impairment charge recorded. Estimates of fair value are primarily determined using discounted cash flow methods and are dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several years. Actual cash flows in the future may differ significantly from those previously forecasted. Other significant assumptions include growth rates and the discount rate applicable to future cash flows. Our stock price is also a factor impacting the assessment of the fair value of our underlying reporting segment for purposes of performing a goodwill impairment assessment. Our stock price can be affected by, among other things, the relatively small public float of our stock, quarterly fluctuations in our operating results, and changes in estimates of our future earnings.

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comparing the residual amount to the carrying value of goodwill. Based upon that test, we determined that the entire amount of the Inform segment goodwill was impaired and we recorded a goodwill impairment charge in the Inform segment of $9,246,000, or $6,877,000 net of income tax benefits, in the third quarter of fiscal 2009. We also evaluated intangible assets for impairment and determined that the carrying amounts were recoverable. There were no impairment charges recorded in the Protect and Direct segment during fiscal 2009 due to the relatively low level of long-lived assets within the segment as compared to the Inform segment with a higher relative level of long-lived assets.

Our annual impairment review did not indicate that our assets were impaired as of June 30, 2009. However, if either of our segments records significantly lower than expected operating profits in interim periods during fiscal 2010, or if we experience changes in expectations related to the extent and duration of the economic downturn and its impact on the operating results of our segments, or if our market capitalization falls below our carrying value for a sustained period, we may need to perform an interim impairment test. The amount of an impairment loss could be up to the total amounts of goodwill and intangible assets recorded as of June 30, 2009 of $8,139,000 and $1,975,000, respectively. If we are required to take a substantial impairment charge, then our operating results would be materially adversely affected in such period.

Income Taxes: We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent that any future tax benefits are not expected to be fully realized, such future tax benefits are reduced by a valuation allowance. Realization of deferred tax assets assumes that we will be able to generate sufficient future taxable income so that the assets will be realized. The factors that we consider in assessing the likelihood of realization include the forecast of future taxable income, available tax planning strategies that could be implemented to realize the deferred tax assets as well as certain federal and state laws that impose restrictions on the utilization of net operating loss and tax credit carryforwards. During the fourth quarter of fiscal 2009, we performed an Internal Revenue Code Section 382 analysis with respect to our net operating loss and credit carryforwards and determined that there was currently no such limitation. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. Although we assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, there is no assurance that such determinations by us are in fact adequate. Changes in our effective tax rates or amounts assessed upon examination of our tax returns may have a material adverse impact on our results and our financial condition. We currently expect the net deferred tax assets of $21,255,000 recorded as of June 30, 2009 to be fully realizable in part based upon expected future projected income and the significant length of time to utilize these loss carryforwards. However, changes in expectations related to the extent and duration of the economic downturn and its impact on our operating results as well as a subsequent change in ownership which may limit the utilization of net operating losses and tax credit carryforwards could cause us to further review the realizability of our deferred tax assets. If we incur pre-tax losses for a sustained period in fiscal 2010 we would expect to further review the realizability of our deferred tax assets. It is possible that the review would result in an increased valuation allowance, increasing income tax expense, which would adversely affect our net income.

Share-based compensation: We recognize share-based compensation expense for all unvested share-based payments based on the fair value on the original grant date. The fair value of the options and restricted stock granted is amortized on a straight-line basis over the requisite service period, which is the vesting period.

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Severance costs: We record employee severance when a specific plan has been approved by management, the plan has been communicated to employees and it is unlikely that significant changes will be made to the plan.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard No. 157 "Fair Value Measurements" ("SFAS 157"), which clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. In February 2008, the FASB issued FASB Staff Position FSP 157-2, "Effective Date of FASB Statement No. 157", which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are disclosed at fair value in the financial statements on a recurring basis (at least annually). We adopted SFAS 157 related to financial assets and liabilities on July 1, 2008, as discussed further in footnote 18, and it did not have a material impact on our consolidated financial statements. We are currently evaluating the impact, if any, that SFAS 157 may have on our future consolidated financial statements related to non-financial assets and liabilities.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"), which provides companies with an option to report selected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. We adopted SFAS 159 on July 1, 2008. We did not adopt the fair value option permitted under this statement and therefore the adoption of this statement had no effect on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141"), and SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("SFAS 160"). SFAS 141 requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This standard also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies and research and development. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement of income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. In April 2009, the FASB issued FSP 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies", which amends and clarifies issues that arose regarding initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. We do not expect that our adoption of these statements effective July 1, 2009 will impact our results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement 133" ("SFAS 161"), which enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"; and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Our adoption of this statement effective January 1, 2009 did not impact our results of operations or financial position.

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Assets" and the period cash flows used to measure the fair value of the asset under SFAS 141R when the underlying arrangement includes renewal or extension of terms that would require substantial costs or result in a material modification to the asset upon renewal or extension. Companies estimating the useful life of a recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension as adjusted for SFAS 142's entity-specific factors. The effective date for SFAS 142-3 is the beginning of our fiscal 2010. We do not expect the adoption of this statement to have a material effect on our results of operations or financial position.

In May 2008, the FASB issued FSP Accounting Principles Board (APB) 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Settlement)" ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. The effective date for FSP APB 14-1 is the beginning of our fiscal 2010. We do not expect the adoption of this statement to have a material effect on our results of operations or financial position.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165 requires companies to recognize in the financial statements the effects of subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. An entity shall disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued. Companies are not permitted to recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued. Some nonrecognized subsequent events must be disclosed to keep the financial statements from being misleading. For such events a company must disclose the nature of the event, an estimate of its financial effect, or a statement that such an estimate cannot be made. SFAS 165 applies prospectively for interim or annual financial periods ending after June 15, 2009. The adoption of SFAS 165 effective June 30, 2009 did not have a material effect on our results of operations or financial position.

In June, 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162" (SFAS No. 168), which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles. SFAS 168 explicitly recognizes rules and interpretive releases of the SEC under federal securities laws as authoritative GAAP for SEC registrants. SFAS 168 is effective for interim and annual statements issued after September 15, 2009 and will change the way we reference accounting standards in future filings.

FORWARD LOOKING STATEMENTS

Various statements made within the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report constitute "forward-looking statements" for purposes of the SEC's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended. Except for historical information, any statement that addresses expectations or projections about the future, including statements about our strategy for growth, product development, market position, expenditures, financial results or changes in governmental legislation, policies and conditions, is a forward-looking statement.

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Readers are cautioned not to place undue reliance on these forward-looking statements and that all forward-looking statements involve risks and uncertainties, including those detailed in our public filings with the SEC, news releases and other communications, which speak only as of the dates of those filings or communications. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. There can be no assurance that actual results will not differ materially from our expectations. Factors which could cause materially different results include uncertainties related to continued weak global economic conditions and the constricted financial markets; continued federal, state and municipal funding for highways and risks related to reductions in government expenditures; market demand for our products; pricing and competitive factors, among others which are set forth in the "Risk Factors" of Part I, Item 1A of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from fluctuations in interest rates on our revolving credit facility, and, to a limited extent, currency exchange rates. The majority of our debt is at a fixed interest rate. Given that our exposure to interest rate fluctuations is low, we currently believe that the use of derivative instruments in the form of non-trading interest rate swaps to manage the risk is not necessary.

Assets, liabilities and commitments that are to be settled in cash and are denominated in foreign currencies for transaction purposes are sensitive to changes in currency exchange rates. The majority of our business is transacted in U.S. dollars and the U.S. dollar is considered the primary currency for the majority of our operations. There were no material transaction gains or losses during fiscal 2009, fiscal 2008 or fiscal 2007 and we do not believe we are currently exposed to any material risk of loss from currency exchange fluctuations. We will continue to evaluate the need for the use of derivative financial instruments to manage foreign currency exchange rate changes. In the next few years we may confront greater risks from currency exchange fluctuations as our business expands internationally.

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Quixote Corporation

We have audited the accompanying consolidated balance sheets of Quixote Corporation (a Delaware corporation) and subsidiaries as of June 30, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2009. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Schedule II- Valuation and Qualifying Accounts as of June 30, 2009, 2008 and 2007. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Quixote Corporation and subsidiaries as of June 30, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Quixote Corporation's internal control over financial reporting as of June 30, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated September 14, 2009 expressed an unqualified opinion on the effective operation of internal control over financial reporting.

/s/ GRANT THORNTON LLP
Chicago, Illinois
September 14, 2009

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QUIXOTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

				For each of the three years ended June 30,

(Dollar amounts in thousands, except share data:)				2009			2008			2007
Net sales				$	94,093		$	101,806		$	107,774
Cost of sales					66,397			64,967			64,255

Gross profit					27,696			36,839			43,519

Operating (income) expenses:
	Selling and administrative				25,738			24,845			28,346
	Research and development				3,039			3,650			3,453
	Severance costs				1,342
	Goodwill impairment charge				9,246
	Gain on sale of assets										(518	)

					39,365			28,495			31,281

Operating (loss) profit					(11,669	)		8,344			12,238
Other income (expense):
	Interest income				7			338			19
	Interest expense				(3,508	)		(4,338	)		(4,478	)

					(3,501	)		(4,000	)		(4,459	)

(Loss) earnings from continuing operations before income taxes					(15,170	)		4,344			7,779
Income tax (benefit) provision					(4,818	)		1,225			2,964

(Loss) earnings from continuing operations					(10,352	)		3,119			4,815
Discontinued operations:
	Loss from operations, net of income taxes				(46	)		(1,322	)		(8,394	)
	Loss on sale of discontinued operations, net of income taxes				(712	)
	Loss from write-down of assets held for sale, net of income taxes							(1,326	)

	Loss from discontinued operations, net of income taxes				(758	)		(2,648	)		(8,394	)

Net (loss) earnings				$	(11,110	)	$	471		$	(3,579	)

Basic (loss) earnings per share:
		(Loss) earnings from continuing operations		$	(1.12	)	$	0.34		$	0.54

		Loss from discontinued operations		$	(0.08	)	$	(0.29	)	$	(0.94	)

		Net (loss) earnings		$	(1.20	)	$	0.05		$	(0.40	)

		Weighted average common shares outstanding			9,248,084			9,092,139			8,945,855

Diluted (loss) earnings per share:
		(Loss) earnings from continuing operations		$	(1.12	)	$	0.34		$	0.54

		Loss from discontinued operations		$	(0.08	)	$	(0.29	)	$	(0.94	)

		Net (loss) earnings		$	(1.20	)	$	0.05		$	(0.40	)

		Weighted average common and common equivalent shares
			outstanding		9,248,084			9,121,103			8,945,855

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.

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QUIXOTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				As of June 30,

(Dollar amounts in thousands, except share data)				2009			2008
ASSETS
Current assets:
	Cash and cash equivalents			$	98		$	408
	Accounts receivable, net of allowance for doubtful accounts of $1,106 in 2009 and $418 in 2008				20,920			23,801
	Inventories, net				15,976			19,389
	Deferred income taxes				2,354			2,608
	Other current assets				970			504
	Current assets of business held for sale							20,161

			Total current assets		40,318			66,871

Property, plant and equipment at cost:
	Land				988			988
	Buildings and improvements				14,842			14,835
	Machinery and equipment				15,335			14,730
	Furniture and fixtures				1,990			1,928
	Computer equipment and software				9,708			8,780
	Leasehold improvements				1,556			1,710
	Construction in progress				1,054			902

					45,473			43,873
		Less: accumulated depreciation and amortization			(29,553	)		(27,162	)

					15,920			16,711

Goodwill					8,139			17,385
Intangible assets, net					1,975			2,206
Deferred income taxes					18,901			13,371
Other assets					339			890
Assets of business held for sale								4,109

				$	85,592		$	121,543

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Current portion of long-term debt			$	41,000		$	17,600
	Accounts payable				3,819			5,950
	Dividends payable							1,829
	Accrued expenses:
		Accrued payroll and commissions			1,297			1,289
		Accrued insurance			1,287			1,347
		Accrued interest			1,050			1,065
		Other accrued expenses			1,946			2,047
	Current liabilities of business held for sale							5,520

			Total current liabilities		50,399			36,647

Long-term debt, net of current portion								40,000
Other long-term liabilities					1,028			1,059
Commitments and contingent liabilities
Shareholders' equity:
	Preferred stock, no par value; authorized 100,000 shares; none issued
	Common stock, par value $.01²/3; authorized 30,000,000 shares; issued 11,077,711 shares in 2009 and 11,051,815 shares in 2008				185			184
	Capital in excess of par value of stock				66,133			66,498
	Accumulated deficit				(11,159	)		(49	)
	Treasury stock, at cost, 1,743,844 shares in 2009 and 1,893,552 shares in 2008				(20,994	)		(22,796	)

			Total shareholders' equity		34,165			43,837

				$	85,592		$	121,543

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.

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QUIXOTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	For the three years ended June 30, 2009

	Common Stock					Capital in Excess of Par Value of Stock			Accumulated Compre- hensive Income(Loss)			Retained Earnings (Accum Deficit)			Treasury Stock
	Common Stock														Treasury Stock						Compre- hensive Income (Loss)
(Dollar amounts in thousands, except share data)	Shares			Dollars											Shares			Dollars			Compre- hensive Income (Loss)
BALANCES, JULY 1, 2006		10,904,678		$	182	$	62,434		$	227		$	10,226			2,008,636		$	(24,123	)
Exercise of options, net of tax		81,657			1		1,231
Net loss—2007													(3,579	)							$	(3,579	)
Other comprehensive income										(118	)											(118	)
Declaration of semi-annual cash dividends ($0.19 per share)													(3,409	)
Issuance of shares for 401K plan							392									(50,517	)		571
Stock compensation expense							970
Issuance of shares pursuant to the stock retirement plan		10,794					203

BALANCES, JUNE 30, 2007		10,997,129		$	183	$	65,230		$	109		$	3,238			1,958,119		$	(23,552	)	$	(3,697	)

Exercise of options, net of tax		14,790					141
Net earnings—2008													471								$	471
Adoption of FIN 48													(110	)
Other comprehensive income										(109	)											(109	)
Declaration of semi-annual cash dividends ($0.20 per share)													(3,648	)
Issuance of shares for 401K plan							251									(69,117	)		795
Issuance of restricted stock		29,100			1
Repurchase of shares																4,550			(39	)
Stock compensation expense							773
Issuance of shares pursuant to the stock retirement plan		10,796					103

BALANCES, JUNE 30, 2008		11,051,815		$	184	$	66,498		$	—		$	(49	)		1,893,552		$	(22,796	)	$	362

Net loss—2009													(11,110	)							$	(11,110	)
Issuance of shares for 401K plan							(1,063	)								(149,708	)		1,802
Cancellation of restricted stock		(6,466	)
Stock compensation expense							430
Issuance of shares pursuant to the stock retirement plan		32,362			1		268

BALANCES, JUNE 30, 2009		11,077,711		$	185	$	66,133		$	—		$	(11,159	)		1,743,844		$	(20,994	)	$	(11,110	)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.

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QUIXOTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For each of the three years ended June 30,

(Dollar amounts in thousands)		2009			2008			2007
OPERATING ACTIVITIES:
Net (loss) earnings		$	(11,110	)	$	471		$	(3,579	)
	Loss from discontinued operations, net of tax		46			1,322			8,394
	Loss on sale of discontinued operations, net of tax		712
	Loss from write-down of assets held for sale, net of tax					1,326

(Loss) earnings from continuing operations, net of tax			(10,352	)		3,119			4,815
ADJUSTMENTS TO RECONCILE NET (LOSS) EARNINGS TO NET CASH PROVIDED BY OPERATIONS:
	Goodwill impairment charge		9,246
	Depreciation		2,686			2,883			2,870
	Amortization		978			778			829
	Deferred income taxes		(4,817	)		271			4,369
	Provisions for losses on accounts receivable		687			(539	)		508
	Issuance of stock retirement plan shares		268			103			203
	Issuance of stock to 401K plan		739			1,046			963
	Share-based stock compensation expense		430			773			970
	Gain on sale of assets								(518	)
Changes in operating assets and liabilities:
	Accounts receivable		2,194			2,634			(681	)
	Inventories		3,413			(1,463	)		(3,413	)
	Other assets		(561	)		146			(462	)
	Accounts payable and accrued expenses		(2,671	)		(3,229	)		(965	)
	Income taxes payable/refundable		(524	)		2,413			(2,270	)
	Other		(31	)		14			(42	)

Net cash provided by operating activities—continuing operations			1,685			8,949			7,176
Net cash used in operating activities—discontinued operations			(1,545	)		(6,546	)		(5,683	)

Net cash provided by operating activities			140			2,403			1,493

INVESTING ACTIVITIES:
	Capital expenditures		(1,895	)		(3,371	)		(2,143	)
	Patent expenditures		(101	)		(82	)		(529	)
	Proceeds from sale of discontinued operations		20,000
	Proceeds from sale of assets								1,705

Net cash provided by (used in) investing activities—continuing operations			18,004			(3,453	)		(967	)
Net cash provided by (used in) investing activities—discontinued operations			(25	)		(1,437	)		484

Net cash provided by (used in) investing activities			17,979			(4,890	)		(483	)

FINANCING ACTIVITIES:
	Proceeds from revolving credit agreement		27,300			36,000			25,650
	Payments on revolving credit agreement		(43,900	)		(25,400	)		(24,650	)
	Payments on notes payable					(5,122	)		(465	)
	Payment of semi-annual cash dividends		(1,829	)		(3,533	)		(3,381	)
	Proceeds from exercise of common stock options					83			970
	Income tax benefit from employee stock options					58			261
	Repurchase of common stock for treasury					(39	)

Net cash (used in) provided by financing activities			(18,429	)		2,047			(1,615	)

Net change in cash and cash equivalents			(310	)		(440	)		(605	)
Cash and cash equivalents at beginning of year			408			848			1,453

Cash and cash equivalents at end of year		$	98		$	408		$	848

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Quixote Corporation and its subsidiaries (the Company, we, our or us) develop, manufacture and market, to both domestic and international markets, energy-absorbing highway crash cushions, flexible post delineators, electronic wireless measuring and sensing devices, computerized highway advisory radio transmitting systems and other highway and transportation safety products to protect, direct and inform motorists and highway workers.

2. ACCOUNTING POLICIES

There have been no material changes in accounting policies, methods and estimates used by management during this fiscal year except for the adoption of accounting pronouncements as described below. The following describes our more significant accounting policies:

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Quixote Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

We consider businesses to be held for sale when management approves and commits to a formal plan to actively market a business for sale. Upon designation as held for sale, the carrying value of the assets of the business are recorded at the lower of their carrying value or their estimated fair value, less costs to sell. Results of operations of a business classified as held for sale are reported as discontinued operations when (a) the operations and cash flows of the business will be eliminated from ongoing operations as a result of the sale and (b) the Company will not have any significant continuing involvement in the operations of the business after the sale. The assets of the Intersection Control business are classified as held for sale as of June 30, 2008 and the results of operations of the Intersection Control business are classified as discontinued operations for all periods presented. The sale of the Intersection Control business was completed in July 2009.

MANAGEMENT ESTIMATES

CASH AND CASH EQUIVALENTS

Cash in excess of operating requirements is invested in income-producing investments generally having initial maturities of three months or less. These investments are stated at cost, which approximates market value. We consider these short-term instruments to be cash equivalents.

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out method) or market. Actual costs are used to value raw materials and supplies. Standard costs, which approximate actual costs, are used to value finished goods and work-in-process. Standard costs include raw materials, direct labor and manufacturing overhead. Provision for potentially obsolete or slow-moving inventory is made based on management's analysis of inventory levels, ages and salability.

PROPERTY, PLANT AND EQUIPMENT

We capitalize expenditures for major renewals and improvements and charge current earnings with the cost of maintenance and repairs. Provisions for depreciation and amortization have been computed on a straight-line or other systematic methods based on the expected useful lives of the assets as indicated below:


Buildings and improvements		10 to 40 years
Machinery and equipment		3 to 12 years
Furniture and fixtures		3 to 10 years
Computer equipment and software		3 to 7 years
Leasehold improvements		5 to 10 years or the lease term, if shorter

The cost and accumulated depreciation and amortization relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of retirement or other disposition with the gain or loss credited or charged to earnings.

COMPUTER SOFTWARE

We capitalize certain costs incurred in connection with developing computer software embedded in new products which will be used in our products once we achieve technological feasibility. During 2009 and 2008, approximately $560,000 and $679,000, respectively, of embedded computer software was capitalized by the Inform segment.

LONG-LIVED ASSETS

Long-lived assets include such items as goodwill, patents, product rights, other intangible assets and property, plant and equipment. For purposes of evaluating the recoverability of long-lived assets, we assess the possibility of obsolescence, demand, new technology, competition, and other pertinent economic factors and trends that may have an impact on the value or remaining lives of these assets. In performing our impairment assessments, we first assess our indefinite-lived intangibles; second, assess our amortized long-lived assets (including amortized intangible assets and property, plant and equipment); and third, assess our goodwill. Additionally, we reassess the remaining useful lives of our amortized long-lived assets.

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

performance of a fair value appraisal. Patents and other finite-lived intangible assets are amortized on a straight-line or systematic method over the life of the patent or intangible asset.

INCOME TAXES

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent that any future tax benefits are not expected to be fully realized, such future tax benefits are reduced by a valuation allowance. Realization of deferred tax assets assumes that we will be able to generate sufficient future taxable income so that the assets will be realized. The factors that we consider in assessing the likelihood of realization include the forecast of future taxable income, available tax planning strategies that could be implemented to realize the deferred tax assets, the length of time to utilize the loss carryforwards as well as certain federal and state laws that impose restrictions on the utilization of net operating loss and tax credit carryforwards. During the fourth quarter of fiscal 2009, we performed an Internal Revenue Code Section 382 analysis with respect to our net operating loss and credit carryforwards and determined that there was currently no such limitation. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. Although we assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes, there is no assurance that such determinations by us are in fact adequate. Changes in our effective tax rates or amounts assessed

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. ACCOUNTING POLICIES (Continued)

upon examination of our tax returns may have a material adverse impact on our results and our financial condition. We currently expect the net deferred tax assets of $21,255,000 recorded as of June 30, 2009 to be fully realizable in part based upon expected future projected income and the significant length of time to utilize net operating losses.

FINANCIAL INSTRUMENTS

DERIVATIVES

We may use derivative financial instruments from time to time as a risk management tool to hedge our exposure to changes in interest rates and foreign exchange rates. Our derivatives are designated as cash flow hedges. We record any changes in the fair value of the derivative in accumulated other comprehensive income in stockholders' equity. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. We do not use derivative financial instruments for speculative purposes or for trading purposes. We may use interest rate swaps to manage interest rate risk associated with fixed and floating-rate borrowings, but we have not used those instruments since issuing our fixed rate convertible debt in fiscal 2005. We may also enter into currency exchange contracts to manage currency risk resulting from exchange rate changes. We did not have any material derivative financial instruments as of June 30, 2009 or 2008.

CONCENTRATION OF CREDIT RISK

Our customers consist of distributors, contractors, departments of transportation, state agencies, local governments or municipalities. No single customer represents a significant portion of our total revenues. In fiscal 2009, approximately 7%, 6% and 6% of revenues were from customers in the states of New York, Texas and Illinois, respectively. In fiscal 2008, approximately 7%, 7% and 6% of revenues were from customers in the states of New York, Texas and California, respectively. In fiscal 2007, approximately 9%, 8% and 7% of revenues were from customers in the states of Texas, Illinois and New York, respectively.

REVENUE RECOGNITION

Revenues, net of discounts and allowances, are recognized when either services have been rendered or both title and risk of loss of products have been transferred to unaffiliated customers. We ensure that collection of the resulting receivable is probable, persuasive evidence that an arrangement exists, and the revenue is fixed or determinable. The majority of our sales are for standard products and services with customer acceptance occurring upon shipment of the product or performance of the service. We also enter into agreements that contain multiple elements (such as equipment, installation and service) or non-standard terms and conditions. For multiple-element arrangements, we recognize

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revenue for a delivered element when it has stand-alone value to the customer, the fair values of undelivered elements are known, customer acceptance of the delivered element has occurred and there are only customary refund or return rights related to the delivered element. In addition, equipment revenue is not recorded until the installation has been completed if equipment acceptance is dependent upon installation, or if installation is essential to the functionality of the equipment. Provision for estimated uncollectible amounts and credits is made based upon management's analysis of bad debts, credit and returns.

SHIPPING AND HANDLING

Shipping and handling fees charged to customers are included in net sales, and shipping and handling costs incurred by us are included in cost of sales.

RESEARCH AND DEVELOPMENT

Research and development (R&D) costs are expensed as incurred.

SHARE-BASED COMPENSATION

We recognize share-based compensation expense for all unvested share-based payments based on the fair value on the original grant date. The fair value of the options and restricted stock granted is amortized on a straight-line basis over the requisite service period, which is the vesting period.

SEVERANCE COSTS

We record employee severance when a specific plan has been approved by management, the plan has been communicated to employees and it is unlikely that significant changes will be made to the plan.

EARNINGS PER SHARE

Basic earnings per share (EPS) are computed by dividing net earnings available to holders of common stock by the weighted average number of shares of common stock outstanding. Diluted EPS are computed assuming the exercise of all stock options that are profitable to the recipients and are dilutive to results of operations. Under this assumption, the weighted average number of shares is increased accordingly.

RECENT ACCOUNTING PRONOUCEMENTS

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consolidated financial statements. We are currently evaluating the impact, if any, that SFAS 157 may have on our future consolidated financial statements related to non-financial assets and liabilities.

In April 2008, the FASB issued Staff Position (FSP) No. SFAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3"). This guidance is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142, "Goodwill and Other Intangible Assets" and the period cash flows used to measure the fair value of the asset under SFAS 141R when the underlying arrangement includes renewal or extension of terms that would require substantial costs or result in a material modification to the asset upon renewal or extension. Companies estimating the useful life of a recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension as adjusted for SFAS 142's entity-specific factors. The effective date for SFAS 142-3 is the beginning of our fiscal 2010. We do not expect

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the adoption of this statement to have a material effect on our results of operations or financial position.

3. LIQUIDITY

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern.

After years of profitable operations, our continuing operations sustained net losses during fiscal 2009 totaling $10,352,000. Goodwill impairment charges net of income taxes accounted for $6,877,000 of that net loss and employee severance costs net of income taxes accounted for $832,000 of that net loss. The balance of the net losses was primarily due to the lower sales volume caused by the worldwide economic downturn, along with unfavorable sales mix and higher bad debt expenses. While we expect that results for fiscal 2010 will continue to be impacted by a difficult economic environment in both the U.S. and globally, we are cautiously optimistic about the domestic funding outlook and we expect modest domestic sales growth in fiscal 2010 and continued growth in our international sales in

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fiscal 2010. Along with the expected sales growth, we believe that the benefits of our cost reduction initiatives will help us to return to profitability in fiscal 2010.

Our ability to continue as a going concern is contingent upon our ability to obtain debt financing. Our current bank credit agreement expires in November 2009 against which we had $1 million outstanding as of June 30, 2009. In addition, the holders of our $40,000,000 of 7% Senior Subordinated Convertible Notes may require us to repurchase the Notes in February 2010, which we expect they will do. We have implemented a series of cost control measures to improve our financial performance and also have suspended our semi-annual dividend and reduced capital expenditures to conserve cash. We are currently generating positive cash flow in fiscal 2010 and we expect we may continue to do so throughout the fiscal year but our existing cash balances and the cash we expect to generate from operations in fiscal 2010 will not be sufficient to pay the principal amount of those Notes in fiscal 2010. We are exploring financing alternatives including entering into a new bank credit facility, the sale and leaseback of some of our facilities and the sale of certain other assets. We believe that the credit markets are improving and we are working with an advisor to explore other financing alternatives. Based on our preliminary discussions and expected operating results for fiscal 2010, we believe that we will be able to refinance our existing debt obligations including the Notes. However, should we be unsuccessful in obtaining such refinancing on a timely or satisfactory basis or executing other planned actions, the lenders could avail them themselves of remedies under those agreements and there is no assurance that cash flows from operations or other liquidity sources would provide sufficient liquidity to fund operations through June 2010.

4. DISCONTINUED OPERATIONS

On July 25, 2008, we sold our Intersection Control segment to Signal Group, Inc. for $20 million in cash. The Intersection Control segment sold products including traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment, toll road monitoring systems and parking detection devices. The assets and liabilities of the divested segment were classified as assets and liabilities held for sale within our consolidated balance sheets until the sale in fiscal 2009. We reflected the results of those operations as discontinued operations. We recognized a loss on sale of the Intersection Control segment of $712,000, net of income taxes of $436,000, in the first quarter of fiscal 2009. Also during that period in connection with the sale, approximately $10 million in deferred tax assets were recorded as net operating losses which were classified as other temporary differences as of June 30, 2008. These amounts were not classified as assets held for sale within our consolidated balance sheet as of June 30, 2008 as the net operating losses can be used to offset future consolidated income. We recognized a loss of $1,326,000, net of income taxes, as of June 30, 2008 to write down the related carrying amounts of the segment's net assets to their fair values less estimated costs to sell.

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4. DISCONTINUED OPERATIONS (Continued)

The results of discontinued operations for fiscal years 2009, 2008 and 2007, consist of the following:

(Dollar amounts in thousands)	2009			2008			2007

Net sales	$	1,732		$	32,031		$	29,704

Loss from operations of discontinued operations	$	(75	)	$	(2,044	)	$	(2,286	)
Restructuring and impairment charges								(11,275	)
Loss from write-down of assets held for sale					(2,138	)
Loss from sale of discontinued operations		(1,148	)

Loss before taxes		(1,223	)		(4,182	)		(13,561	)
Income tax benefit		(465	)		(1,534	)		(5,167	)

Loss from discontinued operations, net of income tax benefit	$	(758	)	$	(2,648	)	$	(8,394	)

Assets and liabilities expected to be sold were reclassified to assets and liabilities of business held for sale, respectively, and consist of the following as of June 30, 2008:

(Dollar amounts in thousands)

Current assets of business held for sale
	Receivables	$	6,270
	Inventories		13,134
	Other current assets		757

	Total current assets		20,161
Property, plant and equipment			2,474
Other assets			1,635

Total assets of business held for sale		$	24,270

Total liabilities of business held for sale		$	5,520

5. DISPOSITIONS

During the first quarter of fiscal 2007, we sold a former captive manufacturing facility of the Protect and Direct segment located in South Bend, Indiana to Elkhart Plastics, Inc. Since June 30, 2005, we had been renting the facility to the buyer. Our net proceeds from the sale of this facility in fiscal 2007 were $1,423,000 and we recognized a gain on the sale of assets of $236,000.

Effective June 30, 2006, we sold our weather forecasting product line within the Inform segment for a sale price of $1,848,000, including $1,566,000 in cash received during fiscal 2006 and $282,000 in contingent payments received in fiscal 2007. We sold contracts, intellectual property, allocated goodwill, software, equipment and inventory and recorded a net gain on the sale of $846,000 in fiscal 2006 and $282,000 in fiscal 2007.

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6. INVENTORIES

Inventories, net, consist of the following at June 30:

(Dollar amounts in thousands)	2009		2008

Finished goods	$	7,471	$	10,439
Work-in-process		3,950		5,007
Raw materials		4,555		3,943

	$	15,976	$	19,389

7. INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following as of June 30:

		2009						2008

(Dollar amounts in thousands)		Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets
Amortized intangible assets:
	Patents and licenses	$	3,847	$	2,392	$	1,455	$	3,746	$	2,160	$	1,586
	Technology and installed base		1,271		916		355		1,271		849		422
	Customer relationships		200		200		0		200		200		0
	Trade names		330		165		165		330		132		198
	Other		20		20		0		20		20		0

Total		$	5,668	$	3,693	$	1,975	$	5,567	$	3,361	$	2,206

We paid $101,000 and $82,000 for patents and licenses during fiscal 2009 and fiscal 2008, respectively. Intangible amortization expense was $332,000, $317,000 and $291,000 for the years ended June 30, 2009, 2008 and 2007, respectively. The estimated amortization expense for the five fiscal years subsequent to 2009 is as follows: $329,000 in 2010, $327,000 in 2011, $317,000 in 2012, $271,000 in 2013 and $267,000 in 2014. Intangible assets are amortized over their useful lives, which is four to seventeen years for patents and licenses, five to fifteen years for technology and installed base, five to ten years for customer relationships, ten years for trade names and one to two years for other intangible assets.

The following table displays a roll-forward of the carrying amount of goodwill from July 1, 2007 to June 30, 2009 by business segment:

	2009								2008

(Dollar amounts in thousands)	Protect and Direct Segment		Inform Segment			Total			Protect and Direct Segment		Inform Segment		Total
Beginning balance	$	8,139	$	9,246		$	17,385		$	8,139	$	9,246	$	17,385
Acquired
Impairment charges (Note 8)				(9,246	)		(9,246	)

Ending balance	$	8,139	$	—		$	8,139		$	8,139	$	9,246	$	17,385

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8. IMPAIRMENT CHARGE

During the fourth quarter of fiscal 2008, we performed the annual impairment review of our goodwill and concluded that no impairment had occurred. Subsequent to December 31, 2008, our common stock price declined such that the market value of our common equity became lower than our book value and the stock price remained depressed for a sustained period during the current third quarter. In addition, the current economic conditions which began to adversely impact our business to a significant extent during the second quarter of fiscal 2009 continued for a sustained period into the third quarter. As a result, management performed an interim impairment assessment of our goodwill and intangible assets during the third quarter of fiscal 2009. We performed the interim first step of the goodwill impairment test for both of our segments and determined that the carrying value of our Inform segment exceeded its fair value, indicating that goodwill of that segment was impaired. Having determined that the Inform segment goodwill was impaired, we then performed the second step of the goodwill impairment test which involves calculating the implied fair value of goodwill by allocating the fair value of the segment to all of its assets and liabilities other than goodwill and comparing the residual amount to the carrying value of goodwill. Based upon that test, we determined that the entire amount of the Inform segment goodwill was impaired and we recorded a goodwill impairment charge in the Inform segment of $9,246,000, or $6,877,000 net of income tax benefits, in the third quarter of fiscal 2009. We also evaluated intangible assets for impairment and determined that the carrying amounts were recoverable. There were no asset impairment charges recorded in the Protect and Direct segment during fiscal 2009 due to the relatively low level of long-lived assets within the segment as compared to the Inform segment with a higher relative level of long-lived assets. Our annual impairment review performed in the fourth quarter did not indicate that our assets were impaired as of June 30, 2009.

9. LONG-TERM DEBT

Long-term debt consists of the following at June 30:

(Dollar amounts in thousands)		2009		2008

Convertible debt 7% interest rate due February 15, 2025		$	40,000	$	40,000
Revolving credit note due November 1, 2009, interest at variable rates, ranging between 2.6% and 6.8%			1,000		17,600

Total long-term debt			41,000		57,600
	Less current portion		41,000		17,600

Long-term debt, net		$	—	$	40,000

During February 2005, we sold $40,000,000 of 7% Convertible Senior Subordinated Notes due February 15, 2025 in a private placement and received net proceeds of $37,395,000. Debt issue costs representing direct costs incurred related to the issuance of the Notes in the amount of $2,605,000 were recorded in other assets and are being amortized into interest expense over five years, the effective term of the Notes. The net proceeds were used to pay off our bank term loan and reduce the amount of our revolving credit agreement. The conversion price is $25.90 per share, which represented a 40% premium over the closing price of our stock on the close of the transaction. The Notes are fully redeemable by us at any time after February 20, 2008 at 100% of the principal amount plus accrued and unpaid interest. The investors can require us to repurchase the notes in cash at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest, if any, on February 15, 2010, 2015 or 2020. Interest is payable semi-annually on February 15 and August 15 of each year.

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9. LONG-TERM DEBT (Continued)

Our current amended bank credit agreement with our senior bank (the "Credit Agreement") provides for a $15 million secured revolving credit facility and includes both fixed and floating interest rate options, at the LIBOR and British Bankers Association LIBOR rate, plus a margin (2.6% as of June 30, 2009). The Credit Agreement is secured by our consolidated assets. The Credit Agreement also contains affirmative and negative covenants including requirements that we meet certain consolidated financial criteria. The covenants also limit the incurrence of additional indebtedness, acquisitions, liens and encumbrances and other matters customarily restricted in such agreements.

We used the proceeds from the sale of the Intersection Control segment, discussed in Note 4, to pay down substantially all of our bank debt subsequent to June 30, 2008 and accordingly we reclassified the amount outstanding against the revolving credit facility as current as of June 30, 2008.

The aggregate amount of maturities of long-term debt for the years subsequent to 2009, assuming the effective maturity of the convertible debt, is $41,000,000 in fiscal 2010.

See Note 3 for further information on our liquidity.

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10. SHARE-BASED COMPENSATION

Plan Descriptions

Our 2001 Employee Stock Incentive Plan (the Plan), which is shareholder-approved, permits the grant of share options and restricted shares to our employees for up to 1,125,000 shares, of which 150,000 shares were reserved for the grant of restricted stock awards. We believe that grants of stock options and restricted stock to employees generate an increased incentive for the employees to contribute to our future success and prosperity, thus enhancing the value of the Company for the benefit of our stockholders. The Plan provides for grants of stock options and restricted stock for employees as may be determined by the Compensation Committee of the Board of Directors. No grantee may receive awards, which include option grants and restricted stock awards, in excess of 100,000 shares per year. The stock options are granted with an exercise price equal to or greater than the fair market value of our stock at the time of grant. Employee options granted under the current plan expire not more than ten years from the grant date with vesting to be determined by the Committee. For grants currently outstanding, vesting is over a three year period, with one-third of the grant becoming exercisable at the end of each of the three years. Option and restricted stock awards provide for accelerated vesting if there is a change in control, as defined in the Plan.

Our 2001 Non-Employee Directors Stock Option Plan (the Director Plan), which is also shareholder-approved, permits the grant of share options to our non-employee directors for up to 235,000 shares. We believe that grants of stock options to non-employee directors encourage the directors to acquire a long term proprietary interest in the growth and performance of the Company, and generate an increased incentive for the directors to contribute to our future success and prosperity, thus enhancing the value of the Company for the benefit of our stockholders. The Director Plan provides for an annual grant of stock options for directors based on a fixed amount, which is currently 5,000 stock options per each non-employee director annually. The stock options are granted with an exercise price equal to the fair market value of our stock at the time of grant. Options granted under the Director Plan expire not more than seven years from the grant date. Vesting occurs after a six-month period. Option awards provide for accelerated vesting if there is a change in control, as defined in the Director Plan, or upon the death of a director optionee.

A summary of the principal features of our current stock incentive plans, as well as copies of those plans are provided in our Proxy Statement for the Annual Meeting of Stockholders on November 18, 2004. Shares issued as a result of stock option exercises or restricted stock grants may be issued as new shares, funded from treasury stock or may be shares purchased on the open market. We believe that we currently have adequate treasury and authorized unissued shares to meet any requirements to issue shares during fiscal 2010. The authorization for issuance will terminate on November 1, 2011 for both the Plan and the Director Plan.

We also have a retirement stock award program for certain of our key executives that was authorized under the 1993 Long-Term Stock Ownership Incentive Plan, which has since been replaced by the Plan. The award consists of shares of our common stock and cash ending with the fiscal year in which each executive attains his or her 62^nd birthday. In order to receive each year's stock award, the

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executive must remain employed with us through the end of fiscal year, unless excused by reason of death or other involuntary termination. Participants are also required to retain the shares awarded for as long as they are employed by us or until age 65. The size of each participant's annual award is determined under accepted actuarial principles to provide a retirement income based upon a percentage of the executive's projected compensation and length of service at retirement, but only if our stock price appreciates at a sustained target rate. On July 25, 2008, the Compensation Committee of the Board of Directors approved the issuance of the 32,362 shares remaining in the retirement stock award program, resulting in a charge to share-based compensation expense of $268,000 in 2009. There are no other outstanding retirement award obligations or participants under the retirement stock award program. The retirement stock award program resulted in a charge to share-based compensation expense of $268,000 in 2009, $103,000 in 2008 and $203,000 in 2007.

Share-based Compensation Expense

The share-based compensation cost that has been charged to Selling and Administrative expense for stock options and restricted stock awards under the Plan and the Director Plan was $430,000, $773,000 and $970,000 for the years ended June 30, 2009, 2008 and 2007, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $106,000, $190,000 and $191,000 for those periods, respectively, and the net expense recorded was $324,000, $583,000 and $779,000, which was $0.04 per basic and diluted share outstanding in 2009, $0.06 per basic and diluted share outstanding in 2008 and $0.09 per basic and diluted share outstanding in 2007.

As of June 30, 2009, the total compensation cost related to unvested share-based awards granted under our stock option plans not yet recognized was approximately $215,000. This cost will be amortized on a straight-line basis over a weighted average period of approximately 1.5 years and will be adjusted for subsequent changes in estimated forfeitures. The 95,334 unvested options outstanding at June 30, 2009 had a weighted-average fair value of $2.30. The 10,133 shares of restricted stock unvested at June 30, 2009 had a fair value of $19.52.

Determining Fair Value

The fair value of stock options granted is estimated using the Black-Scholes option-pricing model that uses the assumptions noted below for fiscal years 2009, 2008 and 2007. Expected volatilities are based on historical volatility of the Company's stock. We use historical data to estimate option exercise patterns, employee termination and forfeiture rates within the valuation model; separate groups of optionees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected dividend yield is determined by dividing the level of per share dividend by the stock price, both as of the grant date. We do not incorporate changes in dividends anticipated by management unless those changes have been communicated to marketplace participants.

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10. SHARE-BASED COMPENSATION (Continued)

The following summarizes the assumptions used in determining the fair value of stock options granted during the years ended June 30:

	2009	2008	2007

Risk free interest rate	2.9%	3.8%	4.5 - 4.8%
Expected dividend yield	4.6%	2.11%	2.28%
Weighted average expected volatility.	39%	37%	39%
Expected term	3.9 - 6.0 years	6.0 years	3.9 - 5.8 years
Weighted average expected term	4.3 years	6.0 years	4.4 years
Weighted average grant-date fair value	$1.68	$6.35	$4.95

We apply a forfeiture rate, estimated based on historical data, of up to 14% to the option fair value calculated by the Black-Scholes option pricing model. This estimated forfeiture rate may be revised in subsequent periods if actual forfeitures differ from this estimate.

Stock Option Activity

Information with respect to stock option activity under our plans is as follows:

			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value

Outstanding at July 1, 2006	944,902		$	18.98
Granted	187,000		$	18.65
Exercised	(82,500	)	$	11.99
Cancelled or expired	(190,199	)	$	23.65

Outstanding at June 30, 2007	859,203		$	18.54	3.2 Years	$	1,451,000

Granted	20,000		$	18.93
Exercised	(20,000	)	$	8.34
Cancelled or expired	(28,533	)	$	20.88

Outstanding at June 30, 2008	830,670		$	18.72	2.4 Years		—

Granted	172,100		$	7.36
Exercised
Cancelled or expired	(129,101	)	$	16.54

Outstanding at June 30, 2009	873,669		$	16.80	2.0 Years		—

Vested at June 30, 2009	778,335		$	17.68	1.7 Years		—

Options outstanding at June 30, 2009 are exercisable as follows: 778,335 currently, 45,335 within one year, 24,999 in two years and 25,000 in three years. Options outstanding as of June 30, 2008 and 2007 included 710,512 and 608,870 which were exercisable as of those dates, respectively. As of June 30, 2009, we have 496,330 common shares reserved for our option and award plans available for future grants.

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10. SHARE-BASED COMPENSATION (Continued)

The following stock option activity occurred during the last three fiscal years:

(Dollar amounts in thousands)	2009		2008		2007

Total intrinsic value of stock options exercised		—	$	153	$	686
Total fair value of stock options vested	$	543	$	874	$	750

Information with respect to restricted stock activity under our plans is as follows:

		Weighted-Average Grant Date Fair Value

Outstanding at July 1, 2007
Granted	29,100	$	19.52
Vested
Cancelled or expired

Unvested outstanding at June 30, 2008	29,100	$	19.52

Granted
Vested	12,501	$	19.52
Cancelled or expired	6,466	$	19.52

Unvested outstanding at June 30, 2009	10,133	$	19.52

11. INCENTIVE SAVINGS PLAN

We have an incentive savings plan covering substantially all of our employees. The plan allows qualified employees to make tax deferred contributions pursuant to Internal Revenue Code Section 401(k). We contribute a matching contribution based upon a percentage of the participants' contributions. The Company contribution was invested directly in our common stock through fiscal 2009. From fiscal 2005 through fiscal 2009, we contributed most of our matching contributions under the incentive savings plan by issuing common stock from our treasury. In July 2009, an amendment to our incentive savings plan was made to allow future matching contributions to be made in cash and invested ratably to our participants' elected investment funds. Additional discretionary company contributions may be made at the option of our Board of Directors. The expense for the plan was $739,000 in 2009, $1,120,000 in 2008 and $1,160,000 in 2007.

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12. INCOME TAXES

The income tax benefit consists of the following:

(Dollar amounts in thousands)	2009			2008			2007

Current:
Federal and international	$	(66	)	$	729		$	(1,219	)
State		65			225			(186	)

		(1	)		954			(1,405	)

Deferred:
Federal and international		(4,979	)		254			4,280
State		162			17			89

		(4,817	)		271			4,369

Total income tax (benefit) provision from continuing operations		(4,818	)		1,225			2,964
Total income tax benefit from discontinued operations		(465	)		(1,534	)		(5,167	)

Total income tax benefit	$	(5,283	)	$	(309	)	$	(2,203	)

The components of the net deferred tax asset (liability) are as follows:

(Dollar amounts in thousands)	2009			2008

Deferred tax assets:
Accounts receivable allowance	$	238		$	265
Warranty reserve		51			311
Goodwill and intangible assets		567			8,001
Inventory valuation		746			734
Compensated absences and medical claims		325			354
Stock option expense		499			499
Other reserves					457
Net operating loss and R&D credits		22,355			7,877
Valuation allowance		(2,074	)		(1,262	)

		22,707			17,236
Deferred tax liabilities:
Other reserves		(975	)
Book over tax basis of fixed assets		(477	)		(1,257	)

Net deferred tax assets	$	21,255		$	15,979

At June 30, 2009, we have approximately $45,264,000 of federal and $30,123,000 of state net operating losses as well as approximately 2,840,000 of research and development credits that can be carried forward for tax purposes. The federal carryforwards expire in years from 2022 through 2029 with the majority expiring in fiscal 2029. The state carryforwards expire in years from 2010 through 2029. The research and development credits expire in years 2022 through 2029. Limitations on the future utilization of certain foreign and state net operating loss carryforwards are present and realization of a portion of the carryforwards is uncertain. The valuation allowance relates principally to

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. INCOME TAXES (Continued)

deferred tax assets relating to these carryforwards that we estimate may not be realizable. Based on management's assessment, it is more likely than not that the net deferred tax assets will be realized through future taxable earnings or implementation of tax planning strategies. See Note 2 for further information.

The net deferred tax assets from continuing operations consist of the following at June 30:

(Dollar amounts in thousands)	2009		2008

Current deferred tax assets	$	2,354	$	2,608
Noncurrent deferred tax assets		18,901		13,371

Total net deferred tax assets	$	21,255	$	15,979

We file income tax returns in jurisdictions of operation, including federal, state and international jurisdictions. At times, we are subject to audits in these jurisdictions. The final resolution of any such tax audit could result in either a reduction in our accruals or an increase in our income tax provision, both of which could have an impact on consolidated results of operations in any given period. U.S. federal income tax returns have been audited through fiscal 2004. The tax years 2007 and 2008 are currently under examination by the Internal Revenue Service. We do not anticipate significant changes in the unrecognized tax benefits within the next twelve months as the result of examinations or lapse of statues of limitations to be material to our results of operations or financial position.

The income tax provision (benefit) from continuing operations differed from the taxes calculated at the statutory federal tax rate as follows:

(Dollar amounts in thousands)	2009			2008			2007

Taxes at statutory rate	$	(5,158	)	$	1,477		$	2,645
State income taxes		(323	)		144			193
R & D credits		(350	)		(476	)		(190	)
Impairment of non-deductible goodwill		775
Change in valuation allowance		812			147			670
Other		(574	)		(67	)		(354	)

Income tax (benefit) provision	$	(4,818	)	$	1,225		$	2,964

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. INCOME TAXES (Continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(Dollar amounts in thousands)		2009			2008

Unrecognized tax benefits at July 1		$	227		$	327
Additions
	Current year tax positions
	Prior year tax positions
Reductions for prior year tax positions
Lapses of statutes of limitations			(45	)		(100	)
Settlements

Unrecognized tax benefits at June 30		$	182		$	227

Included in the $182,000 balance of gross unrecognized tax benefits at June 30, 2009 are $156,000 of tax benefits that, if recognized, would favorably affect the effective income tax rate. At July 1, 2008, we had gross unrecognized tax benefits of $227,000, of which $189,000, if recognized, would favorably affect our effective income tax rate.

We record the interest related to uncertain tax positions as interest expense during the period incurred. Penalties related to uncertain tax positions, which have historically been immaterial, were recorded as part of selling and administrative expense prior to July 1, 2007, but are now recorded as part of the income tax expense during the period incurred. We recorded $21,000 and $1,000, respectively for the potential payment of interest and penalties at June 30, 2009, and $37,000 and $5,000, respectively for the potential payment of interest and penalties at June 30, 2008. The liabilities for interest and tax penalties are recorded in accrued expenses.

13. ACCUMULATED COMPREHENSIVE INCOME

Accumulated other comprehensive income consists of the following as of June 30, 2008:

(Dollar amounts in thousands)

Beginning balance—July 1, 2007	$	109
Amortization to earnings of the unrealized gain on derivative instrument (Note 2)		(109	)

Ending balance		—

Accumulated comprehensive income—June 30, 2008	$	—

The market value of the interest rate swap arrangement liquidated during fiscal 2005 was amortized over the remaining life of the originally forecasted transaction.

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. EARNINGS (LOSS) PER SHARE

The computation of basic and diluted earnings (loss) per share is as follows:

(Dollar amounts in thousands, except share data)		2009			2008			2007

Numerator:
	Earnings (loss) from continuing operations	$	(10,352	)	$	3,119		$	4,815
	Loss from sale of discontinued operations		(712	)
	Loss from discontinued operations		(46	)		(1,322	)		(8,394	)
	Loss on write-down of assets held for sale					(1,326	)

Net earnings (loss)		$	(11,110	)	$	471		$	(3,579	)

Denominator:
	Weighted average shares outstanding—basic		9,248,084			9,092,139			8,945,855
	Effect of dilutive securities—common stock options					28,964

	Weighted average shares outstanding—diluted		9,248,084			9,121,103			8,945,855

Earnings (loss) per share of common stock—basic:
	Earnings (loss) from continuing operations	$	(1.12	)	$	0.34		$	0.54
	Loss from sale of discontinued operations		(0.08	)
	Loss from discontinued operations					(0.14	)		(0.94	)
	Loss on write-down of assets held for sale					(0.15	)

Net earnings (loss)		$	(1.20	)	$	0.05		$	(0.40	)

Earnings (loss) per share of common stock—diluted:
	Earnings (loss) from continuing operations	$	(1.12	)	$	0.34		$	0.54
	Loss from sale of discontinued operations		(0.08	)
	Loss from discontinued operations					(0.14	)		(0.94	)
	Loss on write-down of assets held for sale					(0.15	)

Net earnings (loss)		$	(1.20	)	$	0.05		$	(0.40	)

Employee stock options totaling 80,491 shares for the year ended June 30, 2007 were not included in the diluted weighted average shares calculation because the effects of these securities were anti-dilutive.

There were outstanding options to purchase common stock at prices that exceeded the average market price for the statement of operations period. These options have been excluded from the computation of diluted loss per share and are as follows:

	2009		2008		2007

Average exercise price per share	$	17.10	$	19.98	$	21.40
Number of shares		853,669		675,670		486,867

As discussed in Note 9, if the Convertible Senior Subordinated Notes are fully converted at the conversion price of $25.90 per share, the Notes would convert into approximately 1,544,000 shares of our common stock. The shares are not included in earnings per share as they are currently anti-dilutive until earnings per share reach approximately $1.20 per share.

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES

Disclosures about each group of similar guarantees and commitments are provided below.

LEASE COMMITMENTS

We use various leased facilities and equipment in our operations. The terms for these leased assets vary depending on the lease agreements. Aggregate rental expense under operating leases, principally for office and manufacturing facilities, was $1,501,000 in 2009, $1,681,000 in 2008 and $1,623,000 in 2007. These operating leases include options for renewal. Annual minimum future rentals for non-cancellable leases are approximately $1,089,000 in 2010, $708,000 in 2011, $687,000 in 2012, $688,000 in 2013 and $1,244,000 in 2014.

PRODUCT WARRANTY LIABILITY

We warrant to the original purchaser of our products that we will, at our option, repair or replace, without charge, such products if they fail due to a manufacturing defect. The term of these warranties varies (30 days to 5 years) by product. We accrue for product warranties when, based on available information, it is probable that customers will make claims under warranties relating to products that have been sold, and a reasonable estimate of the costs can be made.

Our estimated product warranty liability for the years ended June 30 is as follows:

(Dollar amounts in thousands)	2009			2008

Beginning balance	$	130		$	231
Warranties issued		141			159
Repairs, replacements and settlements		(162	)		(210	)
Changes in liability for pre-existing warranties, including expirations					(50	)

Ending balance	$	109		$	130

LEGAL

We record loss contingencies where appropriate within the guidelines established by FASB Statement No. 5 "Accounting for Contingencies". We are involved in several pending judicial proceedings for product liability and other damages arising out of the normal conduct of our business. We have indemnified the purchases of the Intersection Control business against losses that may be incurred, including certain health, environmental, state and local tax and other matters. We have also indemnified the purchaser against losses that might be incurred relative to existing litigation. While the outcome of litigation and other matters is subject to uncertainties, we believe, after consultation with counsel, that the outcome of these proceedings, based on current available information and after taking into account the availability and limits of our insurance coverage, will not have a material effect on our consolidated financial condition and results of operations.

EXECUTIVE AGREEMENTS

We have agreements with certain named executives which are designed to retain the services of key employees and to provide for continuity of management in the event of an actual or threatened change in control of the Company. Upon occurrence of a triggering event after a change in control, as defined, we would be liable for payment of benefits under these agreements, of approximately

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

$2.6 million. The triggering event would occur upon the termination of certain named executive officers any time prior to March 6, 2012, as defined. A portion of these benefits will fluctuate based upon the share price at the time of the triggering event. Historically, we have not made payments under the change of control agreements, and no amount has been accrued in the accompanying consolidated financial statements. We also have employment agreements with certain key executives which are designed to retain the services of those key employees. Upon occurrence of a triggering event under these agreements, we would be liable for payment of certain benefits under these agreements of approximately $1.4 million. We record the expense for these agreements when the agreement is triggered. We have by-laws and agreements under which we indemnify our directors and officers from liability for certain events or occurrences while the directors or officers are, or were, serving at our request in such capacities. The term of the indemnification period is for the director's or officer's lifetime. We believe that any obligations relating to this indemnification are predominantly covered by insurance subject to certain exclusions and deductibles, and therefore no amount has been accrued in the accompanying consolidated financial statements.

INDEMNIFICATION OF LENDERS AND AGENTS UNDER CREDIT FACILITY

Under our credit facility, we have agreed to indemnify our lender against costs or losses resulting from changes in laws and regulations which would increase the lender's costs, and from any legal action brought against the lender related to the use of loan proceeds. These indemnifications generally extend for the term of the credit facility and do not provide for any limit on the maximum potential liability. Historically, we have not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

BID AND PERFORMANCE BONDS

We have entered into bid and performance related bonds associated with various contracts. Potential payments due under these bonds are related to our performance under the applicable contract. The total amount of bid and performance related bonds that were available and undrawn was $2,115,000 as of June 30, 2009. Historically, we have not made significant payments on bid and performance bonds, and no amount has been accrued in the accompanying consolidated financial statements.

OTHER COMMITMENTS

We have standby letters of credit primarily covering potential workers' compensation liabilities. The total standby exposure at June 30, 2009 was $1,120,000. We have included $757,000 in accrued liabilities for potential workers' compensation liabilities as of June 30, 2009.

We have certain non-cancelable royalty agreements, which contain certain minimum payments in the aggregate of $1,110,000 through fiscal year 2012. We have included $236,000 in accrued liabilities for royalties as of June 30, 2009.

16. SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES

Cash paid for interest was $3,519,000 in fiscal 2009, $4,075,000 in fiscal 2008 and $4,384,000 in fiscal 2007. Net cash paid for income taxes was $186,000 in fiscal 2009. Net cash received from income

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES (Continued)

taxes was $2,638,000 in fiscal 2008 and $243,000 in fiscal 2007. We declared dividends that were payable at year end of $1,829,000 in fiscal 2008 and $1,715,000 in fiscal 2007. No dividends were declared in fiscal 2009.

17. INDUSTRY SEGMENT INFORMATION

We have two continuing reportable segments, one which manufactures and sells products that Protect and Direct and one which manufactures and sells products that Inform. In July, 2008, our Intersection Control segment was divested. The operations from this business segment have been included in discontinued operations, and are discussed in more detail in Note 4 on discontinued operations. The segment information included below has been reclassified to reflect such discontinued operations.

The primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck-mounted attenuators, sand-filled barrels and barriers as well as highway delineators. The products within this segment absorb and dissipate the force of impact in collisions between vehicles and fixed roadside objects as well as prevent collisions and help to control the flow of traffic by directing or guiding. The primary product lines within the Inform segment include highway advisory radio systems; advanced sensing products which measure distance, count and classify vehicles; weather sensing systems and other transportation equipment. The products within this segment provide information to prevent collisions from occurring and to ease traffic congestion.

The majority of our sales of highway and transportation safety products are to distributors and contractors who then provide product and services to federal, state and local governmental units. Our business is conducted principally in the United States, our country of domicile, with sales outside the United States as follows: $25,938,000 in 2009, $24,642,000 in 2008, and $20,432,000 in 2007. Inter-company sales between segments represented less than one percent of consolidated net sales in each of those periods

Our reportable segments are based on similarities in products and represent the aggregation of operating units for which financial information is regularly evaluated in determining resource allocation and assessing performance. We evaluate the performance of our segments and allocate resources to them based on operating income as well as other factors. Operating income is determined by deducting operating expenses from all revenues. In computing operating income, none of the following has been added or deducted: unallocated corporate expenses, interest income or expense, other income or loss or income tax provisions or benefits. Corporate assets consist primarily of cash and cash equivalents, depreciable assets and income tax assets. Accounting policies for the segments are the same as those for the Company.

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. INDUSTRY SEGMENT INFORMATION (Continued)

The following table presents financial information about our continuing operations by segment as of and for the years ended June 30, 2009, 2008 and 2007 comprising the totals reported in the consolidated financial statements.

(Dollar amounts in thousands)		2009			2008			2007

Revenues:
	Protect and Direct	$	71,511		$	80,523		$	83,593
	Inform		22,582			21,283			24,181

	Total	$	94,093		$	101,806		$	107,774

Depreciation and amortization:
	Protect and Direct	$	2,155		$	2,431		$	2,592
	Inform		863			769			680

	Total segment depreciation and amortization		3,018			3,200			3,272
	Unallocated corporate		646			461			427

	Total	$	3,664		$	3,661		$	3,699

Income (loss) before income taxes:
	Protect and Direct	$	3,833	(1)	$	14,165		$	16,965	(4)
	Inform		(8,309	)(2)		1,441			3,445	(5)

	Total segment operating profit		(4,476	)		15,606			20,410
	Unallocated corporate		(7,193	)(3)		(7,262	)		(8,172	)

	Total operating profit (loss)		(11,669	)		8,344			12,238
	Unallocated interest and other		(3,501	)		(4,000	)		(4,459	)

	Total	$	(15,170	)	$	4,344		$	(7,779	)

Identifiable assets:
	Protect and Direct	$	49,763		$	57,455		$	57,228
	Inform		13,899			22,384			23,121

	Total segment identifiable assets		63,662			79,839			80,349
	Assets held for sale					24,270			18,424
	Unallocated corporate		21,930			17,434			20,601

	Total	$	85,592		$	121,543		$	119,374

Capital expenditures:
	Protect and Direct	$	828		$	2,029		$	1,642
	Inform		1,067			1,342			501

	Total segment capital expenditures		1,895			3,371			2,143

	Unallocated corporate
	Total	$	1,895		$	3,371		$	2,143

(1): Includes $462 in severance costs.
(2): Includes a $9,246 goodwill impairment charge and $98 in severance costs.
(3): Includes $782 in severance costs.
(4): Includes a $236 gain on sale of assets.
(5): Includes a $282 gain on sale of assets.

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. FAIR VALUE MEASUREMENTS

On July 1, 2008, we adopted FAS No. 157, "Fair Value Measurements", related to financial assets and liabilities. In accordance with FASB Staff Position No. FAS 157-2, "Effective Date of SFAS 157", we deferred the adoption of FAS No. 157 for nonfinancial assets and nonfinancial liabilities for one year. The effect of the adoption of FAS No. 157 was not material, resulting only in increased disclosures.

FAS No. 157 establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires that assets and liabilities carried at fair value be classified and disclosed in categories.

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

Our financial instruments, which consist principally of cash, accounts receivable, accounts payable, short-term debt and convertible debt, are carried at cost. The carrying value of our cash, accounts receivable and accounts payable approximates fair value due to their short maturities. The fair value of the convertible notes is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. With very limited trading of our convertible notes and their short term maturity, the fair value of the company's convertible notes is estimated at par value as of June 30, 2009. We determined the estimated fair value amounts by using available market information and commonly accepted valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we or the holders of the notes could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values. In addition, the ultimate settlement value of the notes may differ materially from management's estimate as of June 30, 2009.

19. SHAREHOLDER RIGHTS PLAN

In March 2009 our Board of Directors adopted a Shareholder Rights Plan (Rights Plan) in an effort to protect stockholder value by attempting to deter acquisitions of our Common Stock that would potentially limit our ability to use our U.S. net operating loss, capital loss and tax credit carryovers. The Rights Plan calls for stockholders of record as of March 16, 2009 to receive a dividend distribution of one right for each outstanding share of our common stock. Each share issued after that date is also granted a right. Each Right entitles the holder, upon occurrence of certain events, to purchase a unit consisting of one one-thousandth of a share of Series C Junior Participating Preferred Stock, no par value, for $20.00 per unit. When issued, the Series C Junior Participating Preferred Stock has a preferential quarterly dividend of the greater of $10.00 per share and an amount equal to 1,000 times the dividend declared per share of Common Stock, and has a liquidation preferential payment of the greater of $10.00 per share (plus any accrued but unpaid dividends) and an amount equal to 1,000 times the payment made per share of Common Stock. Each share of the Series C Preferred Stock will

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QUIXOTE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. SHAREHOLDER RIGHTS PLAN (Continued)

have 1,000 votes, voting together with the Common Stock. In addition, if an acquiring person becomes the beneficial owner of more that 4.98% of our outstanding common stock, each right will entitle the holder (other than such acquiring person) to receive, upon exercise, common stock of the Company having a value equal to two times the exercise price of the right. We may redeem the rights for $0.01 per right under certain circumstances. Further information is set forth in the Rights Plan filed with the SEC on March 18, 2009.

20. SEVERANCE COSTS

21. SUBSEQUENT EVENTS

We evaluated subsequent events through September 14, 2009, which is the date we filed our Annual Report on Form 10-K for fiscal 2009 with the Securities and Exchange Commission, and included all accounting and disclosure requirements related to subsequent events in our financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

22. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized unaudited quarterly financial data for fiscal years 2009 and 2008 follows:

		Three months ended

(Dollar amounts in thousands, except per share data)		9/30			12/31			3/31			6/30
FISCAL 2009
Net sales		$	25,139		$	20,057		$	22,105		$	26,792
Gross profit			8,238			5,103			5,657			8,698
Operating profit (loss)			1,342			(3,419	)(1)		(11,156	)(2)		1,564	(3)
Earnings (loss) from continuing operations			263			(2,656	)(1)		(8,583	)(2)		624	(3)
Loss from discontinued operations, net of income taxes			(758	)(4)
Net (loss) earnings			(495	)		(2,656	)(1)		(8,583	)(2)		624	(3)
Basic earnings (loss) per share:
	Continuing operations		.03			(.29	)(1)		(.93	)(2)		.07	(3)
	Net (loss) earnings		(.05	)		(.29	)(1)		(.93	)(2)		.07	(3)
Diluted earnings (loss) per share:
	Continuing operations		.03			(.29	)(1)		(.93	)(2)		.07	(3)
	Net (loss) earnings		(.05	)		(.29	)(1)		(.93	)(2)		.07	(3)
		9/30			12/31			3/31			6/30
FISCAL 2008
Net sales		$	24,504		$	25,879		$	22,869		$	28,554
Gross profit			8,419			9,985			7,149			11,286
Operating profit			2,017			2,693			(323	)		3,957
Earnings (loss) from continuing operations			574			961			(655	)		2,239
Loss from discontinued operations, net of income taxes			(104	)		(202	)		(509	)		(1,833	)(5)
Net earnings (loss)			470			759			(1,164	)		406
Basic earnings (loss) per share:
	Continuing operations		.06			.10			(.07	)		.24
	Net earnings (loss)		.05			.08			(.13	)		.04
Diluted earnings (loss) per share:
	Continuing operations		06			.10			(.07	)		.24
	Net earnings (loss)		.05			.08			(.13	)		.04

(1): The operating loss includes $843 in severance costs. The amount included in the loss from continuing operations was $523, net of income tax benefits.
(2): The operating loss includes $9,246 in goodwill impairment charges and $329 in severance costs. The amount included in the loss from continuing operations for these items was $7,081, net of income tax benefits.
(3): The operating loss includes $170 in severance costs. The amount included in the loss from continuing operations was $105, net of income tax benefits.
(4): The loss from discontinued operations included a loss on the sale of the discontinued operations of $712, net of income tax benefits of $436.
(5): The loss from discontinued operations included a loss on write-down of assets held for sale of $1,326, net of income tax benefits of $812.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K (the "Evaluation Date"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance, as opposed to absolute assurance, of achieving their internal control objectives.

Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment, we believe that, as of June 30, 2009 our internal control over financial reporting is effective based on those criteria.

The effectiveness of our internal control over financial reporting as of June 30, 2009 has been audited by Grant Thornton, LLP, the independent registered public accounting firm that also audited our consolidated financial statements. Grant Thornton's attestation report on our internal control over financial reporting is included herein.

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Attestation of Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Shareholders
Quixote Corporation

We have audited Quixote Corporation (a Delaware Corporation) and subsidiaries' (the "Company") internal control over financial reporting as of June 30, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Quixote Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2009, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of June 30, 2009 and 2008 and the related consolidated statements of operations, shareholders' equity, and cash flows for the three years in the year ended June 30, 2009 and the accompanying Schedule II—Valuation and Qualifying Accounts of June 30, 2009, 2008 and 2007 and our report dated September 14, 2009 expressed an unqualified opinion on those financial statements and schedule.

/s/ GRANT THORNTON LLP
Chicago, Illinois
September 14, 2009

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Some of the information required in response to this item regarding our Directors is set forth in the section "Corporate Governance", "Information Concerning Nominees for Director and Directors Continuing in Office" and "Compliance with Section 16 of the Securities Exchange Act of 1934" of our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 19, 2009 and is incorporated herein by reference.

We maintain a Code of Conduct, which is applicable to all employees and directors, and is available on our website at www.quixotecorp.com by clicking "Investor Info" and then "Corporate Governance". Any amendment or waiver to the Code of Conduct that applies to our directors or executive officers will be posted on our website or in a report filed with the SEC on Form 8-K. The Code of Conduct is available free of charge in print to any stockholder who requests a copy by writing to Joan R. Riley, Vice President and General Counsel, at 35 East Wacker Drive, Suite 1100, Chicago Illinois 60601.

The executive officers of the Company, their ages and offices held by each are as follows:


Bruce Reimer	51	President, Chief Executive Officer
Daniel P. Gorey	58	Executive Vice President, Chief Financial Officer & Treasurer
Joan R. Riley	56	Vice President, General Counsel & Secretary

Mr. Reimer was appointed President and Chief Executive Officer of the Company effective January 1, 2009. He also serves as Chief Executive Officer and a Director of each of the Company's subsidiaries. Prior to his appointment, Mr. Reimer served as President of the Company's Inform segment and as Executive Vice President of Highway Information Systems, Inc., Surface Systems, Inc. and Nu-Metrics, Inc., the three companies comprising our Inform segment, since 2004. From 2000 to 2004, Mr. Reimer was Vice President and General Manager of Highway Information Systems, Inc. Mr. Reimer was employed in engineering management positions at Rockwell International from 1984 until he joined the Company in 2000.

Mr. Gorey joined the Company as Manager of Corporate Accounting in 1985. He was made Controller of the Company in 1987, elected Vice President in 1994, and was elected Chief Financial Officer and Treasurer in 1996. Mr. Gorey was elected to the Board of Directors in 2001. In January 2009, Mr. Gorey was elected Executive Vice President.

Ms. Riley joined the Company as Assistant General Counsel and Assistant Secretary in 1991, was elected General Counsel and Secretary in 1997 and a Vice President in 1999.

There is no family relationship between any of the officers described above.

None of the officers described above are party or otherwise involved in any legal proceedings adverse to the Company or its subsidiaries.

Item 11. Executive Compensation

The information required in response to this item is set forth under the caption "Executive Compensation" of our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 19, 2009 and is incorporated herein by reference.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Some of the information required in response to this item is set forth under the caption "Stock Ownership of Certain Beneficial Owners" of our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 19, 2009 and is incorporated herein by reference.

Equity Compensation Plan Information

As of June 30, 2009, we have two outstanding stock option plans which were approved by our shareholders in November 2001. Additional information relating to our stock option plans appears in Note 10 to our consolidated financial statements included herein.

The following table details information regarding our equity compensation plans as of June 30, 2009:

	(a)		(b)		(c)

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining for future issuance under equity plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		873,669	$	16.80		496,330
Equity compensation plans not approved by security holders

		873,669	$	16.80		496,330

Item 13. Certain Relationships, Related Transactions and Director Independence

The information required in response to this item is set forth under the caption "Certain Transactions and Business Relationships" and the subsections entitled "Director Independence" and "Related Person Transactions" under the caption "Corporate Governance" of our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 19, 2009 and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information required in response to this item is set forth under the caption "Audit and Other Fees Paid to Grant Thornton LLP" of our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 19, 2009 and is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedule

Item Number

(a).1.	Financial Statements
	Reports of Independent Registered Public Accounting Firm	37
	Consolidated Statements of Operations for the years ended June 30, 2009, 2008 and 2007	38
	Consolidated Balance Sheets as of June 30, 2009 and 2008	39
	Consolidated Statements of Shareholders' Equity for the years ended June 30, 2009, 2008 and 2007	40
	Consolidated Statements of Cash Flows for the years ended June 30, 2009, 2008 and 2007	41
	Notes to Consolidated Financial Statements	42-68
(a).2.	Financial Statement Schedule
The financial statement schedule listed under Item 15(d) is filed as part of this annual report. All other schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they are not applicable or not required.


(b).		Exhibits
*		Management contract or compensatory plan or agreement
2.1		Stock Purchase Agreement by and among Signal Group, Inc., Quixote Corporation and Quixote Transportation Safety, Inc. relating to the purchase and sale of all of the issued and outstanding capital stock of Quixote Traffic Corporation, U.S. Traffic Corporation and Peek Traffic Corporation dated July 25, 2008, filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 24, 2008 and filed on July 28, 2008, File No. 001-08123, and incorporated herein by reference.
3.(a)		Restated Certificate of Incorporation as amended November 22, 2005 filed as Exhibit 3(a) to the Company's Form 10-Q Report for the quarter ended December 31, 2005, File No. 001-08123, and incorporated herein by reference; Certificate of Designation of Series C Junior Participating Preferred Stock, as filed with the Delaware Secretary of State on March 17, 2009, filed as Exhibit 3.1 to the Company's Form 8-K dated March 16, 2009 and filed on March 17, 2009, File No. 001-08123, and incorporated herein by reference.
(b)		Amended and Restated By-Laws of the Company as amended through May 14, 2009, filed as Exhibit 3 to the Company's Current Report on Form 8-K dated May 14, 2009 and filed on May 15, 2009, File No. 001-08123, and incorporated herein by reference.
4.(a)		Indenture dated as of February 9, 2005 between Quixote Corporation and LaSalle Bank National Association, as Trustee, filed as Exhibit 4(a) to the Company's Current Report on Form 8-K dated February 9, 2005 and filed on February 10, 2005, File No. 001-08123, and incorporated herein by reference.

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4.(b)		Form of 7% Convertible Senior Subordinated Note Due 2025, filed as Exhibit 4(b) to the Company's Current Report on Form 8-K dated February 9, 2005 and filed on February 10, 2005, File No. 001-08123, incorporated herein by reference.
4.(c)		Registration Rights Agreement dated as of February 9, 2005 by and among Quixote Corporation, and the Buyers as defined therein, filed as Exhibit 4(c) to the Company's Current Report on Form 8-K dated February 9, 2005 and filed on February 10, 2005, File No. 001-08123, and incorporated herein by reference.
4.(d)		Rights Agreement dated as of March 16, 2009, by and between the Company and Computershare Trust Company, N.A., filed as Exhibit 4.1 to the Company's Form 8-K dated March 16, 2009 and filed on March 18, 2009, File No. 001-08123, and incorporated herein by reference.
10(a)		Amended and Restated Credit Agreement dated as of April 20, 2005 among Quixote Corporation as the borrower (the "Borrower") and LaSalle Bank National Association as lender (the "Lender"); Revolving Loan Note dated April 20, 2005 from Borrower to the Lender; and the following additional auxiliary documents all dated as of April 20, 2005: Reaffirmation and Amendment of California Deed of Trust between Energy Absorption Systems, Inc. and Lender; Reaffirmation and Amendment of Pennsylvania Mortgage between Nu-Metrics, Inc. and Lender; Reaffirmation and Amendment of Alabama Mortgage between Energy Absorption Systems (AL) LLC and Lender; Reaffirmation and Amendment of Security Agreement in favor of the Lender by certain identified subsidiaries of the Borrower; Reaffirmation and Amendment of Trademark Security Agreement in favor of Lender by Energy Absorption Systems, Inc.; Reaffirmation and Amendment of Patent Security Agreement in favor of Lender by Energy Absorption Systems, Inc.; and Reaffirmation and Amendment of Subsidiary Stock Pledge Agreements in favor of Lender by the Company, Quixote Transportation Safety, Inc., TranSafe Corporation and Energy Absorption Systems, Inc. filed as Exhibit 10(a) to the Company's Form 10-Q for the quarter ended March 31, 2005, File No. 001-08123, and incorporated herein by reference; First Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of December 1, 2006 filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended December 31, 2006, File No. 001-08123, and incorporated herein by reference; Second Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of March 15, 2007 and Revolving Loan Note dated as of March 15, 2007 filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended March 31, 2007, File No. 001-08123, and incorporated herein by reference; Third Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of November 7, 2007 and Revolving Loan Note dated as of November 7, 2007 filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended September 30, 2007, File No. 001-08123, and incorporated herein by reference; Fourth Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of November 7, 2008 by and between the Borrower and Bank of America, N.A. as successor by merger to Lender filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended September 30, 2008, File No. 001-08123, and incorporated herein by reference; Waiver, Fifth Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of February 9, 2009 and Second Amended and Restated Revolving Loan Note dated as of February 9, 2009 filed as Exhibit 10.6 to the Company's Form 10- Q Report for the quarter

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		ended December 31, 2008, File No. 001-08123, and incorporated herein by reference; Waiver, Sixth Amendment to Amended and Restated Credit Agreement and Reaffirmation of Guaranties dated as of May 7, 2009 filed as Exhibit 10.6 to the Company's Form 10-Q Report for the quarter ended March 31, 2009, File No. 001-08123, and incorporated herein by reference.
(b)*		1991 Director Stock Option Plan, as amended through August 16, 2000, filed as Exhibit 10(b) to the Company's Form 10-K Report for the fiscal year ended June 30, 2000, File No. 001-08123, and incorporated herein by reference.
(c)*		2001 Employee Stock Incentive Plan, as amended June 26, 2009, filed herewith; Form of Employee Stock Option Agreement and Form of Restricted Stock Award Agreement, filed as Exhibits 99(d) and 99(e), respectively, to the Company's Form S-8, File No. 333-120852, filed on November 30, 2004 and incorporated herein by reference.
(d)*		2001 Non-Employee Directors Stock Option Plan as amended June 26, 2009 and filed herewith; Form of Director Non-Qualified Stock Option Agreement filed on November 19, 2004 as Exhibit 10(c) to the Company's Current Report on Form 8-K, File No. 001-08123, dated November 18, 2004, and incorporated herein by reference.
(e)		Office Lease between the Company and TDC Canada, Inc. and Wacker GP, Inc. (collectively "Landlord") dated August 30, 2003, filed as Exhibit 10(f) to the Company's Form 10-Q Report for the quarter ended March 31, 2004, File No. 001-08133, and incorporated herein by reference; First Amendment to Office Lease dated as of July 1, 2004 between the Company and Landlord, filed as Exhibit 10(f) to the Company's Form 10-K Report for the fiscal year ended June 30, 2004, File No. 001-08123, and incorporated herein by reference; Second Amendment to Office Lease dated as of July 30, 2007, filed as Exhibit 10(e) to the Company's Form 10-K Report for the fiscal year ended June 30, 2008, File No. 001-08123, and incorporated herein by reference; Lease Agreement between TBC Place Partners, LLC and Highway Information Systems, Inc. dated August 9, 1999, filed as Exhibit 10(d) to the Company's Form 10-K Report for the fiscal year ended June 30, 1999, File No. 001-08123, and incorporated herein by reference; Office Lease dated July 31, 2009 between A&G/Slater Road, Inc. and Quixote Transportation Technologies, Inc., filed herewith; Lease dated November 19, 2008 by and between SLP I, LLC, SLP II, LLC AND SLP III, LLC, and Surface Systems, Inc. and Guaranty of Lease dated November 19, 2008 between SLP I, LLC, SLP II, LLC, SLP III, LLC and Quixote Corporation, filed as Exhibit 10.1 to the Company's 10-Q Report for the quarter ended December 31, 2008, File No. 001-08123, and incorporated herein by reference.
(f)*		Severance and Non-Competition Agreement dated as of February 3, 2009 between Quixote Corporation and Bruce Reimer and Change of Control Agreement dated as of February 3, 2009 between Quixote Corporation and Bruce Reimer, filed as Exhibits 10.2 and 10.3, respectively, to the Company's Form 10-Q Report for the quarter ended December 31, 2008, File No. 001-08123, and incorporated herein by reference; Amended and restated Change of Control Agreement between Quixote Corporation and Daniel P. Gorey dated July 25, 2008 and Amended and restated Change of Control Agreement between Quixote Corporation and Joan R. Riley dated July 25, 2008, filed as Exhibits 10.2 and 10.3, respectively, to the Company's Current Report on Form 8-K dated July 24, 2008 and filed on July 28, 2008, File No. 001-08123, and Incorporated herein by reference; Retirement Agreement and General Release dated December 23, 2008 between Leslie J. Jezuit and Quixote Corporation filed as

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		Exhibit 10.5 to the Company's Form 10-Q for the quarter ended December 31, 2008, File No. 001-08123, and incorporated herein by reference; Severance and Non-Competition Agreement between Quixote Corporation and Daniel P. Gorey dated July 25, 2008 and Severance and Non-Competition Agreement between Quixote Corporation and Joan R. Riley, filed as Exhibits 10.5 and 10.6, respectively, to the Company's Current Report on Form 8-K dated July 24, 2008 and filed on July 28, 2008, File No. 001-08123, and incorporated herein by reference; Letter Agreement dated as of February 3, 2009 between Quixote Corporation and Bruce Reimer filed as Exhibit 10.4 to the Company's Form 10-Q for the quarter ended December 31, 2008, File No. 001-08123, and incorporated herein by reference.
(g)		Exclusive License Agreement made October 10, 1997, and effective October 1, 1997, by and between Robert A. Mileti, Roadway Safety Systems, Inc., Quixote Corporation and TranSafe Corporation, filed as Exhibit 2.2 to the Company's Form 8-K Report dated October 10, 1997, File No. 001-08123, and incorporated herein by reference.
21.		Subsidiaries of the Company
23.		Consent of Grant Thornton LLP as an Independent Registered Public Accounting Firm
31.		Certifications of the Chief Executive Officer and Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.		Certifications of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

Schedule:

II—Valuation and Qualifying Accounts

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SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunder duly authorized.


	QUIXOTE CORPORATION (Registrant)
Dated: September 14, 2009	By:	/s/ BRUCE REIMER Bruce Reimer, Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE


/s/ BRUCE REIMER Bruce Reimer	President, Chief Executive Officer	September 14, 2009
/s/ LESLIE J. JEZUIT Leslie J. Jezuit	Chairman and Director	September 14, 2009
/s/ DANIEL P. GOREY Daniel P. Gorey	Executive Vice President, Chief Financial Officer, Treasurer and Director	September 14, 2009
/s/ JOAN R. RILEY Joan R. Riley	Vice President, General Counsel and Secretary	September 14, 2009
/s/ JAMES H. DEVRIES James H. DeVries	Director	September 14, 2009
/s/ LAWRENCE C. MCQUADE Lawrence C. McQuade	Director	September 14, 2009
/s/ VICTOR SCHWARTZ Victor Schwartz	Director	September 14, 2009
/s/ DUANE M. TYLER Duane M. Tyler	Director	September 14, 2009
/s/ ROBERT D. VAN ROIJEN Robert D. van Roijen	Director	September 14, 2009

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QUIXOTE CORPORATION AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 2009, 2008 and 2007

Column A	Column B		Column C			Column D(a)			Column E

Description	Balance at Beginning of Period		Additions Charged to Costs and Expenses			Deductions			Balance at End of Period
Reserve for Doubtful Accounts and Credit Memos:
Year ended June 30, 2009	$	418,000	$	752,000		$	(64,000	)	$	1,106,000

Year ended June 30, 2008	$	957,000	$	(539,000	)	$			$	418,000

Year ended June 30, 2007	$	985,000	$	508,000		$	(536,000	)	$	957,000

NOTE:

(a): Column D represents accounts written off as uncollectible, net of collections on accounts previously written off.

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EXHIBIT INDEX

		EXHIBITS

10(c	)	2001 Employee Stock Incentive Plan, as amended June 26, 2009
10(d	)	2001 Non-Employee Directors Stock Option Plan, as amended June 26, 2009
10(e	)	Office Lease dated July 31, 2009 between A&G/Slater Road, Inc. and Quixote Transportation Technologies, Inc.
21		Subsidiaries of the Company
23		Consent of Independent Registered Public Accounting Firm
31		Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)/15d-14(a))
32		Certifications Pursuant to 18 U.S.C. Section 1350

EX-10.(C) 2 a2194436zex-10_c.htm EX-10.(C)

Exhibit 10(c)

QUIXOTE CORPORATION

2001 EMPLOYEE STOCK INCENTIVE PLAN

As Amended June 26, 2009

1. PURPOSE. The purposes of this plan (the “Plan”) are to encourage selected employees of Quixote Corporation (the “Company”) and its Subsidiaries, who are capable of having an impact on the performance of the Company, to acquire a long-term proprietary interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company’s future success and prosperity (thus enhancing the value of the Company for the benefit of its stockholders), and to enhance the ability of the Company and its Subsidiaries to attract and retain qualified individuals upon whom the sustained progress, growth, and profitability of the Company depend.

2. DEFINITIONS. As used in this Plan, terms defined immediately after their use shall have the respective meanings provided by such definitions and the terms set forth below shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

(a) “Affiliate” has the meaning specified in Rule 12b-2 promulgated under the 1934 Act.

(b) “Award” means options or shares of Restricted Stock granted under the Plan.

(d) “Board” means the Board of Directors of the Company.

(e) “Cause” includes termination based on the commission of any act or acts involving dishonesty, breach of fiduciary duty, fraud, illegality or moral turpitude.

(f) “Change in Control” has the meaning specified in Section 13.

(g) “Code” means the Internal Revenue Code of 1986, as amended. References to a particular section of the Code shall include references to successor provisions.

(h) “Committee” means the committee of the Board appointed pursuant to Section 4.

(i) “Continuing Members” has the meaning specified in Section 13b(ii).

(j) “Disability” means a mental or physical condition which, in the opinion of the Committee, renders a Grantee unable or incompetent to carry out the job responsibilities which such Grantee held or the tasks to which such Grantee was assigned at the time the disability was incurred, and which is expected to be permanent or for an indefinite duration exceeding one year.

(k) “Effective Date” means the date upon which this Plan is approved by the stockholders of the Company.

(l) “Fair Market Value” of the Stock of the Company means, as of any applicable date, except as otherwise determined by the Committee, (i) if the Stock is listed on The New York Stock Exchange, the closing sale price of the Stock on the immediately preceding date as reported on The New York Stock Exchange Composite Tape, or if no such reported sale of the security shall have occurred on such date, on the next preceding date on which there was such a reported sale or (ii) if such Stock is traded on the Nasdaq National Market, the average of the highest reported bid and the lowest reported asked price per share of the Stock on the immediately preceding date on the Nasdaq National Market. If the Stock ceases to be listed on The New York Stock Exchange or traded on the Nasdaq National Market, as applicable, the Board shall designate an alternative method of determining the Fair Market Value of the security.

(m) “Grant Date” means the date on which an Award shall be duly granted, as determined in accordance with Section 6(a)(i).

(n) “Grantee” means an individual who has been granted an Award.

(o) “Immediate Family” has the meaning specified in Section 7.

(p) “Including” or “includes” means “including, without limitation,” or “includes, without limitation.”

(q) “1934 Act” means the Securities Exchange Act of 1934, as amended. References to a particular section of, or rule under, the 1934 Act shall include references to successor provisions.

(r) “Option Price” means the per share purchase price of Stock subject to an option.

(s) “Permissible Transferee” has the meaning specified in Section 7.

(t) “Plan” has the meaning specified in the introductory paragraph.

(u) “Restricted Period” means the period, beginning with the first day of the month in which Restricted Stock is granted, during which restrictions on the transferability of the Restricted Stock are in effect.

(v) “Restricted Stock” means shares of Stock granted pursuant to Section 6(d).

(w) “Retirement” means a termination of employment with the Company and its Subsidiaries by a Grantee, other than for Cause or death, any time after attaining age 55, provided that the sum of the Grantee’s age and years of service on the date of termination equals or exceeds sixty-five (65).

(x) “SEC” means the U.S. Securities and Exchange Commission.

(y) “Section 16 Grantee” means a person subject to potential liability under Section 16(b) of the 1934 Act with respect to transactions involving equity securities of the Company.

(z) “Share Withholding” has the meaning specified in Section 12(a).

(aa) “Stock” means the Company’s common stock authorized by the Company’s Certificate of Incorporation.

(bb) “Subsidiary” means any entity in which the Company directly or through intervening subsidiaries owns at least a majority interest of the total combined voting power or value of all classes of stock or, in the case of an unincorporated entity, at least a majority in the capital and profits.

(cc) “Tax Date” has the meaning specified in Section 12(b)(ii).

(dd) “Taxable Event” has the meaning specified in Section 12(a).

(ee) “Tendered Restricted Stock” has the meaning specified in Section 8.

3. SCOPE OF THE PLAN.

(a) Subject to the provisions of Section 3(d) and Section 20, the maximum number of shares of Stock that are available and reserved for delivery on account of the exercise of Awards under this Plan as of the Effective Date is a total of one million one hundred and twenty-five thousand (1,125,000) shares of Stock (of which Two Hundred Thousand (200,000) shares of Stock shall be reserved for the grant of incentive stock options), and one hundred fifty thousand (150,000) shall be reserved for the grant of Restricted Stock.

(b) Such shares may be treasury shares, newly issued shares, or shares purchased on the open market (including private purchases) in accordance with applicable securities laws, or any combination of the foregoing, as may be determined from time to time by the Board or the Committee.

(c) Subject to adjustment as provided in Section 20, following the Effective Date the maximum number of shares of Stock for which Awards may be granted to any Grantee in any calendar year shall not exceed one hundred thousand (100,000) shares.

(d) To the extent an Award shall expire or terminate for any reason without having been exercised in full or shall be forfeited without in either case, the Grantee having enjoyed any of the benefits of stock ownership (other than voting rights or dividends that are also forfeited), the shares of Stock (including Restricted Stock) associated with such Award shall become available for other Awards.

(e) For purposes of this Section 3,

(i) if an Award is denominated in shares of Stock, the number of shares covered by such Award, or to which such Award relates, shall be counted on the date of grant of such Award against the aggregate number of shares of Stock available for granting Awards under this Plan;

(ii) all outstanding shares of Stock issued under this Plan, even if the Stock is subject to restrictions, shall be counted on the date of grant of any Award against the aggregate number of shares of Stock available for granting Awards under this Plan;

(iii) the shares of Stock underlying outstanding options and similar Awards shall be counted while the Award is outstanding against the aggregate number of shares of Stock available for granting Awards under this Plan; and

(iv) in the event of a stock-for-stock exercise of an option, the gross number of shares of Stock subject to the option exercised, not the net number of shares actually issued upon exercise shall be counted against the aggregate number of shares of Stock available for granting Awards under this Plan.

4. ADMINISTRATION.

(a) Subject to Section 4(b), this Plan shall be administered by a committee of the Board (“Committee”) which shall consist of not less than two persons who are Directors of the Company. Membership on the Committee may be subject to such limitations as the Board deems appropriate to permit transactions in Stock pursuant to the Plan to (i) be exempt from liability under Section 16(b) of the 1934 Act pursuant to Rule 16b-3 thereunder and (ii) satisfy the performance-based compensation exception to the $1 million limit under Section 162(m) of the Code.

(b) The Board may, in its discretion, reserve to itself or delegate to the Chief Executive Officer of the Company or another committee of the Board, any or all of the authority and responsibility of the Committee with respect to Awards to Grantees who are not Section 16 Grantees at the time any such delegated authority or responsibility is exercised. Such other committee may consist of two or more Directors who may, but need not be, officers or employees of the Company or of any of its Subsidiaries. To the extent that the Board has reserved to itself or delegated to the Chief Executive Officer or such other committee the authority and responsibility of the Committee, all references to the Committee in the Plan shall be to the Board, the Chief Executive Officer or such other committee.

(c) The Committee shall have full and final authority, in its discretion, but subject to the express provisions of this Plan, as follows:

(i) to grant Awards of Stock;

(ii) to determine (A) when Awards may be granted, and (B) whether or not specific Awards shall be identified with other specific Awards, and if so, whether they shall be exercisable cumulatively with or alternatively to such other specific Awards;

(iii) to interpret this Plan and to make all determinations necessary or advisable for the administration of this Plan;

(iv) to prescribe, amend, and rescind rules and regulations relating to this Plan, including rules with respect to the exercisability and non-forfeitability of Awards upon the termination of employment of a Grantee;

(v) to determine the terms and provisions and any restrictions or conditions (including specifying such performance criteria as the Committee deems appropriate, and imposing restrictions with respect to Stock acquired upon exercise of an option, which restrictions may continue beyond the Grantee’s termination of employment) of the written agreements by which all Awards shall be evidenced (“Award Agreements”) which need not be identical.

(vi) to impose, incidental to an Award, conditions with respect to competitive employment or other activities, to the extent such conditions do not conflict with this Plan;

(vii) to delegate its duties and responsibilities under this Plan, except its duties and responsibilities with respect to Section 16 Grantees, and (A) the acts of such delegates shall be treated hereunder as acts of the Committee, and (B) such delegates shall report to the Committee regarding the delegated duties and responsibilities;

(viii) subject to Section 6(a)(ii), to extend the time during which any Award or group of Awards may be exercised;

(ix) to impose such additional conditions, restrictions, and limitations upon the grant, exercise or retention of Awards as the Committee may, before or concurrently with the grant thereof, deem appropriate, including requiring simultaneous exercise of related identified Awards, and limiting the percentage of Awards which may from time to time be exercised by a Grantee; and

(x) to certify attainment of any performance criteria to which Awards are subject, if any.

The determination of the Committee on all matters relating to this Plan or any Award Agreement shall be conclusive and final. No member of the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any Award.

5. ELIGIBILITY. Awards may be granted to any officer or full-time employee of the Company or any of its Subsidiaries. In selecting the individuals to whom Awards may be granted, as well as in determining the number of shares of Stock subject to, and the other terms and

conditions applicable to, each Award, the Committee shall take into consideration such factors as it deems relevant in promoting the purposes of this Plan.

6. CONDITIONS TO GRANTS.

(a) General Conditions:

(i) The Grant Date of an Award shall be the date on which the Committee grants the Award or such later date as specified by the Committee at the time of granting the Award.

(ii) The term of each Award shall be a period of not more than ten years from the Grant Date, and shall be subject to earlier termination as herein established.

(iii) A Grantee may, if otherwise eligible, be granted additional Awards in any combination.

(b) Grant of Incentive Stock Options.

(i) Options granted under this Section 6(b) shall be “incentive stock options,” that satisfy the requirements applicable to “incentive stock options” described in section 422(b) of the Code. No incentive stock option shall be issued to a Grantee who holds 10% or more of the outstanding voting securities of the Company on the Grant Date.

(ii) No later than the Grant Date of any option, the Committee shall determine the Option Price of such option. The Option Price of an option shall not be less than 100% of the Fair Market Value of the Stock on the Grant Date. Such price shall be subject to adjustment as provided in Section 20.

(iii) The Award Agreement may provide that the option may be exercisable with Restricted Stock.

(iv) The Fair Market Value (determined at the time the option is granted) of the Stock with respect to which incentive stock options are exercisable for the first time by a Grantee during any calendar year (under the Plan and under any other incentive stock options of the Company) shall not exceed $100,000.

(v) The grant of any incentive stock option shall be conditioned upon the Grantee agreeing to advise the Company when the Grantee sells or transfers any shares of Stock acquired pursuant to the exercise of an incentive stock option, and such agreement shall be incorporated in the applicable Award Agreement. The Company may legend any certificate representing Stock acquired pursuant to exercise of an incentive stock option to reflect such restriction.

(i) Options granted under this Section 6(c) shall be “non-qualified stock options,” and are not intended to be “incentive stock options” as that term is described in section 422(b) of the Code.

(iii) The Award Agreement may provide that the option may be exercisable with Restricted Stock.

(d) Grant of Shares of Restricted Stock.

(i) The Committee may in its discretion grant shares of Restricted Stock to any individual eligible under Section 5 to receive Awards, and shall establish the terms and conditions, including such performance criteria, as shall be applicable to such Restricted Stock; provided, however, that the restriction period for any Restricted Stock Award shall be no less than three years or at least one year if the Restricted Stock Award is performance based.

(ii) The Committee shall, in its discretion, determine the amount, if any, that a Grantee shall pay for shares of Restricted Stock. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. If any such cash consideration is required, payment shall be made in full by the Grantee before the delivery of the shares and in any event no later than 10 days after the Grant Date for such shares.

(iii) The Committee may, but need not, provide that all or any portion of a Grantee’s Award of Restricted Stock, or Restricted Stock acquired upon exercise of an option shall be forfeited:

(A) except as otherwise specified in the Award Agreement, upon the Grantee’s termination of employment for any reason specified in the Award Agreement within a specified time period after the Grant Date, or

(B) if the Company or the Grantee does not achieve specified performance objectives (if any) within a specified time period after the Grant Date and before the Grantee’s termination of employment, or

(C) upon failure to satisfy such other restrictions as the Committee may specify in the Award Agreement; provided that, subject to Sections 13 and 14, in no case shall such Award become nonforfeitable before the first anniversary of the Grant Date.

(iv) If a share of Restricted Stock is forfeited, then:

(A) if the Grantee was required to pay for such share or acquired such Restricted Stock upon the exercise of an option, the Grantee shall be deemed to have resold such share of Restricted Stock to the Company at the lesser of (1) the amount paid or, if the Restricted Stock was acquired on exercise of an option, the Option Price paid by the Grantee for such share of Restricted Stock, or (2) the Fair Market Value of a share of Stock on the date of such forfeiture;

(B) the Company shall pay to the Grantee the amount determined under clause (A) of this sentence as soon as is administratively practical; and

(C) such share of Restricted Stock shall cease to be outstanding, and shall no longer confer on the Grantee thereof any rights as a stockholder of the Company, from and after the later of the date the event causing the forfeiture occurred or the date of the Company’s tender of the payment specified in clause (B) of this sentence, whether or not such tender is accepted by the Grantee.

(v) The Committee may provide that any share of Restricted Stock shall be held (together with a stock power executed in blank by the Grantee) in escrow by the Secretary of the Company until the expiration of the Restricted Period and/or such shares become nonforfeitable or are forfeited. Any share of Restricted Stock shall bear an appropriate legend specifying that such share is non-transferable and subject to the restrictions set forth in the Plan and the Award Agreement. If any shares of Restricted Stock become nonforfeitable, and any applicable Restricted Period has ended, the Company shall cause certificates for such shares to be issued or reissued without such legend.

(vi) The Committee may provide one or more Restricted Periods applicable to Restricted Stock, at its discretion. Such Restricted Period shall be measured from the first day of the month in which Restricted Stock is granted with respect to such Restricted Period.

(vii) Each grant of Restricted Stock shall be evidenced by a written instrument stating the number of shares of Restricted Stock granted, the Restriction Period, the restrictions applicable to such Restricted Stock, the nature and terms of payment of consideration, if any, the consequences of forfeiture that will apply to such Restricted Stock, and any other terms, conditions and rights with respect to such grant.

(viii) Any other provision of this Plan to the contrary notwithstanding, the Committee may at any time shorten any Restricted Period, if it determines that conditions, including but not limited to, changes in the economy, changes in competitive conditions, changes in laws or government or regulations, changes in generally accepted accounting principles, changes in the Company’s accounting policies, acquisitions or dispositions, or the occurrence of other unusual, unforeseen, or extraordinary events, so warrant.

7. NON-TRANSFERABILITY. Except for those assignments and transfers that are approved by the Committee, each Award (other than Restricted Stock) granted hereunder shall not be assignable or transferable other than by will or the laws of descent and distribution;

provided however, that, with respect to Restricted Stock and non-qualified stock options, a Grantee may (a) designate in writing a beneficiary to exercise his/her Award after the Grantee’s death, (b) transfer an option (other than an incentive stock option) to a revocable, inter vivos trust as to which the Grantee is both the settlor and trustee, and (c) transfer an Award for no consideration to any of the following permissible transferees (each a “Permissible Transferee”): (w) any member of the Immediate Family of the Grantee to whom such Award was granted, (x) any trust solely for the benefit of the Grantee and members of the Grantee’s Immediate Family, (y) any partnership or limited liability company whose only partners or members are the Grantee and members of the Grantee’s Immediate Family, or (z) any other transferee approved by the Committee in advance of the transfer; and further provided that: (i) the transfer of any Award shall not be effective on a date earlier than the date on which the Award is first exercisable as set forth in this Plan; (ii) any Permissible Transferee to whom an Award is transferred by a Grantee shall not be entitled to transfer the Award, other than to the Grantee or by will or the laws of descent and distribution; and (iii) the Permissible Transferee shall remain subject to all of the terms and conditions applicable to such Award prior to such transfer. For purposes of this Section 7, “Immediate Family” means, with respect to a particular Grantee, such Grantee’s spouse, children, stepchildren, grandchildren, parents, stepparents, grandparents, siblings, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, and sister-in-law, and shall include relationships arising from legal adoption. Each share of Restricted Stock shall be nontransferable until such share becomes nonforfeitable and the Restricted Period, if any, lapses.

8. EXERCISE. Subject to Sections 4(c)(ix) and 12 and such terms and conditions as the Committee may impose, each option shall be exercisable in one or more installments.

Each option shall be exercised by delivery to the Company of written notice of intent to purchase a specific number of shares of Stock subject to the option. The Option Price of any shares of Stock or shares of Restricted Stock as to which an option shall be exercised shall be paid in full at the time of the exercise. Payment may, at the election of the Grantee, be made in any one or any combination of the following:

(i) cash;

(ii) Stock held by the Grantee for at least 6 months prior to exercise of the option, valued at its Fair Market Value on the date of exercise; or

(iii) by delivery of a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker or lending institution, accepted in writing, and authorizing them to sell the Stock (or a sufficient portion thereof) acquired upon exercise of an option, and assigning the delivery to the Company of a sufficient amount of the sale proceeds to pay for all the Stock acquired through such exercise and any tax withholding obligations resulting from such exercise, all in such form and with such security as the Company may require.

In the event the Grantee elects to make payment as provided in Section 8(a)(ii) above, delivery may be accomplished by means of an attestation by the Grantee, at the time of exercise, as to the Grantee’s ownership of the number of shares of Stock required to cover the total required Option Price of the option being exercised and the Company may deliver the net amount of shares covered by the option after deducting the number of shares required to cover the total Option Price; any attestation to be in form and substance, satisfactory to the Committee.

9. NOTIFICATION UNDER CODE SECTION 83(b). The Committee may, on the Grant Date or any later date, prohibit a Grantee from making the election described below. If the Committee has not prohibited such Grantee from making such election, and the Grantee shall, in connection with the exercise of any option or the grant of any share of Restricted Stock, make the election permitted under Section 83(b) of the Code (i.e., an election to include in such Grantee’s gross income in the year of transfer the amounts specified in Section 83(b) of the Code), such Grantee shall notify the Company of such election within ten (10) days of filing notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under the authority of Section 83(b) of the Code.

10. MANDATORY WITHHOLDING OF TAXES. Whenever under this Plan, cash or shares of Stock are to be delivered upon exercise or payment of an Award or upon a share of Restricted Stock becoming nonforfeitable, or any other event occurs which subjects the Grantee to income taxes with respect to rights and benefits hereunder, the Company shall be entitled to require as a condition of delivery (i) that the Grantee remit an amount sufficient to satisfy the minimum federal, state, and local withholding tax requirements related thereto, (ii) the withholding of such sums from compensation otherwise due to the Grantee or from any shares of Stock due to the Grantee under this Plan, or (iii) any combination of the foregoing.

11. ELECTIVE SHARE WITHHOLDING.

(a) In addition to the specific provisions of Section 8 and subject to Section 11(b), a Grantee may elect the withholding (“Share Withholding”) by the Company of a portion of the shares of Stock otherwise deliverable to such Grantee upon the exercise or payment of an Award or upon a share of Restricted Stock becoming nonforfeitable (each a “Taxable Event”) having a Fair Market Value equal to the minimum statutory amount necessary to satisfy required federal, state, or local withholding tax liability attributable to the Taxable Event.

(b) Each Share Withholding election by a Grantee shall be subject to the following restrictions:

(i) any Grantee’s election shall be subject to the Committee’s right to revoke such election of Share Withholding by such Grantee at any time before the Grantee’s election if the Committee has reserved the right to do so in the Award Agreement;

(ii) the Grantee's election must be made before the date (the "Tax Date") on which the amount of tax to be withheld is determined;

(iii) the Grantee’s election shall be irrevocable; and

(iv) no election to have shares of Stock withheld from any Award shall be effective with respect to an Award which was transferred by the Grantee in accordance with this Plan.

12. TERMINATION OF EMPLOYMENT. Except as may otherwise be provided in the Award Agreement, the following provisions shall govern in the event of a termination of employment for any reason:

(a) For Cause. If a Grantee has a termination of employment for Cause,

(i) The Grantee’s shares of Restricted Stock that are forfeitable shall thereupon be forfeited, subject to the provisions of Section 6(d)(iv) regarding repayment of certain amounts to the Grantee.

(ii) Any unexercised option shall thereupon terminate.

(b) On Account of Death. If the Grantee has a termination of employment by reason of death:

(i) All grants of Restricted Stock awarded to such Grantee shall become nonforfeitable.

(ii) Any unexercised option may be exercised, to the extent exercisable on the date of death, in whole or in part, at any time within one year after such termination of employment and prior to the stated expiration date of the option, by (A) his/her personal representative, executor, administrator, or by the person to whom the option is transferred by will or the applicable laws of descent and distribution, (B) the Grantee’s beneficiary designated in accordance with Section 7, or (C) the then-acting trustee of the trust described in clause (b) of the first sentence of Section 7 (but only if the condition set forth in such clause (b) has been satisfied).

(i) Such termination shall not constitute a termination of employment for purposes of Restricted Stock and such Grantee shall not forfeit any Restricted Stock held by him/her, provided that during the balance of the period in which the Restricted Stock would otherwise remain forfeitable such Grantee does not engage in or assist any business that the Company, in its sole discretion, determines to be in competition with business engaged in by it. A Grantee who does engage in or assist any business that the Company, in its sole discretion, determines to be in competition with any business engaged in by it, shall be deemed to have terminated employment.

(ii) Any unexercised option may be exercised, to the extent exercisable on the date of termination of active employment, in whole or in part, at any time within a one year period after such termination of employment and prior to the stated expiration date of the option, by the Grantor or by the Grantee’s guardian or legal representative provided that during such period the Grantee does not engage in or assist any business that the Company, in its sole discretion, determines to be in competition with a business engaged in by it. If the Grantee dies within such one year period, then the Grantee’s options may be exercised within the one year period after his or her death by the person specified in Section 12(b)(ii). Notwithstanding the foregoing, however, in no event may an option be exercised after the expiration of the Option Period.

(d) On Account of Retirement. If a Grantee has a termination of employment on account of Retirement:

(i) Such termination shall not constitute a termination of employment for purposes of Restricted Stock and the provisions of Section 12(c)(i) shall apply as though the Grantee had terminated active employment for reasons of disability.

(ii) Any unexercised option which is then exercisable, may be exercised, in whole or in part, not later than the close of business on the last business day of the 24th month following the Grantee’s Retirement; provided that, following Retirement, such Grantee does not engage in or assist in any business that the Company, in its sole discretion, determines to be in competition with the business engaged in by it during such period and as is defined in the Award Agreement. If the Grantee dies within the 24 month period after Retirement, then the Grantee’s options may be exercised within the one year period after his or her death by the person specified in Section 12(b)(ii). Notwithstanding the foregoing, however, in no event may an option be exercised after the expiration of its stated term.

(e) Any Other Reason. If a Grantee has a termination of employment for a reason other than for Cause, death of the Grantee, the Grantee’s Disability, and the Grantee’s Retirement:

(i) The Grantee’s shares of Restricted Stock, to the extent forfeitable on the date of the Grantee’s termination of employment, shall be forfeited on such date. If the termination of employment occurs after the Restricted Stock becomes nonforfeitable but prior to the end of a Restricted Period, such termination shall not have any effect on any Restricted Period, unless the Committee, in its sole discretion, finds that the circumstances so warrant and determines that the Restricted Period shall end on an earlier date as determined by the Committee, and that shares held by the Company shall be paid as soon as practicable following such earlier date.

(ii) Any unexercised option to the extent exercisable on the date of the Grantee’s termination of employment, may be exercised in whole or in part, not later than the three month anniversary of the Grantee’s termination of employment. If the Grantee dies within the three month period, then the exercisability of the Grantee’s options shall be

determined under Section 12(b) or the balance remaining of the period specified in this Section 12(d)(ii), whichever is longer.

(f) Extension of Term. In the event of a termination of employment other than for Cause, the Committee, in its sole discretion, may extend the term, including vesting and the exercisability, of any Award; provided, however, that in no event may the term of any Award expire or be exercisable more than ten years after the Grant Date of such Award.

13 CHANGE IN CONTROL.

(a) Notwithstanding any other provision of this Plan to the contrary, if, while any Awards remain outstanding under this Plan, a “Change in Control” (as defined below) should occur, then (1) all options that are outstanding at the time of such Change in Control shall become immediately vested and exercisable in full; and (2) all restrictions with respect to shares of Restricted Stock shall lapse, and such shares shall be fully vested and nonforfeitable.

(b) A Change in Control means a change in control of the Company of a nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation14A promulgated under the 1934 Act; provided that, without limitation, such change in control shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied:

(i) any person (as defined in Section 3(a)(9) of the 1934 Act, as such term is modified in Sections 13(d) and 14(d) of the 1934 Act), other than (1) any employee plan established by the Company or any Subsidiary, (2) the Company or Subsidiary, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company), alone or with its Affiliates, is or becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the 1934 Act), directly or indirectly, of Stock of the Company representing 30% or more of either the then outstanding shares of Stock or the combined voting power of the Company’s then outstanding voting securities;

(ii) a majority of the members of the Board shall cease to be Continuing Members. For this purpose, “Continuing Member” means a member of the Board who either (i) was a member of the Board on the Effective Date hereof and has been such continuously thereafter or (ii) became a member of such Board after the Effective Date and whose election or nomination for election was approved by a vote of at least two-thirds of the Continuing Members then members of the Company’s Board (other than a nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the members of the Board, as such terms are used in Rule 14a-11 of Regulation 14A under the 1934 Act);

continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Affiliate or Subsidiary, at least 50% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (determined pursuant to clause (i) above) is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company, its Subsidiaries or its Affiliates) representing 15% or more of either the then outstanding shares of Stock or the combined voting power of the Company’s then outstanding voting securities; or

(iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or of the Company’s assets or earning power aggregating more than 50% of the assets or the earning power of the Company and its Subsidiaries, taken as a whole.

Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns substantially all of the assets of the Company immediately prior to such transaction or series of transactions.

The Committee may also determine, in its discretion, that a sale of a substantial portion of the Company’s assets or one of its businesses constitutes a “Change of Control” with respect to Awards held by Grantees employed in the affected operation.

14. SECURITIES LAW MATTERS.

(a) If the Committee deems necessary to comply with the Securities Act of 1933, the Committee may require a written investment intent representation by the Grantee and may require that a restrictive legend be affixed to certificates for shares of Stock.

(b) If, based upon the opinion of counsel for the Company, the Committee determines that the exercise or non-forfeitability of, or delivery of benefits pursuant to, any Award would violate any applicable provision of (i) federal or state securities laws or (ii) the listing requirements of any national securities exchange on which are listed any of the Company’s equity securities, then the Committee may postpone any such exercise, non-forfeitability or delivery, as the case may be, but the Company shall use its best efforts to cause such exercise, non-forfeitability or delivery to comply with all such provisions at the earliest practicable date.

15. FUNDING. Benefits payable under the Plan to any person shall be paid directly by the Company. The Company shall not be required to fund, or otherwise segregate assets to be used for payment of benefits under this Plan.

16. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor the granting of any Award shall be construed to (a) give any Grantee the right to remain employed by the Company or any of its Subsidiaries or to any benefits not specifically provided by the Plan or (b) in any manner modify the right of the Company or any of its Subsidiaries to modify, amend, or terminate any of its employee benefit plans. Further, the Company or Subsidiary may at any time dismiss a Grantee from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in this Plan or in any Award Agreement.

17. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of any Award (other than Restricted Stock) have any right as a stockholder of the Company with respect to the shares of Stock which may be deliverable upon exercise or payment of such Award until such shares have been issuable to him. Shares of Restricted Stock held by a Grantee or held in escrow by the Secretary of the Company shall confer on the Grantee all rights of a stockholder of the Company, except as otherwise provided in the Plan. The Committee, in its discretion, at the time of grant of Restricted Stock, may permit or require the payment of cash dividends thereon to be deferred and, if the Committee so determines, reinvested in additional Restricted Stock to the extent shares are available under Section 3 or otherwise reinvested. Stock dividends and deferred cash dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock that are subject to the same restrictions and other terms as apply to the shares with respect to which such dividends are issued. The Committee may, in its discretion, provide for crediting to and payment of interest on deferred cash dividends.

18. NATURE OF PAYMENTS. Any and all grants, payments of cash, or deliveries of shares of Stock hereunder shall constitute special incentive payments to the Grantee and shall not be taken into account in computing the amount of salary or compensation of the Grantee for the purposes of determining any pension, retirement, death or other benefits under (a) any pension, retirement, profit-sharing, bonus, life insurance or other employee benefit plan of the Company or any of its Subsidiaries or (b) any agreement between the Company or any Subsidiary, on the one hand, and the Grantee, on the other hand, except as such plan or agreement shall otherwise expressly provide.

19. NON-UNIFORM DETERMINATIONS. Neither the Committee’s nor the Board’s determinations under the Plan need be uniform and may be made by the Committee or the Board selectively among persons who receive, or are eligible to receive, Awards (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations and to enter into non-uniform and selective Award Agreements, as to (a) the identity of the Grantees, (b) the terms and provisions of Awards, and (c) the treatment, under Section 12, of terminations of employment. Notwithstanding the foregoing, the Committee’s interpretation of Plan provisions shall be uniform as to similarly situated Grantees.

20. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION. The Committee shall make such adjustment, as it shall deem equitable, to any or all of:

(a) the aggregate numbers of shares of Stock and shares of Restricted Stock;

(b) the number of shares of Stock and shares of Restricted Stock covered by an outstanding Award;

(d) any other terms or provisions of any outstanding grants of stock options or Restricted Stock:

to reflect a stock dividend, stock split, reverse stock split, share combination, re-capitalization, merger, consolidation, acquisition of property or shares, separation, spin-off, reorganization, stock rights offering, liquidation or similar event, of or by the Company, or, if deemed appropriate, the Committee may make provisions for a cash payment to the holder of an outstanding Award; provided, however, in each case, that the number of shares subject to any Award denominated in shares of Stock shall always be a whole number. Notwithstanding any part of the foregoing to the contrary, upon the approval by the stockholders of the Company of a plan of liquidation for the Company, any unexercised options previously granted shall become exercisable, and any shares of Restricted Stock that have not become nonforfeitable shall become nonforfeitable.

21. AMENDMENT OR TERMINATION OF THE PLAN. This Plan shall become effective on the Effective Date and shall terminate on, and no Awards shall be made after, November 1, 2011, unless terminated at an earlier date by action of the Board. Any Awards then outstanding shall remain in effect until they have been exercised, forfeited or expired. The Board may amend or terminate this Plan at any time; except that, without approval of the stockholders, no such revision or amendment shall: change the number of shares subject to the Plan; change the designation of the class of employees eligible to receive awards; or materially increase the benefits accruing to participants under the Plan. Subject to Section 20, no amendment or termination may, in the absence of written consent to the change by the affected Grantee (or, if the Grantee is not then living, the affected beneficiary), adversely affect the rights of any Grantee or beneficiary under any Award granted under this Plan prior to the date such amendment is adopted by the Board. Unless approved by the Company’s stockholders, no adjustments or reduction of the Option Price of any outstanding options shall be made directly or by cancellation of outstanding options and a subsequent regranting of options at a lower price to the same individual. Furthermore, the Plan will not be amended without approval of the stockholders in any way which would cause options to fail to qualify as incentive stock options.

22. OTHER COMPENSATION PLANS. Nothing contained in this Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

23. NO ILLEGAL TRANSACTIONS. This Plan and all Awards granted pursuant to it are subject to all laws and regulations of any governmental authority which may be applicable thereto; and notwithstanding any provision of this Plan or any Award, Grantees shall not be entitled to exercise Awards or receive the benefits thereof and the Company shall not be obligated to deliver any Stock or pay any benefits to a Grantee if such exercise, delivery, receipt or payment

of benefits would constitute a violation by the Grantee or the Company of any provision of any such law or regulation.

24. NO TRUST OR FUND CREATED. Neither this Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or Subsidiary and a Grantee or any other person. To the extent that any person acquires a right to receive payments from the Company or Subsidiary pursuant to an Award, such right shall be no greater than the right of an unsecured general creditor of the Company or Subsidiary.

25. CONTROLLING LAW. The law of the State of Illinois, except its law with respect to choice of law and except as to matters relating to corporate law (in which case the corporate law of the State of Delaware shall control), shall be controlling in all matters relating to this Plan.

26. TAX LITIGATION. The Company shall have the right to contest, at its expense, any tax ruling or decision, administrative or judicial, on any issue that is related to this Plan and that the Company believes to be important to Grantees and to conduct any such contest or any litigation arising therefrom to a final decision.

27. SEVERABILITY. If all or any part of this Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Plan not declared to be unlawful or invalid. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner in which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.

28. INDEMNIFICATION. Each person who is or at any time serves as a member of the Board or the Committee or otherwise acts with respect to this Plan pursuant to authority delegated to him/her in accordance with this Plan shall be indemnified and held harmless by the Company against and from: (i) any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit, or proceeding to which such person may be a party or in which such person may be involved by reason of any action or failure to act under this Plan; and (ii) any and all amounts paid by such person in satisfaction of judgment in any such action, suit or proceeding relating to this Plan. Each person covered by this indemnification shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person’s own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the By-Laws of this Company, as a matter of law, or otherwise, or any power that the Company may have to indemnify such person or hold such person harmless.

29. RELIANCE ON REPORTS. Each member of the Board and the Committee shall be fully justified in relying or acting in good faith upon any report made by the independent public accountants of, or counsel for, this Company and upon any other information furnished in connection with the Plan. In no event shall any person who is or shall have been a member of the Board or the Committee be liable for any determination made or other action taken or any

omission to act in reliance upon any such report or information or for any action taken, including the furnishing of information, or failure to act, if in good faith.

30. EXPENSES. The Company shall bear all expenses of administering this Plan.

31 TITLES AND HEADINGS. The titles and headings of the Sections in this Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

32. 1993 LONG-TERM STOCK OWNERSHIP PLAN. Upon approval by the Company’s stockholders of this Plan, the Company’s 1993 Long-Term Stock Ownership Plan shall terminate and, except with respect to shares reserved for options and Retirement Awards granted thereunder which are by their contractual terms outstanding, all shares of Stock reserved for such plan shall no longer be reserved, and no other options or Retirement Awards shall be granted thereunder. Option agreements and retirement agreements currently outstanding under the 1993 Long-Term Stock Ownership Plan shall remain in effect in accordance with their terms notwithstanding termination of that Plan.

Approved by the Stockholders of Quixote Corporation as of November 14, 2001

Approved by the Board of Directors of Quixote Corporation as of August 17, 2004

Approved by the Stockholders of Quixote Corporation as of November 18, 2004

Amended by the Board of Directors of Quixote Corporation on June 26, 2009

EX-10.(D) 3 a2194436zex-10_d.htm EX-10.(D)

Exhibit 10(d)

QUIXOTE CORPORATION

2001 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

As Amended June 26, 2009

1. PURPOSE. The purposes of this plan (the “Plan”) are to encourage non-employee Directors of Quixote Corporation, a Delaware corporation (the “Company”), to acquire a long term proprietary interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company’s future success and prosperity (thus enhancing the value of the Company for the benefit of its stockholders), and to enhance the ability of the Company to attract and retain qualified Directors upon whom the sustained progress, growth, and profitability of the Company depend.

2. DEFINITIONS. As used in this Plan, terms defined immediately after their use shall have the respective meanings provided by such definitions and the terms set forth below shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

(a) “Award” means options granted under the Plan.

(b) “Board” means the Board of Directors of the Company.

(d) “Director” means an individual who is a member of the Board and who is not an employee of the Company or any of its subsidiaries.

(e) “Fair Market Value” of the Stock of the Company means, as of any applicable date, (i) if the Stock is listed on The New York Stock Exchange, the closing sale price of the Stock on the immediately preceding date as reported on The New York Stock Exchange Composite Tape, or if no such reported sale of the Stock shall have occurred on such date, on the next preceding date on which there was such a reported sale, or (ii) if the Stock is traded on the Nasdaq National Market, the average of the highest reported bid and the lowest reported asked price per share of the Stock on the immediately preceding date on the Nasdaq National Market. If the Stock ceases to be listed on The New York Stock Exchange or traded on the Nasdaq National Market, the Board shall designate an alternative method of determining the Fair Market Value of the Stock.

(f) “Grant Date” means the date on which an Award shall be duly granted.

(g) “Grantee” means an individual who has been granted an Award.

(h) “Immediate Family” has the meaning specified in Section 8.

(i) “Including” or “includes” means “including, without limitation,” or “includes, without limitation.”

(j) “Option Price” means the per share purchase price of Stock subject to an option.

(k) “Permissible Transferee” has the meaning specified in Section 8.

(l) “Plan” has the meaning specified in the introductory paragraph.

(m) “SEC” means the Securities and Exchange Commission.

(n) “Stock” means the Company’s common stock, authorized by the Company’s Certificate of Incorporation.

3. SCOPE OF THE PLAN.

(a) Subject to the provisions of Section 11, from and after the Effective Date,one hundred and thirty-five thousand (135,000) shares of Stock, shall remain available and reserved for delivery on account of the exercise of Awards. Such shares may be treasury shares, newly issued shares, or shares purchased on the open market (including private purchases) in accordance with applicable securities laws, or any combination of the foregoing, as may be determined from time to time by the Board.

(b) To the extent an Award shall expire or terminate for any reason without having been exercised in whole by the Grantee, the shares of Stock associated with such Award shall become available for other Awards.

4. PARTICIPATION IN THE PLAN. On the first Friday after the Effective Date and on the first Friday following the Company’s annual meeting of stockholders each year thereafter, each Director elected, re-elected or continuing as a Director shall automatically receive an Award of an option to acquire five thousand (5,000) shares of Stock.

5. OPTION TERMS.

(a) Option Price. The Option Price per share of Stock for each option granted under this Plan shall be equal to the Fair Market Value of the Stock on its Grant Date.

(b) Time for Exercising Options. The options shall not become exercisable until six (6) months after the Grant Date. Unless terminated earlier as set forth in Section 6, any option granted must be exercised within not more than seven (7) years from the date on which granted (“Option Period”).

(c) Exercise of Options. Each option shall be exercised by delivery to the Company of written notice of intent to purchase a specific number of shares of Stock subject to the option.

The Option Price of any shares of Stock as to which an option shall be exercised shall be paid in full at the time of the exercise. Payment may, at the election of the Grantee, be made in any one or any combination of the following:

(i) cash; or

(ii) Stock held by the Grantee for at least 6 months prior to exercise of the option, valued at its Fair Market Value on the date of exercise; or

(iii) by delivery of a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker or lending institution, accepted in writing, authorizing them to sell the Stock (or a sufficient portion thereof) acquired upon exercise of an option, and assigning the delivery to the Company of an amount of the sale proceeds to pay for all the Stock acquired through such exercise and the minimum statutory tax withholding obligations resulting from such exercise, all in such form and with such security as the Company may require.

In the event the Grantee elects to make payments as provided in (ii) above, delivery may be accomplished by means of an attestation by the Grantee, at the time of exercise, as to the Grantee’s ownership of the number of shares of stock required to cover the total required-option-price of the option being exercised and the Company may deliver the net amount of shares covered by the option exercise after deducting the number of shares required to cover the total option price.

6. TERMINATION OF DIRECTORSHIP.

(a) Cessation of Service. Upon the cessation of the Grantee’s service as a Director for a reason other than death, the options immediately exercisable at the date of cessation of service shall be exercisable by the Grantee until the close of business on the day before the same day of the third month after the Grantee’s cessation of service; provided that if the Grantee shall have served as a Director for a period of six (6) years or longer, his/her outstanding options shall continue to be exercisable until the close of business on the last business day of the 24th month following the such cessation of service. If the Grantee dies within such 24-month period, then the Grantee’s options may be exercised within the 12 month period after his or her death by the person specified in Section 6(b), below. Notwithstanding the foregoing, however, in no event may an option be exercised after the expiration of the Option Period. All options not exercisable at the date of cessation of service shall expire on that date.

(b) Death. Upon the cessation of the Grantee’s service as a Director by reason of death, all unvested options shall become exercisable immediately and may be exercised, together with those options which were exercisable on the date of death, not later than the close of business on the last business day of the 12th month following the date of the Grantee’s death, but in no event after the expiration of the Option Period, by (i) his/her personal representative, executor, administrator, or by the person to whom the option is transferred by will or the applicable laws of descent and distribution, (ii) the Grantee’s beneficiary designated in

accordance with Section 8 of the Plan, or (iii) the then-acting trustee of a trust described in Section 8 of the Plan to which the option has been transferred in accordance with that section.

7. CHANGE IN CONTROL.

(iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Affiliate or Subsidiary, at least 50% of the combined voting power of the voting securities of the Company or

such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (determined pursuant to clause (i) above) is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company, its Subsidiaries or its Affiliates) representing 15% or more of either the then outstanding shares of Stock or the combined voting power of the Company’s then outstanding voting securities; or

8. TRANSFERABILITY RESTRICTIONS. Each Award granted hereunder shall not be assignable or transferable other than by will or the laws of descent and distribution; provided, however, that a Grantee may (a) designate in writing a beneficiary to exercise his/her Award after the Grantee’s death, (b) transfer an Award to a revocable, inter vivos trust as to which the Grantee is both the settlor and trustee and (c) transfer an Award for no consideration to any of the following permissible transferees (each a “Permissible Transferee”): (w) any member of the Immediate Family of the Grantee to whom such Award was granted, (x) any trust solely for the benefit of the Grantee and members of the Grantee’s Immediate Family, (y) any partnership or limited liability company whose only partners or members are the Grantee and members of the Grantee’s Immediate Family, or (z) any other transferee approved by the Board in advance of the transfer; and further provided that: (i) the transfer of any Award shall not be effective on a date earlier than the date on which the Award is first exercisable as set forth in this Plan; (ii) any Permitted Transferee to whom an Award is transferred by a Grantee shall not be entitled to transfer the Award, other than to the Grantee or by will or the laws of descent and distribution; and (iii) the Permitted Transferee shall remain subject to all of the terms and conditions applicable to such Award prior to such transfer. For purposes of this Section 8, “Immediate Family” means, with respect to a particular Grantee, such Grantee’s spouse, children, stepchildren, grandchildren, parents, stepparents, grandparents, siblings, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, and sister-in-law, and shall include relationships arising from legal adoption.

9. SECURITIES LAW MATTERS. Each Director electing to purchase shares pursuant to an option shall be required, as a condition to such purchase, to represent to the Company that the Director has access by reason of such Director’s service with the Company to

sufficient information concerning the Company to enable the Director to evaluate the merits and risks of the prospective investment and has such knowledge and experience in financial and business matters so that the Director is capable of evaluating such investment, and that the Director is acquiring the shares solely for such Director’s account and will not sell the securities without registration under the Securities Act of 1933 (which the Company is under no obligation to provide) or exemption therefrom. Share certificates shall bear such legend as the Company may deem necessary.

10. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of any Award, have any right as a stockholder of the Company with respect to the shares of Stock which may be issuable upon exercise until such shares have been issued to him or her.

11. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION. If prior to actual delivery of certificates for the present Stock of the Company pursuant to any option outstanding hereunder, the said Stock shall be increased through stock dividends or stock splits, or decreased by reverse stock splits or otherwise reclassified, or the Company shall be reorganized, consolidated or merged with one or more corporations, or if all or substantially all of the assets of the Company shall be sold or exchanged, the Director, at the time he or she shall be entitled to the delivery of a certificate pursuant to such option, shall receive in place of the certificate or certificates for the present Stock of the Company the same number and kind of shares or the same amount of other property, cash or securities as the Director would have been entitled to receive upon such increase, decrease, reclassification, reorganization, consolidation, merger, sale or exchange, if the Director had been immediately prior to such event the holder of the number of shares of the present Stock of the Company (not previously delivered to the Director hereunder) which such Director would otherwise have been entitled to receive pursuant hereto but for such increase, decrease, reclassification, reorganization, consolidation, merger, sale or exchange.

12. EFFECTIVE DATE, TERMINATION AND AMENDMENT; ADMINISTRATION.

(a) This Plan shall became effective on the Effective Date. This Plan shall terminate on, and no grants of options shall be made after, the close of business (5 P.M. Chicago, Illinois) on November 1, 2011, unless terminated at an earlier date by action of the Board, except that any options then outstanding shall remain in effect until they have been exercised, forfeited or expired.

(b) The Board may amend, suspend, or terminate the Plan.

(c) This Plan shall be administered by the Board. The Board may delegate to any person or group of persons who may further so delegate the Board’s powers and obligations hereunder as they relate to day-to-day administration of the exercise process. This Plan may be terminated or amended by the Board of Directors as it deems advisable, provided however, unless approved by the Company’s stockholders, no adjustments or reduction of the Option Price of any outstanding options shall be made directly or by cancellation of outstanding options and a subsequent re-granting of options at a lower price to the same individual. No amendment may

revoke or alter in any manner unfavorable to the Grantees any options then outstanding. Nor may the Board amend this Plan without stockholder approval where the absence of such approval would cause the Plan to fail to comply with Rule 16(b)(3) under the Securities Exchange Act of 1934 or any other requirement of applicable law or regulation.

13. NO TRUST OR FUND CREATED. Neither this Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a Grantee or any other person.

14. CONTROLLING LAW. The law of the State of Illinois, except its law with respect to choice of law and except as to matters relating to corporate law (in which case the corporate law of the State of Delaware shall control), shall be controlling in all matters relating to this Plan.

15. SEVERABILITY. If all or any part of this Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Plan not declared to be unlawful or invalid. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner in which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.

16. TITLES AND HEADINGS. The titles and headings of the Sections in this Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

	Approved by the Stockholders of Quixote Corporation as of November 14, 2001.

	Approved by the Board of Directors of Quixote Corporation as of August 17, 2004

	Approved by the Stockholders of Quixote Corporation as of November 18, 2004

	Amended by the Board of Directors of Quixote Corporation on June 26, 2009

EX-10.(E) 4 a2194436zex-10_e.htm EX-10.(E)

Exhibit 10(e)

A & G/SLATER ROAD, INC.

OFFICE LEASE

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FD.LEASES.HIGHWAY INFORMATION SYSTEMS.200 SLATER RD.

Section 1:		Basic Definitions and Provisions
	a.	Premises
	b.	Term
	c.	Permitted Use
	d.	Occupancy Limitation
	e.	Base Rent
	f.	Rent Payment Address
	g.	Security Deposit
	h.	Business Hours
	i.	Electrical Service
	j.	After Hours HVAC Rate
	k.	Parking
	l.	Notice Addresses
	m.	Brokers
Section 2.		Leased Premises
	a.	Premises
	b.	Rentable Square Foot Determination
	c.	Common Areas
Section 3:		Term
	a.	Commencement and Expiration Dates
	b.	Adjustments to Commencement Date
	c.	Termination by Tenant for Failure to Deliver Possession
	d.	Delivery of Possession
	e.	Adjustment of Expiration Date
	f.	Right to Occupy
	g.	Commencement Agreement
Section 4:		Use
	a.	Permitted Use
	b.	Prohibited Uses
	c.	Prohibited Equipment in Premises
Section 5:		Rent
	a.	Payment Obligations
	b.	Base Rent
	c.	Additional Rent
Section 6:		Security Deposit
	a.	Amount of Deposit
	b.	Application of Deposit
	c.	Refund of Deposit
Section 7:		Services by Landlord
	a.	Base Services
	b.	Landlord’s Maintenance
	c.	No Abatement
	d.	Tenant’s Obligation to Report Defects
	e.	Limitation on Landlord’s Liability
Section 8:		Tenant’s Acceptance and Maintenance of Premises
	a.	Acceptance of Premises
	b.	Move-in Obligations
	c.	Tenant’s Maintenance
	d.	Alterations to Premises
	e.	Restoration of Premises

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	f.	Landlord’s Performance of Tenant’s Obligations
	g.	Construction Liens
	h.	Communications Compliance
	i.	Mold
Section 9:		Property of Tenant
	a.	Property Taxes
	b.	Removal
Section 10:		Signs
Section 11:		Access to Premises
	a.	Tenant’s Access
	b.	Landlord’s Access
	c.	Emergency Access
Section 12:		Tenant’s Compliance
	a.	Laws
	b.	Rules and Regulations
Section 13:		ADA Compliance
	a.	Tenant’s Compliance
	b.	Landlord’s Compliance
	c.	ADA Notices
Section 14:		Insurance Requirements
	a.	Tenant’s Liability Insurance
	b.	Tenant’s Property Insurance
	c.	Certificates of Insurance
	d.	Insurance Policy Requirements
	e.	Landlord’s Property Insurance
	f.	Mutual Waiver of Subrogation
Section 15:		Indemnity
	a.	Indemnity
	b.	Defense Obligation
Section 16:		Quiet Enjoyment
Section 17:		Subordination; Attornment; Non-Disturbance; and Estoppel Certificate
	a.	Subordination and Attornment
	b.	Non-Disturbance
	c.	Estoppel Certificates
Section 18:		Assignment — Sublease
	a.	Landlord Consent
	b.	Definition of Assignment
	c.	Permitted Assignments/Subleases
	d.	Notice to Landlord
	e.	Prohibited Assignments/Sublease
	f.	Limitation on Rights of Assignee/Sublessee
	g.	Tenant Not Released
	h.	Landlord’s Right to Collect Sublease Rents Upon Tenant Default
	i.	Excess Rents
	j.	Landlord’s Fees
	k.	Unauthorized Assignment or Sublease
Section 19:		Damages to Premises
	a.	Landlord’s Restoration Obligations
	b.	Termination of Lease by Landlord
	c.	Termination of Lease by Tenant
	d.	Tenant’s Restoration Obligations
	e.	Rent Abatement
	f.	Waiver of Claims
Section 20:		Eminent Domain

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	a.	Effect on Lease
	b.	Right to Condemnation Award
Section 21:		Environmental Compliance
	a.	Environmental Laws
	b.	Tenant’s Responsibility
	c.	Tenant’s Liability
	d.	Limitation on Tenant’s Liability
	e.	Inspections by Landlord
	f.	Landlord’s Liability
	g.	Property
	h.	Tenant’s Liability after Termination of Lease
Section 22:		Default
	a.	Tenant’s Default
	b.	Landlord’s Remedies
	c.	Attorneys Fees
	d.	No Accord and Satisfaction
	e.	No Reinstatement
	f.	Summary Ejectment
Section 23:		Multiple Defaults
	a.	Loss of Option Rights
	b.	Increased Security Deposit
	c.	Effect on Notice Rights and Cure Periods
Section 24:		Bankruptcy
	a.	Trustee’s Rights
	b.	Adequate Assurance
	c.	Assumption of Lease Obligations
Section 25:		Notices
	a.	Addresses
	b.	Form; Delivery; Receipt
	c.	Address Changes
	d.	Notice by Legal Counsel
Section 26:		Holding Over
Section 27:		Right to Relocate
	a.	Substitute Premises
	b.	Notice
	c.	Upfit of Substitute Premises
	d.	Relocation Costs
	e.	Lease Terms
	f.	Limitation on Landlord’s Liability
Section 28:		Right of First Offer
Section 29:		Right to Renew
Section 30:		Termination Option
Section 31:		Broker Commissions
	a.	Brokers
	b.	Landlord’s Obligation
	c.	Indemnity
Section 32:		Miscellaneous
	a.	No Agency
	b.	Force Majeure
	c.	Building Standard Improvements
	d.	Limitation on Damages
	e.	Satisfaction of Judgments Against Landlord
	f.	Interest
	g.	Legal Costs

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	h.	Sale of Premises or Building
	i.	Time of the Essence
	j.	Transfer of Security Deposit
	k.	Tender of Premises
	l.	Tenant’s Financial Statements
	m.	Recordation
	n.	Severability
	o.	Binding Effect
	p.	Entire Agreement
	q.	Good Standing
	r.	Terminology
	s.	Headings
	t.	Choice of Law
	u.	Effective Date
	v.	Landlord’s Lien
	w.	Joint and Several
	x.	No Construction Against Preparer
Section 33:		Special Conditions
Section 34:		Addenda and Exhibits
	a.	Lease Addendum Number One — Landlord’s Work
	b.	Lease Addendum Number Two — Operating Expense Pass Throughs
	c.	Exhibit A — Premises
	d.	Exhibit B — Rules and Regulations
	e.	Exhibit C — Commencement Agreement
	f.	Exhibit D — Insurance Certificate
	g.	Exhibit E — Liens and Encumbrances
	h.	Exhibit F — Temporary Space and Additional Landlord’s Work
	i.	Exhibit G — Parapet Sign

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State of North Carolina:

County of Wake:

OFFICE LEASE

THIS LEASE (“Lease”), made this 31st day of July, 2009, by and between A & G/Slater Road, Inc., a North Carolina corporation (“Landlord”) and Quixote Transportation Technologies, Inc., a Delaware corporation (“Tenant”), provides as follows:

1. BASIC DEFINITIONS AND PROVISIONS. The following basic definitions and provisions apply to this Lease:

a.	Premises.
		Rentable Square Feet:	10,000
		Usable Square Feet:	9,091
		Core Area Factor (R/U ratio)	1.10
		Suite:	200
		Building:	Slater Road Office Building
		Street Address:	2880 Slater Road
		City/County:	Morrisville/Wake
		State/Zip Code:	North Carolina/ 27560

b.	Term.	Number of Months:	67
		Commencement Date:	December 1, 2009
		Expiration Date:	June 30, 2015, as the same may be shortened or extended as herein provided

c.	Permitted Use.		General office, including an electronic equipment laboratory not to exceed 400 square feet and located as shown on the attached Exhibit “F” and containing work benches, one to two soldering stations, computers, special electrical and radio testing frequency equipment for the sole purpose of building circuit board prototypes, in conjunction with Tenant’s business of transportation management and any other lawful office use consented to by Landlord, such consent not to be unreasonably withheld, delayed or conditioned

d.	Occupancy Limitation.		No more than four persons per one thousand (1,000) rentable square feet.

e. Base Rent. The minimum base rent for the Term is $760,241.92, payable in monthly installments on the 1st day of each month in accordance with the following Base Rent Schedule:

TERM	RATE		MONTHLY RENT		CUMULATIVE RENT
12/1/09-2/28/10						Rent Abated
3/1/10-11/30/10	$	14.50	$	12,083.34		$108,750.06
12/1/10-12/31/10						Rent Abated
1/1/11-11/30/11	$	14.50	$	12,083.34		$132,916.74
12/1/11-12/31/11						Rent Abated
1/1/12-11/30/12	$	14.94	$	12,450.00		$136,950.00
12/1/12-12/31/12						Rent Abated
1/1/13-11/30/13	$	15.39	$	12,825.00		$141,075.00
12/1/13-12/31/13						Rent Abated
1/1/14-11/30/14	$	15.85	$	13,208.34		$145,291.74
12/1/14-6/30/15	$	16.33	$	13,608.34		$95,258.38
			BASE RENT: $760,241.92

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If Tenant is in default of this Lease after any applicable notice and cure period, then in addition to all other rights and remedies of Landlord contained herein, all abated rent shall immediately become due and payable in full by Tenant to Landlord, including without limitation abated rent for any period both before and after the date of such default. If, during the period that Base Rent is to be abated as provided in this Section 1e, Base Rent is abated, in whole or in part, pursuant to any other provisions of this Lease, then such period of time shall be extended to the extent that such Base Rent are otherwise so abated.

f.	Rent Payment Address.		A & G/Slater Road, Inc.
			c/o Atlantic Investment Management, LLC
			4104 Atlantic Avenue, Suite 140
			Raleigh, North Carolina 27604
			Attn: Rental Business Manager
			Facsimile #: 919/876-2448

g.	Security Deposit.		$12,083.34

h.	Business Hours.		8:00 A.M. to 6:00 P.M. Monday through Friday (excluding National and State Holidays).

i.	Electrical Service.		Electrical circuits for convenience outlets as exist in the Premises on the Commencement Date.

j.	After Hours HVAC Rate.		$18.00 per hour, per zone, with a minimum of two (2) hours per occurrence.

k.	Parking.		Not less than four unreserved spaces per 1000 rentable square feet of the Premises. In addition, Landlord will provide four reserved parking spaces for Tenant’s sole use at a mutually agreeable location. Landlord will not bear any additional responsibility or liability due to Tenant’s sole use of the spaces.

l.	Notice Addresses.

		LANDLORD:	A & G/Slater Road, Inc.
			c/o Atlantic Investment Management, LLC
			4104 Atlantic Avenue, Suite 140
			Raleigh, North Carolina 27604
			Attn: Rental Business Manager
			Facsimile #: 919/876-2448

		TENANT:	Prior to Commencement Date:

			Quixote Transportation Technologies, Inc.
			4021 Stirrup Creek Drive
			Suite 100
			Durham, North Carolina 27703
			Attn: Mike Corbett

			From and after Commencement Date:

			Quixote Transportation Technologies, Inc.
			2880 Slater Road, Suite 200
			Morrisville, NC 27560
			Attn: Mike Corbett

m.	Brokers.		Ryan Lawrence
			Jones Lang LaSalle — Carolinas, LLC
			Fred Dickens
			Coldwell Banker Trademark Commercial

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2. LEASED PREMISES.

a. Premises. Subject to the terms and conditions of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises identified in Section 1a and as more particularly shown on Exhibit A, attached hereto. The foregoing notwithstanding, so long as this Lease remains in full force and effect and Tenant is not in default hereunder beyond any applicable notice and cure period, until another bona fide third-party tenant leases the corner suite as shown on Exhibit A and the space is needed by Landlord in preparation therefor, and upon at least ten (10) days prior notice to Tenant and the Landlord constructing the walls to create the two additional offices shown on Exhibit F as provided below, the Premises shall include the two offices within such space as set forth in Exhibit F (the “Temporary Offices”) together with ingress and egress rights thereto. Tenant shall not be obligated to pay any Base Rent or Additional Rent for such additional space, but all other obligations, provisions, covenants, insurance requirements and indemnities set forth herein shall apply to such Temporary Offices as if such were part of the Premises, but such Temporary Offices shall not be included in any memorandum of lease recorded in connection with this Lease. Upon the Temporary Offices no longer being available to Tenant based on Landlord leasing such additional space, and Landlord needing such space in preparation therefor, and upon at least ten (10) days prior notice to Tenant, Landlord, at its cost and expense, shall, prior to Tenant being obligated to vacate the same, construct the walls to create the two additional offices shown on Exhibit F.

b. Rentable Square Foot Determination. The parties acknowledge that all square foot measurements are approximate and agree that the square footage figures in Section 1a shall be conclusive for all purposes with respect to this Lease, provided that, anything to the contrary contained in this Lease notwithstanding, if Landlord adds to the rentable square footage of the Building at any time, then Tenant’s Proportionate Share shall be proportionately reduced, using the same method of calculating rentable square footage as was used to determine the rentable square footage of the Building and Premises initially.

c. Common Areas. Tenant shall have non-exclusive access to the common areas of the Building. The common areas generally include space that is not included in portions of the Building set aside for leasing to tenants or reserved for Landlord’s exclusive use, including entrances, hallways, lobbies, elevators, restrooms, walkways, parking areas and plazas (“Common Areas”). Landlord has the exclusive right, to be exercised reasonably, to (i) designate the Common Areas, (ii) change the designation of any Common Area and otherwise modify the Common Areas, and (iii) permit special use of the Common Areas, including temporary exclusive use for special occasions. Tenant shall not interfere with the rights of others to use the Common Areas. All use of the Common Areas shall be subject to any rules and regulations promulgated by Landlord attached hereto as Exhibit B or any additional reasonable rules and regulations of which Tenant has reasonable advance notice and which are not contrary to the express terms of this Lease and uniformly applicable to all tenants in the Building.

3. TERM.

a. Commencement and Expiration Dates. The Lease Term commences on the Commencement Date and expires on the Expiration Date, as set forth in Section 1b.

b. Adjustments to Commencement Date. The Commencement Date shall be adjusted as follows:

i. If Tenant requests possession of the Premises or a portion thereof prior to the Commencement Date, and Landlord consents, which consent shall not be unreasonably withheld, delayed or conditioned, the Commencement Date shall be the date of possession. All Rent and other obligations under this Lease shall begin on the date of possession (proportionately, if only a portion of the Premises is occupied by Tenant), but the Expiration Date shall remain the same; provided that if Tenant is only occupying a portion of the Premises as of the date that otherwise would be the Commencement Date but for the earlier partial possession, then full Rent and other obligations under this Lease shall commence on the date that otherwise would have been the Commencement Date but for the earlier partial possession.

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ii. If Landlord, for any reason, cannot deliver possession of the Premises to Tenant on the Commencement Date, then the Commencement Date, Expiration Date, and all other dates that may be affected by their change (including without limitation the dates set forth in Section 1(e) above), shall be revised to conform to the date of Landlord’s delivery of possession of the Premises to Tenant and delayed by the same number of days that the Commencement Date is delayed. Any such delay shall not relieve Tenant of its obligations under this Lease, and neither Landlord nor Landlord’s agents shall be liable to Tenant for any loss or damage resulting from the delay in delivery of possession.

c. Termination by Tenant for Failure to Deliver Possession. In the event Landlord is unable to deliver possession of the Premises within ninety (90) days after the original Commencement Date set forth in the first sentence of this Section 3 (excluding any delays resulting from force majeure (not to exceed thirty (30) additional days) or caused by Tenant “Excused Delays”), then Tenant may terminate this Lease by giving notice to Landlord within one hundred twenty (120) days of the original Commencement Date (excluding any delays resulting from force majeure (not to exceed thirty (30) additional days) and Excused Delays); provided that if Landlord tenders possession of the Premises to Tenant prior to Tenant exercising such termination right, such termination right shall be deemed waived and of no further force or effect.

d. Delivery of Possession. Unless otherwise specified in the Workletter attached as Lease Addendum Number One, “delivery of possession” of the Premises shall mean the earlier of: (i) the date Landlord has the Premises ready for occupancy by Tenant as evidenced by a permanent or temporary Certificate of Occupancy issued by proper governmental authority with all of the work in the Workletter substantially completed and in broom clean condition and otherwise in the same condition as of the date hereof, ordinary wear and tear excepted, free of other occupants, or (ii) the date Landlord could have had the Premises ready had there been no Excused Delays.

e. Adjustment of Expiration Date. If the Expiration Date does not occur on the last day of a calendar month, then Landlord, at its option, may extend the Term by the number of days necessary to cause the Expiration Date to occur on the last day of the last calendar month of the Term provided that Landlord notifies Tenant of such election within thirty (30) days after the Commencement Date. Tenant shall pay Base Rent and Additional Rent for such additional days at the same rate payable for the portion of the last calendar month immediately preceding such extension.

f. Right to Occupy. Tenant shall not occupy the Premises until Tenant has complied with all of the following requirements to the extent applicable under the terms of this Lease: (i) delivery of all certificates of insurance, (ii) payment of Security Deposit, (iii) execution and delivery of any required Guaranty of Lease, and (iv) if Tenant is an entity, receipt of a good standing certificate from the State where it was organized and a certificate of authority to do business in the State in which the Premises are located (if different). Tenant’s failure to comply with these (or any other of Tenant’s conditions precedent to occupancy under the terms of this Lease) shall not delay the Commencement Date.

g. Commencement Agreement. The Commencement Date, Term, and Expiration Date may be set forth in a Commencement Agreement similar to Exhibit C, attached hereto, to be prepared by Landlord and executed by the parties.

4. USE.

a. Permitted Use. The Premises may be used only for general office purposes, including an electronic equipment laboratory not to exceed 400 square feet and located as shown on the attached Exhibit “F” and containing work benches, one to two soldering stations, computers, special electrical and radio testing frequency equipment for the sole purpose of building circuit board prototypes, in conjunction with Tenant’s business of transportation management, and otherwise in connection with Tenant’s Permitted Use as defined in Section 1c and in accordance with the Occupancy Limitation as set forth in Section 1d.

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b. Prohibited Uses. Tenant shall not use the Premises:

i. In violation of any restrictive covenants which apply to the Premises as identified on Exhibit E attached hereto and made a part hereof, and future restrictions upon reasonable advance notice to Tenant provided the same do not unreasonably interfere with the use and enjoyment of the Premises and Common Areas by Tenant for its Permitted Use (“Restrictive Covenants”).

ii. In any manner that constitutes a nuisance or trespass;

iii. In any manner other than normal office usage which increases any insurance premiums, or makes such insurance unavailable to Landlord on the Building; provided that, in the event of an increase in Landlord’s insurance premiums which results from Tenant’s use of the Premises other than normal office usage, Landlord may elect to permit the use and charge Tenant for the increase in premiums, and Tenant’s failure to pay Landlord, within five (5) business days after demand, the amount of such increase shall be an event of default;

iv. In any manner that creates unusual demands for electricity, heating or air conditioning, unless consented to by Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; or

v. For any purpose except the Permitted Use, unless consented to by Landlord in writing.

c. Prohibited Equipment in Premises. Tenant shall not install any equipment in the Premises that places unusual demands on the electrical, heating or air conditioning systems (“High Demand Equipment”) without Landlord’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned. No such consent will be given if Landlord determines, in its reasonable opinion, that such equipment may not be safely used in the Premises or that electrical service is not adequate to support the equipment. Landlord’s consent may be conditioned, without limitation, upon separate metering of the High Demand Equipment and Tenant’s payment of all engineering, equipment, installation, maintenance, removal and restoration costs and utility charges associated with the High Demand Equipment and the separate meter. If High Demand Equipment used in the Premises by Tenant affect the temperature otherwise maintained by the heating and air conditioning system, Landlord shall have the right to install supplemental air conditioning units in the Premises with the cost of engineering, installation, operation and maintenance of the units to be paid by Tenant, provided reasonable advance notice is given to Tenant and Tenant fails to cure the same within such time period prior to Landlord’s incurring any such expenses. All costs and expenses relating to High Demand Equipment and Landlord’s administrative costs (such as reading meters and calculating invoices) shall be Additional Rent, payable by Tenant within five (5) business days after demand. If Tenant installs a supplemental HVAC unit in its Premises, the supplemental HVAC unit will be considered High Demand Equipment, be separately metered with metered charges being paid by Tenant, and both the meter and unit shall be maintained by Tenant.

5. RENT.

a. Payment Obligations. Tenant shall pay Base Rent and Additional Rent (collectively, “Rent”) on or before the first day of each calendar month during the Term, as follows:

i. Rent payments shall be sent to the Rent Payment Address set forth in Section 1f.

ii. Rent shall be paid without previous demand or notice and without set off or deduction except to the extent otherwise herein provided. Tenant’s obligation to pay Rent under this Lease is completely separate and independent from any of Landlord’s obligations under this Lease except to the extent otherwise provided herein.

iii. If the Term commences on a day other than the first day of a calendar month, then Rent for such month shall be (i) prorated for the period between the Commencement Date and the last day of the month in which the

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Commencement Date falls, and (ii) due and payable on the Commencement Date. A similar proration shall be made if the Term expires or is terminated prior to the end of a calendar month.

iv. If Rent is not received within five (5) days after the due date (not including any accelerated Rent due to a default by Tenant hereunder), Landlord shall be entitled to an overdue payment charge in the amount of five percent (5%) of the Rent due. In addition, if Rent is not received within fifteen (15) days after the due date (not including any accelerated Rent due to a default by Tenant hereunder), Landlord shall be entitled to an overdue payment charge in the amount of an additional fifteen percent (15%) of the Rent due.

v. If Landlord presents Tenant’s check to any bank and Tenant has insufficient funds to pay for such check, then Landlord shall be entitled to the maximum lawful bad check fee or five percent (5%) of the amount of such check, whichever amount is less.

b. Base Rent. Tenant shall pay Base Rent as set forth in Section 1e.

c. Additional Rent. In addition to Base Rent, Tenant shall pay as rent all sums and charges due and payable by Tenant under this Lease (“Additional Rent”), including, but not limited to, the following:

i. Tenant’s Proportionate Share of the increase in Landlord’s Operating Expenses over the Base Year as set forth in Lease Addendum Number Two;

ii. Any sales or use tax imposed on rents collected by Landlord or any tax on rents in lieu of ad valorem taxes on the Building, even though laws imposing such taxes attempt to require Landlord to pay the same; and

iii. Any construction supervision fees in connection with the construction of Tenant Improvements or alterations to the Premises as provided in Section 8(d) provided that no such fees will be charged for any work being performed by Landlord under the Workletter.

6. SECURITY DEPOSIT.

a. Amount of Deposit. Tenant shall deposit with Landlord a Security Deposit in the amount set forth in Section 1g, which sum Landlord shall retain as security for the performance by Tenant of each of its obligations hereunder. The Security Deposit shall not bear interest.

b. Application of Deposit. If Tenant at any time fails to perform any of its obligations under this Lease, including its Rent or other payment obligations, its restoration obligations, or its insurance and indemnity obligations, and such failure continue uncured beyond any applicable cure periods then Landlord may, at its option, apply the Security Deposit (or any portion) to cure Tenant’s default or to pay for damages caused by Tenant’s default. If the Lease has been terminated, then Landlord may apply the Security Deposit (or any portion) against the damages incurred as a consequence of Tenant’s breach. The application of the Security Deposit shall not limit Landlord’s remedies for default under the terms of this Lease. If Landlord depletes the Security Deposit, in whole or in part, prior to the Expiration Date or any termination of this Lease, then Tenant shall restore immediately the amount so used by Landlord. Landlord shall promptly provide an itemized statement to Tenant for any use of the Security Deposit.

c. Refund of Deposit. Unless Landlord uses the Security Deposit to cure a default of Tenant, to pay damages for Tenant’s breach of the Lease, or to restore the Premises to the condition to which Tenant is required to leave the Premises upon the expiration or any termination of the Lease, all as permitted by this Lease, then Landlord shall, within thirty (30) days after the Expiration Date or any termination of this Lease, refund to Tenant any funds remaining in the Security Deposit. Tenant may not credit the Security Deposit against any month’s Rent.

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7. SERVICES BY LANDLORD.

a. Base Services. Provided that Tenant is not then in default, Landlord shall cause to be furnished to the Building, or as applicable, the Premises, in common with other tenants the following services:

i. Water for drinking, lavatory and toilet purposes.

ii. Electricity for the building standard fluorescent lighting and for the operation of general office machines, such as electric typewriters, desk top computers, dictating equipment, adding machines and calculators, and general service non-production type office copy machines; provided that Landlord shall have no obligation to provide more than the amount of power for convenience outlets and the number of electrical circuits as set forth in Section 1i.

iii. Operatorless elevator service.

iv. Building standard fluorescent lighting composed of 2’ x 4’ fixtures; Tenant shall service, replace and maintain at its own expense any incandescent fixtures, table lamps, or lighting other than the building standard fluorescent light, and any dimmers or lighting controls other than controls for the building standard fluorescent lighting.

v. Heating and air conditioning for the reasonably comfortable use and occupancy of the Premises during Business Hours as set forth in Section 1h (sometimes herein referred to as “business hours”).

vi. After Business Hours, weekend and holiday heating and air conditioning at the After Hours HVAC rate set forth in Section 1j, with such charges subject to commercially reasonable annual increases as determined by Landlord.

vii. Janitorial services five (5) days a week (excluding National and State holidays) after Business Hours.

viii. A reasonable pro-rata share of the unreserved parking spaces of the Building, equal to the Parking specified in Section 1k, for use by Tenant’s employees and visitors in common with the other tenants and their employees and visitors. In addition, Tenant shall have four (4) reserved parking spaces of the Building as provided in Section 1k; provided that Tenant hereby waives and releases Landlord from any liability arising in connection with the use of such reserved parking spaces by Tenant, its employees, officers, principals, agents, contractors or invitees, except for liability arising from the gross negligence or willful misconduct of Landlord; provided further that Tenant hereby indemnifies Landlord for any loss, cost, claim, suit or expense (including reasonable attorneys’ fees) relating to the use of the reserved parking spaces by Tenant, its employees, officers, principals, agents, contractors or invitees, except for liability arising from the gross negligence or willful misconduct of Landlord.

Notwithstanding the foregoing, Landlord shall not be liable to Tenant for any disruption in utilities unless such disruption is caused by Landlord’s or its agents, employees and contractor’s gross negligence or willful misconduct. In the event of such an interruption (and except as set forth in the immediately preceding sentence), Landlord’s sole obligation shall be to exercise commercially reasonable efforts to cause the utility to once again be provided by the applicable utility provider.

b. Landlord’s Maintenance. Landlord shall maintain and shall make all repairs and replacements reasonably necessary to the Building (including Building fixtures and equipment), Common Areas and Building Standard Improvements in the Premises, except for repairs and replacements that Tenant must make under Section 8. The foregoing notwithstanding, Landlord’s maintenance, repair and replacement obligations shall, without limitation, include the roof, foundation, exterior walls, interior structural walls, all structural components, and all Building systems, such as mechanical, electrical, HVAC, and plumbing. Repairs or replacements shall be made within a reasonable time (depending on the nature of the repair or replacement needed) after receiving notice from Tenant or Landlord having actual knowledge of the need for a repair or replacement. Landlord shall maintain, repair and operate the Building and Common Areas in a manner as similar properties in the area are maintained, repaired and operated.

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c. No Abatement. There shall be no abatement or reduction of Rent by reason of any of the foregoing services not being continuously provided to Tenant. The foregoing notwithstanding, (a) if any such service is not continuously provided as a result of the negligence or intentional misconduct of Landlord or its agents, employees or contractors such that the Premises are untenantable in whole or in part for more than five (5) consecutive business days, then Tenant shall notify Landlord in writing that Tenant intends to abate rent, and (b) if such utilities or services have not been restored within five (5) days of Landlord’s receipt of Tenant’s notice, without regard to Section 22(g) below, then Rent shall abate proportionately on a per diem basis for each day during which the Premises are so untenantable and, if such discontinuance is material and continues beyond seventy five (75) days, without regard to the provisions of Section 22(g) below, Tenant shall be entitled to terminate this Lease at any time thereafter upon notice to Landlord. Landlord agrees to cooperate reasonably with Tenant to restore any such discontinued service as soon as reasonably practicable. Landlord shall have the right to shut down the Building systems (including electricity and HVAC systems) to the extent reasonably necessary for required maintenance and safety inspections, and in cases of emergency; however, Landlord shall not allow such shut downs to occur during Business Hours except in the case of an emergency or extraordinary circumstances and for any shut down Landlord shall make reasonable efforts to minimize the impact on Tenant’s use and enjoyment of the Premises and Common Areas.

d. Tenant’s Obligation to Report Defects. Tenant shall report to Landlord promptly any defective condition in or about the Premises known to Tenant and if such defect is not so reported and such failure to promptly report results in other damage, Tenant shall be liable for same.

e. Limitation on Landlord’s Liability. Landlord shall not be liable to Tenant for any damage caused to Tenant and its property due to the Building or any part or appurtenance thereof being improperly constructed or being or becoming out of repair, or arising from the leaking of gas, water, sewer or steam pipes, or from problems with electrical service, unless such damage is a result of Landlord’s failure to repair in a timely manner or take reasonable steps to have such items repaired in a timely manner, after Landlord has written notice of such defects or necessary repairs from Tenant, or otherwise due to the gross negligence or intentional misconduct of Landlord or its agents, employees or contractors.

8. TENANT’S ACCEPTANCE AND MAINTENANCE OF PREMISES.

a. Acceptance of Premises. Except as may be specifically set forth in this Lease and subject to the terms of the attached Workletter, if any, Tenant’s occupancy of the Premises is Tenant’s representation to Landlord that (i) Tenant has examined and inspected the Premises, (ii) finds the Premises to be as represented by Landlord and satisfactory for Tenant’s intended use, and (iii) constitutes Tenant’s acceptance of the Premises “as is”. Landlord makes no representation or warranty as to the condition of the Premises except as may be specifically set forth in the Workletter or the remainder of this Lease.

b. Move-In Obligations. Tenant shall schedule its move-in with Atlantic Investment Management, LLC, or any other property manager of which Landlord gives Tenant at least five (5) business days advance notice (the Landlord’s “Property Manager”). Unless otherwise approved by Landlord’s Property Manager, such approval not to be unreasonably withheld, delayed or conditioned, move-in shall not take place during Business Hours. During Tenant’s move-in, a representative of Tenant must be on-site with Tenant’s moving company to insure proper treatment of the Building and the Premises. Elevators, entrances, hallways and other Common Areas must remain in use for the general public during business hours. Any specialized use of elevators or other Common Areas must be reasonably coordinated with Landlord’s Property Manager. Tenant must properly dispose of all packing material and refuse in accordance with the Rules and Regulations. Any damage or destruction to the Building or the Premises due to moving by Tenant will be the sole responsibility of Tenant.

c. Tenant’s Maintenance. Tenant shall: (i) keep the Premises and fixtures in the same order as when delivered to Tenant or after any work which Tenant is not obligated to remove (subject to Tenant’s right to remove the same) is completed, ordinary wear, loss or damage by fire or other casualty, damage or loss from a taking or sale in lieu thereof, damage resulting from the negligence or willful acts of Landlord or its employees, contractors or agents and any other maintenance, repairs and replacements for which Landlord is responsible or Tenant is excused under this Lease excepted; (ii) make repairs and replacements to the

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Premises or Building needed because of Tenant’s or any officer, agent, employee, contractor, servant, invitee or guest of Tenant’s misuse or negligence; (iii) repair and replace Non-Standard Improvements, including any special equipment or decorative treatments, installed by or at Tenant’s request that serve the Premises (unless the Lease is ended because of casualty loss or condemnation); and (iv) not commit waste. Except to the extent otherwise provided in this Lease, Tenant shall also be solely responsible for maintaining the following items, if installed in the Premises: (i) ice machines; (ii) sump pumps; (iii) refrigerators; (iv) dishwashers; (v) garbage disposals; (vi) coffee machines and microwaves; (v) sinks and faucets; (vi) water filter and purification systems; (vii) all kitchen drain lines; (viii) executive restrooms; (ix) Simplex (or key pad) locks; (x) security access systems or alarm systems; (xi) Tenant specific hot water heaters; and (xii) showers and spas. Tenant shall maintain these items in good working order except to the extent otherwise provided in this Lease.

d. Alterations to Premises. Tenant shall make no structural or interior alterations to the Premises unless consented to by Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; provided that Landlord shall be entitled to approve or disapprove in its sole and absolute discretion any proposed alterations to the structure of the Premises or Building, the exterior of the Premises or the mechanical, electrical or plumbing systems of the Premises or Building. If Tenant requests such alterations, then Tenant shall provide Landlord’s Property Manager with a complete set of construction drawings. If Landlord consents to the alterations, then the Property Manager shall determine the actual cost of the work to be done (to include a construction supervision fee to be paid to Landlord in the amount of 10% of the cost of the construction). Tenant may then either agree to pay Landlord to have the work done or withdraw its request for alterations. All such alterations are subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, delayed or conditioned; provided that Landlord shall be entitled to approve or disapprove in its sole and absolute discretion any proposed alterations to the structure of the Premises or Building, the exterior of the Premises or the mechanical, electrical or plumbing systems of the Premises or Building. Notwithstanding the foregoing, Landlord’s consent shall not be required for alterations to painting and carpeting or other interior, non-structural alterations that do not exceed $25,000 in value, so long as the alterations do not affect the Building systems or decrease the value of the Premises, Tenant uses contractors reasonably approved by Landlord, Tenant provides Landlord with “as built” or working drawings for any material modifications and Tenant notifies Landlord prior to making such alterations.

e. Restoration of Premises. At the expiration or earlier termination of this Lease, Tenant shall (i) deliver each and every part of the Premises in the condition it is required to maintain the same pursuant to Section 8(c) above, and (ii) restore the Premises at Tenant’s sole expense to such condition. If Tenant has required or installed Non-Standard Improvements, such improvements shall be removed as part of Tenant’s restoration obligation. Landlord, however, may elect to require Tenant to leave any Non-Standard Improvements in the Premises provided that Tenant is given at least thirty (30) days prior written notice thereof prior to the expiration of the Lease or, if the Lease, is terminated, as soon as reasonably possible, unless at the time of such Non-Standard Improvements were installed, Landlord agreed in writing that Tenant could remove such improvements. Tenant shall repair any damage caused by its removal of any Non-Standard Improvements. “Non-Standard Improvements” means such items installed by or for Tenant (not including any work performed by Landlord under the Workletter) such as (i) High Demand Equipment and separate meters, (ii) all wiring and cabling from the point of origin to the termination point, (iii) raised floors for computer or communications systems, (iv) telephone equipment, security systems, and UPS systems, (v) equipment racks, (vi) alterations installed by or at the request of Tenant after the Commencement Date, and (vii) any other improvements that are not part of the Building Standard Improvements.

f. Landlord’s Performance of Tenant’s Obligations. If Tenant does not perform its maintenance or restoration obligations in a timely manner, commencing the same within five (5) days after receipt of notice from Landlord specifying the work needed, and thereafter diligently and continuously pursuing the work until completion, then Landlord shall have the right, but not the obligation, to perform such work. Any amounts expended by Landlord on such maintenance or restoration shall be Additional Rent to be paid by Tenant to Landlord within thirty (30) days after demand.

g. Construction Liens. Tenant shall have no power to do any act or make any contract that may create or be the foundation of any lien, mortgage or other encumbrance upon the reversionary or other estate of Landlord, or any interest of Landlord in the Premises. NO CONSTRUCTION LIENS OR OTHER LIENS FOR ANY LABOR, SERVICES OR MATERIALS

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FURNISHED TO THE PREMISES SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO THE PREMISES OR THE BUILDING. Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, materials furnished, or obligations incurred by or on behalf of Tenant. Should any lien or claim of lien be filed against the Premises or the Building by reason of any act or omission of Tenant or any of Tenant’s agents, employees, contractors or representatives, then Tenant shall cause the same to be canceled and discharged of record by bond or otherwise within ten (10) days after Tenant receives notice of the filing thereof. Should Tenant fail to discharge the lien within such ten (10) day period, then Landlord may discharge the lien. The amount paid by Landlord to discharge the lien (whether directly or by bond), plus all administrative and legal costs incurred by Landlord, shall be Additional Rent payable on demand. The remedies provided herein shall be in addition to all other remedies available to Landlord under this Lease or otherwise.

h. Communications Compliance. Tenant acknowledges and agrees that any and all telephone and telecommunication services desired by Tenant shall be ordered and utilized at the sole expense of Tenant. Unless Landlord requests otherwise or consents in writing, which consent shall not be unreasonably withheld, delayed or conditioned, all of Tenant’s telecommunications equipment shall be located and remain solely in the Premises. Landlord shall not have any responsibility for the maintenance of Tenant’s telecommunications equipment, including wiring; nor for any wiring or other infrastructure to which Tenant’s telecommunications equipment may be connected except to the extent arising from Landlord’s or its agents’, employees’, or contractors’ negligence or intentional misconduct. Tenant agrees that, to the extent any telecommunications service is interrupted, curtailed or discontinued, Landlord shall have no obligation or liability with respect thereto except to the extent arising from Landlord’s or its agents’, employees’, or contractors’ negligence or intentional misconduct. Landlord shall have the right, upon reasonable prior oral or written notice to Tenant, to interrupt or turn off telecommunications facilities to the extent reasonably necessary in the event of emergency or as necessary in connection with repairs to the Building or installation of telecommunications equipment for other tenants of the Building, provided that Landlord shall make reasonable efforts to minimize the impact on Tenant’s use and enjoyment of the Premises and Common Areas. In the event that Tenant wishes at any time to utilize the services of a telephone or telecommunications provider whose equipment is not then servicing the Building, the provider shall not be permitted to install its lines or other equipment within the Building without first securing the prior written approval of Landlord, which approval shall not be unreasonably withheld, delayed or conditioned. Landlord’s approval may be conditioned in such a manner to as to reasonably protect Landlord’s financial interests, the interest of the Building, and the other tenants therein. The refusal of Landlord to grant its approval to any prospective telecommunications provider shall not be deemed a default or breach by Landlord of its obligation under this Lease if reasonable. The provision of this paragraph may be enforced solely by Tenant and Landlord, are not for the benefit of any other party, and specifically but without limitation, no telephone or telecommunications provider shall be deemed a third party beneficiary of this Lease. Tenant shall not utilize any wireless communications equipment (other than usual and customary cellular telephones and wireless modems), including antennae and satellite receiver dishes, within the Premises or the Building, without Landlord’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Landlord’s consent may be conditioned in such a manner so as to reasonably protect Landlord’s financial interests, the interests of the Building, and the other tenants therein. At Landlord’s option, Tenant may be required to remove any and all telecommunications equipment (including wireless equipment) installed in the Premises or elsewhere in or on the Building by or on behalf of Tenant, including wiring, or other facilities for telecommunications transmittal at the expiration or termination of the Lease and at Tenant’s sole cost, provided that Tenant is given at least thirty (30) days prior written notice thereof prior to the expiration of the Lease or, if the Lease, is terminated, as soon as reasonably possible.

i. Mold. Tenant shall be responsible for taking appropriate and timely measures to prevent the growth of mold and mildew within the Premises that result from its use or occupancy of the Premises, including but not limited to (1) preventing moisture accumulation in the Premises by Tenant’s personal equipment, including on windows, walls and other surfaces; (2) promptly reporting any malfunction of the heating or air conditioning system in the Premises of which Tenant becomes aware; (3) not obstructing the heating and air conditioning system from performing as designed; (4) promptly reporting any water intrusion or accumulation or other moisture accumulation in or about the Premises of which Tenant becomes aware; and (5) promptly reporting any visible mold in the Premises. Except for matters arising from the negligence or willful acts of Landlord, and its employees, agents, contractor, invitees or licensees, Tenant shall indemnify Landlord and hold Landlord harmless from and against any

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and all losses, liabilities, including strict liability, obligations, damages, injuries, costs, expenses, including reasonable attorneys’ fees, costs of settlement or judgments and claims of any kind whatsoever paid, incurred or suffered by, or asserted against Landlord by any person, entity, or governmental agency for, with respect to, or as a direct or indirect result of the presence of mold or mildew in the Premises or any adjacent portions of the Building as a result of the acts or omissions of Tenant.

9. PROPERTY OF TENANT.

a. Property Taxes. Tenant shall pay when due all taxes levied or assessed upon Tenant’s equipment, fixtures, furniture, leasehold improvements and personal property located in the Premises.

b. Removal. Provided Tenant is not in default and subject to the terms and provisions of Section 8(e), Tenant may remove all fixtures and equipment which it has placed in the Premises; provided, however, Tenant must repair all damages caused by such removal. If Tenant does not remove its property from the Premises upon the expiration or earlier termination (for whatever cause) of this Lease, such property shall be deemed abandoned by Tenant, and Landlord may dispose of the same in whatever manner Landlord may elect without any liability to Tenant.

10. SIGNS.

Tenant may not erect, install or display any sign or advertising material upon the exterior of the Building or Premises (including any exterior doors, walls or windows) without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; provided that, Landlord shall be deemed to be reasonable in disapproving any signage that is larger than, more numerous than, of a differing style from or in a location the differs from signage ordinarily and customarily provided to comparably sized tenants of comparable office buildings. The foregoing notwithstanding, the exterior building parapet signage may be similar to that shown on Exhibit G attached hereto and made a part hereof. Door, one monument panel of the same size as a single current panel on the Building’s monument sign, and directory signage shall be provided and installed by the Landlord in accordance with building standards at Landlord’s expense, unless otherwise provided in the Workletter attached as Lease Addendum Number One. In the event that Tenant elects to utilize any exterior building parapet signage, Landlord will contribute three thousand dollars ($3,000.00) towards Tenant’s building parapet signage cost promptly after request by Tenant. Any exterior signage shall be subject to building standards, Town ordinances, and codes. Prior to the Commencement Date, Landlord shall install one monument panel of the same size a single current panel on the Building’s monument sign and door and directory signage as set forth above at Landlord’s sole cost, in locations and designs reasonably acceptable to the parties.

11. ACCESS TO PREMISES.

a. Tenant’s Access. Tenant, its agents, employees, invitees, and guests, shall have access to the Premises and reasonable ingress and egress to common and public areas of the Building twenty-four hours a day, seven days a week; provided, however, Landlord by reasonable regulation may control such access for the comfort, convenience, safety and protection of all tenants in the Building, or as needed for making repairs and alterations. Tenant shall be responsible for providing access to the Premises to its agents, employees, invitees and guests after business hours and on weekends and holidays, but in no event shall Tenant’s use of and access to the Premises during non-business hours compromise the security of the Building.

b. Landlord’s Access. Landlord shall have the right, at all reasonable times and upon reasonable oral notice, either itself or through its authorized agents, to enter the Premises (i) to make repairs, alterations or changes as Landlord deems necessary, provided that Landlord shall exercise reasonable efforts to not unreasonably interfere with Tenant’s use and enjoyment of the Premises and the Common Areas, to the extent reasonably possible, (ii) to inspect the Premises, mechanical systems and electrical devices, and (iii) to show the Premises to prospective mortgagees and purchasers. Within one hundred eighty (180) days prior to the Expiration Date, Landlord shall have the right, either itself or through its authorized agents, to enter the Premises at all reasonable times upon reasonable oral notice to show prospective tenants.

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c. Emergency Access. Landlord shall have the right to enter the Premises at any time without notice in the event of an emergency that does not allow for any advance notice provided that Landlord shall give Tenant notice thereof promptly thereafter.

12. TENANT’S COMPLIANCE.

a. Laws. Tenant shall comply with all applicable laws, ordinances and regulations affecting Tenant’s use and occupancy of the Premises or affecting alterations to the Premises made by Tenant, whether now existing or hereafter enacted.

b. Rules and Regulations. Tenant shall comply with the Rules and Regulations attached as Exhibit B. The Rules and Regulations may be reasonably modified from time to time by Landlord, effective ten (10) days after the date delivered to Tenant, provided such rules are uniformly applicable to all tenants in the Building. Any conflict between this Lease and the Rules and Regulations shall be governed by the terms of this Lease.

13. ADA COMPLIANCE.

a. Tenant’s Compliance. After the Commencement Date, Tenant, at Tenant’s sole expense, shall comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities now in force, which shall impose any duty upon Landlord or Tenant with respect to the use or occupation of the Premises by Tenant or alteration of the Premises made by Tenant to accommodate persons with special needs, including using all reasonable efforts to comply with The Americans With Disabilities Act (the “ADA”) with respect thereto. Landlord represents that the Premises and the Common Areas are in compliance with the ADA as of the Commencement Date as such relate to ordinary and customary office use for comparable buildings.

b. Landlord’s Compliance. Landlord, at Landlord’s sole expense, shall use all reasonable efforts to meet the requirements of the ADA as it applies to the Common Areas and restrooms of the Building; but Landlord shall have no responsibility for ADA compliance with respect to the Premises except to the extent otherwise herein provided. Landlord shall not be required to make changes to the Common Areas or restrooms of the Building to comply with ADA standards adopted after construction of the Building unless specifically required to do so by law.

c. ADA Notices. If Tenant receives any notices alleging a violation of ADA relating to any portion of the Building or Premises (including any governmental or regulatory actions or investigations regarding non-compliance with ADA), then Tenant shall notify Landlord in writing within ten (10) days of such notice and provide Landlord with copies of any such notice.

14. INSURANCE REQUIREMENTS.

a. Tenant’s Liability Insurance. Throughout the Term, Tenant, at its sole cost and expense, shall keep or cause to be kept for the mutual benefit of Landlord, Landlord’s Property Manager, and Tenant, Commercial General Liability Insurance (current ISO Form or its equivalent) with a combined single limit of at least ONE MILLION DOLLARS each Occurrence and at least TWO MILLION DOLLARS ($2,000,000) General Aggregate-per policy year, which policy shall insure against liability of Tenant, arising out of and in connection with Tenant’s use of the Premises, and which shall include contractual liability coverage. Not more frequently than once every three (3) years, Landlord may require the limits to be increased if in its reasonable judgment (or that of its mortgagee) the coverage is insufficient.

b. Tenant’s Property Insurance. Tenant shall also carry the equivalent of ISO Special Form Property Insurance on Tenant’s Property at the Premises for full replacement value and with coinsurance waived. For purposes of this provision, “Tenant’s Property” shall mean Tenant’s personal property and fixtures at the Premises, and any Non-Standard Improvements to the Premises. Tenant shall neither have, nor make, any claim against Landlord for any loss or damage to the Tenant’s Property, regardless of the cause of the loss or damage, to the extent provided in Section 14(g) below.

c. Certificates of Insurance. Prior to occupying the Premises, and prior to any cancellation thereof during the Term, Tenant shall deliver to Landlord certificates similar to that provided in Exhibit D attached to this Lease and incorporated here for reference or other

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evidence of insurance reasonably satisfactory to Landlord. All such policies shall be non-assessable to Landlord and shall contain language to the extent obtainable that: (i) names Lessor as an additional insured by means of an endorsement at least as broad as the ISOs “Additional Insured-Managers or Lessors of Premises” Endorsement, (ii) that the policies are primary and non-contributing with any insurance that Landlord may carry, and (iii) that the insurer shall endeavor to provide thirty (30) days notice to Landlord prior to policy being cancelled or non-renewed. If Tenant fails to provide Landlord with such certificates or other evidence of insurance coverage, Landlord may obtain such coverage and the cost of such coverage shall be Additional Rent payable by Tenant upon demand.

d. Insurance Policy Requirements. Tenant’s insurance policies required by this Lease shall: (i) be issued by insurance companies licensed to do business in the state in which the Premises are located with, unless otherwise reasonably agreed to by Landlord, a general policyholder’s ratings of at least A- and a financial rating of at least VI in the most current Best’s Insurance Reports available on the Commencement Date, or if the Best’s ratings are changed or discontinued, the parties shall agree to a comparable method of rating insurance companies; (ii) name Landlord as an additional insured on the liability policies as its interest may appear [provided that other landlords or tenants may be added as additional insureds in a blanket policy]; (iii) provide that the insurer shall endeavor to provide thirty (30) days notice to Landlord prior to policy being cancelled or non-renewed; (iv) be primary policies; (v) name Lessor as an additional insured to the liability insurance by means of an endorsement at least as broad as the ISOs “Additional Insured-Managers or Lessors of Premises” Endorsement; (vi) have no have no deductible or self-insurance retention exceeding ONE HUNDRED THOUSAND DOLLARS ($100,000), unless approved in writing by Landlord; and (vii) be maintained during the entire Term and any extension terms.

e. Landlord’s Property Insurance. Landlord shall keep the Building, including the improvements (but excluding Tenant’s Property), insured against damage and destruction by perils insured by the equivalent of ISO Special Form Property Insurance in the amount of the full replacement value of the Building, with commercially reasonable deductibles.

f. Landlord’s Liability Insurance. Throughout the Term, Landlord, at its sole cost and expense, shall keep or cause to be kept Commercial General Liability Insurance (current ISO Form or its equivalent) with a combined single limit, each Occurrence and General Aggregate-per policy year of at least TWO MILLION DOLLARS ($2,000,000) (or such greater amount as is required by the Restrictive Covenants), which policy shall insure against liability of Landlord arising out of and in connection with the use of the Building and Common Areas on an occurrence basis. Upon written request, Landlord shall provide Tenant with appropriate evidence of such insurance coverage and the coverage provided in Section 14(e) above, which shall be in the form of a standard ISO insurance certificate and, for such property insurance, showing rights of subrogation waived against Tenant.

g. Mutual Waiver of Subrogation. Anything in this Lease to the contrary notwithstanding, Landlord hereby releases and waives unto Tenant (including all partners, stockholders, officers, directors, employees and agents thereof), its successors, and assigns, and Tenant hereby releases and waives unto Landlord (including all partners, stockholders, officers, directors, employees and agents thereof), its successors and assigns, all rights to claim damages for any injury, loss, cost or damage to persons or to the Premises or any other casualty, as long as the amount of such injury, loss, cost or damage is payable either to Landlord, Tenant, or any other person, firm or corporation, under the terms of any Property, General Liability, or other policy of insurance carried by either Landlord or Tenant (or would have been paid had such insurance as required by this Lease been in place). All policies of property insurance carried or maintained pursuant to this Lease shall contain or be endorsed to contain a provision whereby the insurer waives all rights of subrogation against either Tenant or Landlord, as the case may be. If any provision relating to a waiver of subrogation as set forth in this Section 14(f) shall contravene any present or future law with respect to exculpatory agreements, the liability of the party affected shall be deemed not released, but shall be secondary to the other’s insurer.

15. INDEMNITY. Subject to the insurance requirements, releases and mutual waivers of subrogation set forth in this Lease, Tenant and Landlord agree as follows:

a. Indemnity. Tenant shall indemnify and hold Landlord harmless from and against any and all claims, damages, losses, liabilities, lawsuits, costs and expenses (including attorneys’ fees at all tribunal levels) arising out of or related to (i) any activity, work, or other

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thing done, permitted or suffered by Tenant in or about the Premises or the Building other than claims, damages, losses, liabilities, lawsuits, costs and expenses (including attorneys’ fees at all tribunal levels) arising out of or related to Tenant’s violation of an unrecorded agreement of which Tenant has no actual knowledge between the Landlord (and/or its predecessors in title) and any third party or by which Landlord is otherwise bound, (ii) any breach or default by Tenant in the performance of any of its obligations under this Lease which continues uncured beyond any applicable cure period, or (iii) any misconduct or neglect of Tenant, or any officer, agent, employee, contractor, servant, invitee or guest of Tenant in or about the Premises, the Common Areas or the Building.

Landlord shall indemnify and hold harmless Tenant from and against any and all claims, damages, losses, liabilities, lawsuits, costs and expenses (including attorneys’ fees at all tribunal levels) arising out of or related to any misconduct or neglect of Landlord, or any officer, agent, employee or contractor of Landlord in or about the Premises, the Common Areas or the Building.

b. Defense Obligation. If any such action is brought against either indemnified party, then the other party, upon notice from the indemnified party, shall defend the same through counsel selected by the indemnified party’s insurer, or other counsel acceptable to the indemnified party. The provisions of this Section shall survive the termination of this Lease.

16. QUIET ENJOYMENT. Tenant shall have quiet enjoyment and possession of the Premises provided Tenant promptly and fully complies with all of its obligations under this Lease within any applicable cure periods. Provided that the same does not unreasonably interfere with Tenant’s use and enjoyment of the Premises and the Common Areas, no action of Landlord or other tenants working in other space in the Building, or in repairing or restoring the Premises not in breach of this Lease by Landlord, shall be deemed a breach of this covenant, nor shall such action give to Tenant any right to modify this Lease either as to term, rent payables or other obligations to be performed. Landlord represents and warrants to Tenant that (a) it is a duly organized and existing North Carolina corporation; (b) to its actual knowledge it is seized of the Premises in fee, subject to the liens and encumbrances set out on Exhibit “E,” (c) it has entered into this agreement by the authority of its Board of Directors, and (d) there are no pending or, to the best of Landlord’s knowledge, threatened condemnation proceedings or other litigation or proceedings against or affecting any part of the Building or Common Areas that could have an adverse effect on Tenant’s use and enjoyment of the Premises and Common Areas.

17. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE; AND ESTOPPEL CERTIFICATE.

a. Subordination and Attornment. Tenant agrees that this Lease and all rights of Tenant hereunder are and shall be subject and subordinate to any ground or underlying lease which may hereafter be in effect regarding the Building and the real property on which it is situate or any component thereof (“ground lease”), to any deed of trust or mortgage hereafter encumbering the Premises or the Building and the real property on which it is situate or any component thereof (“mortgage”), to all advances made or hereafter to be made upon the security of such ground or underlying lease or deed of trust or mortgage, to all amendments, modifications, renewals, consolidations, extensions, and restatements of such ground or underlying lease or deed of trust or mortgage, and to any replacements and substitutions for such deed of trust or mortgage; provided that such lender or ground lessor shall not disturb Tenant’s possession so long as Tenant is not in default of this Lease beyond any applicable notice and cure period. The terms of this provision shall be self-operative and no further instrument of subordination shall be required. However, Tenant agrees to execute within ten (10) days after request to do so from Landlord or its mortgagee an agreement:

i. Making this Lease superior or subordinate to the interests of the mortgagee;

ii. Agreeing to attorn to the mortgagee;

iii. Giving the mortgagee notice of, and a reasonable opportunity (which shall in no event be less than thirty (30) days after notice thereof is delivered to mortgagee) to cure any Landlord default and agreeing to accept such cure if effected by the mortgagee;

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iv. Permitting the mortgagee (or other purchaser at any foreclosure sale), and its successors and assigns, on acquiring Landlord’s interest in the Premises and the Lease, to become substitute Landlord hereunder, with liability only for such Landlord obligations as accrue after Landlord’s interest is so acquired;

v. Agreeing to attorn to any successor Landlord; and

vi. Containing such other agreements and covenants on Tenant’s part as Landlord’s mortgagee may reasonably request.

b. Non-Disturbance. Upon written request by Tenant, Landlord shall exercise reasonable efforts to obtain a commercially reasonable non-disturbance agreement from any holder of such a mortgage or ground lease. Tenant’s obligation to execute a subordination and attornment agreement as set forth above is conditioned upon the mortgagee’s or ground lessor’s agreement not to disturb Tenant’s possession and quiet enjoyment of the Premises under this Lease so long as Tenant is in compliance with the terms of the Lease within any applicable cure periods.

c. Estoppel Certificates. Tenant agrees to execute within ten (10) days after request, and as often as requested, estoppel certificates confirming any factual matter reasonably requested by Landlord which is true and is within Tenant’s knowledge regarding this Lease, and the Premises, including but not limited to: (i) the date of occupancy, (ii) Expiration Date, (iii) the amount of Rent due and date to which Rent is paid, (iv) whether Tenant has any defense or offsets to the enforcement of this Lease or the Rent payable, (v) any default or breach by Landlord, and (vi) whether this Lease, together with any modifications or amendments, is in full force and effect. Tenant shall attach to such estoppel certificate copies of any modifications or amendments to the Lease.

Within ten (10) days following receipt of a written request from Tenant, Landlord shall execute and deliver to Tenant, without cost to Tenant, an estoppel certificate in such form as Tenant may reasonably request certifying (a) that this Lease is in full force and effect, if true, and unmodified or stating the nature of any modification, (b) the date to which rent has been paid, (c) that there are not, to Landlord’s knowledge, any uncured defaults or specifying such defaults if any are claimed, and (d) any other matters or state of facts reasonably required respecting the Lease. Such estoppel may be relied upon by Tenant and by any assignee or subtenant or other party reasonably requesting the same.

18. ASSIGNMENT — SUBLEASE.

a. Landlord Consent. Tenant may not assign or encumber this Lease or its interest in the Premises arising under this Lease, and may not sublet all or any part of the Premises without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; provided that Landlord may withhold consent to any relevant proposed assignment or sublease on any of the following grounds: (i) in Landlord’s sole but good faith judgment the proposed assignee or sublessee shall not have a good reputation in the area, shall not be financially capable of fulfilling its obligation under this Lease, and/or shall not have experience in successfully operating a business of the type and size which such proposed assignee or sublessee proposes to conduct in the Demised Premises; or (ii) the assignment or sublease is to another current tenant, subtenant or other occupant of the Building or any property owned by Landlord or any entity under common control with Landlord and located within one (1) mile of the Building, or to any party with whom Landlord or any entity under common control with Landlord or their agents or brokers have discussed the leasing of space in the Building or any property owned by Landlord or any entity under common control with Landlord and located within one (1) mile of the Building during the six (6) months prior to Tenant’s proposed assignment or sublet; provided that Landlord or any entity under common control with Landlord then has suitable and available space within one or more of such buildings for such prospective assignee/sublessee.

b. Definition of Assignment. For the purpose of this Section 18, the word “assignment” shall be defined and deemed to include the following: (i) if Tenant is a partnership, the withdrawal or change, whether voluntary, involuntary or by operation of law, of partners owning fifty percent (50%) or more of the partnership, or the dissolution of the partnership; (ii) if Tenant consists of more than one person, an assignment, whether voluntary, involuntary, or by operation of law, by one person to one of the other persons that is a Tenant; (iii) if Tenant is a corporation, any dissolution or reorganization of Tenant, or the sale or other transfer of a

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controlling percentage (hereafter defined) of capital stock of Tenant other than to an affiliate or subsidiary or the sale of fifty-one percent (51%) in value of the assets of Tenant; (iv) if Tenant is a limited liability company, the change of members whose interest in the company is fifty percent (50%) or more. The phrase “controlling percentage” means the ownership of, and the right to vote, stock possessing at least fifty-one percent (51%) of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding and entitled to vote for the election of directors, or such lesser percentage as is required to provide actual control over the affairs of the corporation; except that, if the Tenant is a publicly traded company, public trades or sales of the Tenant’s stock on a national stock exchange shall not be considered an assignment hereunder even if the aggregate of the trades of sales exceeds fifty percent (50%) of the capital stock of the company.

c. Permitted Assignments/Subleases. Notwithstanding the foregoing, Tenant may assign this Lease or sublease part or all of the Premises without Landlord’s consent to: (i) any corporation, limited liability company, or partnership that controls, is controlled by, or is under common control with, Tenant at the Commencement Date; or (ii) any corporation or limited liability company resulting from the merger or consolidation with Tenant or to any entity that acquires all or substantially all of Tenant’s assets as a going concern of the business that is being conducted on the Premises; provided however, the assignor if surviving remains liable under the Lease and the assignee or sublessee is a bona fide entity and assumes the obligations of Tenant, is as creditworthy as the Tenant at the time, and continues the same Permitted Use as provided under Section 4.

d. Notice to Landlord. Landlord must be given prior written notice of every assignment or subletting, and failure to do so shall be a default hereunder.

e. Prohibited Assignments/Subleases. In no event shall this Lease be assignable by operation of any law, and Tenant’s rights hereunder may not become, and shall not be listed by Tenant as an asset under any bankruptcy, insolvency or reorganization proceedings. Acceptance of Rent by Landlord after any non-permitted assignment or sublease shall not constitute approval thereof by Landlord.

f. Limitation on Rights of Assignee/Sublessee. Any sublease for which Landlord’s consent is required shall not include the right to exercise any options to renew the Lease Term, expand the Premises, or similar options, unless specifically provided for in the consent.

g. Tenant Not Released. No assignment or sublease shall release Tenant of any of its obligations under this Lease.

h. Landlord’s Right to Collect Sublease Rents upon Tenant Default. If the Premises (or any portion) is sublet and Tenant defaults under its obligations to Landlord, then Landlord is authorized, at its option, to collect all sublease rents directly from the sublessee. Tenant hereby assigns the right to collect the sublease rents to Landlord in the event of Tenant default. The collection of sublease rents by Landlord shall not relieve Tenant of its obligations under this Lease, nor shall it create a contractual relationship between sublessee and Landlord or give sublessee any greater estate or right to the Premises than contained in its Sublease. If requested and commercially reasonable, Landlord shall enter into a reasonable non-disturbance and attornment agreement with any approved or permitted sublessee. To the extent requested by Tenant in written notice to Landlord, Landlord shall provide any assignee of this Lease or any such sublessee with written notice of any default by Tenant under this Lease, and the same opportunity to cure such default as provided to Tenant, if applicable, in Section 22 below, and Landlord shall accept performance by any such assignees or subtenants as if such performance were rendered by Tenant. To the extent requested by Tenant in written notice to Landlord, Landlord shall provide Tenant with written notice of any default by any assignee, and the same opportunity to cure such default as provided in Section 22 below, if applicable, and Landlord shall accept performance by Tenant. Tenant, upon curing such default, shall be entitled, at its option, at any time thereafter to regain possession of the Premises upon assignee agreeing in writing with Landlord that Tenant can so regain possession of the Premises. Any provision by which Landlord waives any rights or agrees to indemnify, hold harmless and/or defend Tenant shall also apply in favor of any permitted assignee of Tenant hereunder. Tenant shall cause any sublessee to enter into an agreement with Landlord whereby Landlord and such sublessee grant indemnities and waivers to one another substantially similar to those set forth in this Lease between Tenant and Landlord.

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i. Excess Rents. If Tenant assigns this Lease or subleases all or part of the Premises for which Landlord’s consent is required at a rental rate that exceeds the rentals paid to Landlord, then fifty percent (50%) of any such excess shall be paid over to Landlord by Tenant within ten (10) days after receipt net of all costs incurred by Tenant with respect to such assignment or sublease, including, without limitation, brokerage and attorneys’ fees and costs and any buildout expenses.

j. Landlord’s Fees. Tenant shall pay Landlord an administration fee of $1,000.00 per assignment or sublease transaction for which consent is required. If Landlord assists Tenant in finding an assignee or subtenant at Tenant’s request, Landlord shall be paid a reasonable fee for such assistance.

k. Unauthorized Assignment or Sublease. Any unauthorized assignment or sublease shall constitute a default under the terms of this Lease.

19. DAMAGES TO PREMISES.

a. Landlord’s Restoration Obligations. If the Building, Common Areas or Premises are damaged by fire or other casualty (“Casualty”), then Landlord shall repair and restore the Premises, Common Areas and any other portion of the Building that adversely affects Tenant’s use and enjoyment of the Premises and Common Areas to substantially the same condition of the Premises immediately prior to such Casualty, subject to the following terms and conditions:

i. The casualty must be insured under Landlord’s insurance policies, and Landlord’s obligation is limited to the extent of the insurance proceeds received by Landlord, plus any deductibles. Landlord’s duty to repair and restore the Premises shall not begin until receipt of the insurance proceeds, provided that Landlord shall make reasonable efforts to obtain the same as soon as reasonably possible.

ii. Landlord’s lender(s) must permit the insurance proceeds to be used for such repair and restoration, provided that Landlord shall make reasonable efforts to obtain such permission.

iii. Landlord shall have no obligation to repair and restore Tenant’s trade fixtures, decorations, signs, contents, or any Non-Standard Improvements to the Premises.

b. Termination of Lease by Landlord. Landlord shall have the option of terminating the Lease if: (i) the Premises is rendered wholly untenantable; (ii) the Premises is damaged in whole or in part as a result of a risk which is not covered by Landlord’s insurance policies or the policies that Landlord is required to carry hereunder; (iii) Landlord’s lender does not permit a sufficient amount of the insurance proceeds to be used for restoration purposes, despite such reasonable efforts; (iv) the Premises is damaged in whole or in material part during the last lease year of the Term; or (v) the Building containing the Premises is damaged (whether or not the Premises is damaged) to an extent of fifty percent (50%) or more of the fair market value thereof. If Landlord elects to terminate this Lease, then it shall give notice of the cancellation to Tenant within sixty (60) days after the date of the Casualty. Tenant shall vacate and surrender the Premises to Landlord within thirty (30) days after receipt of the notice of termination.

c. Termination of Lease by Tenant. Tenant shall have the option of terminating the Lease if: (i) such restoration cannot reasonably be substantially completed or Landlord has failed to substantially restore the damaged Building, Common Areas or Premises within one hundred eighty (180) days after such Casualty (“Restoration Period”); (ii) the Restoration Period has not been delayed by force majeure (provided that force majeure shall not extend such period for more than sixty (60) days); and (iii) Tenant gives Landlord notice of the termination within thirty (30) days after the end of the Restoration Period (as may be so extended by any force majeure delays); provided that the Premises has not been so restored prior to the date that Tenant provides such notice. If Landlord is delayed by force majeure, then Landlord must provide Tenant with notice of the delays within fifteen (15) days of the force majeure event stating the reason for the delays and a good faith estimate of the length of the delays.

d. Tenant’s Restoration Obligations. Unless terminated, the Lease shall remain in full force and effect, and Tenant shall promptly repair, restore, or replace Tenant’s trade fixtures, decorations, signs, contents, and any Non-Standard Improvements to the Premises. All repair,

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restoration or replacement shall be at least to substantially the same condition as existed prior to the Casualty.

e. Rent Abatement. If Premises is rendered wholly untenantable by the Casualty, then the Rent payable by Tenant shall be fully abated. If the Premises is only partially damaged, then Tenant may continue the operation of Tenant’s business in any part not damaged to the extent reasonably practicable from the standpoint of prudent business management (“tenantable”), and Rent and other charges shall be abated proportionately to the portion of the Premises rendered untenantable (whether or not Tenant continues to operate in the tenantable portions). The abatement shall be from the date of the Casualty until the Premises have been substantially repaired and restored, and a reasonable period of time thereafter not to exceed thirty (30) days to allow Tenant to restore, replace and move in its alterations, additions, improvements, fixtures, trade fixtures, equipment, furniture and personal property and prepare for reopening, or until Tenant’s business operations are restored in the entire Premises, whichever shall first occur. However, if the Casualty is caused by the negligence or other wrongful conduct of Tenant or of Tenant’s subtenants, licensees, contractors, or invitees, or their respective agents or employees, there shall be no abatement of Rent except to the extent that Landlord actually receives or is entitled to receive reimbursement for such from rent loss insurance.

f. Waiver of Claims. The abatement of the Rent set forth above is Tenant’s exclusive remedy against Landlord in the event of a Casualty except to the extent of the gross negligence or intentional misconduct of Landlord or its agents, employees or contractors. Tenant hereby waives all claims against Landlord for any compensation or damage for loss of use of the whole or any part of the Premises and/or for any inconvenience or annoyance occasioned by any Casualty and any resulting damage, destruction, repair, or restoration except to the extent of the gross negligence or intentional misconduct of Landlord or its agents, employees or contractors.

20. EMINENT DOMAIN.

a. Effect on Lease. If all of the Premises, Common Areas or the Building are taken under the power of eminent domain (or by conveyance in lieu thereof) (a “taking”), then this Lease shall terminate as of the date possession is taken by the condemnor, and Rent shall be adjusted between Landlord and Tenant as of such date. If only a portion of the Premises, Common Area or the Building is so taken or conveyed and Tenant can continue use of the remainder without materially impairing its business operations or use of the Premises, then this Lease will not terminate, but Rent shall abate in a just and proportionate amount to the loss of use occasioned by the taking. If only a portion of the Premises, Common Areas or the Building is taken and Tenant cannot continue use of the remainder without materially impairing its business operations or use of the Premises, then Tenant may terminate this Lease upon fifteen (15) days written notice to Landlord. If the Lease is not terminated pursuant to this Section 20(a), Landlord shall restore that portion of the Premises and the Building and Common Area that remains to a whole architectural and economic unit with reasonable promptness and all due diligence to the extent of condemnation proceeds actually received or receivable by Landlord as opposed to being applied to Landlord’s mortgage loan by its lender. Rent shall abate on an equitable basis for the period such restoration makes the Premises or a portion thereof untenantable or has a material adverse impact on Tenant’s business at the Premises for the Permitted Use, and a reasonable period of time thereafter not to exceed thirty (30) days to allow Tenant to restore, replace and move in its alterations, additions, improvements, fixtures, trade fixtures, equipment, furniture and personal property and prepare for reopening.

b. Right to Condemnation Award. Landlord shall be entitled to receive and retain the entire condemnation award for the taking of the Building and Premises. Tenant shall have no right or claim against Landlord for any part of any award received by Landlord for the taking. Tenant shall have no right or claim for any alleged value of the unexpired portion of this Lease, or its leasehold estate, or for costs of removal, relocation, business interruption expense or any other damages arising out of such taking except as hereinafter provided. Tenant, however, shall not be prevented from making a claim against the condemning party (but not against Landlord ) for any moving expenses, loss of profits, or taking of Tenant’s personal property or fixtures or any alterations made to the Premises at Tenant’s expense but not to the extent that such tenant improvements were reimbursed through any tenant improvement allowance (other than its leasehold estate) to which Tenant may be entitled; provided that any such award shall not reduce the amount of the award otherwise payable to Landlord for the taking of the Building and Premises.

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21. ENVIRONMENTAL COMPLIANCE.

a. Environmental Laws. The term “Environmental Laws” shall mean all now existing or hereafter enacted or issued statutes, laws, rules, ordinances, orders, permits and regulations of all state, federal, local and other governmental and regulatory authorities, agencies and bodies applicable to the Premises, pertaining to environmental matters or regulating, prohibiting or otherwise having to do with asbestos and all other toxic, radioactive, or hazardous wastes or materials including, but not limited to, the Federal Clean Air Act, the Federal Water Pollution Control Act, and the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as from time to time amended.

b. Tenant’s Responsibility. Tenant covenants and agrees that it will keep and maintain the Premises at all times in compliance with Environmental Laws resulting from its use or occupancy of or alterations to the Property. Tenant shall not (either with or without negligence) cause or permit the escape, disposal (except for hazardous materials that are ordinarily and customarily used by similar businesses and are used and stored in compliance with all applicable laws and industry standards and further provided that Tenant notifies Landlord in writing of all such hazardous materials prior to such being brought to the Premises other than commercially reasonable amounts of ordinary office and janitorial supplies) or release of any biologically active or other hazardous substances or materials on the Property. Tenant shall not allow the storage or use of such substances or materials in any manner not sanctioned by law or in compliance with the standards prevailing in the industry for the storage and use of such substances or materials, nor allow to be brought onto the Property any such materials or substances except to use in the ordinary course of Tenant’s business, and then only after notice is given to Landlord of the identity of such substances or materials. No such notice shall be required, however, for commercially reasonable amounts of ordinary office supplies and janitorial supplies. Tenant shall execute affidavits, representations and the like, from time to time, promptly after Landlord’s reasonable request, concerning Tenant’s best knowledge and belief regarding the presence of hazardous substances or materials on the Premises.

c. Tenant’s Liability. Tenant shall hold Landlord free, harmless, and indemnified from any penalty, fine, claim, demand, liability, cost, or charge whatsoever which Landlord shall incur, or which Landlord would otherwise incur, by reason of Tenant’s failure to comply with this Section 21 including, but not limited to, to the extent arising from such failure: (i) the cost of full remediation of any contamination to bring the Property into the same condition as existed prior to such failure and into full compliance with all Environmental Laws; (ii) the reasonable cost of all appropriate tests and examinations of the Premises to confirm that the Premises and any other contaminated areas have been remediated and brought into compliance with all Environmental Laws; and (iii) the reasonable fees and expenses of Landlord’s attorneys, engineers, and consultants incurred by Landlord in enforcing and confirming compliance with this Section 21.

d. Limitation on Tenant’s Liability. Tenant’s obligations under this Section 21 shall not apply to any condition or matter constituting a violation of any Environmental Laws: (i) which existed prior to the commencement of Tenant’s use or occupancy of the Premises; (ii) which was not caused, in whole or in part, by Tenant or Tenant’s agents, employees, officers, partners, contractors or invitees; or (iii) to the extent such violation is caused by, or results from the acts or neglects of Landlord or Landlord’s agents, employees, officers, partners, contractors, guests, or invitees.

e. Inspections by Landlord. Landlord and its engineers, technicians, and consultants (collectively the “Auditors”) may, from time to time as Landlord deems appropriate, conduct periodic tests and examinations (“Audits”) of the Premises to confirm and monitor Tenant’s compliance with this Section 21. Such Audits shall be conducted in such a manner as to minimize the interference with Tenant’s Permitted Use; however in all cases, the Audits shall be of such nature and scope as shall be reasonably required by then existing technology to confirm Tenant’s compliance with this Section 21. Tenant shall fully cooperate with Landlord and its Auditors in the conduct of such Audits. The cost of such Audits shall be paid by Landlord unless an Audit shall disclose a material failure of Tenant to comply with this Section 21, in which case, the cost of such Audit, and the cost of all reasonably necessary subsequent Audits made during the Term and within thirty (30) days thereafter (not to exceed two (2) such Audits per calendar year), shall be paid for on demand by Tenant.

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f. Landlord’s Liability. Landlord represents and warrants that, to Landlord’s actual knowledge, there are no hazardous materials on the Premises as of the Commencement Date in violation of any Environmental Laws (“Hazardous Materials”). Landlord shall indemnify and hold Tenant harmless from any liability resulting from Landlord’s violation of this representation and warranty. Landlord agrees to disclose to Tenant in writing the existence, extent and nature of any Hazardous Material ascertained on, in or about the Property, upon Landlord’s knowledge of the same. Landlord agrees to comply with all Environmental Laws in or affecting the Property during the term of this Lease to the extent required by the applicable governmental authority. In addition, Landlord agrees that during the term of this Lease it will not bring upon, store, dispose of or install in or upon the Premises any Hazardous Materials in violation of any Environmental Laws. Landlord shall indemnify, defend and hold Tenant harmless from and against any liability, cost, damage or expense incurred or sustained by Tenant (including, without limitation, reasonable attorneys’ fees and expenses, court costs and costs incurred in the investigation, settlement and defense of claims) as a result of or in connection with any violation of the preceding prohibition. The indemnity contained in this Section 21(f) shall survive the termination or expiration of this Lease.

g. Property. For the purposes of this Section 21, the term “Property” shall include the Premises, Building, all Common Areas, the real estate upon which the Building is located; all personal property (including that owned by Tenant); and the soil, ground water, and surface water of the real estate upon which the Building is located.

h. Tenant’s Liability After Termination of Lease. The covenants contained in this Section 21 shall survive the expiration or termination of this Lease, and shall continue for so long as Landlord and its successors and assigns may be subject to any expense, liability, charge, penalty, or obligation against which Tenant has agreed to indemnify Landlord under this Section 21.

22. DEFAULT.

a. Tenant’s Default. Tenant shall be in default (a “default”) under this Lease if:

i. Tenant fails to pay when due any Base Rent, Additional Rent, or any other sum of money which Tenant is obligated to pay, as provided in this Lease and continues to fail to pay such sums for ten (10) days after notice from Landlord to Tenant thereof; provided that Tenant shall not be entitled to more than two (2) such notice and cure periods during any twelve (12) month period;

ii. Tenant breaches any other agreement, covenant or obligation in this Lease and such breach is not remedied within thirty (30) days after Landlord gives Tenant notice specifying the breach, or if such breach cannot, with due diligence, be cured within thirty (30) days, Tenant does not commence curing within thirty (30) days and with reasonable diligence completely cure the breach within sixty (60) days after the notice of default; provided further that Tenant shall not be entitled to more than one (1) such notice and cure period for the same default within any twelve (12) month period;

iii. Tenant or any guarantor of this Lease files any petition or action for relief under any creditor’s law (including bankruptcy, reorganization, or similar action), either in state or federal court, or has such a petition or action filed against it which is not stayed or vacated within sixty (60) days after filing;

iv. Tenant or any guarantor of this Lease makes any transfer in fraud of creditors as defined in Section 548 of the United States Bankruptcy Code (11 U.S.C. 548, as amended or replaced), has a receiver appointed for its assets (and the appointment is not stayed or vacated within thirty (30) days), or makes a general assignment for benefit of creditors;

v. Tenant shall fail to cease any conduct prohibited by this Lease within three (3) days after receipt of written notice from Landlord requesting cessation thereof, or Tenant shall fail to cease any conduct or eliminate any condition which poses a danger to person or property within twelve (12) hours of receipt of written notice from Landlord requesting cessation of such conduct or elimination of such conditions;

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vi. Tenant shall do or permit to be done anything which creates a lien upon the Premises or the Building and the real property on which it is situate or any component thereof and such lien is not removed or discharged of record by bond or otherwise within fifteen (15) days after Tenant receives notice thereof; or

vii. Tenant shall fail to return a properly executed subordination, non-disturbance and attornment agreement or an estoppel certificate in accordance with the terms and provisions of this Lease and within the time period provided for such return following Landlord’s request for same as provided in this Lease, and Tenant fails to provide such instrument within ten (10) days after Tenant has notice that Tenant has failed to provide such instrument within the time periods set forth herein (such notice by Landlord not to be delivered prior to the time such instrument was due from Tenant).

b. Landlord’s Remedies. In the event of a Tenant default, Landlord at its option may do one or more of the following:

(i) terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord and if Tenant fails to do so, Landlord may, without further notice and without prejudice to any other remedy Landlord may have for possession or arrearages in Base Rent and/or Additional Rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying said Premises or any part thereof, and its and their effects, without being liable for prosecution or any claim of damages therefor; Tenant hereby agreeing to pay to Landlord within ten (10) days after demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise;

(ii) terminate Tenant’s right of possession, without terminating this Lease, and enter upon and take possession of the Premises as Tenant’s agent and expel or remove Tenant and any other person who may be occupying said Premises or any part thereof, and its and their effects, by entry, dispossessory suit or otherwise, without thereby releasing Tenant from any liability hereunder, without terminating this Lease, and without being liable for prosecution or any claim of damages therefor and, if Landlord so elects, make such alterations, redecorations and repairs as, in Landlord’s judgment, may be necessary to relet the Premises, and Landlord may, but shall be under no obligation to do so, relet the Premises or any portion thereof in Landlord’s name, but for the account of Tenant, for such term or terms (which may be for a term extending beyond the Lease Term) and at such rental or rentals and upon such other terms as Landlord may deem advisable, with or without advertisement, and by private negotiations, and receive the rent therefor, Tenant hereby agreeing to pay to Landlord the deficiency, if any, between all Base Rent and Additional Rent reserved hereunder and the total rental applicable to the Lease Term hereof obtained by Landlord upon re-letting, and Tenant shall be liable for Landlord’s damages and expenses in redecorating and restoring the Premises and all costs incident to such re-letting, including broker’s commissions, tenant improvements, attorneys’ fees and lease assumptions. In no event shall Tenant be entitled to any rentals received by Landlord in excess of the amounts due by Tenant hereunder. Any such demand, reentry and taking of possession of the Premises by Landlord shall not of itself constitute an acceptance by Landlord of a surrender of the Lease or of the Premises by Tenant and shall not of itself constitute a termination of this Lease by Landlord. Landlord’s failure to relet the Premises or to make such alterations, redecorations and repairs as set forth in this paragraph shall not release or affect Tenant’s liability for Base Rent and Additional Rent or for damages; or

(iii) enter upon the Premises, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses including, without limitation, reasonable attorneys’ fees which Landlord may incur in thus effecting compliance with Tenant’s obligations under this Lease and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action.

If this Lease is terminated by Landlord as a result of the occurrence of a Tenant default, Landlord may declare to be due and payable immediately, the present value (calculated with a discount factor of eight percent [8%] per annum) of the difference between (x) the

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entire amount of Base Rent and Additional Rent and other charges and assessments which in Landlord’s reasonable determination would become due and payable during the remainder of the Lease Term determined as though this Lease had not been terminated (including, but not limited to, increases in Base Rent pursuant to the terms of this Lease), and (y) the then fair market rental value of the Premises for the remainder of the Lease Term. Upon the acceleration of such amounts, Tenant agrees to pay the same at once, together with all Base Rent and Additional Rent and other charges and assessments then due, it being agreed that such payment shall not constitute a penalty or forfeiture but shall constitute liquidated damages for Tenant’s failure to comply with the terms of this Lease (Landlord and Tenant agreeing that Landlord’s actual damages in such event are impossible to ascertain and that the amount set forth above is a reasonable estimate thereof).

Pursuit of any of the foregoing remedies shall not preclude pursuit of any other remedy herein provided or any other remedy provided by law or at equity, nor shall pursuit of any remedy herein provided constitute an election of remedies thereby excluding the later election of an alternate remedy, or a forfeiture or waiver of any Base Rent and/or Additional Rent or other charges and assessments payable by Tenant and due to Landlord hereunder or of any damages accruing to Landlord by reason of violation of any of the terms, covenants, warranties and provisions herein contained. No reentry or taking possession of the Premises by Landlord or any other action taken by or on behalf of Landlord shall be construed to be an acceptance of a surrender of this Lease or an election by Landlord to terminate this Lease unless written notice of such intention is given to Tenant. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. In determining the amount of loss or damage Landlord may suffer by reason of termination of this Lease or the deficiency arising by reason of any reletting of the Premises by Landlord, allowance shall be made for the expense of repossession. Tenant agrees to pay to Landlord all costs and expenses incurred by Landlord in the enforcement of this Lease.

Upon the occurrence of a Tenant default, Tenant shall pay to Landlord all costs incurred by Landlord (including court costs and reasonable attorneys’ fees and expenses) in (i) obtaining possession of the Premises, (ii) removing and storing Tenant’s or any other occupant’s property, (iii) repairing, restoring, renovating, altering, remodeling, or otherwise putting the Premises into condition acceptable to a new tenant, (iv) if Tenant is dispossessed of, or vacates or abandons, the Premises and this Lease is not terminated, reletting all or any part of the Premises (including, but not limited to, brokerage commissions, cost of tenant finish work, advertising and promotional expenses, and other costs incidental to such reletting), (v) performing Tenant’s obligations which Tenant failed to perform, and (vi) enforcing its rights and remedies arising out of a Tenant default. Landlord’s rights and remedies under this paragraph shall be in addition to the rights and remedies of Landlord set forth in this Section 22(b) or elsewhere in this Lease, and/or which may otherwise be available to Landlord at law or in equity.

Landlord shall have a duty to use commercially reasonable good faith efforts to mitigate damages in the event of a Tenant default; provided that Landlord shall not be required to (i) release the Premises (or any portion thereof) on terms less favorable to Landlord than other comparable available space in the Building or any building located within one (1) mile of the Building and owned by Landlord or an entity that is controlled by, controlling or under common control with Landlord; or (ii) release the Premises (or any portion thereof) if there is other available space in the Building that is suitable for such prospective tenant.

c. Attorneys Fees. Landlord’s reasonable attorneys’ fees in pursuing any of the foregoing remedies after a default, or in collecting any Rent or Additional Rent due by Tenant hereunder that is not paid within any cure period, shall be paid by Tenant.

d. No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than the Rent, Additional Rent and other sums then due shall be deemed to be other than on account of the earliest installment of such payments due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed as accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or pursue any other remedy provided in this Lease.

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e. No Reinstatement. No payment of money by Tenant to Landlord after the expiration or termination of this Lease shall reinstate or extend the Term, or make ineffective any notice of termination given to Tenant prior to the payment of such money. After the service of notice or the commencement of a suit, or after final judgment granting Landlord possession of the Premises, Landlord may receive and collect any sums due under this Lease, and the payment thereof shall not make ineffective any notice or in any manner affect any pending suit or any judgment previously obtained.

f. Summary Ejectment. Tenant agrees that in addition to all other rights and remedies Landlord may obtain an order for summary ejectment from any court of competent jurisdiction without prejudice to Landlord’s rights to otherwise collect rents or breach of contract damages from Tenant.

g. Landlord Defaults. If Landlord shall fail to perform any of the covenants or conditions herein contained on the part of Landlord to be performed, and such default shall continue uncured beyond thirty (30) days after notice from Tenant thereof, or such longer period of time as is reasonably necessary to cure the same (not to exceed a total of sixty (60) days after the giving of such notice), provided that Landlord is at all times after such notice diligently pursuing a cure, Tenant shall have the following rights, including but not limited to the following:

(i) the right, but not the obligation, to perform such obligation and Landlord shall pay to Tenant the reasonable costs incurred by Tenant in curing such default, including reasonable attorneys’ fees and expenses, within thirty (30) days after receipt of a paid invoice from Tenant;

(ii) the right of specific performance and injunctive relief (Tenant not being required to prove special damages, it being hereby stipulated that legal remedies would be inadequate); and

(iii) all other rights and remedies available hereunder or at law or in equity or otherwise.

All of the rights and remedies of Tenant shall survive the termination or expiration of this Lease or the Term and shall be cumulative.

23. MULTIPLE DEFAULTS.

a. Loss of Option Rights. Tenant acknowledges that any rights or options of first refusal, or to extend the Term, to expand the size of the Premises, to purchase the Premises or the Building, or other similar rights or options which have been granted to Tenant under this Lease are conditioned upon the prompt and diligent performance of the terms of this Lease by Tenant. Accordingly, should Tenant default under this Lease, in addition to all other remedies available to Landlord, all such rights and options shall automatically, and without further action on the part of any party, expire and be of no further force and effect.

b. Increased Security Deposit. Should Tenant default in the payment of Base Rent, Additional Rent, or any other sums payable by Tenant under this Lease on two (2) or more occasions during any twelve (12) month period, regardless of whether Landlord permits such default to be cured, then, in addition to all other remedies otherwise available to Landlord, Tenant shall, within ten (10) days after demand by Landlord, post a Security Deposit in, or increase the existing Security Deposit to, a sum equal to three (3) months’ installments of Base Rent. The Security Deposit shall be governed by the terms of this Lease.

c. Effect on Notice Rights and Cure Periods. Should Tenant default under this Lease on two (2) or more occasions during any twelve (12) month period, in addition to all other remedies available to Landlord, any notice requirements or cure periods otherwise set forth in this Lease with respect to a default by Tenant shall not apply.

24. BANKRUPTCY.

a. Trustee’s Rights. Landlord and Tenant understand that, notwithstanding contrary terms in this Lease, a trustee or debtor in possession under the United States Bankruptcy Code, as amended, (the “Code”) may have certain rights to assume or assign this Lease. This Lease

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shall not be construed to give the trustee or debtor in possession any rights greater than the minimum rights granted under the Code.

b. Adequate Assurance. Landlord and Tenant acknowledge that, pursuant to the Code, Landlord is entitled to adequate assurances of future performance of the provisions of this Lease. The parties agree that the term “adequate assurance” shall include at least the following:

i. In order to assure Landlord that any proposed assignee will have the resources with which to pay all Rent payable pursuant to the provisions of this Lease, any proposed assignee must have, as demonstrated to Landlord’s satisfaction, a net worth (as defined in accordance with generally accepted accounting principles consistently applied) of not less than the net worth of Tenant on the Effective Date (as hereinafter defined), increased by seven percent (7%), compounded annually, for each year from the Effective Date through the date of the proposed assignment. It is understood and agreed that the financial condition and resources of Tenant were a material inducement to Landlord in entering into this Lease.

ii. Any proposed assignee must have been engaged in the conduct of business for the five (5) years prior to any such proposed assignment, which business does not violate the Use provisions under Section 4 above, and such proposed assignee shall continue to engage in the Permitted Use under Section 4. It is understood that Landlord’s asset will be substantially impaired if the trustee in bankruptcy or any assignee of this Lease makes any use of the Premises other than the Permitted Use.

c. Assumption of Lease Obligations. Any proposed assignee of this Lease must assume and agree to be personally bound by the provisions of this Lease from and after the date of such assumption.

25. NOTICES.

a. Addresses. All notices, demands and requests by Landlord or Tenant shall be sent to the Notice Addresses set forth in Section 1l, or to such other address as a party may specify by duly given notice.

b. Form; Delivery; Receipt. ALL NOTICES, DEMANDS AND REQUESTS WHICH MAY BE GIVEN OR WHICH ARE REQUIRED TO BE GIVEN BY EITHER PARTY TO THE OTHER MUST BE IN WRITING UNLESS OTHERWISE SPECIFIED. Notices, demands or requests shall be deemed to have been properly given for all purposes if (i) delivered against a written receipt of delivery, (ii) mailed by express, registered or certified mail of the United States Postal Service, return receipt requested, postage prepaid, or (iii) delivered to a nationally recognized overnight courier service for next business day delivery to the receiving party’s address as set forth above or (iv) delivered via telecopier or facsimile transmission to the facsimile number listed above, with an original counterpart of such communication sent concurrently as specified in subsection (ii) or (iii) above and with written confirmation of receipt of transmission provided. Each such notice, demand or request shall be deemed to have been received upon the earlier of the actual receipt or refusal by the addressee or three (3) business days after deposit thereof at any main or branch United States post office if sent in accordance with subsection (ii) above, and the next business day after deposit thereof with the courier if sent pursuant to subsection (iii) above. As used in this Lease, a “business day” shall be any day other than a Saturday, Sunday or National or State of North Carolina holiday.

c. Address Changes. The parties shall notify the other of any change in address, which notification must be at least fifteen (15) days in advance of it being effective.

d. Notice by Legal Counsel. Notices may be given on behalf of any party by such party’s legal counsel.

26. HOLDING OVER. If Tenant holds over after the Expiration Date or other termination of this Lease, such holding over shall not be a renewal of this Lease but shall create a tenancy-at-sufferance. Tenant shall continue to be bound by all of the terms and conditions of this Lease, except that during such tenancy-at-sufferance Tenant shall pay to Landlord (i) Base Rent at the rate equal to one hundred fifty percent (150%) of that provided for as of the

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expiration or termination date, and (ii) any and all Operating Expenses and other forms of Additional Rent payable under this Lease. The increased Rent during such holding over is intended to compensate Landlord partially for losses, damages and expenses, including frustrating and delaying Landlord’s ability to secure a replacement tenant. If Tenant holds over for more than ten (10) days and Landlord loses a prospective tenant because Tenant fails to vacate the Premises on the Expiration Date or any termination of the Lease after notice to do so, then Tenant will be liable for such damages as Landlord can prove because of Tenant’s wrongful failure to vacate.

27. OMITTED.

28. RIGHT OF FIRST OFFER. Provided Tenant is not in default of this Lease, if Landlord decides to market for lease or otherwise lease any available space in the Building, Landlord shall first offer to lease such space to Tenant, and Landlord shall set forth, in writing, the price at which it would lease the space to Tenant and the term for which it would lease the space (collectively, the “First Offer Terms”). The offer shall be irrevocable for a period of ten (10) days after Tenant receives the offer. Upon expiration of the ten (10) day period, if Tenant has not accepted the offer, Tenant shall be deemed to have waived its right to lease such space on the First Offer Terms, and Landlord shall have the right to lease such space to any third party, provided that the rental rate to a third party is not less than ninety-five percent (95%) of the rental rate in the First Offer Terms set forth in writing to Tenant (taking into account any free rent periods and/or tenant improvement allowances) and the lease of such space to any third party is otherwise for the same lease term. Should Landlord receive an offer and decide to accept an offer that is less than ninety-five percent (95%) of the rental rate set forth in the First Offer Terms offered to Tenant (taking into account any free rent periods and/or tenant improvement allowances) or otherwise not for the same lease term, Landlord shall notify Tenant with a copy of the third party offer, and Tenant shall have the right to lease such space on the same terms as the third party’s offer by giving Landlord written notice of exercise of such right within ten (10) days of receipt of notice of the third party’s offer. After expiration of the ten (10) day period, if Tenant shall not have accepted the offer, Tenant shall be deemed to have waived its right to lease such space on the terms of the third party’s offer, and Landlord shall have the right to lease the space to the third party, subject to the above provisions. For purposes of this Section 28, it is understood and agreed that any offer need not be in the form of a fully negotiated lease but may rather be in the form of a letter of intent which addresses at a minimum, rental rate and the term of the lease. If Tenant exercises its option to lease, then the subject space and First Offer Terms shall be promptly added to this Lease by an amendment and, to the extent the First Offer Terms are not complete, then the remainder of the terms shall be as provided in this Lease.

29. RIGHT TO RENEW. Tenant may, if not in default, exercise its right to renew this Lease for one (1) three (3) year renewal (“renewal term”) with at least six (6) months written notice prior to the expiration of the initial Lease Term. Lease will renew at the then fair market value (“Market Rent”). In the event that Landlord and Tenant cannot agree as to the Market Rent for the renewal term within one (1) month after Tenant’s exercise of the option to renew, then the option to renew shall become null and void and the term of the Lease shall expire on the original Expiration Date, unless Tenant delivers to Landlord a written objection to Landlord’s determination of the Market Rent within five (5) business days after such one (1) month period, in which event, within five (5) business days thereafter the parties shall select a highly qualified and reputable real estate broker or appraiser with at least ten years of experience in the relevant leasing market (the “Arbiter”) to determine the fair market value for the renewal term. If Landlord and Tenant are unable to agree on the Arbiter within such five (5) business day period, the resident manager of the largest commercial real estate brokerage house in the Raleigh-Durham metropolitan area will select the Arbiter from a major brokerage house other than his or her own. The term “largest” means the brokerage house with the largest dollar sales volume in the preceding calendar year. The Arbiter shall be furnished copies of the final Landlord’s offer of the Market Rent presented to Tenant and the final Tenant’s offer of the Market Rent presented to Landlord, both as given prior to the Arbiter’s appointment. The Arbiter, after conducting such investigation as he or she deems appropriate, shall, within fifteen (15) days after being selected, determine the Market Rent during the Renewal Term, not to be less than the Tenant’s offer or the rent for the last lease year nor more than the Landlord’s offer. So long as the Arbiter’s determination of Market Rent is not less than the Tenant’s offer or the rent for the last lease year nor more than the Landlord’s offer, the decision of the Arbiter shall be final and non-appealable. The parties shall each pay one-half of the Arbiter’s fees.

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“Market Rent” shall mean the annual rental rate then being charged by similar projects in the Raleigh-Durham metropolitan area for improved space (not including the improvements made by Tenant) comparable to the Premises for leases commencing on or about the time of the applicable renewal period, taking into consideration use and location within the Building, the location, quality, age and reputation of the Building, the definition of rentable area or net rentable area, as the case may be, with respect to which such rental rates are computed, comparative leasehold improvement, rental concessions and abatements, lease assumptions or take-overs, moving expenses, the term of the lease under consideration and the extent of services provided thereunder, applicable distinctions between “gross” leases and “net” leases, base year figures for escalation purposes, other adjustments (including, by way of example, indexes) to base rental, and any other relevant term or condition in making such evaluation.

30. OPTION TO TERMINATE. Provided Tenant is not in default, Tenant has a one-time right to terminate the Lease as of November 30, 2012 (“Early Termination Date”), conditioned upon Tenant giving Landlord written notice no less than five (5) months prior to the Early Termination Date and with the payment of all unamortized (a) third party out of pocket construction costs for Landlord’s work set forth in the Workletter, (b) moving allowance paid by Landlord pursuant to the Workletter and (c) brokerage commission payable to the Brokers identified in Section 1m with respect to this Lease, plus four (4) month’s of Base Rent at the then prevailing rental rate (and if Tenant exercises such option to terminate during a period of rental abatement, the rental rate for the first full month after such rental abatement period shall be used to calculate the amount to be paid by Tenant); provided that in order for the exercise of the option to terminate to be valid, Tenant must pay such amounts to Landlord at the time that it exercises this option to terminate. If Tenant fails to timely give notice, Tenant will be deemed to have waived its right to terminate under this Paragraph. For purposes of determining the amounts in clause (a) through (c) above of this Section 30 shall be amortized on a straight-line basis for the Term of the Lease, not including the renewal term. Upon written request from Tenant and once all of the costs included in said clauses (a) through (c) are determinable, Landlord shall, promptly provide Tenant with the total of such costs in reasonable detail, including any back up documentation reasonably requested by Tenant to verify the same.

31. BROKER’S COMMISSIONS.

a. Brokers. Each party represents and warrants to the other that it has not dealt with any real estate broker, finder or other person with respect to this Lease in any manner, except the Brokers identified in Section 1m.

b. Landlord’s Obligation. Landlord shall pay any commissions or fees that are payable to Coldwell Banker Trademark Commercial with respect to this Lease pursuant to Landlord’s separate agreement with Coldwell Banker Trademark Commercial, which broker shall pay the brokerage commission due to Jones Lang LaSalle — Carolinas, LLC pursuant to a separate agreement.

c. Indemnity. Each party shall indemnify and hold the other party harmless from any and all damages resulting from claims that may be asserted against the other party by any other broker, finder or other person (including, without limitation, any substitute or replacement broker claiming to have been engaged by indemnifying party in the future), claiming to have dealt with the indemnifying party in connection with this Lease or any amendment or extension hereto, or which may result in Tenant leasing other or enlarged space from Landlord. The provisions of this Section shall survive the termination of this Lease.

32. MISCELLANEOUS.

a. No Agency. Tenant is not, may not become, and shall never represent itself to be an agent of Landlord, and Tenant acknowledges that Landlord’s title to the Building is paramount, and that it can do nothing to affect or impair Landlord’s title.

b. Force Majeure. The term “force majeure” means: to the extent beyond Landlord’s reasonable control, fire, flood, extreme weather, labor disputes, strike or lock-out, riot, government interference (including regulation, appropriation or rationing), unusual delay in governmental permitting, unusual delay in deliveries or unavailability of materials, unavoidable casualties, Act of God, or other causes beyond the Landlord’s reasonable control. Anything to the contrary contained in this Lease notwithstanding, force majeure shall not apply to any monetary obligations except in regard to the method of delivery provided that such delivery is promptly thereafter made.

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c. Building Standard Improvements. The term “Building Standard Improvements” and “building standard” shall mean the standards for normal construction of general office space within the Building as reasonably specified by Landlord, including design and construction standards, electrical load factors, materials, fixtures and finishes, and shall include Landlord’s work set forth in the Workletter.

d. Limitation on Damages. Notwithstanding any other provisions in this Lease, neither party shall be liable to the other for any special, consequential, incidental or punitive damages, provided that Tenant shall be liable to Landlord for consequential damages to the extent Tenant breaches the provisions of the last sentence of Section 26.

e. Satisfaction of Judgments Against Landlord. If Landlord, or its employees, officers, directors, stockholders or partners are ordered to pay Tenant a money judgment because of Landlord’s default under this Lease, said money judgment may only be enforced against and satisfied out of: (i) Landlord’s interest in the Building in which the Premises are located including the rental income and proceeds from sale; (ii) the rents, income and proceeds of the Building, and (iii) any insurance or condemnation proceeds received because of damage or condemnation to, or of, said Building that are available for use by Landlord. No other assets of Landlord or said other parties exculpated by the preceding sentence shall be liable for, or subject to, any such money judgment.

f. Interest. Should either party fail to pay any amount due to the other by the date such amount is due (whether Base Rent, Additional Rent, or any other payment obligation), then the amount due shall begin accruing interest at the rate of the prime rate as quoted from time to time in the Wall Street Journal plus four percent (4%), per annum, compounded yearly, or the highest permissible rate under applicable usury law, whichever is less, until paid.

g. Legal Costs. Should either party prevail in any legal proceedings against the other for breach of any provision in this Lease, then the breaching party shall be liable for the costs and expenses of the non-breaching party, including its reasonable attorneys’ fees (at all tribunal levels).

h. Sale of Premises or Building. Landlord may sell the Premises or the Building without affecting the obligations of Tenant hereunder; upon the sale of the Premises or the Building, Landlord shall be relieved of all responsibility for the Premises under the Lease accruing after such sale and shall be released from any liability thereafter accruing under this Lease for those matters arising from and after the date of sale so long as the buyer agrees to assume all obligations of Landlord under this Lease accruing from that point forward.

i. Time of the Essence. Time is of the essence in the performance of all obligations under the terms of this Lease.

j. Transfer of Security Deposit. If any Security Deposit or prepaid Rent has been paid by Tenant, Landlord shall transfer the Security Deposit or prepaid Rent to Landlord’s successor and, upon such transfer, Landlord shall be released from any liability for return of the Security Deposit or prepaid Rent.

k. Tender of Premises. The delivery of a key or other such tender of possession of the Premises to Landlord or to an employee of Landlord shall not operate as a termination of this Lease or a surrender of the Premises unless requested in writing by Landlord.

l. Tenant’s Financial Statements. Upon request of Landlord, but no more often than twice a year, Tenant agrees to furnish to Landlord copies of Tenant’s most recent annual, quarterly and monthly financial statements, audited if available. The financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied. The financial statements shall include a balance sheet and a statement of profit and loss. Landlord may deliver the financial statements to any prospective or existing mortgagee or purchaser of the Building.

m. Recordation. This Lease may not be recorded without Landlord’s prior written consent. The parties agree to execute and allow Tenant to record a memorandum of lease in form reasonably acceptable to the parties; provided that the memorandum shall not contain any reference to the rental amounts or rent abatements set forth herein; provided further that upon

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the expiration or earlier termination of this Lease, Tenant shall execute a memorandum of termination of lease to be recorded.

n. Severability. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, the remainder of this Lease shall not be affected thereby, and in lieu of each clause or provision of this Lease which is illegal, invalid or unenforceable, there shall be added as a part of this Lease a clause or provision as nearly identical to the said clause or provision as may be legal, valid and enforceable.

o. Binding Effect. This Lease shall be binding upon and inure to the benefit of the respective parties hereto, and upon their heirs, executors, successors and assigns.

p. Entire Agreement. This Lease supersedes and cancels all prior negotiations between the parties with respect to the subject matter hereof, and no changes shall be effective unless in writing signed by both parties. Tenant acknowledges and agrees that it has not relied upon any statements, representations, agreements or warranties except those expressed in this Lease, and that this Lease contains the entire agreement of the parties hereto with respect to the subject matter hereof.

q. Good Standing. If requested by Landlord, Tenant shall furnish appropriate legal documentation evidencing the valid existence in good standing of Tenant, and the authority of any person signing this Lease to act for the Tenant. If Tenant signs as a corporation, Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing corporation, that Tenant shall by the Commencement Date be qualified to do business in the State in which the Premises are located, that the corporation has a full right and authority to enter into this Lease and that each of the persons signing on behalf of the corporation is authorized to do so.

r. Terminology. The singular shall include the plural, and the masculine, feminine or neuter includes the other.

s. Headings. Headings of sections are for convenience only and shall not be considered in construing the meaning of the contents of such section.

t. Choice of Law. This Lease shall be interpreted and enforced in accordance with the laws of the State in which the Premises are located.

u. Effective Date. The submission of this Lease to Tenant for review does not constitute a reservation of or option for the Premises, and this Lease shall become effective as a contract only upon the execution and delivery by both Landlord and Tenant. The date of execution shall be entered on the top of the first page of this Lease by Landlord, and shall be the date on which the last party signed the Lease, or as otherwise may be specifically agreed by both parties. Such date, once inserted, shall be established as the final day of ratification by all parties to this Lease, and shall be the date for use throughout this Lease as the “Effective Date”.

v. Omitted.

w. Joint and Several. If Tenant comprises more than one person, corporation, partnership or other entity, the liability hereunder of all such persons, corporations, partnerships or other entities shall be joint and several.

x. No Construction Against Preparer. No provision of this Lease shall be construed against or interpreted to the disadvantage of any party by any court or other governmental or judicial authority by reason of such party’s having or being deemed to have prepared or imposed such provision.

y. Reasonableness. Anything to the contrary contained in this Lease notwithstanding, where either party is authorized to and does expend costs and expenses on behalf of the other, the same shall be in reasonable amounts.

z. Patriot Act. Each of Landlord and Tenant, each as to itself, hereby represents its compliance with all applicable anti-money laundering laws, including, without limitation the USA Patriot Act, and the laws administered by the United States Treasury Department’s Office of Foreign Assets Control, including without limitation, Executive Order 13224 (“Executive Order”). Each of Landlord and Tenant further represents (i) that it is not, and it is not owned or controlled directly or indirectly by any person or entity, on the SDN List published by the United States

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Treasury Departments’ Office of Foreign Assets Control, and (ii) that it is not a person otherwise identified by government or legal authority as a person with whom a U.S. Person is prohibited from transacting business. As of the date hereof, a list of such designations and the text of the Executive Order are published under the internet website address www.ustreas.gov/offices/enforcement/ofac.

33. SPECIAL CONDITIONS. The following special conditions, if any, shall apply, and where in conflict with earlier provisions in this Lease shall control:

“None”

34. ADDENDA AND EXHIBITS. If any addenda are noted below, such addenda are incorporated herein and made a part of this Lease.

a. Lease Addendum Number One – Workletter

b. Lease Addendum Number Two – Operating Expense Pass Throughs

c. Exhibit A – Premises

d. Exhibit B – Rules and Regulations

e. Exhibit C – Commencement Agreement

f. Exhibit D – Insurance Certificate

g. Exhibit E - Liens and Encumbrances

h. Exhibit F - Temporary Space and Additional Landlord’s Work

i. Exhibit G - Parapet Sign

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY

SIGNATURE BLOCKS ON NEXT PAGE]

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IN WITNESS WHEREOF, Landlord and Tenant have executed this lease in four originals, all as of the day and year first above written.

TENANT:

QUIXOTE TRANSPORTATION TECHNOLOGIES, INC.,

a Delaware corporation

By:	/s/ Joan R. Riley
Name:	Joan R. Riley
Title:	Vice President

Date:

Attest:

Joan R. Riley
Secretary


Affix Corporate Seal:

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LANDLORD:

A & G/Slater Road, Inc.

a North Carolina corporation

By:	/s/ Stephen M. Weiandt
Name:	Stephen M. Weiandt
Title:	Rental Business Manager

Date:	July 31, 2009

Attest:



Secretary


Affix Corporate Seal:

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Corporate Resolution

The undersigned hereby represent that the following is a complete and exact copy of Resolutions adopted by Tenant’s Board of Directors on July 14, 2009:

WHEREAS, Quixote Transportation Technologies, Inc. (the “Corporation”) wants to lease space from A & G/Slater Road, Inc.; and

WHEREAS, duly authorized personnel of the Corporation have negotiated the terms and conditions of the lease of space, as set forth in a written lease; and

WHEREAS, the Corporation’s board of directors has considered the lease of space and reviewed the written lease and believe that it is in the best interest of the Corporation to enter the lease for space; and

NOW THEREFORE, BE IT RESOLVED, that the Board of Directors hereby approves the written lease in the form presented to the Board of Directors on the date that these resolutions are adopted and hereby authorizes, the Chairman of the Board or the President or any Vice President and the Secretary or any Assistant Secretary to sign and delivery the lease in substantially the same form as presented; and

BE IT FURTHER RESOLVED that the officers of Corporation are hereby authorized and empowered to take any additional action as may be necessary or appropriate to carry out the intent of these resolutions.

This the 15th day of July, 2009.


	By:	Joan R. Riley
	Secretary

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LEASE ADDENDUM NUMBER ONE

Landlord agrees to make the following Building Standard Improvements at its own cost and expense:

1) Have the carpet professionally cleaned. In the event areas of the carpet need to be repaired or replaced, Landlord will repair or patch at its cost.

2) Repaint the Premises in the areas to be mutually reasonably agreed upon by Landlord and Tenant.

3) Install VCT flooring in the lab area as shown on Exhibit F.

4) If needed employ a plumber to install a drain line to allow runoff of condensation from Tenant’s supplemental HVAC unit in the server room at the Premises; provided that the Tenant uses the prior server room shown on the attached Exhibit F as its server room.

5) Spruce up the landscaping back to the level when the Building was fully occupied and had more regular scheduled visits from the landscapers; provided that Landlord shall have until forty-five (45) days after Tenant opens for business to complete such and shall not be obligated to spend more than $4.000.00 in the aggregate prior to such date sprucing up the landscaping.

6) Provided Tenant is then not in default of the Lease beyond any applicable notice and cure period, Landlord will provide Tenant a moving allowance of up to twenty thousand dollars ($20,000.00) (“moving allowance”). Landlord will pay the allowance directly to Tenant within thirty (30) days after Tenant opens for business, provides Landlord with a paid invoice from its mover and commences paying rent and the amount shall equal the actual costs incurred by Tenant with Tenant’s mover, not to exceed $20,000.00. In the event of a default by Tenant, in addition to all other rights and remedies of Landlord herein, Tenant shall pay to Landlord the unamortized portion of such moving allowance paid by Landlord based on a straight line amortization over the Lease Term.

7) A wall will be constructed in the office indicated in Exhibit F, dividing the office into two offices.

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LEASE ADDENDUM NUMBER TWO [BASE YEAR calendar year]

ADDITIONAL RENT - OPERATING EXPENSE PASS THROUGHS. For the calendar year commencing on 2011 and for each calendar year thereafter, Tenant shall pay to Landlord, as Additional Rent, Tenant’s Proportionate Share of any increase in Operating Expenses (as hereinafter defined) incurred by Landlord’s operation or maintenance of the Building above the Operating Expenses Landlord incurred during the Base Year (as hereinafter defined).

For purposes of calculating Tenant’s Proportionate Share of real and personal property taxes included in Operating Expenses, Landlord shall use the Base Year or the year in which the Building and improvements are completed and are fully assessed, whichever shall be later. Tenant’s Proportionate Share shall be calculated by dividing the approximately 10,000 rentable square feet of the Premises by the approximately 29,311 net rentable square feet of the Building, which equals 34%. If during any calendar year the occupancy of the rentable area of the Building is less than 95% full, then Operating Expenses (as hereinafter defined) that are affected by occupancy will be adjusted for such calendar year at a rate of 95% occupancy.

For the calendar year commencing on January 1, 2011 and for each calendar year thereafter during the Term, Landlord shall reasonably estimate the amount the Operating Expenses shall increase for such calendar year above the Operating Expenses incurred during the Base Year. Landlord shall send to Tenant a written statement of the amount of Tenant’s Proportionate Share of any estimated increase in Operating Expenses and Tenant shall pay to Landlord, on the first day of each month during such calendar year, one-twelfth (1/12th) of Tenant’s Proportionate Share of such increase in Operating Expenses, provided that the first payment shall not be due until at least five (5) business days after such notice from Landlord to Tenant. Within one hundred and eighty (180) days after the end of each calendar year or as soon as possible thereafter, Landlord shall send a copy of the Annual Statement to Tenant. Pursuant to the Annual Statement, Tenant shall pay to Landlord Additional Rent as owed or Landlord shall deduct the same from Tenant’s Rent payments next due until satisfied if Landlord owes Tenant a credit (with any balance at the end of the Term being paid to Tenant within thirty (30) days after the end of the Term). After the Expiration Date, Landlord shall send Tenant the final Annual Statement for the Term, and Tenant shall pay to Landlord Additional Rent as owed or if Landlord owes Tenant a credit, then Landlord shall pay Tenant a refund promptly. If there is a decrease in Operating Expenses in any subsequent year below Operating Expenses for the Base Year then no additional rent shall be due on account of Operating Expenses, but Tenant shall not be entitled to any credit, refund or other payment that would reduce the amount of other additional rent or Base Rent owed. If this Lease commences or expires or terminates on a day other than December 31, then Additional Rent shall be prorated on a 365-day calendar year (or 366 if a leap year). All payments or adjustments for Additional Rent shall be made within thirty (30) days after the applicable Statement is sent to Tenant.

The term “Base Year” shall mean the twelve month period beginning on the January 1, 2010 and ending on December 31, 2010.

The term “Operating Expenses” shall mean all direct costs incurred by Landlord in the provision of services to tenants and in the operation, repair and maintenance of the Building and Common Areas as determined by generally accepted accounting principles, including, but not limited to ad valorem real and personal property taxes, amortization of capital improvements that reduce Operating Expenses (reasonably amortized over their useful life and not to exceed the amount of such reduction in any calendar year of part thereof during the Term), hazard and liability insurance premiums, utilities, heat, air conditioning, janitorial service, labor, materials, supplies, equipment and tools, permits, licenses, inspection fees, management fees (not to exceed a commercially reasonable fee), and common area expenses; provided, however, the term “Operating Expenses” shall not include any capital expenditures except as provided above, depreciation on the Building or equipment therein, interest, executive salaries, real estate brokers’ commissions or other costs incurred in leasing or in procuring or attempting to procure or retain tenants, or other expenses that do not relate to the operation of the Building. The annual statement of Operating Expenses shall be accounted for and reported in accordance with generally accepted accounting principles and otherwise in reasonable detail (the “Annual Statement”).

Landlord shall cap Controllable Operating Expenses at a five percent (5%) maximum increase each year on a cumulative basis. “Controllable Operating Expenses” as used herein shall mean all Operating Expenses except ad valorem real and personal property taxes,

insurance premiums, utilities, inspection fees for inspections required by governing bodies having jurisdiction over the building and property, and snow and ice removal. Landlord shall make reasonable efforts to minimize Operating Expenses including appealing taxes when reasonable. Notwithstanding the year for which any such taxes are levied, in the case of taxes which may be paid in installments, the minimum installment, plus any interest payable thereon, so payable during a calendar year shall be included in taxes for that year. If there shall be any refund of any Operating Expenses at any time during or after the Term for any Operating Expenses incurred during the Term, Tenant shall be entitled to it pro rata share of the refund, after Landlord deducts from the refund Landlord’s reasonable pro rata costs and expenses in obtaining the same, and Landlord shall promptly pay Tenant the same.

Tenant and its designees shall have the right to inspect, at reasonable times and in a reasonable manner, during the ninety (90) day period following the delivery of Landlord’s Annual Statement, such of Landlord’s books of account and records as pertain to and contain information concerning such costs and expenses in order to verify the amounts thereof, which books and records Landlord agrees to keep or cause to be kept in accordance with reasonable accounting principles (which can be on a cash basis as opposed to an accrual basis) for a long enough period of time after each calendar year to allow for the review provided for in this paragraph. Tenant’s failure to exercise its rights hereunder within said ninety (90) day period shall be deemed a waiver of its right to inspect or contest the method, accuracy or amount of the applicable Annual Statement. In the event of any undisputed error, Landlord shall make a correcting payment in full to Tenant within thirty (30) days after the determination of the amount of such error. In the event of any errors on the part of Landlord which Landlord agrees (or it is determined as provided below) were errors in excess of five percent (5%) of Tenant’s actual operating expense liability for any calendar year, Landlord will also reimburse Tenant for all reasonable costs of an audit reasonably incurred by Tenant within the above thirty (30) day period. If within the period aforesaid, Tenant provides Landlord with its notice disputing the correctness of the statement, and if such dispute shall have not been settled by agreement, Tenant shall be entitled to pursue all rights and remedies at law. Any payment made pursuant to this Lease Addendum Number Two shall be made without prejudice to any right of the Tenant to dispute any items as billed pursuant to the provisions hereof.

EX-21 5 a2194436zex-21.htm EXHIBIT 21

EXHIBIT 21

QUIXOTE CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
as of June 30, 2009

QUIXOTE CORPORATION (PARENT)			Jurisdiction Under Which Organized

Quixote Transportation Safety, Inc.			Delaware
	TranSafe Corporation		Delaware
		Nu-Metrics, Inc.	Pennsylvania
		Highway Information Systems, Inc.	Delaware
	Surface Systems, Inc.		Missouri
		Sensing Systems, Ltd.	United Kingdom
	Quixote Transportation Safety Mexico S. de R.L. de C.V.		Mexico
	Energy Absorption Systems, Inc.		Delaware
		E-Tech Testing Services, Inc.	Delaware
		Energy Absorption Systems (Europe), Inc.	Delaware
		Quixote Asia Pacific, Inc.	Delaware
		Quixote Europe, Inc.	Delaware
		Energy Absorption Systems (AL) LLC	Delaware
	Quixote International Enterprises, LLC.		Delaware
		Quixote (Beijing) Co., Ltd	Peoples Republic of China
		Quixote (Hong Kong) Limited	Hong Kong
Quixote Transportation Technologies, Inc.			Delaware
Quixote Latin America, Inc.			Delaware
Quixote Middle East/Africa, Inc.			Delaware
		Quixote Middle East LLC	UAE

Quixote Transportation Safety, Inc., Quixote Transportation Technologies, Inc., Quixote Latin America, Inc. and Quixote Middle East/Africa, Inc. are wholly-owned by Quixote Corporation.

TranSafe Corporation, Surface Systems, Inc., Energy Absorption Systems, Inc., Quixote (Hong Kong) Limited, and Quixote International Enterprises, LLC are wholly-owned by Quixote Transportation Safety, Inc.

Quixote Transportation Safety Mexico S. de R.L. de C.V. is a wholly-owned subsidiary of Quixote Transportation Safety, Inc. and Quixote Latin America, Inc.

All subsidiaries listed under TranSafe Corporation, Surface Systems, Inc., Energy Absorption Systems, Inc., Quixote Middle East/Africa, Inc. and Quixote International Enterprises, LLC are wholly-owned by those corporations.

EX-23 6 a2194436zex-23.htm EXHIBIT 23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated September 14, 2009, accompanying the consolidated financial statements and schedule and management's assessment of the effectiveness of internal control over financial reporting included in the Annual Report of Quixote Corporation on Form 10-K for the year ended June 30, 2009. We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-62933 effective September 4, 1998; 333-81955 effective June 30, 1999; 333-32872 effective March 21, 2000; 333-56120 effective February 23, 2001; 333-83404 effective February 26, 2002; 333-120850 effective November 30, 2004; 333-120852 effective November 30, 2004; 333-137704 effective September 29, 2006; 333-148047 effective December 13, 2007; and 333-157301 effective February 13, 2009) and on Form S-3 (Nos. 333-106895 effective July 9, 2003; 333-113504 effective March 11, 2004; and 333-12345 effective March 10, 2005) of Quixote Corporation of our report dated September 14, 2009 relating to the financial statements, financial statement schedule and effective operation of internal control over financial reporting which appears in the Form 10-K.


/s/ GRANT THORNTON LLP Chicago, Illinois September 14, 2009

EX-31 7 a2194436zex-31.htm EXHIBIT 31

EXHIBIT 31

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
(Rule 13a-14(a) / 15d-14(a))

I, Bruce Reimer, certify that:

1.

I have reviewed this annual report on Form 10-K of Quixote Corporation ("the registrant");

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
(d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

(a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: September 14, 2009		/s/ BRUCE REIMER Bruce Reimer President, Chief Executive Officer

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
(Rule 13a-14(a) / 15d-14(a))

I, Daniel P. Gorey, certify that:

1.

I have reviewed this annual report on Form 10-K of Quixote Corporation ("the registrant");

2.

3.

4.

(a): Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b): Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c): Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
(d): Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

(a): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: September 14, 2009		/s/ DANIEL P. GOREY Daniel P. Gorey Executive Vice President, Chief Financial Officer and Treasurer

EX-32 8 a2194436zex-32.htm EXHIBIT 32

EXHIBIT 32

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the annual report of Quixote Corporation (the "Company") on Form 10-K for the Annual Period ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

1.: The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.: The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: September 14, 2009		/s/ BRUCE REIMER Bruce Reimer, Chief Executive Officer
Date: September 14, 2009		/s/ DANIEL P. GOREY Daniel P. Gorey, Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

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~~-----END PRIVACY-ENHANCED MESSAGE-----~~