10-K

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

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
	For the fiscal year ended June 30, 2006
	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	36-2675371
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
THIRTY FIVE EAST WACKER DRIVE,
CHICAGO, ILLINOIS	60601
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number including area code:   (312) 467-6755
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock ($.01-2/3 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.  Yes o   No x

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

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. Yes x   No o

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 x.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one)

Large accelerated filer    o                  Accelerated filer x                     Non-accelerated filer    o

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

State the aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.   $165,491,509 as of December 31, 2005

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

8,902,670 shares of the Company’s Common Stock ($.01-2/3 par value) were outstanding as of September 6, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 16, 2006 which will be filed with the Commission on or about September 29, 2006 is incorporated by reference at Part III.

TABLE OF CONTENTS

		PAGE
PART I
Item 1.	Business	4-9
Item 1A.	Risk Factors.	9-14
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	15-16
Item 3.	Legal Proceedings	15
Item 4.	Submission of Matters to a Vote of Security Holders	16
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-31
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 8.	Financial Statements and Supplementary Data	32-61
Item 9.	Changes in and Disagreements with Independent Registered Public Accounting Firm on Accounting and Financial Disclosure	62
Item 9A.	Controls and Procedures	62-65
PART III
Item 10.	Directors and Executive Officers of the Registrant	66
Item 11.	Executive Compensation	66
Item 12.	Security Ownership of Certain Beneficial Owners and Management	66
Item 13.	Certain Relationships and Related Transactions	67
PART IV
Item 14.	Principal Accountant Fees and Services	67
Item 15.	Exhibits and Financial Statement Schedule	67-71
SIGNATURES		72

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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. 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.

Overview of the Company and Its Financial Condition

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.

We develop, manufacture and sell highway and transportation safety products to domestic and international markets. During the third quarter of fiscal 2006, we expanded the number of reportable segments from two to three segments. Our three reportable segments are: highway and transportation safety products that “Protect and Direct” by minimizing the severity of crashes or by directing or guiding traffic to avoid crashes; highway and transportation safety products that “Inform” motorists, state and local highway personnel about dangerous or congested conditions or provide other useful information; and “Intersection Control” products which provide solutions for controlling intersections. Our products are sold primarily by a distribution network, as well as a direct sales force, to customers in the highway construction and safety business, state and municipal departments of transportation and other governmental transportation agencies.

Our business is directly affected by federal, state and municipal government funding for transportation safety, highway construction and maintenance, and other infrastructure projects. A significant part of our sales are ultimately financed by funds provided to the states by the federal government through the federal transportation funding bill. The last six-year federal bill expired on September 30, 2003 and was extended eleven times over almost two years. The current bill, SAFETEA-LU, was enacted  in August 2005. Until the new legislation was enacted, the transportation safety allotment in federal and state budgets was uncertain. We believe that the prolonged uncertainty negatively impacted the sales of our products and services in fiscal years 2004, 2005 and the early part of 2006 and, as a result, adversely affected our financial performance in those fiscal years. We believe that the passage of SAFETEA-LU improved that situation. We believe we began to realize the benefit of the bill’s passage in the second half of fiscal 2006 with growth in sales across all our segments.

In addition, many states suffered from budget constraints in fiscal years 2004 and 2005, given both national and local economies. Such budget constraints adversely affected the ability of the states to fund highway and infrastructure projects, and therefore reduced the demand for our products. Municipalities

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also suffered from budget restraints that reduced transportation safety spending. Due to the improvement in general economic conditions, we believe that state and municipal budgetary conditions improved during fiscal 2006 and positively impacted our sales growth.

Sales and operating results were below historic levels and expectations in fiscal years 2004 and 2005. However, operating results for our Intersection Control segment were substantially less than expected. In fiscal year 2006, significant operating losses at our Intersection Control segment continued. In April 2006, we approved a plan to restructure that business. The Plan reduces costs through headcount and facility reductions, as well as through the discontinuation of non-core and low margin product lines. The Plan also outsources non-core manufacturing activities. As part of the restructuring plan, we sold the portable variable message sign, illuminated street lighting and tunnel lighting product lines in June 2006. We are in the process of moving production of the remaining intersection control products to our Palmetto, Florida and Bedford, Pennsylvania facilities. We plan to cease production and close the facilities in Santa Fe Springs, California and Tecate, Mexico by the end of September 2006. We expect the restructuring plan will result in profitability for the Intersection Control segment beginning in third quarter of fiscal 2007 with annualized cost savings of approximately $5 to $6 million. However, there can be no assurance that we will achieve that level of cost savings.

Item 1.Business

Quixote Corporation, through its subsidiaries, develops, manufactures and markets highway and transportation safety products to protect, direct and inform motorists and highway workers in both domestic and international markets. These products include energy-absorbing highway crash cushions, flexible post delineators, electronic wireless measuring and sensing devices, weather information systems, highway advisory radios, intelligent intersection control devices, video detection equipment and other highway and transportation safety devices.

As of June 30, 2006, we employed approximately 1,000 people.

Description of Business

Our operations are comprised of three 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.

·The Intersection Control segment provides solutions for controlling intersections.

Our products are sold world-wide primarily by a distribution network, as well as 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 16 of the notes to our consolidated financial statements incorporated by reference herein.

Protect and Direct Segment

Our Protect and Direct category of products, which reduce the severity of crashes, include our patented highway crash cushions which were first conceived and developed in 1969. These products were

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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 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 tollroads and as security for access ways, driveways and parking lots. 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.

Inform Segment

To expand our business within the highway and transportation safety industry, in 1998 we began acquiring companies that manufacture Intelligent Transportation System (ITS) products which provide information to improve traffic flow and safety. Products sold by the Inform segment include weather and traffic sensing products and highway advisory radio products.

We manufacture and sell portable or 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.

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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Intersection Control Segment

To further expand our business within the highway and transportation safety industry, in 2003 we began acquiring companies that manufacture Intelligent Transportation System (ITS) products which control intersections. We began to integrate and rationalize this segment in fiscal 2005. After the restructuring of the product lines within this segment, its products will include traffic controllers, traffic and pedestrian signals, traffic uninterruptible power supply (UPS) systems, video detection equipment and parking detection devices. Traffic controllers and detectors are devices that control traffic signal operations at intersections either with pre-set timers or with detectors that enable the signals to change in response to variations in traffic. Traffic and pedestrian signals are LED or incandescent signals for intersection operations and pedestrian crossings which may include a numerical countdown warning before a signal changes. UPS systems are power supply systems with battery backup that keeps a lighted intersection operating either normally or in flash-mode during a power interruption. Video detection systems are based on one or more cameras that allow traffic authorities to monitor or manage traffic flow from a remote location. A toll road monitoring system is a data collection system able to count axles of vehicles in order for the proper authorities to ensure the proper toll amount is collected.

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

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 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 fatalities. 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 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 offer similar products to those supplied by us, and a few are better capitalized than we are. We experience competition particularly in the sand barrel, QuadGuard® crash cushion, REACT 350® crash cushion and TMA product lines. We compete in the U.S. market for crash cushions, TMA’s and sand barrels with Trinity Industries, Inc., (NYSE: TRN), TrafFix Devices, Inc., Barrier Systems, Inc. (a subsidiary of Lindsay Manufacturing Company) and other smaller regional companies. A number of other companies manufacture flexible sign and guide post systems.  Within the Inform and Intersection Control segments, we experience rigorous competition in selling certain product lines because they are generally sold through a bidding process. These product lines include our road weather information systems (RWIS) within the Inform segment and traffic controllers and pedestrian signals within the Intersection Control segment. There are a few companies that compete with us in selling HAR systems within the Inform segment. In addition, we compete with many different companies that sell sensors using different technologies,

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including microwave and infra-red sensors and machine-vision (video), and each technology offers certain advantages.

Competition may have an adverse effect on the 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 advanced product development, patent protection, quality and price, and the effectiveness of our strong distribution network.

Government Policies and Funding

The domestic market for highway and transportation safety products is directly affected by federal, state and local governmental policies. Federal transportation spending is funded through a trust based on the sale of gasoline. Funds are allocated and highway policy is developed through a six-year federal highway bill. A portion of our 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. The last six-year federal highway bill expired on September 30, 2003. The current bill, SAFETEA-LU, was enacted in August 2005. SAFETEA-LU, or the “Safe, Accountable, Flexible and Efficient Transportation Equity Act-A Legacy for Users” will provide $286.4 billion in guaranteed funding for the federal highway, transit and safety programs through 2009. Importantly, unlike historical funding bills, it focuses on improving safety and relieving congestion as a priority, as well as on new highway construction and resurfacing projects.  Several sections of SAFETEA-LU can provide increased funding and focus on products and systems within our Inform segment. While the current bill does not include projects that specifically indicate our products by name and there can be no guarantee of increased sales, we expect the market potential for applications of our sensors, counters, audio and visual output displays and adaptive control and monitored intersections to increase due to this legislation. However, any change in the availability of federal funds and the timing of the release of those funds to the state and local governments can have an adverse impact on our financial results.

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 FHWA 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 devices and for any new devices.

Foreign government policies and funding vary by country for highway and transportation safety. In many cases, additional testing of our products may be required in order to obtain certification.

Backlog

As of June 30, 2006, 2005 and 2004, we had a backlog of unfilled orders for transportation safety devices of $24,481,000, $23,796,000 and $26,921,000, respectively. We generally fill an order for our products within two days to 8 weeks of receipt depending on the type of product. However, some orders or awarded contracts included in backlog may not be completed for six to nine months.

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 were $5,958,000, $5,391,000 and $3,605,000 for the fiscal years 2006, 2005 and 2004, respectively. We maintain a crash test facility in California for Protect and Direct products.

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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 are also seeking to acquire new products which can be sold through our existing 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 highway 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 2006 and 2005 we were affected by increased prices for certain commodities, particularly aluminum, steel 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 certain 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 in fiscal 2006. These trends of increasing material, fuel and freight costs may continue into fiscal 2007.

Major Customers

No single customer represents a significant portion of our total revenues. However, approximately 11% and 9% of our consolidated revenues resulted from sales to customers in the states of California and Texas, respectively, in fiscal 2006. 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 because domestic highway maintenance and construction seasons typically peak 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:  $21,821,000, $19,111,000 and $14,249,000 in 2006, 2005 and 2004 respectively.

Excluding our manufacturing facility in Tecate, Mexico (See Properties at Item 2), our assets outside of the United States are not material. Our long-lived assets used in the leased Tecate facility are recorded on our books and records at less than $50,000.

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 the Company with

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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. The SEC maintains an internet website at http://www.sec.gov that contains access to filings of issuers that file electronically with the SEC. We also maintain an internet website at http://www.quixotecorp.com that contains access to our public filings and other information regarding the Company. 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.

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, the following:

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

We depend substantially on federal, state and municipal funding for transportation safety, highway construction and maintenance and other related infrastructure projects. Any decrease or delay in government funding for transportation safety, highway construction and maintenance and other related infrastructure projects could cause our revenues and profits to decrease.

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 bill, SAFETEA-LU, became law in August 2005, after the prior law which authorized federal spending through September 30, 2003 was extended at then current funding levels eleven times over almost two years. Until the new law was passed, the transportation safety allotment in federal and state budgets was uncertain, and we believe this uncertainty negatively impacted spending on the products and services offered by the Company. The delayed passage of the new highway funding bill adversely affected our financial performance in fiscal year 2004 and fiscal year 2005. Given the long sales cycle typical in our business, we did not begin to realize the benefit of SAFETEA-LU’s passage until late fiscal 2006.

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. In addition, Congress could pass legislation in future sessions which would divert highway funds for other national purposes or would restrict funding for infrastructure projects unless states comply with certain federal policies.

Constraints on state and local government budgets may adversely affect our financial performance.

Many states reduced spending on highways due to budget constraints given the national and local economies. 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. We believe that reduced state and municipal spending due to budget restraints adversely affected our performance in fiscal year 2004 and fiscal year 2005.

Downturns in the U.S. economy or the transportation safety and highway construction industries may adversely affect our revenues and 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 economic downturn and the related political uncertainty during fiscal years 2002 through

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2005 negatively affected our expected revenue growth. Sales of our products are sensitive to foreign, domestic and regional economies in general, and in particular, changes in government infrastructure spending. Many of our costs are fixed and cannot be quickly reduced in response to decreased demand.

Sales of our products often are subject to government testing, inspection and approval.

We frequently supply products and services pursuant to agreements with general contractors that have entered into contracts with federal, state or municipal government agencies. In some cases we enter into contracts directly with government agencies. At times these contracts require engineered systems which combine our Inform and Intersection Control products, sometimes in conjunction with our Protect and Direct products, into complex systems which may themselves be incorporated into other systems. The successful completion of our obligations under these contracts is often subject to satisfactory testing, inspection and approval of such products and services by a representative of the contracting agency. 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.

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

We have completed seven acquisitions since 1997 and may acquire additional businesses in the future. We may be unable to achieve the benefits expected to be realized from our acquisitions. In addition, we may incur additional costs and our management’s attention may be diverted because of unforeseen expenses, difficulties, 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;

·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

·acquired companies may have unknown liabilities that could require us to spend significant amounts of additional capital.

In May and December, 2003, we made two acquisitions in the Intersection Control segment. Integration of these businesses, combined with reduced demand for our products adversely affected our financial performance in fiscal 2004, 2005 and 2006. Given substandard performance of our Intersection

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Control segment, we recorded asset impairment charges in that segment of $22,735,000 for the year ended June 30, 2004 and $13,374,000 for the year ended June 30, 2006. Confronted with the continued underperformance of the Intersection Control business, on April 25, 2006, our Board of Directors approved a restructuring plan for our Intersection Control business that includes further rationalizing of operations and divesting certain non-core product lines.

Management’s estimates and assumptions affect reported amounts of expenses.

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 use a third party appraisal firm to assist our determination of fair values, but 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, and 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. We expect the deferred tax assets currently recorded to be fully realizable, however there can be no assurance that an increased valuation allowance would not need to be recorded in the future.

Our business could be adversely affected by reduced levels of cash, whether from operations or from bank borrowings.

Our principal sources of funds have historically been cash flows from operations and borrowings from banks. Our financial performance in fiscal year 2004 adversely affected our cash flow from operations and required us to modify our bank credit agreement in order to avoid the occurrence of events of defaults relating to certain covenants and financial ratios. Amendments to the credit agreement in fiscal 2005 required us to modify certain covenants, pledge our assets as collateral, reduce the maximum amount of availability under the revolving credit facility to $38 million, and limit our dividend payments.

Although we are currently in compliance with the covenants of the credit agreement, our ability to remain in compliance in the future will depend on our future performance and may be affected by events beyond our control. There can be no assurance that we will generate sufficient earnings and cash flow to remain in compliance with the credit agreement, or that we will be able to obtain future amendments to the credit agreement to avoid a default. In the event of a default, there can be no assurance that we could negotiate a new credit agreement or that we could obtain a new credit agreement with satisfactory terms and conditions within a reasonable time period.

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 or future patents or trademarks may not adequately protect us against infringements, 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 upon 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,

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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.

Our success depends on our management and other employees.

The single largest factor in our ability to profitably execute our work is our ability to attract, develop and maintain 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. Leslie J. Jezuit, our Chairman and President, and Daniel P. Gorey, our Chief Financial Officer, are of significant importance to our business and operations and neither has an employment agreement with us. The loss of their services may adversely affect our business. In addition, our ability to attract and retain qualified engineers, skilled manufacturing and marketing personnel and other professionals, either through direct hiring or acquisition of other businesses employing such professionals, will also be an important factor in determining our future success.

Difficulties in managing and expanding in international markets could affect future growth in these markets.

In fiscal year 2006, international sales represented approximately $21,821,000 or 14%, of our total sales and we believe international markets could be an important source of growth. We plan to continue to increase our presence in these markets. In connection with any 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 benefits of our products. In addition, 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;

·political and economic instability of foreign governments; and

·the imposition of protective legislation such as import or export barriers.

We depend on principal customers.

We depend on principal customers, however no single customer of Quixote represents a significant portion of total revenues. However, in fiscal 2006, approximately 11% and 9% of our consolidated revenues resulted from sales to customers in the States of California and Texas, respectively. Customers may consist of distributors, contractors, departments of transportation, state agencies, local governments or municipalities. A change in policy in state spending could materially affect our sales in either state. The loss of, or a significant reduction in, orders from these or our other major customers could have a material adverse effect on our financial condition and results of operations.

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 products. Competition may adversely

12

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 over the past several years 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 businesses and products.

We have been affected by increased prices for certain commodities, particularly aluminum, steel 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, because we have been unable to pass along to our customers these cost increases. Increasing fuel and freight costs adversely affected our performance in fiscal 2006. We expect these trends may continue into fiscal 2007.

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

Two of our major facilities are 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, however, certain risks are inherent in our business and our insurance may not be adequate to cover potential claims. Although we maintain liability insurance, we cannot assure that the coverage limits under these insurance programs will be adequate to protect us against future claims, or that we can and will maintain this insurance on acceptable terms in the future.

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 our transportation safety and highway construction and maintenance business;

·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.

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Period to period comparisons of such items 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;

·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 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 frequently 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 could adversely impact our business and operating results.

Acts of war (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 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

Information relating to our principal facilities is as follows:

			Owned or
Location	Available Space	Purpose	Leased
35 East Wacker DriveChicago, Illinois	18,000 sq. ft.	Executive Offices	Leased
250 Bamberg DrivePell City, Alabama	300,000 sq. ft.	Manufacture of Protect and Direct highway safety devices	Owned
3617 Cincinnati AvenueRocklin, California	22,000 sq. ft.	Research and development facility for Protect and Direct highway safety devices	Owned
3300 N. Kenmore StreetSouth Bend, Indiana	81,000 sq. ft.	Leased to a third party	Owned
9603 John StreetSanta Fe Springs, CA(1)	183,000 sq. ft.	Sale and manufacture of Intersection Control products	Leased
Eucalipto y Nogal L4-7Tecate, Baja California Mexico(1)	68,000 sq. ft.	Manufacture of Intersection Control products	Leased
2511 Corporate WayPalmetto, FL	52,000 sq. ft.	Sale and manufacture of Intersection Control products	Leased
4021 Stirrup Creek DriveDurham, North Carolina	13,000 sq. ft.	Sale and manufacture of Inform highway advisory radio equipment	Leased
Route 119 University DriveUniontown, Pennsylvania	26,000 sq. ft.	Sale and manufacture of Inform traffic sensing and distance measuring devices	Owned
11612 Lilburn Park RoadSt. Louis, Missouri	17,000 sq. ft.	Sale and manufacture of Inform sensing and weather forecasting products	Leased
141 Railroad StreetBedford, Pennsylvania	16,000 sq. ft.	Manufacture of Intersection Control products	Leased

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

(1)In accordance with our restructuring plan of the Intersection Control segment adopted in April 2006, we are vacating these facilities and attempting to sublet them.

Item 3.Legal Proceedings

On May 30, 2006, we and our subsidiary, U.S. Traffic Corporation (“UST”), settled all outstanding litigation with Myers America, Inc., Myers Power Products, Inc., Myers/Nuart Electrical Products, Inc., Raymond International W. L. L., Raymond Overseas Holding, Limited and Basil Vasilou. The parties were involved in two cases in the Circuit Court of Cook County, Illinois:  Myers America, Inc., f/k/a U.S.

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Traffic Corporation vs. U.S. Traffic Corporation, f/k/a Green Light Acquisition Company, No. 05 Ch 16573 and U.S. Traffic Corporation f/k/a Green Light Acquisition Company vs. Myers America, Inc., f/k/a U.S. Traffic Corporation, et al., No. 05 L 010719.

To settle the cases, Myers America, Inc. and its affiliates paid us $3 million in cash, and the parties agreed to waive various claims against each other and to modify or terminate certain agreements. In particular, the parties waived claims arising from the payment terms, covenants and representations and warranties in the agreements that were the basis of our purchase of the intersection control business from Myers America, Inc. in May 2003. The OEM Supply Agreement between UST and Myers Power Products, Inc. dated May 16, 2003 was terminated except for an abbreviated non-compete covenant and the obligations to supply and pay for products currently subject to outstanding purchase orders. The Asset Purchase Agreement dated May 16, 2003 between the parties and certain stockholder non-competition agreements were terminated except for an abbreviated non-competition covenant. Pursuant to the amended agreements, Myers America, Inc. and affiliates will refrain from selling uninterruptible power supply products for use in intersection control to the Cities of New York and Chicago until May 2008. We re-affirmed the $5 million Subordinated Promissory Note of UST dated May 16, 2003 to Myers America, Inc. and Myers/NuArt Electrical Products, Inc. Our Guaranty dated May 16, 2003 of UST’s obligations was amended to limit its scope to the Promissory Note. We also guaranteed payments due Myers America, Inc. and its affiliates pursuant to outstanding purchase orders and the lease of the Tecate, Mexico facility.

We are involved in several pending judicial proceedings for product liability and other damages arising out of the normal 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 2006.

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PART II

Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase 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 2006:
High	$	25.55	$	21.88	$	24.75	$	24.75
Low	19.29		19.13		19.64		17.82
FISCAL 2005:
High	$	23.35	$	22.45	$	21.93	$	22.49
Low	17.80		17.28		17.30		18.26

The current quoted price of the stock is listed daily in The Wall Street Journal in the Nasdaq Issues section. As of September 6, 2006, there were 1,018 shareholders of record.

Dividend Policy

During 2006, we declared semi-annual cash dividends of eighteen cents per share and nineteen cents per share. During 2005, we declared two semi-annual cash dividends of eighteen cents per share.

Equity Compensation Plan Information

As of June 30, 2006, 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 8 to our consolidated financial statements included herein.

The following table details information regarding our equity compensation plans as of June 30, 2006:

	(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		944,902		$	18.98		682,454
Equity compensation plans not approved by security holders		-0-		-0-			-0-
		944,902		$	18.98		682,454

Treasury Stock

We did not repurchase any of our common shares during the fourth quarter of fiscal 2006.

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Item 6.Selected Financial Data

	For the years ended June 30,
	2006			2005			2004			2003			2002
	Dollar amounts in thousands, except share data
Operating Results:
Net sales	$	161,134		$	146,353		$	150,290		$	114,310		$	89,694
Gross profit	48,039			46,489			47,303			46,240			35,932
Selling and administrative expenses	37,681			40,057			36,700			28,730			23,975
Research and development expenses	5,958			5,391			3,605			2,356			2,468
Operating profit (loss)	(10,928		)(1)	2,167			(25,602		)(2)	15,154			9,489
Other income (expense)	(4,646		)	(3,264		)	(2,326		)	(802		)	(276		)
Earnings (loss) from continuing operations	(10,102		)(3)	(650		)	(17,027		)(4)	9,472			5,897
Net earnings (loss)	(10,102		)(3)	(650		)	(17,027		)(4)	9,472			6,824
Cash dividends per common share	.37			.36			.34			.33			.32
Per Share Data:
Basic EPS:
Earnings (loss) from continuing operations	$	(1.14	)(5)	$	(0.07	)	$	(1.99	)(6)	$	1.21		$	.77
Net earnings (loss)	$	(1.14	)(5)	$	(0.07	)	$	(1.99	)(6)	$	1.21		$	.89
Weighted average common
shares outstanding	8,850,884			8,800,421			8,567,741			7,847,169			7,682,706
Diluted EPS:
Earnings (loss) from continuing operations	$	(1.14	)(5)	$	(0.07	)	$	(1.99	)(6)	$	1.17		$	.73
Net earnings (loss)	$	(1.14	)(5)	$	(0.07	)	$	(1.99	)(6)	$	1.17		$	.84
Weighted average common and common equivalent shares outstanding	8,850,884			8,800,421			8,567,741			8,062,397			8,121,621
Financial Position:
Total assets	$	125,203		$	136,790		$	139,882		$	150,825		$	100,044
Working capital	43,781			42,933			39,973			36,089			30,923
Property, plant and equipment, net	19,535			25,008			27,512			26,237			21,959
Long-term debt, net of current portion	51,122			49,587			47,014			39,789			24,772
Shareholders’ equity	48,946			61,846			63,907			75,555			59,226
Book value per common share	5.50			6.96			7.30			9.10			7.62

(1)Includes non-cash asset impairment charges of $13,374.

(2)Includes non-cash asset impairment charges of $32,600.

(3)Includes non-cash asset impairment charges of $8,723, net of income tax benefits.

(4)Includes non-cash asset impairment charges of $21,266, net of income tax benefits, and an income tax benefit of $1,249 related to the favorable settlement of a tax audit.

(5)Includes non-cash asset impairment charges of $0.98 per diluted share.

(6)Includes non-cash asset impairment charges of $2.48 per diluted share and $0.14 per diluted share related to the favorable settlement of a tax audit.

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

OVERVIEW

Quixote Corporation (the Company, we, our or us) and its subsidiaries develop, manufacture and market highway and transportation safety products to protect, direct and inform motorists, pedestrians and road workers in both domestic and international markets.  Our operations are comprised of three reportable segments within the highway and transportation safety industry, concentrating on safety problems and designing products to provide transportation safety solutions. During the third quarter of fiscal 2006 we expanded the number of reportable segments from two to three segments. Our three reportable segments are: the manufacture and sale of highway and transportation safety products which Protect and Direct, the manufacture and sale of products and services which Inform, and the manufacture and sale of products which are used for Intersection Control.  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; computerized highway advisory radio transmitting systems; and other transportation equipment. The Intersection Control segment provides solutions for controlling intersections, including intelligent intersection traffic control systems, pedestrian signals, video detection equipment and other transportation equipment.

Our products are sold by both a direct sales force and a distribution network to customers in the highway construction and safety business, state departments of transportation, county and local governments 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 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.

RESULTS OF OPERATIONS

Summary

Our financial results for fiscal 2006 were below our expectations. We began to see improved growth prospects after the new federal highway spending bill (SAFETEA-LU) was signed in August 2005 in two of our three segments. The last six-year federal bill expired on September 30, 2003 and was extended eleven times over almost two years. However, the performance of our Intersection Control segment continued to be substandard.

During fiscal 2006, sales increased over last year and we are seeing increased order activity in most areas of our business. We believe the increase in sales and order activity reflects the early signs of improvements in our industry now that a highway bill is in place. We were encouraged to see sales growth of 14% in our Inform segment and 10% in our Protect and Direct segment, as well as increased profitability, during the fiscal year. Although sales for the Intersection Control segment, which is comprised of the operations of Peek Traffic Corporation (Peek Traffic) and U.S. Traffic Corporation (UST), increased from the prior year, operating results in that segment continued to be substandard and in April 2006, we approved a plan to restructure that business. In accordance with the restructuring plan, we

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are in the process of discontinuing certain low-margin and non-core product lines. As part of the restructuring plan, we sold the portable variable message sign, illuminated street lighting and tunnel lighting product lines in June 2006. We are in the process of closing two facilities, moving the remaining intersection control products to our Palmetto, Florida and Bedford, Pennsylvania facilities and also outsourcing non-core manufacturing activities. In addition, as a result of the continued poor performance of this segment, we recorded non-cash asset impairment charges of $13,374,000.  See Notes 6 and 17 to the Consolidated Financial Statements and FUTURE OUTLOOK for further information.

The following table sets forth selected key operating statistics relating to the Company’s financial results:

	For the Years Ended June 30
	2006			2005			2004
	(Dollar amounts in thousands, except per share data)
Revenues by Segment:
Protect and Direct	$	80,806		$	73,575		$	73,282
Inform	24,134			21,163			21,188
Intersection Control	56,194			51,615			55,820
	$	161,134		$	146,353		$	150,290
Geographic Revenues:
Domestic	$	139,313		$	127,242		$	136,041
International	21,821			19,111			14,249
	$	161,134		$	146,353		$	150,290
Operating Income (Loss) by Segment:
Protect and Direct	$	15,539		$	14,859		$	15,904
Inform	3,403			1,151			(7,926		)(1)
Intersection Control	(22,360		)(2)	(5,723		)	(25,687		)(3)
Unallocated Corporate	(7,510)			(8,120		)	(7,893		)
	$	(10,928	)	$	2,167		$	(25,602	)
Gross profit percentage	29.8		%	31.8		%	31.5		%
Selling and administrative expenses as a percentage of sales	23.4		%	27.4		%	24.4		%
Diluted loss per share	$	(1.14	)	$	(0.07	)	$	(1.99	)

(1)Includes $9,865 in non-cash asset impairment charges.

(2)Includes $13,374 in non-cash asset impairment charges.

(3)Includes $22,735 in non-cash asset impairment charges.

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Revenues

Our net sales for fiscal 2006 increased 10% to $161,134,000 from $146,353,000 for 2005 due to sales increases across all operating segments as described below. Our net sales for fiscal 2005 decreased 3% to $146,353,000 from $150,290,000 for 2004 primarily due to lower sales in our Intersection Control segment as further described below.

Geographic—International sales for fiscal 2006 increased by $2,710,000, or 14%, to $21,821,000 compared to $19,111,000 for fiscal 2005, primarily due to increases in the Intersection Control segment, where international sales increased $2,402,000, or 96%, to $4,907,000. The increase in international sales in the Intersection Control segment was primarily due to increased sales of traffic signals in Latin America and also to increased sales in Europe and Canada. International sales for the Inform segment increased 8% to $1,809,000. International sales for the Protect and Direct segment increased only slightly after the 30% increase achieved in the prior year.  Domestic sales for fiscal 2006 increased 9% to $139,313,000 from $127,242,000 due to sales increases in all operating segments and particularly in the Protect and Direct segment.

International sales for fiscal 2005 increased $4,862,000, or 34%, to $19,111,000 compared to $14,249,000 for fiscal 2004, primarily due to increases in the Protect and Direct segment, where international sales increased 30% to $14,929,000. The increase in international sales in the Protect and Direct segment was due to both sales increases in established markets and to sales to customers in countries which had not previously purchased those products from the Protect and Direct segment. International sales in the Inform segment increased 17% to $1,677,000. International sales in the Intersection Control segment increased 94% to $2,505,000, in part due to the acquisition of Peek Traffic in fiscal 2004. Domestic sales for fiscal 2005 decreased 6% to $127,242,000 from $136,041,000 due primarily to decreased sales of products within the Intersection Control segment further described below.

Protect and Direct—Net sales for the Protect and Direct segment for fiscal 2006 increased 10% to $80,806,000 from $73,575,000 for fiscal 2005 due to increases across most major product lines and particularly truck-mounted attenuators (TMA’s), delineators and permanent crash cushions, which were offset somewhat by lower sales of parts. The sales increases were attributable to increased spending on workzone and other highway safety projects since the enactment of the federal highway bill. In addition, we saw increased spending on new products such as the Quest® crash cushion and the Safestop® trailer TMA.

Net sales for the Protect and Direct segment for fiscal 2005 increased slightly to $73,575,000 from $73,282,000 for fiscal 2004 due to strong international sales growth, as mentioned above. Domestic sales decreased by 5%. We believe that the decrease in domestic sales volume was due to state budgetary constraints and transportation funding uncertainties caused by the continued delay in the passage of the new federal highway funding bill.  Increased sales of permanent crash cushions and Triton barrier products were largely offset by decreased sales of truck mounted attenuators, sand-filled barrels, delineator products and parts. Sales of permanent crash cushions increased slightly and sales of parts and TMA products decreased slightly.

Inform—Net sales for the Inform segment for fiscal 2006 increased 14% to $24,134,000 from $21,163,000 for fiscal 2005 due to increased sales of highway advisory products which achieved record sales for the year. In addition, sales of  weather sensing systems increased during fiscal 2006. We believe products within the Inform segment also benefited from the passage of the federal highway bill as spending on these products is more discretionary.

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Net sales for the Inform segment for fiscal 2005 decreased to $21,163,000 from $21,188,000 for fiscal 2004. The decrease in sales was primarily due to lower sales volume of highway advisory radio products, which were largely offset by increased sales volume of weather and traffic sensing products.

Intersection Control—Net sales for the Company’s Intersection Control segment for fiscal 2006 increased 9% to $56,194,000 from $51,615,000 for fiscal 2005 due in part to the strong international sales growth mentioned above. This sales growth was less than expected and along with the continued operating underperformance, we approved a restructuring plan for this segment as further described in Note 17 to the consolidated financial statements.

Net sales for the Intersection Control segment for fiscal 2005 decreased 8% to $51,615,000 from $55,820,000 for fiscal 2004. The decrease was primarily due to lower sales which continued to be affected by ongoing state and municipal budgetary issues, and which resulted in depressed order flows and sales levels significantly lower than planned. The acquisition of Peek Traffic, effective December 2003, contributed net sales of $12,101,000 from the period July 1, 2004 to November 30, 2004 not comparable to fiscal 2004.

Gross Profit Margin

The Company’s gross profit margin for fiscal 2006 was 29.8% compared to 31.8% for fiscal 2005. The gross margin in the Protect and Direct segment decreased due to increased raw material costs, higher freight costs and unfavorable product mix. The gross margin for the Inform segment increased due to volume efficiencies related to the higher level of sales. The gross margin in the Intersection Control segment decreased due to unfavorable product mix and plant inefficiencies associated with the restructuring activities.

Our gross profit margin for fiscal 2005 was 31.8% compared to 31.5% for fiscal 2004 as higher gross margins for the Inform segment and Intersection Control segment were largely offset by lower gross profit margins in the  Protect and Direct segment due to increased raw material costs, particularly steel costs which were not entirely passed along to customers. The gross margin for the Inform and Intersection Control segments increased modestly due to favorable sales mix.

Selling and Administrative Expenses

Selling and administrative expenses for fiscal 2006 decreased $2,376,000, or 6%, to $37,681,000 from $40,057,000 for fiscal 2005. Selling and administrative expenses in the Protect and Direct segment decreased due to the elimination of costs incurred by our former captive manufacturer which was sold last year, and due to lower marketing expenses. Selling and administrative expenses in the Intersection Control segment decreased primarily due to the realization of cost reduction efforts over the past year. Selling and administrative costs for the Inform segment increased partially due to variable expenses related to the increased level of their sales. Selling and administrative expenses for fiscal 2006 include $1,027,000 in expense related to the adoption in fiscal 2006 of FAS 123R requiring the expensing of stock options as further discussed in Note 8. Selling and administrative expenses decreased as a percentage of sales to 23.4% for fiscal 2006 compared to 27.4% for 2005 primarily due to the increase in sales and the realization of cost reduction efforts.

Selling and administrative expenses for fiscal 2005 increased $3,357,000, or 9%, to $40,057,000 from $36,700,000 for fiscal 2005. Expenses increased due to the inclusion of Peek Traffic expenses of $2,366,000 for the period from July 1, 2004 to November 30, 2004 not comparable to fiscal 2004. Expenses relating to Sarbanes-Oxley compliance and employee related expenses also increased. Selling and administrative expenses increased significantly in the Intersection Control segment due to the inclusion of Peek Traffic.

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Selling and administrative expenses in the Inform segment also increased, primarily due to increased variable costs related to the higher sales level of weather sensing products. Selling and administrative expenses increased only slightly in the Protect and Direct segment.  Selling and administrative expenses increased as a percentage of sales to 27.4% for fiscal 2005 compared to 24.4% for 2004 primarily due to the decline in sales and the Company’s primarily fixed cost structure.

Research and Development

Research and development expenditures were $5,958,000 for fiscal 2006 compared to $5,391,000 for fiscal 2005. Expenditures increased across all operating segments as we work on the development of innovative new products to address safety needs both here and abroad.

Research and development expenditures were $5,391,000 for fiscal 2005 compared to $3,605,000 for fiscal 2004. The increase of $1,786,000 was due primarily to increased expenditures by the Intersection Control segment to enhance and upgrade their product suite. Expenditures in the Inform and Protect and Direct segments also increased as they develop new products and application extensions to existing products.

Gain on Sale of Assets

We recorded a gain of $846,000 in fiscal 2006 in the Inform segment due to the sale of the weather forecasting product line in our Inform segment. We received proceeds of $1,566,000 from the sale, which occurred during the fourth quarter.

We recorded a gain of $566,000 in fiscal 2005 due to the sale of certain machinery and equipment of a captive manufacturer of the Protect and Direct segment and received proceeds of $650,000. We also received proceeds of $992,000 from the sale of land and recorded a gain on that sale of $560,000 for the Protect and Direct segment in the second quarter of fiscal 2005 which was reclassified from other income during the fourth quarter of fiscal 2005.

Gain on Legal Settlements

As further discussed in Note 18 to the consolidated financial statements, we recorded a gain of $2,975,000 in fiscal 2006 in the Intersection Control segment due to the settlement of legal claims with the sellers of U.S. Traffic (UST) and Peek Traffic Corporation (Peek Traffic).

Restructuring costs

As further discussed in FUTURE OUTLOOK and in Note 17 to the Consolidated Financial Statements, we recorded $5,775,000 in restructuring costs in the Intersection Control segment. Included in the restructuring costs are proceeds of $1,500,000 related to the sale of the portable variable message sign and illuminated street lighting product lines and related costs resulting in a loss of $3,449,000. The sale proceeds more than offset all the cash costs of restructuring through June 30.

Asset Impairment Charges

In fiscal year 2006, results at our Intersection Control segment continued to be substandard and we adopted a restructuring plan in April 2006 as further discussed in Note 17. As part of the restructuring plan, we sold the portable variable message sign, illuminated street lighting and tunnel lighting product lines and we discontinued other low-margin and non-core product lines. As a result of the continued poor

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performance and the Company’s impairment review in the fourth quarter of fiscal 2006, we determined that the carrying amounts of certain long-lived assets were no longer recoverable based on estimated future operating cash flows to be generated by those assets, which were lower than previously projected. As further discussed below and in Note 6, we recorded asset impairment charges in the Intersection Control segment of $13,374,000, or $8,723,000, net of income tax benefits, or $0.98 per diluted share. The charges included $10,225,000 for goodwill and $3,149,000 for fixed assets.

Our fiscal 2005 annual impairment review did not result in any impairment charges. In fiscal 2004, the prolonged delay in the passage of new federal transportation funding legislation as well as ongoing state and municipal budget issues had a significant negative impact on our Company as a whole. In addition, UST operating results were much lower than expected. As a result of these factors and our impairment review in the fourth quarter of fiscal 2004, we determined that the carrying amounts of certain long-lived assets were no longer recoverable based on estimated future cash flows to be generated by those assets, which were lower than previously projected. We recorded asset impairment charges for fiscal 2004 of $32,600,000, or $21,266,000 net of income tax benefits, or $2.48 per diluted share. The charges within the Inform segment included $7,646,000 relating to goodwill and $2,219,000 for intangible assets.  The charges within the Intersection Control segment included $18,363,000 relating to goodwill, $1,963,000 for intangible assets and $2,409,000 for fixed assets.

Operating Profit (Loss)

The operating loss of $10,928,000 for fiscal 2006 compared to operating profit of $2,167,000 for fiscal 2005. The change was primarily due to asset impairment and restructuring costs incurred in fiscal 2006, which were only partially offset by improved gross profit margins and lower selling and administrative costs as discussed above and the gains on legal settlements and sale of assets. The fiscal 2006 operating loss includes asset impairment charges of $13,374,000, restructuring costs of $5,775,000, gains on legal settlements of $2,975,000 and a gain on the sale of assets of $846,000. Operating profit for the Protect and Direct segment increased $680,000 to $15,539,000 for fiscal 2006 from $14,859,000 for fiscal 2005 which included $1,126,000 in gain on sale of assets, primarily due to lower selling and administrative costs as discussed above. Operating profit for the Inform segment increased $2,252,000 to $3,403,000 for fiscal 2006, including $864,000 in a gain on sale of assets, from $1,151,000 for fiscal 2005 primarily due to the higher sales and volume efficiencies related to the higher level of sales. The operating loss for the Intersection Control segment was $22,360,000, including asset impairment charges of $13,374,000, restructuring costs of $5,775,000 and a gain on legal settlements of $2,975,000, compared to an operating loss for fiscal 2005 of $5,723,000.

Operating profit of $2,167,000 for fiscal 2005 compared to an operating loss of $25,602,000 for fiscal 2004. The change was primarily due to the asset impairment charges of $32,600,000 included in the fiscal 2004 operating loss.  Operating profit for the Protect and Direct segment decreased $1,045,000 to $14,859,000 for fiscal 2005 from $15,904,000 for fiscal 2004 primarily due to lower gross margins caused by increased material costs. Operating profit for the Protect and Direct segment for fiscal 2005 included $1,126,000 in gain on sale of assets.   Operating profit for the Inform segment increased $9,077,000 to $1,151,000 for fiscal 2005 from the operating loss of $7,926,000 for fiscal 2004 primarily due to the asset impairment charges of $9,865,000 recorded in fiscal 2004.   The operating loss for the Intersection Control segment was $5,723,000 compared to an operating loss for fiscal 2004 of $25,687,000 which included the asset impairment charges of $22,735,000.

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Interest Expense

Interest expense for fiscal 2006 increased $1,410,000 to $4,708,000 from $3,298,000 in fiscal 2005. The increase was due primarily to higher interest rates and also to the higher level of average long-term debt outstanding during fiscal 2006. The interest rate on the Company’s credit agreement is based on prime or LIBOR and a fixed rate, plus a margin. The weighted average interest rate was 7.7% as of June 30, 2006 compared to a weighted average rate of 5.5% as of June 30, 2005. The interest rate on the Company’s convertible debt issued during fiscal 2005 is 7%. The Company expects the average interest rate during fiscal 2007 on all debt to be approximately 7%.

Interest expense for fiscal 2005 increased $1,154,000 to $3,298,000 from $2,144,000 in fiscal 2004. The increase was due primarily to higher interest rates, and also to the higher level of average long-term debt outstanding during fiscal 2005. The interest rate on our credit agreement was based on prime or LIBOR and a fixed rate, plus a margin. The weighted average rate was 5.5% as of June 30, 2005 compared to a weighted average rate of 3.7% as of June 30, 2004. The interest rate on our convertible debt issued during fiscal 2005 was 7%.

Provision for Income Taxes

The income tax benefit for fiscal 2006 was $5,472,000, reflecting a 35% effective tax rate. Included in the income tax benefit for fiscal 2006 was $4,651,000 relating to the asset impairment charges. We expect to provide for income taxes at a rate of 38% for fiscal 2007. 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 benefit for fiscal 2005 was $447,000, reflecting a 41% effective tax rate. The income tax benefit for fiscal 2004 was $10,901,000, which included $11,334,000 relating to the asset impairment charges recorded in the fourth quarter and a $1,249,000 income tax benefit related to the favorable settlement of a tax audit recorded during the third quarter.

Net Earnings (Loss)

The net loss for fiscal 2006 was $10,102,000, or $1.14 per diluted share, compared to a net loss of $650,000, or $0.07 per diluted share, for 2005. Included in the net loss for fiscal 2006 were the asset impairment charges of $8,723,000, net of taxes, or $0.98 per diluted share. Also included in the net loss for fiscal 2006 was $812,000 in stock option expense, or $0.09 per diluted share.

The net loss for fiscal 2005 was $650,000, or $0.07 per diluted share, compared to a net loss of $17,027,000, or $1.99 per diluted share, for 2004. Included in the net loss for fiscal 2004 were the asset impairment charges of $21,266,000, net of taxes, or $2.48 per diluted share.

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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. The Company had cash and cash equivalents of $869,000 as of June 30, 2006 and access to additional funds of approximately $20 million in bank lines of credit. Our outstanding borrowings were $51,587,000, or 51.3% of total capitalization, as of June 30, 2006, of which $6,000,000 was outstanding on our bank credit facility. This compares to $50,014,000, or 44.7% of total capitalization, as of June 30, 2005.

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. The net proceeds were used to pay off our bank term loan and reduce the amount of its 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. If fully converted, 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. The notes are fully redeemable by the Company at any time after February 20, 2008 at 100% of the principal amount plus accrued and unpaid interest. The investors may 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.

We entered into a new secured credit agreement during April 2005 with one bank which currently expires on February 1, 2008. We believe that this collateralized credit agreement is an important source of liquidity. The credit agreement provides for a $30 million revolving credit facility, with a $10 million subfacility for letters of credit issued by the bank or its affiliates. The revolving credit availability is based on a formula of eligible accounts receivable, eligible inventory, machinery and equipment and real estate, subject to a minimum excess collateral availability factor. Effective June 30, 2006, the Company is also required to maintain a maximum senior leverage ratio. We are in compliance with these covenants and expect to remain in compliance through fiscal 2007. Under certain conditions, we may request a release of all security interests at which time we would no longer be subject to a borrowing base formula, but would be subject to several financial covenants. The agreement may be renewed for one additional year on each anniversary date upon mutual consent of the Company and the bank.

Cash Flows

Cash flows provided by operations were $4,504,000 during fiscal 2006. This compares with $3,398,000 in fiscal 2005 and $8,676,000 in fiscal 2004. In each of the past three years, cash flow from operations was primarily derived from earnings before non-cash expenses such as depreciation, amortization and asset impairment charges. The increase in cash generated from operating activities in fiscal 2006 is primarily due to the increase in earnings before non-cash expenses.

Investing activities used cash of $308,000 during fiscal 2006, compared to $910,000 in fiscal 2005 and $15,943,000 in fiscal 2004. Expenditures during fiscal 2006 included $3,048,000 for capital expenditures, which were more than offset by proceeds received from the sale of assets.

Financing activities used cash of $3,483,000 during fiscal 2006, compared to cash used of $4,709,000 during fiscal 2005 and cash provided of $5,910,000 in fiscal 2004. During fiscal 2006, we borrowed a net $2,000,000 on our outstanding revolving credit facility and paid $427,000 on other notes payable. We received cash of $1,031,000 from the exercise of common stock options. The payment of our semi-annual cash dividend used cash of $3,185,000. As further discussed in Note 18 to the consolidated financial

26

statements, we paid $3,105,000 to purchase 150,603 shares of our common stock from the sellers of Peek Traffic for the treasury.

For 2007, we anticipate needing approximately $3,000,000 in cash for capital expenditures. The Company may also need additional cash as it considers acquiring businesses that complement its existing operations. The Company may require additional investments in working capital to maintain growth. The Company may also need additional funds to repurchase its own common stock from time to time. These expenditures will be financed either through the Company’s cash on-hand, cash generated from its operations or from borrowings available under the Company’s bank credit facility. We currently expect cash generated from operations to be higher in fiscal year 2007 compared to fiscal 2006. However, due to uncertainties in the restructuring of the Intersection Control segment, as discussed in Note 17 to the consolidated financial statements, and the seasonality of our business, there can be no assurance that this will occur, or to what extent this will occur. We believe that our existing cash, cash generated from operations and funds available under its existing credit facility are sufficient for all planned operating and capital requirements in the near term. If needed and available on favorable terms, we may also enter into other debt or equity financing arrangements.

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 contractual obligations to make future payments under contracts, such as debt and lease agreements, as of June 30, 2006:

			Less than							More than
	Total		1 Year			1-3 Years		3-5 Years		5 Years
	(Dollar amounts in thousands)
Long-term debt (1)	$	51,587		$	465	$	5,122	$	40,000		$	6,000
Estimated interest payments (2)	14,140			3,558		6,752		3,370			460
Operating leases, net	12,952			3,466		4,390		1,242			3,854
Minimum royalty payments	2,266			816		850		600			—
Retirement award program (3)	759			81		125		83			470
Purchase obligations (4)	11,260			11,260
Total	$	92,964		$	19,646	$	17,239	$	45,295		$	10,784

(1)   Amount includes expected cash payments on long-term debt based upon current and effective maturities as well as expected renewals.

(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 as well as expected renewals of long-term debt currently outstanding.

(3)   Retirement award is a fixed number of Quixote Corporation shares for each of the participants each year for which the income tax obligation is paid in cash.

(4)   Purchase obligations include 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 contract. The total amount of bid and performance related bonds that were available and undrawn as of June 30, 2006 was $3,028,000. We also have standby letters of credit covering potential workers’ compensation liabilities. The total standby exposure relating to letters of credit as of June 30, 2006 was $1,144,000.

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FUTURE OUTLOOK

We believe that prospects for increased spending for our products in fiscal 2007 will improve given the enactment of the federal transportation funding legislation, SAFETEA-LU, in August 2005. State and local governments increased spending on transportation safety in fiscal year 2006 as both national and local economies improved and we expect this trend to continue into fiscal 2007. We are seeing increased order activity in most areas of our business. We also expect international sales to continue to be an important driver of our sales growth. However, it is difficult to predict to what extent we will see increased spending for our products and there can be no assurance that either domestic or international sales will continue to increase.

As further discussed in Note 17 to the consolidated financial statements, the continued underperformance of the Intersection Control segment resulted in our decision to rationalize that business and divest certain non-core product lines. A restructuring plan was approved by our Board on April 25, 2006 to reduce costs through the reduction of overhead by closing two facilities and by the reduction of headcount. As part of the restructuring plan, we sold the portable sign and the lighting product lines in June, 2006. We intend to discontinue the fixed overhead sign portion of that business. Within the remaining Intersection Control business, we will outsource non-core manufacturing, but continue to assemble and test products. In connection with the restructuring plan, we expect to record total cash and non-cash charges of approximately $14 million. Most of the substantial restructuring charges are expected to be incurred before the end of our fiscal 2007 second quarter. We expect the plan will result in profitability for the Intersection Control business beginning in the third quarter of fiscal 2007 with annualized operating cost savings of approximately $5 to $6 million. However, there can be no assurance that we will achieve that level of savings. After the sale and discontinuation of product lines, annualized revenues for the Intersection Control segment are estimated to be approximately $38 million from $56 million for fiscal 2006. For fiscal 2007, we estimate depreciation and amortization expense to be approximately $5.2 million.

We historically experience fluctuation in our gross profit margin from quarter to quarter primarily due to sales volume related to seasonality, variability in product mix and changes in our competitive environment. In addition, we have acquired complementary businesses over the past several years and, as part of our strategy, may continue to acquire complementary businesses. The gross profit margins of certain acquired product lines within our Inform and Intersection Control segments are lower than our historical gross profit margin as we experience rigorous competition in selling certain product lines because they are generally sold through a bidding process, These trends are adversely affecting our gross profit margin and we do not believe these trends will improve in the near future.

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, 2006 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 except for the adoption of SFAS No. 123 (revised 2004), “Share-Based Payment”. In the opinion of management,

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we do not have any individual accounting policy or use any individual estimate that is critical to the preparation of its consolidated financial statements. 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:

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. Additionally, we ensure that collection of the resulting receivable is probable, persuasive evidence that an arrangement exists, and the revenue is fixed or determinable. Provision for estimated uncollectible amounts and credit memos is made based upon management’s analysis of bad debts and credit memos.

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.

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.

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 in the fourth quarter 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 present value techniques.

As discussed further in Note 6 to our June 30, 2006 consolidated financial statements, as a result of our annual impairment review during fiscal 2006, we recorded non-cash asset impairment charges of $13,374,000 relating to goodwill and amortized long-lived assets of the Intersection Control segment. Our annual impairment review resulted in no impairment charges for fiscal year 2005. As a result of our annual impairment review during fiscal 2004, we recorded non-cash asset impairment charges of $32,600,000 relating to goodwill, other indefinite-lived intangible assets and amortized long-lived assets of the Intersection Control and Inform segments. 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

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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.

Restructuring Charges: We account for restructuring activities in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Generally, costs associated with the exit or disposal activity are recognized when the liability is incurred. Costs related to employee separation arrangements requiring future service beyond a specified minimum retention period are recognized over the service 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 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 and available tax planning strategies that could be implemented to realize the deferred tax assets. We expect the deferred tax assets currently recorded to be fully realizable, however there can be no assurance that an increased valuation allowance would not need to be recorded in the future.

Stock-based Compensation: In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123(R)), “Share-Based Payment”. We adopted the provisions of SFAS No. 123(R) as of July 1, 2005 using the modified prospective method. Under this transition method, share-based compensation cost recognized in the fiscal year ended June 30, 2006 includes compensation cost for all share-based awards which were unvested as of July 1, 2005 as well as compensation cost for all share-based awards granted subsequent to July 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). The fair value of the options granted is being amortized on a straight-line basis over the requisite service period, which is generally the vesting period. Stock option plans are more fully described in Note 8.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 will be effective for our 2008 fiscal year. We are evaluating the impact that this statement will have on our results of operations and financial position.

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

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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. Factors which could cause materially different results include, among others, uncertainties related to continued federal, state and municipal funding for highways and risks related to reductions in government expenditures; the successful completion, integration and rationalization of acquisitions; the ability to generate sufficient future cash flows to be in compliance with financing agreements; the introduction and acceptance of our products and services; an unfavorable change in product sales mix; seasonality along with the extent and timing of the award of large contracts; the cyclical nature of our governmental markets; competitive and pricing pressures; increasing raw material costs; excess manufacturing capacity; weather conditions and natural disasters; acts of war and terrorist activities; the possible impairment of goodwill and other intangible assets; and general economic conditions.

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from fluctuations in interest rates on our revolving credit agreement. The exposure to interest rate fluctuations was significantly reduced in the third quarter of fiscal 2005 when we issued convertible debt and used the proceeds to pay down the debt issued pursuant to the revolving credit agreement. Due to the lower exposure to rate fluctuations, the use of derivative instruments in the form of non-trading interest rate swaps to manage the risk has been discontinued. As described in Note 7 to the consolidated financial statements, the amount of long-term debt outstanding as of June 30, 2006 and 2005 was $51,122,000 and $49,587,000, respectively. A hypothetical 1% increase in interest rates would have adversely affected our 2006 and 2005 net earnings and cash flows by approximately $117,000 and $273,000, respectively.

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. Although we continue to evaluate derivative financial instruments to manage foreign currency exchange rate changes, we did not hold such derivatives during 2006 or 2005. 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. However, there were no significant transaction gains or losses during 2006, 2005 or 2004 and we do not believe we are currently exposed to any material risk of loss from currency exchange fluctuations.

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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 and subsidiaries as of June 30, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended. We have also audited the accompanying Schedule II—Valuation and Qualifying Accounts and Reserves as of June 30, 2006 and 2005. The financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and schedule based on our audit.

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 and schedule referred to above present fairly, in all material respects, the financial position of Quixote Corporation and subsidiaries as of June 30, 2006 and 2005, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 2 to the financial statements the Company has adopted the provisions of SFAS No. 123(R) “Share-Based Payment” as of July 1, 2005 using the modified prospective method.

We have also audited the adjustments to the 2004 information included in Note 16—Industry Segment Information. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the 2004 financial statements of the Company other than with respect to the segment information and accordingly, we do not express an opinion or any other form of assurance on the 2004 financial statements taken as a whole.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Quixote Corporation’s internal control over financial reporting as of June 30, 2006, 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 12, 2006 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

/s/GRANT THORNTON LLP

Chicago, Illinois
September 12, 2006

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Quixote Corporation:

In our opinion, the consolidated statements of operations, shareholders’ equity and cash flows for the year ended June 30, 2004, before the effects of the adjustments to retrospectively reflect the change in the composition of reportable segments described in Note 16, present fairly, in all material respects, the results of operations and cash flows of Quixote Corporation and its subsidiaries for the year ended June 30, 2004 in conformity with accounting principles generally accepted in the United States of America (the 2004 consolidated financial statements before the effects of the adjustments discussed in Note 16 are not presented herein). In addition, in our opinion, the financial statement schedule for the year ended June 30, 2004 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements before the effects of the adjustments described above. 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 audit. We conducted our audit, before the effects of the adjustments described above, of these statements 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively reflect the change in the composition of reportable segments described in Note 16 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
September 13, 2004

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QUIXOTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For each of the three years ended June 30,
	2006			2005			2004
	Dollar amounts in thousands, except share data
Net sales	$	161,134		$	146,353		$	150,290
Cost of sales	113,095			99,864			102,987
Gross profit	48,039			46,489			47,303
Operating (income) expenses:
Selling and administrative	37,681			40,057			36,700
Research and development	5,958			5,391			3,605
Gain on sale of assets	(846		)	(1,126		)
Gain on legal settlements	(2,975		)
Restructuring costs	5,775
Asset impairment charge	13,374						32,600
	58,967			44,322			72,905
Operating profit (loss)	(10,928		)	2,167			(25,602		)
Other income (expense):
Interest income	62			34			30
Interest expense	(4,708		)	(3,298		)	(2,144		)
Other							(212		)
	(4,646		)	(3,264		)	(2,326		)
Loss before benefit for income taxes.	(15,574		)	(1,097		)	(27,928		)
Income tax benefit	(5,472		)	(447		)	(10,901		)
Net loss	$	(10,102	)	$	(650	)	$	(17,027	)
Basic loss per share:
Net loss	$	(1.14	)	$	(0.07	)	$	(1.99	)
Weighted average common shares outstanding	8,850,884			8,800,421			8,567,741
Diluted loss per share:
Net loss	$	(1.14	)	$	(0.07	)	$	(1.99	)
Weighted average common and common equivalent shares outstanding	8,850,884			8,800,421			8,567,741

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

34

QUIXOTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of June 30,
	2006			2005
	Dollar amounts in thousands, except share data
ASSETS
Current assets:
Cash and cash equivalents	$	869		$	156
Accounts receivable, net of allowance for doubtful accounts of $1,816 in 2006 and $1,581 in 2005	36,481			32,745
Refundable income taxes	238
Inventories, net	25,465			27,411
Deferred income taxes	3,824			5,765
Other current assets	952			1,160
Total current assets	67,829			67,237
Property, plant and equipment at cost:
Land	1,088			1,054
Buildings and improvements	15,811			15,710
Machinery and equipment	17,385			20,058
Furniture and fixtures	2,150			2,019
Computer equipment and software	8,346			7,892
Leasehold improvements	1,638			1,624
Construction in progress	296			629
	46,714			48,986
Less: accumulated depreciation	(27,179		)	(23,978		)
	19,535			25,008
Goodwill	17,385			29,313
Intangible assets, net	6,467			7,340
Deferred income taxes	11,844			5,083
Other assets	2,143			2,809
	$125,203			$136,790
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	465		$	427
Accounts payable	13,234			11,061
Dividends payable	1,688			1,595
Accrued expenses:
Payroll and commissions	3,507			3,164
Warranty	927			2,510
Accrued insurance	1,431			1,558
Accrued interest	1,108			1,054
Other	1,688			2,935
Total current liabilities	24,048			24,304
Long-term debt, net of current portion	51,122			49,587
Other long-term liabilities	1,087			1,053
Commitments and contingent liabilities
Shareholders’ equity:
Preferred stock, no par value; authorized 100,000 shares; none issued
Common stock, par value $.01-2/3; authorized 15,000,000 shares; issued 10,904,678 shares—2006 and issued 10,799,784 shares—2005	182			180
Capital in excess of par value of stock	62,434			59,382
Retained earnings	10,226			23,605
Accumulated comprehensive income	227			345
Treasury stock, at cost, 2,008,636 shares—2006 and 1,915,353 shares—2005	(24,123		)	(21,666		)
Total shareholders’ equity	48,946			61,846
	$	125,203		$	136,790

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

35

QUIXOTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	For the three years ended June 30, 2006
					Capital in			Accumulated													Compre-
					Excess of			Compre-													hensive
	Common Stock				Par Value			hensive				Retained				Treasury Stock					Income
	Shares	Dollars			of Stock			Income(Loss)				Earnings				Shares		Dollars			(Loss)
	Dollar amounts in thousands, except share data
BALANCES, JULY 1, 2003	10,437,436		$	174		$	52,173		$	(44	)		$	47,368		2,131,963		$	(24,116	)
Exercise of options, net of tax	243,210		4			2,578
Net loss - 2004													(17,027		)							$	(17,027	)
Other comprehensive income									658													658
Issuance of shares for acquisition of Peek Traffic						2,386										(180,723	)	2,044
Declaration of semi-annual cash dividends ($0.17 per share)													(2,911		)
Issuance of shares pursuant to the stock retirement plan	10,794					227
Issuance of restricted stock	16,000					393
BALANCES, JUNE 30, 2004	10,707,440		$	178		$	57,757		$	614			$	27,430		1,951,240		$	(22,072	)		$	(16,369	)
Exercise of options, net of tax	81,550		2			1,117
Net loss - 2005													(650		)							$	(650	)
Other comprehensive income									(292		)											(292		)
Reclassification to earnings									23
Declaration of semi-annual cash dividends ($0.18 per share)													(3,175		)
Issuance of shares for 401K plan						298										(35,887	)	406
Issuance of shares pursuant to the stock retirement plan	10,794					210
BALANCES, JUNE 30, 2005	10,799,784		$	180		$	59,382		$	345			$	23,605		1,915,353		$	(21,666	)		$	(942	)
Exercise of options, net of tax	94,100		2			1,234
Net loss - 2006													(10,102		)							$	(10,102	)
Other comprehensive income									(118		)											(118		)
Declaration of semi-annual cash dividends ($0.18 and $0.19 per share)													(3,277		)
Issuance of shares for 401K plan						575										(57,320	)	648
FAS 123R stock compensation expense						1,027
Shares for settlement of legal issue																150,603		(3,105		)
Issuance of shares pursuant to the stock retirement plan	10,794					216
BALANCES, JUNE 30, 2006	10,904,678		$	182		$	62,434		$	227			$	10,226		2,008,636		$	(24,123	)		$	(10,220	)

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

36

QUIXOTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For each of the three years ended June 30,
	2006			2005			2004
	Dollar amounts in thousands
OPERATING ACTIVITIES:
Net earnings (loss)	$	(10,102	)	$	(650	)	$	(17,027	)
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY CONTINUING OPERATIONS:
Asset impairment charges	13,374						32,600
Depreciation	4,701			4,587			4,763
Amortization	1,736			1,224			1,757
(Gain) loss on disposition of assets	2,603			(1,126		)	212
Non-cash restructuring charges	864
Deferred income taxes	(5,880		)	2,253			(9,380		)
Provisions for losses on accounts receivable	235			647			686
Issuance of stock retirement plan shares	216			210			227
Income tax benefit from employee stock options				160			431
Issuance of stock to 401K plan	1,223			704
FAS 123R stock compensation expense	1,027
Issuance of restricted stock							393
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(3,972		)	218			4,956
Inventories	(1,869		)	(2,109		)	726
Other assets	221			(614		)	267
Accounts payable and accrued expenses	(729		)	(929		)	(6,907		)
Income taxes payable/refundable	822			(950		)	(4,676		)
Other long-term liabilities	34			(227		)	(352		)
Net cash provided by operating activities	4,504			3,398			8,676
INVESTING ACTIVITIES:
Cash paid for acquired businesses, net of cash acquired							(11,263		)
Capital expenditures	(3,048		)	(3,805		)	(4,638		)
Proceeds from sale of assets	3,066			1,642
Proceeds from sale/leaseback of assets				1,206
Patent expenditures	(326		)	(170		)	(42		)
Payments on notes receivable				217
Net cash used in investing activities	(308)			(910)			(15,943		)
FINANCING ACTIVITIES:
Proceeds from convertible debt offering				40,000
Fees on convertible debt offering				(2,605		)
Payments on notes payable	(427		)	(393		)	(910		)
Payments on revolving credit agreement	(37,350		)	(37,400		)	(22,250		)
Proceeds from revolving credit agreement	39,350			14,400			32,750
Payments on term loan				(17,000		)	(3,000		)
Proceeds from interest rate swap arrangement				394
Payment of semi-annual cash dividends	(3,185		)	(3,066		)	(2,827		)
Proceeds from exercise of common stock options	1,031			961			2,147
Income tax benefit from employee stock options	203
Repurchase of common stock for treasury	(3,105		)
Net cash (used in) provided by financing activities	(3,483		)	(4,709		)	5,910
Effect of exchange rate changes on cash				(12		)	(7		)
Net change in cash and cash equivalents	713			(2,233		)	(1,364		)
Cash and cash equivalents at beginning of year	156			2,389			3,753
Cash and cash equivalents at end of year	$	869		$	156		$	2,389

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

37

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, intelligent intersection control devices, video detection systems and other highway and transportation safety products to protect, direct and inform motorists and highway workers.

2.   ACCOUNTING POLICIES

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.

MANAGEMENT ESTIMATES

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. Actual results could differ from those 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.

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 have been computed on a straight-line or systematic method 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

38

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.ACCOUNTING POLICIES (Continued)

The cost and accumulated depreciation 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 or obtaining internal use computer software. During 2006 and 2005, approximately $1,653,000 and $419,000, respectively, of computer software was capitalized, primarily relating to new manufacturing, engineering and accounting systems.

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.

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 in the fourth quarter 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 present value techniques.

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

39

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.ACCOUNTING POLICIES (Continued)

realization include the forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. We expect the deferred tax assets currently recorded to be fully realizable, however there can be no assurance that an increased valuation allowance would not need to be recorded in the future.

FINANCIAL INSTRUMENTS

The fair value of cash and cash equivalents approximates the carrying value of these assets due to the short-term maturity of these instruments. The fair value of our long-term debt is estimated to approximate the carrying value based upon borrowing rates currently available to us for borrowings with similar terms and maturity.

DERIVATIVES

Until the issuance of fixed rate convertible debt in the third quarter of fiscal 2005, we managed our exposure to interest rate fluctuations through the use of derivative instruments in the form of non-trading interest rate swaps. The objective of the swap was to fix the interest rate on certain variable rate debt to stabilize interest rates and to more effectively balance our long-term borrowing costs and interest rate risk. During July 2003, we entered into a five-year interest rate swap agreement (the Agreement) to set a fixed interest rate relating to $20 million of its outstanding debt at variable interest rates. The terms of the Agreement matched the terms of the underlying debt. In addition, the Agreement was designated as, and was effective as, a cash-flow hedge of an outstanding debt obligation. Changes in fair value of the Agreement were reported as other comprehensive income and were recognized into earnings when the hedge transaction affected earnings. Our derivative instrument was liquidated during February 2005 and we received $394,000 in cash. The current market value of the interest rate swap arrangement as of the date of liquidation included in accumulated other comprehensive income is being amortized over the remaining life of the originally forecasted transaction.

GEOGRAPHIC CONCENTRATION

Our customers may consist of distributors, contractors, departments of transportation, state agencies, local governments or municipalities. No single customer represents a significant portion of our total revenues. However, in fiscal 2006, 2005 and 2004, approximately 9%, 11% and 10%, respectively, of revenues were from customers in the state of Texas, and 11%, 9% and 14%, respectively, of revenues in fiscal 2006, 2005 and 2004, were from customers in the state of California.

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. Additionally, we ensure that collection of the resulting receivable is probable, persuasive evidence that an arrangement exists, and the revenue is fixed or determinable. Provision for estimated uncollectible amounts and credit memos is made based upon management’s analysis of bad debts and credit memos.

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.

40

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.ACCOUNTING POLICIES (Continued)

RESEARCH AND DEVELOPMENT

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

STOCK-BASED COMPENSATION

In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123(R)), “Share-Based Payment”. We adopted the provisions of SFAS No. 123(R) as of July 1, 2005 using the modified prospective method. Under this transition method, share-based compensation cost recognized in the fiscal year ended June 30, 2006 includes compensation cost for all share-based awards which were unvested as of July 1, 2005 as well as compensation cost for all share-based awards granted subsequent to July 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).  The fair value of the options granted is being amortized on a straight-line basis over the requisite service period, which is generally the vesting period. Stock option plans are more fully described in Note 8.

RESTRUCTURING CHARGES

We account for restructuring activities in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  Generally, costs associated with the exit or disposal activity are recognized when the liability is incurred. Costs related to employee separation arrangements requiring future service beyond a specified minimum retention period are recognized over the service period.

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.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform to current year presentations.

RECENT ACCOUNTING PRONOUCEMENTS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return.  Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 will be effective for our 2008 fiscal year. We are evaluating the impact that this statement will have on our results of operations and financial position.

41

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. ACQUISITIONS AND DISPOSITIONS

Effective June 30, 2006, we sold our weather forecasting product line within the Inform segment for a sale price of $1,851,000, including $1,566,000 in cash received during fiscal 2006 and $285,000 in future contingent payments. We sold contracts, intellectual property, allocated goodwill, software, equipment and inventory and recorded a net gain on the sale of $846,000 in operating income.

Effective June 22, 2006, as part of the restructuring of the Intersection Control segment, we sold our portable variable message sign, tunnel lighting and illuminated street sign product lines for cash of $1,500,000. As the result of the sale of inventory, equipment, intellectual property, contracts and orders, we recorded a loss of $3,449,000 included as part of restructuring costs in operating income.

Effective June 30, 2005, we sold certain machinery and equipment of a captive manufacturer of our Protect and Direct segment for approximately $650,000 in cash and recorded a gain on the sale of $566,000 in operating income. During fiscal 2005, we sold land and received proceeds of $992,000 and recorded a gain on the sale of $560,000 in operating income for our Protect and Direct segment.

Effective December 1, 2003, we acquired substantially all of the assets and assumed certain liabilities of the North American operations of Peek Traffic Corporation (Peek Traffic). We paid a purchase price of $15,693,000. The purchase price consisted of $11,263,000 in cash and 180,723 shares of our common stock, issued from Treasury Stock, valued at $4,430,000. The cash portion of the purchase price was obtained from our revolving credit facility. The excess of purchase price over the estimated fair value of the assets acquired approximated $7,611,000, of which approximately $6,528,000 is deductible for tax purposes. Peek Traffic is a designer, manufacturer and supplier of intelligent intersection control systems, red light enforcement systems and other transportation equipment. The results of Peek Traffic are included in the Intersection Control segment.

The following summary presents the estimated fair values of the assets acquired and liabilities of Peek Traffic assumed as of December 1, 2003, the effective date of acquisition:

	(Dollar amounts in thousands)
Current assets		$	5,977
Property, plant and equipment		2,902
Intangible assets		5,760
Goodwill		7,611
Total assets		22,250
Current liabilities		6,557
Net assets		$	15,693

42

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.ACQUISITIONS AND DISPOSITIONS (Continued)

The intangible assets acquired in connection with the acquisition of Peek Traffic were assigned as follows:

	Gross			Weighted-average
	Carrying Amount			Useful Life__
	(Dollar amounts in thousands)
Amortized intangible assets:
Customer relationships		$	3,110		11 years
Trade names		1,700			10 years
Technology		840			15 years
Backlog		110			1 year
Total		$	5,760		11 years

We anticipated that the Peek Traffic business would provide future operating synergies in the traffic control market, expand our customer base in the municipal and county markets and leverage our existing technologies within the Intersection Control segment, which also includes the legacy U.S. Traffic Corporation (UST) operations acquired in May 2003.

The following pro forma summary presents our consolidated results of operations for the year ended June 30, 2004 as if the Peek Traffic acquisition had occurred at the beginning of fiscal year 2004:

	2004
	(Dollar amounts in thousands, except per share data)
Net sales		$	159,887
Net earnings (loss)		$	(17,198	)
Net earnings (loss) per diluted share		$	(1.99	)

The consolidated pro forma information is not necessarily indicative of the combined results that would have occurred had the acquisitions occurred on that date, nor is it indicative of the results that may occur in the future. During the fourth quarter of fiscal 2006, we recorded impairment charges relating to goodwill and other long-lived assets as discussed further in Note 6 to the Consolidated Financial Statements.

4.   INVENTORIES

Inventories consist of the following at June 30:

	2006		2005
	(Dollar amounts in thousands)
Finished goods	$	8,467	$	8,757
Work-in-process	6,642		4,666
Raw materials	10,356		13,988
	$	25,465	$	27,411

43

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.   INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following as of June 30:

	2006								2005
	Gross					Net			Gross					Net
	Carrying		Accumulated			Intangible			Carrying		Accumulated			Intangible
	Amount		Amortization			Assets			Amount		Amortization			Assets
	(Dollar amounts in thousands)
Amortized intangible assets:
Patents and licenses	$	3,135		$	1,758		$	1,377	$	2,990		$	1,755		$	1,235
Technology and installed base	2,491			1,097			1,394		2,491			899			1,592
Customer relationships	3,807			1,698			2,109		3,807			1,181			2,626
Trade names	2,250			663			1,587		2,250			363			1,887
Other	640			640			—		640			640			—
Total	$	12,323		$	5,856		$	6,467	$	12,178		$	4,838		$	7,340

During the fourth quarter of fiscal 2004, we recorded impairment charges relating to certain intangible assets including indefinite-lived trade names. The remaining carrying values of these trade names were redesignated as amortized intangible assets. The impairment charges are further described in Note 6 to the Consolidated Financial Statements.

Amortization expense was $1,196,000, $1,079,000 and $1,757,000 for the years ended June 30, 2006, 2005 and 2004, respectively. The estimated amortization expense for the five fiscal years subsequent to 2006 is as follows: $1,151,000 in 2007, $1,086,000 in 2008, $875,000 in 2009, $762,000 in 2010 and $663,000 in 2011. 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 rollforward of the carrying amount of goodwill from July 1, 2004 to June 30, 2006 by business segment:

	2006											2005
	Protect							Intersection				Protect						Intersection
	and Direct			Inform				Control				and Direct			Inform			Control
	Segment			Segment				Segment				Segment			Segment			Segment
	(Dollar amounts in thousands)
Beginning balance		$	8,139		$	9,777			$	11,397			$	8,139		$	9,777		$	11,587
Acquired					—
Adjustments																			(190		)
Sale of product lines					(531		)		(1,172		)
Impairment charges (Note 6)									(10,225		)
Ending balance		$	8,139		$	9,246			$	—			$	8,139		$	9,777		$	11,397

During the fourth quarter of fiscal 2006, we recorded impairment charges relating to goodwill and other long-lived assets as discussed further in Note 6 to the Consolidated Financial Statements. In addition, during the fourth quarter of fiscal 2006, goodwill was reduced related to the sale of the weather forecasting product line discussed in Note 3 to the Consolidated Financial Statements and the sale of the portable variable message sign and lighting product lines as discussed in Note 17 to the Consolidated Financial Statements. An adjustment of $190,000 to decrease goodwill in the Intersection Control segment was recorded in fiscal 2005 in connection with the finalization of valuations of certain assets and liabilities of Peek Traffic.

44

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.   ASSET IMPAIRMENT CHARGES

In fiscal year 2006, results at our Intersection Control segment continued to be substandard and we adopted a restructuring plan in April 2006 as further discussed in Note 17 to the Consolidated Financial Statements. As part of the restructuring plan, we sold the portable variable message sign, illuminated street lighting and tunnel lighting product lines and we discontinued other low-margin and non-core product lines. As a result of the continued poor performance and the Company’s impairment review in the fourth quarter of fiscal 2006, we determined that the carrying amounts of certain long-lived assets were no longer recoverable based on estimated future operating cash flows to be generated by those assets, which were lower than previously projected. We recorded asset impairment charges in the Intersection Control segment of $13,374,000, or $8,723,000 net of income tax benefits, or $0.98 per diluted share. The charges included $10,225,000 for goodwill and $3,149,000 for fixed assets.

In fiscal year 2005, our annual impairment review resulted in no impairment charges being recorded. During fiscal year 2004, the prolonged delay in the passage of new federal highway funding legislation as well as ongoing state and municipal budget issues had a significant negative impact on the Company as a whole. In addition, legacy UST operating results were much lower than expected, although we were pursuing the initial integration of UST and Peek Traffic in order to improve profitability. These factors and our impairment review in the fourth quarter of fiscal 2004 resulted in our determination that the carrying amounts of certain long-lived assets were no longer recoverable based on estimated future operating cash flows to be generated by those assets, which were lower than previously projected. We recorded asset impairment charges of $32,600,000, or $21,266,000 net of income tax benefits, or $2.48 per diluted share. The charges included $18,363,000 for goodwill in the Intersection Control segment; $7,646,000 for goodwill in the Inform segment; $1,963,000 for intangible assets in the Intersection Control segment; $2,219,000 for intangible assets in the Inform segment and $2,409,000 for fixed assets in the Intersection Control segment. The intangible asset impairment charges included $1,449,000 for technology and installed base, $1,623,000 for customer relationships and $1,110,000 for trade names. In addition, the remaining carrying values of the trade names were redesignated as amortized intangible assets and are being amortized over ten years.

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 re-assess the remaining useful lives of our amortized long-lived assets.

45

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.LONG-TERM DEBT

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

	2006		2005
	(Dollar amounts in thousands)
Convertible debt 7% interest rate due February 15, 2025.	$	40,000	$	40,000
Revolving credit note due February 1, 2008, interest at variable rates	6,000		4,000
Subordinated promissory note	5,000		5,000
Notes payable, net of discounts of $38 - 2006 and $111 - 2005	587		1,014
Total long-term debt	51,587		50,014
Less current portion	465		427
Long-term debt, net	$	51,122	$	49,587

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 may 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, beginning August 15, 2005.

During April 2005, we entered into a new bank credit agreement with a secured revolving credit facility of $30 million. The revolving credit availability is based on a formula of eligible accounts receivable, eligible inventory, machinery & equipment and real estate, subject to a minimum excess collateral availability factor. Effective June 30, 2006, we are also required to maintain a maximum senior leverage ratio. The covenants also limit the incurrence of additional indebtedness, acquisitions, liens and encumbrances and other matters customarily restricted in such agreements. The borrowing is secured by a first security interest in all existing and hereafter acquired assets of the company, including accounts receivable, inventory, machinery and equipment, real estate and the equity securities of our subsidiaries. Under certain conditions, we may request a release of all security interests, at which time we would no longer be subject to a borrowing base formula, but would be subject to several financial covenants.

The subordinated promissory note is a five-year note, payable at the end of the term. It was entered into in connection with the acquisition of UST and is payable to the former owners. It bears interest at 5.25%, with interest payable semi-annually. The notes payable were entered into in connection with the acquisition of Roadway Safety Service, Inc. (Roadway) and are payable to several former owners and employees. The Roadway notes are payable quarterly over five and ten year periods through 2007 with interest imputed at 8.5%.

46

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.LONG-TERM DEBT (Continued)

The aggregate amount of maturities of long-term debt for the four years subsequent to 2006 assuming renewal of the credit agreement and the effective maturity of the convertible debt is as follows:  $122,000 in 2007, $5,000,000 in 2008, $0 in 2009, $40,000,000 in 2010 and $6,000,000 thereafter.

8.STOCK OPTIONS AND STOCK TRANSACTIONS

In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123(R)), “Share-Based Payment”. We adopted the provisions of SFAS No. 123(R) as of July 1, 2005 using the modified prospective method. Under this transition method, share-based compensation cost recognized in the fiscal year ended June 30, 2006 includes compensation cost for all share-based awards which were unvested as of July 1, 2005 as well as compensation cost for all share-based awards granted subsequent to July 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).  The fair value of the options granted is being amortized on a straight-line basis over the requisite service period, which is generally the vesting period. We have two current share-based compensation plans, which are described below.

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 to employees generate an increased incentive for the employee 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 option grants 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 on the date 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 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 135,000 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 on the date of grant. Options granted under the Director Plan expire not more than seven years from the grant date. Vesting is over not less than a six-month period. Option awards provide for accelerated vesting if there is a change in control, as defined in the Director Plan. Vesting is also accelerated upon the death of a director optionee.

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.STOCK OPTIONS AND STOCK TRANSACTIONS (Continued)

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 2007. 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. This retirement stock award program is further described in Footnote 10 on retirement plans.

Share-based Compensation Expense

The share-based compensation cost that has been charged against income for those plans was $1,027,000 for the twelve months ended June 30, 2006. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $215,000 for that period, and the net expense recorded was $812,000, which was $0.09 per basic and diluted share outstanding.

As of June 30, 2006, the total compensation cost related to unvested share-based awards granted under our stock option plans not yet recognized was approximately $859,000. This cost will be amortized on a straight-line basis over a weighted average period of approximately 0.7 years and will be adjusted for subsequent changes in estimated forfeitures. The 230,889 unvested options outstanding at June 30, 2006 had a weighted-average fair value of $7.04.

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 2006, 2005 and 2004. 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 current level of per share dividend by the grant date stock price. We do not incorporate changes in dividends anticipated by management unless those changes have been communicated to marketplace participants.

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.STOCK OPTIONS AND STOCK TRANSACTIONS (Continued)

	Fiscal 2006	Fiscal 2005	Fiscal 2004
Risk free interest rate	4.0 – 4.5%	3.9 – 4.2%	2.1 – 3.6%
Expected dividend yield	1.73%	1.72%	1.55%
Weighted average expected volatility	42%	41%	41%
Expected term	3.7 – 6.0 years	4.0 – 7.0 years	4.0 – 6.0 years
Weighted average expected term	4.5 years	4.3 years	4.3 years
Weighted average grant-date fair value	$7.32	$6.87	$8.17

Stock Option Activity

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

							Weighted-
				Weighted-			Average
				Average			Remaining		Aggregate
				Exercise			Contractual		Intrinsic
	Common Shares			Price			Term		Value
Outstanding at July 1, 2003		1,256,230			$	15.90
Granted		122,900			$	25.68
Exercised		(349,007	)		$	13.81
Cancelled or expired		(29,165	)		$	21.16
Outstanding at June 30, 2004		1,000,958			$	17.68		3.5 Years	$	3,875,000
Granted		205,700			$	19.51
Exercised		(129,754	)		$	14.87
Cancelled or expired		(66,933	)		$	21.14
Outstanding at June 30, 2005		1,009,971			$	18.19		3.6 Years	$	2,973,000
Granted		114,200			$	21.02
Exercised		(165,036	)		$	15.41
Cancelled or expired		(14,233	)		$	20.77
Outstanding at June 30, 2006		944,902			$	18.98		3.1 Years	$	1,660,000
Vested at June 30, 2006		714,013			$	18.35		2.6 Years	$	1,660,000

Options outstanding at June 30, 2006 are exercisable as follows: 714,013 currently, 116,923 within one year, 85,299 in two years and 28,667 thereafter. Options outstanding as of June 30, 2005 and 2004 included 711,076 and 734,194 which were exercisable as of those dates, respectively.  As of June 30, 2006, we have 682,454 common shares reserved for our option and award plans available for future grants. The total intrinsic value of stock options exercised was $1,267,000 in 2006, $732,000 in 2005 and $3,546,000 in 2004. The total fair value of stock options vested during fiscal 2006, 2005 and 2004 was $1,143,000, $1,030,000 and $1,499,000, respectively.

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.STOCK OPTIONS AND STOCK TRANSACTIONS (Continued)

Pro forma Disclosures

Prior to adoption of SFAS No. 123(R), we accounted for stock options granted under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The cost of restricted stock granted was expensed in the period the stock was issued. No charges were made to earnings in connection with stock options granted, as all stock options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

The following table illustrates the effect on net earnings and earnings per share if we had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to the stock options granted during the comparable prior year periods:

	Twelve months ended				Twelve months ended
	June 30,				June 30,
	2005				2004
	(Dollar amounts in thousands, except per share data)
Net loss, as reported		$	(650	)		$	(17,027	)
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects		209				481
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(1,170		)		(1,528		)
Pro-forma net loss		$	(1,611	)		$	(18,074	)
Loss per share:
Basic—as reported		$	(0.07	)		$	(1.99	)
Basic—pro forma		$	(0.18	)		$	(2.11	)
Diluted—as reported		$	(0.07	)		$	(1.99	)
Diluted—pro forma		$	(0.18	)		$	(2.11	)

Disclosures for the twelve-month period ended June 30, 2006 are not presented because stock-based payments were recorded using the fair-value method required under SFAS No. 123(R).

9.SHAREHOLDER RIGHTS PLAN

We have a Shareholder Rights Plan (the Plan) which was established to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of our stockholders. The Plan calls for stockholders of record as of July 14, 1998 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 the occurrence of certain events, to purchase a unit consisting of one one-thousandth of a share of Series B Junior Participating Preferred Stock, no par value, for $40 per unit. In addition, if an acquiring person becomes the beneficial owner of more than 15% 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.

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.SHAREHOLDER RIGHTS PLAN (Continued)

If after an acquiring person becomes the beneficial holder of more than 15% of our outstanding common stock and then we are acquired in a merger or other business combination in which we would not be the surviving corporation or 50% or more of our assets or earning power is sold, each holder shall have the right to receive, upon exercise, common stock of the acquiring corporation having a value equal to two times the exercise price of the right. We may redeem the rights, for $.01 per right, under certain circumstances.

10.RETIREMENT PLANS

We have a retirement stock award program for certain of our key executives. The award consists of shares of our common stock and cash ending with the fiscal year in which each executive attains his or her 62nd birthday. In order to receive each year’s stock award, the executive must remain employed with us through the end of the 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. The retirement stock award program resulted in a charge to earnings of $357,000 in 2006, $352,000 in 2005 and $374,000 in 2004.

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 which is invested directly in our common stock. During fiscal 2005, we began contributing our matching contributions under the incentive savings plan by issuing common stock from our treasury stock. Additional discretionary company contributions may be made at the option of our Board of Directors. The expense for the plan was $1,224,000 in 2006, $1,186,000 in 2005 and $1,126,000 in 2004.

11.INCOME TAXES

The income tax provision (benefit) consists of the following:

	2006			2005			2004
	(Dollar amounts in thousands)
Current:
Federal and international	$	37		$	(2,839	)	$	(1,676	)
State	371			139			155
	408			(2,700		)	(1,521		)
Deferred:
Federal and international	(5,248		)	2,194			(8,153		)
State	(632		)	59			(1,227		)
	(5,880		)	2,253			(9,380		)
Total income tax benefit	$	(5,472	)	$	(447	)	$	(10,901	)

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.INCOME TAXES (Continued)

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

	2006			2005
	(Dollar amounts in thousands)
Deferred tax assets:
Accounts receivable allowance	$	386		$	262
Warranty reserve	321			404
Intangible assets	2,433			2,433
Goodwill	11,783			7,986
Inventory valuation	725			744
Compensated absences and medical claims	498			449
Stock option expense	204
Other liabilities and reserves	555			621
Net operating loss and R&D credits	7,255			6,601
Valuation allowance	(445		)	(445		)
	23,715			19,055
Deferred tax liabilities:
Book over tax basis of fixed assets	(1,253		)	(2,408		)
Book over tax basis of intangible assets	(6,794		)	(5,799		)
	(8,047		)	(8,207		)
Net deferred tax asset	$	15,668		$	10,848

The valuation allowance relates principally to deferred tax assets that we estimate may not be realizable and consist of tax over book basis in affiliates. 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.

At June 30, 2006, we have approximately $9,162,000 of state and $13,820,000 of federal net operating losses that can be either carried back or carried forward for tax purposes. All of the state operating losses are being carried forward. We are in the process of preparing the necessary amended tax return filings to carry back approximately $9 million of federal operating losses to prior years. The benefit associated with these losses of approximately $3 million is included in current deferred tax assets until such time that the amended returns are filed. Certain limitations on utilization of the net operating loss carryforwards are present and realization of a portion of the carryforwards is uncertain. These carryforwards expire in years from 2013 through 2026.

The net deferred tax asset consists of the following at June 30:

	2006		2005
	(Dollar amounts in thousands)
Current deferred tax asset	$	3,824	$	5,765
Noncurrent deferred tax asset	11,844		5,083
Total net deferred tax asset	$	15,668	$	10,848

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.INCOME TAXES (Continued)

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

	2006			2005			2004
	(Dollar amounts in thousands)
Taxes at statutory rate	$	(5,295	)	$	(373	)	$	(9,775	)
State income taxes	(387		)	150			(697		)
Research and development credit	(381		)	(410		)	(652		)
Goodwill	736						1,054
Other	(145		)	186			(831		)
Income tax benefit	$	(5,472	)	$	(447	)	$	(10,901	)

During the third quarter of fiscal 2004, we recorded a $1,249,000 income tax benefit related to the favorable settlement of a tax audit.

12.ACCUMULATED COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) consists of the following as of June 30:

	2006			2005
	(Dollar amounts in thousands)
Currency translation adjustment:
Beginning balance	$			$	(46	)
Currency translation adjustment				(27		)
Liquidation of foreign entity				73
Ending balance	—			—
Unrealized gain on derivative instrument (Note 2):
Beginning balance	345			660
Change in derivative instrument				(265		)
Amortization to earnings	(118		)	(50		)
Ending balance.	227			345
Accumulated comprehensive income—June 30	$	227		$	345

During fiscal 2005, we liquidated a foreign entity and recorded $73,000 in currency translation expense. In addition, we liquidated our derivative instrument, an interest rate swap arrangement during fiscal 2005 and received $394,000 in cash. The market value of the interest rate swap arrangement as of the date of liquidation included in accumulated other comprehensive income is being amortized over the remaining life of the originally forecasted transaction.

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.EARNINGS (LOSS) PER SHARE

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

	2006			2005			2004
	(Dollar amounts in thousands, except per share data)
Numerator:
Net loss available to common shareholders	$	(10,102	)	$	(650	)	$	(17,027	)
Denominator:
Weighted average shares outstanding—basic	8,850,884			8,800,421			8,567,741
Effect of dilutive securities—common stock options	—			—			—
Weighted average shares outstanding—diluted	8,850,884			8,800,421			8,567,741
Net loss per share of common stock:
Basic	$	(1.14	)	$	(0.07	)	$	(1.99	)
Diluted	$	(1.14	)	$	(0.07	)	$	(1.99	)

Employee stock options totaling 126,399 shares for the year ended June 30, 2006, 146,620 shares for the year ended June 30, 2005 and 239,350 shares for the year ended June 30, 2004 were not included in the diluted weighted average shares calculation because the effects of these securities were antidilutive.

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 earnings (loss) per share and are as follows:

	2006		2005		2004
Average exercise price per share	$	24.22	$	24.66	$	25.13
Number of shares	350,800		304,300		268,100

As discussed in Note 7, 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.

14.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

54

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14.GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

office and manufacturing facilities, was $4,009,000 in 2006, $3,748,000 in 2005 and, $4,239,000 in 2004. These operating leases include options for renewal. Annual minimum future rentals for lease commitments are approximately $3,466,000 in 2007, $3,003,000 in 2008, $1,387,000 in 2009, 794,000 in 2010 and $448,000 in 2011 for an aggregate of $9,098,000 for the five-year period. Minimum future rentals after 2011 total $3,854,000.

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:

	2006			2005
	(Dollar amounts in thousands)
Beginning balance	$	2,510		$	4,691
Current provisions, net	(805		)	(702		)
Expenditures and settlements	(741		)	(1,523		)
Adjustments	(37		)	44
Ending balance	$	927		$	2,510

The amount of $1,523,000 presented as “Expenditures and settlements” for fiscal 2005 includes $1,036,000 related to the settlement of a lawsuit which occurred in the first quarter of fiscal 2005. “Current provisions, net” include changes in estimates.

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. 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.

EXECUTIVE AGREEMENTS

We have agreements with certain 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, to a maximum amount of $4,886,000. 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.

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14.GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

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. Historically, we have not made payments under these executive agreements, and no amount has been accrued in the accompanying consolidated financial statements.

BUSINESS PURCHASE AGREEMENTS

As part of the purchase of UST in May 2003, we are leasing UST’s Santa Fe Springs, California facility and its Tecate, Mexico facility from affiliates of the sellers for five year terms. We are guaranteeing the payments under the Tecate, Mexico lease. The lease commitment under the lease is included above. As part of our restructuring plan for the Intersection Control segment discussed in Note 17, we are vacating this facility and are attempting to sublet it.

INDEMNIFICATION OF LENDERS AND AGENTS UNDER CREDIT FACILITIES

Under our credit facilities, we have agreed to indemnify our lenders under such facilities against costs or losses resulting from changes in laws and regulations which would increase the lenders’ costs, and from any legal action brought against the lenders related to the use of loan proceeds. These indemnifications generally extend for the term of the credit facilities 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 $3,028,000 as of June 30, 2006. 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 covering potential workers’ compensation liabilities. The total standby exposure at June 30, 2006 was $1,144,000. We have included $971,000 in accrued liabilities for this exposure as of June 30, 2006.

We have certain non-cancelable royalty agreements, which contain certain minimum payments in the aggregate of $2,266,000 through fiscal year 2011. We have included $496,000 in accrued liabilities for this exposure as of June 30, 2006.

15.SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES

Cash paid for interest was $4,226,000 in 2006, $2,395,000 in 2005 and $2,049,000 in 2004. Net cash received from income taxes was $774,000 in 2006 and $2,075,000 in 2005 and cash paid for income taxes was $2,878,000 in 2004. We declared dividends that were payable at year end of $1,688,000 in 2006, $1,595,000 in 2005 and $1,486,000 in 2004. In connection with the acquisition of Peek Traffic in

56

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15.SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES (Continued)

December 2003, the purchase price for the net assets acquired included 180,723 shares of our common stock, issued from Treasury Stock, valued at $4,430,000.

16.INDUSTRY SEGMENT INFORMATION

During the third quarter of fiscal 2006, we expanded the number of reportable segments from two to three segments. The segment financial data presented herein has been restated to present our three reportable segments—the manufacture and sale of products which Protect and Direct, the manufacture and sale of products which Inform, and the manufacture and sale of Intersection Control products. 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 primary product lines within the Intersection Control segment include intelligent intersection traffic control systems, pedestrian signals, video detection equipment and other transportation equipment. The products within this segment control traffic and ease traffic congestion, primarily related to intersections.

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: $21,821,000 in 2006, $19,111,000 in 2005 and $14,249,000 in 2004. Inter-company sales between segments represented less than one percent of consolidated net sales in fiscal 2006, 2005 and 2004.

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.

57

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.INDUSTRY SEGMENT INFORMATION (Continued)

The following table presents financial information about reported segments as of and for the years ended June 30, 2006, 2005 and 2004 comprising the totals reported in the consolidated financial statements.

	2006			2005			2004
	(Dollar amounts in thousands)
Revenues:
Protect and Direct	$	80,806		$	73,575		$	73,282
Inform	24,134			21,163			21,188
Intersection Control	56,194			51,615			55,820
Total	$	161,134		$	146,353		$	150,290
Depreciation and amortization:
Protect and Direct	$	2,601		$	2,737		$	2,719
Inform	746			792			859
Intersection Control	2,552			2,107			2,907
Total segment depreciation and amortization	5,899			5,636			6,485
Unallocated corporate	538			175			35
Total	$	6,437		$	5,811		$	6,520
Income (loss) before income taxes:
Protect and Direct	$	15,539		$	14,859		$	15,904
Inform	3,403			1,151			(7,926		)(1)
Intersection Control	(22,360		)(2)	(5,723		)	(25,687		)(3)
Total segment operating profit (loss)	(3,418		)	10,287			(17,709		)
Unallocated corporate	(7,510		)	(8,120		)	(7,893		)
Total operating profit (loss)	(10,928		)	2,167			(25,602		)
Unallocated interest and other	(4,646		)	(3,264		)	(2,326		)
Total	$	(15,574	)	$	(1,097	)	$	(27,928	)
Identifiable assets:
Protect and Direct	$	55,415		$	52,204		$	53,347
Inform	22,301			21,975			22,064
Intersection Control	28,359			48,864			49,678
Total segment identifiable assets	106,075			123,043			125,089
Unallocated corporate	19,128			13,747			14,793
Total	$	125,203		$	136,790		$	139,882
Capital expenditures:
Protect and Direct	$	1,538		$	1,593		$	3,425
Inform	801			490			194
Intersection Control	709			1,722			1,014
Total segment capital expenditures	3,048			3,805			4,633
Unallocated corporate							5
Total	$	3,048		$	3,805		$	4,638

(1) Includes $9,865 in non-cash asset impairment charges.

(2) Includes $13,374 in non-cash asset impairment charges.

(3) Includes $22,735 in non-cash asset impairment charges.

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17.RESTRUCTURING COSTS

The continued underperformance of the Intersection Control segment during fiscal 2006 resulted in our decision to further rationalize that business and divest certain non-core product lines. On April 25, 2006, our Board of Directors approved a restructuring plan for our Intersection Control segment which is comprised of the legacy operations of UST and Peek Traffic to reduce costs through the reduction of overhead by closing two facilities and through the reduction of headcount.

Under the restructuring plan, we are divesting and discontinuing certain low-margin and non-core product lines primarily manufactured in our leased facilities located in Tecate, Mexico and Santa Fe Springs, California. These product lines include portable and permanent variable message signs, tunnel lighting, illuminated street signs and in-ground loop detectors. We are in the process of moving the remaining intersection control family of products, including traffic controllers, traffic signals and pedestrian signals to our Palmetto, Florida and Bedford, Pennsylvania facilities. We are adopting an outsourcing strategy for non-core manufacturing processes and will continue to assemble and test products. We plan to close the facilities in Santa Fe Springs, California and Tecate, Mexico by the end of September 2006.

In connection with the restructuring plan, we recorded $5,775,000 in restructuring charges during fiscal 2006, net of proceeds received on the sale of assets. The remaining cash portion of the plan is currently estimated to be approximately $5 million, net of cash to be received on the disposal of assets, consisting principally of approximately $2 million in employee severance and related benefit costs, $2 million in facility exit costs, consulting expense and other related costs and $1 million in lease obligations over the next two years. The remaining non-cash portion of the plan is currently estimated to be approximately $3 million consisting of asset write-offs associated with inventory that no longer will be part of our ongoing operations within the Intersection Control segment. We expect implementation of the plan to be completed by the end of our fiscal 2007 second quarter.

Effective June 22, 2006, as part of the restructuring of the Intersection Control segment, we sold our portable variable message sign, tunnel lighting and illuminated street sign product lines for cash of $1,500,000. As the result of the sale of inventory, equipment, intellectual property, allocated goodwill, contracts and orders, we recorded a loss of $3,449,000 included as part of restructuring costs in operating income.

Activity related to the restructuring plan during fiscal year 2006 was as follows:

				Costs															Remaining			Total
	Accrual			Incurred			Cash								Accrual				Expected			Expected
	Balance			and other			Proceeds				Non-cash				Balance				Plan			Plan
	July 1, 2005			Adjustments			(Payments)				Adjustments				June 30, 2006				Costs			Costs
	(Dollar amounts in thousands)
Employee severance and related benefits		$	—		$	179		$	(179	)		$	—			$	—			$	1,821		$	2,000
Lease obligations					90			(90		)										972			1,062
Asset sales and write-offs					4,571			1,500				(5,908		)		(163		)		3,452			8,023
Facility exit costs, consultants and legal					935			(601		)						(334		)		2,205			3,140
Total		$	—		$	5,775		$	630			$	(5,908	)		$	(497	)		$	8,450		$	14,225

Employee severance and related benefits include severance pay, related benefits and retention bonuses. Through June 30, 2006, the total workforce reduction associated with restructuring activities

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17.RESTRUCTURING COSTS (Continued)

initiated during fiscal 2006 included approximately 25 employees. We expect approximately 200 additional employees to be included in the workforce reduction in fiscal 2007. The amounts accrued for related to the restructuring plan as of June 30, 2006 are included in current liabilities.

18.LEGAL SETTLEMENTS

On May 30, 2006, we settled all outstanding litigation with the sellers of UST. The sellers paid us $3 million in cash, and the parties agreed to waive all claims arising from the original purchase and related agreements dated in May 2003. We also terminated some of these agreements and modified the terms of the non-competition covenant with the sellers. Specifically, the sellers agreed to refrain from selling uninterruptible power supply products for use in intersection control to the cities of New York and Chicago until May 2008. We reaffirmed the $5 million subordinated note to the sellers, and we continue to guarantee payments pursuant to the lease of the Tecate, Mexico facility. During the fourth quarter, we recorded a gain of $2,348,000, net of legal and other directly related expenses of which $336,000 were recorded in fiscal 2006 prior to the fourth quarter.

On September 23, 2005, we settled all claims arising from our 2003 acquisition of the Peek Traffic business, by releasing all claims arising under the purchase agreement. As part of the settlement, the sellers of that business paid us $627,000 in cash, net of legal expenses, and sold to us 150,603 shares of our common stock that they initially acquired as part of the purchase price for $3,105,000, or $20.62 per share. We had claimed damages from the sellers of the Peek Traffic business arising from the sellers’ breaches of representations and warranties in the asset purchase agreement and from certain liabilities of the Peek Traffic business that we did not specifically assume or were misrepresented to us.

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QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized unaudited quarterly financial data for years 2006 and 2005 follows:

	Three months ended
	9/30			12/31			3/31			6/30
	(Dollar amounts in thousands, except per share data)
FISCAL 2006
Net sales	$	39,391		$	39,186		$	37,470		$	45,087
Gross profit	10,946			11,214			11,050			14,829
Operating profit (loss)	1,627			488			(178		)	(12,865)		(1)
Net earnings (loss)	276			(383		)	(878		)	(9,117)		(2)
Basic earnings (loss) per share	.03			(.04		)	(.10		)	(1.03)		(3)
Diluted earnings (loss) per share	.03			(.04		)	(.10		)	(1.03)		(3)
	9/30			12/31			3/31			6/30
FISCAL 2005
Net sales	$	37,987		$	33,447		$	34,952		$	39,967
Gross profit	11,272			8,707			12,013			14,497
Operating profit (loss)	137			(873		)	(231		)	3,134
Net earnings (loss)	(261		)	(1,039		)	(741		)	1,391
Basic earnings (loss) per share	(.03		)	(.12		)	(.08		)	.16
Diluted earnings (loss) per share	(.03		)	(.12		)	(.08		)	.16

(1) Includes non-cash asset impairment charges of $13,374.

(2) Includes non-cash asset impairment charges of $8,723, net of income tax benefits.

(3) Includes non-cash asset impairment charges of $0.98 per diluted share.

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Item 9.Changes in and Disagreements with Independent Registered Public Accounting Firm on Accounting and Financial Disclosures

None.

Item 9A.Controls and Procedures

(a)EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that solely as a result of the material weakness in our controls over financial reporting as described below, our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report 10-K, June 30, 2006. However, we performed analysis and other procedures to ensure that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Accordingly, management believes that (i) the financial statements filed fairly present in all material respects the Company’s financial condition, results of operations and cash flow for the periods presented, and (ii) this report does not contain any untrue statement of a material fact or omit a material fact necessary to make the statements, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

(b)MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f). Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this assessment, management determined that a material weakness existed in our internal controls over certain financial reporting controls as of June 30, 2006. Specifically, a number of control breakdowns in the operations at two facilities within our Intersection Control segment comprised of U.S. Traffic Corporation (UST) and Peek Traffic Corporation were identified. As further described in Note 17 to the consolidated financial statements, these two facilities in Santa Fe Springs and Tecate, Mexico will be closed in connection with a restructuring plan approved in the fourth quarter of fiscal 2006. The control breakdowns were noted in financial reporting, revenue, expenditures, inventory and capital assets, which resulted in a few misstatements identified by our external auditors, Grant Thornton LLP. These breakdowns in the control environment were attributed to the turnover of personnel within the accounting department at these two facilities. Management has not identified a specific remediation plan, because production at the facilities will cease by September 30, 2006. Management expects to vacate these facilities in the second quarter of fiscal year 2007, which we expect will result in the remediation of this material control weakness.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2006 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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Limitation on the Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud.

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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.

Further, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Remediation of the 2005 Material Weakness

As of June 30, 2005, we had concluded that we had a material weakness in internal controls over certain Information Technology General Controls, including lack of (i) monitoring of information technology managers who have full access to the application and underlying data, (ii) mechanisms to track changes made to the application itself, and (iii) adequate security administration of users access to the application.

During fiscal year 2006, we developed a comprehensive, detailed remediation plan to address the material weakness described above. As of June 30, 2006, we completed the execution of our remediation plan, and in our assessment have remediated this material weakness. Our remediation plan included the following activities:

·We upgraded our primary information technology software to a more current version, which allowed us to identify changes made to certain data within the software;

·We implemented mechanisms to track changes to the financial applications;

·We outsourced the management of the underlying data within our primary technology software to limit information technology managers access to the underlying data; and

·We implemented control procedures to mitigate excessive access to the financial application.

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Attestation of Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Quixote Corporation

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Quixote Corporation and subsidiaries did not maintain effective internal control over financial reporting as of June 30, 2006, because of the effect of the material weakness identified in management’s assessment, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Quixote Corporation’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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our assessment identified the following control weaknesses at the Santa Fe Springs, California and Tecate, Mexico locations that in the aggregate constitute a material weakness in the Company’s internal control over financial reporting:

(i)Misstatements identified during audit procedures

(ii)Insufficient personnel resources within the accounting and financial reporting function due to staff turnover

(iii)Deficiencies in the analysis and reconciliation of general ledger accounts

(iv)Policies and procedures lacking for tracking and recording fixed assets

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This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the June 30, 2006 financial statements, and this report does not affect our report dated September 12, 2006 on those financial statements.

In our opinion, management’s assessment that Quixote Corporation and subsidiaries did not maintain effective internal control over financial reporting as of June 30, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Quixote Corporation has not maintained effective internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Quixote Corporation and subsidiaries as of June 30, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended and our report dated September 12, 2006 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Chicago, Illinois
September 12, 2006

(c)CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the fiscal quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. . During the fourth quarter of fiscal 2006, in conjunction with our remediation plan related to our 2005 material weakness, we outsourced the management of the underlying data within our primary technology software and implemented control procedure to mitigate excessive access to the financial application. We completed our assessment over Information Technology General Controls and assessed that our 2005 material weakness was remediated. During the fourth quarter of fiscal 2006, we also identified a deterioration of the control environment at two facilities within our Intersection Control segment further discussed above. However, in connection with this material weakness in internal control over financial reporting, we performed additional analysis and other post-closing procedures, as described above in Evaluation of Disclosure Controls and Procedures.

65

PART III

Item 10.Directors and Executive Officers of the Registrant

Some of the information required in response to this item regarding Directors of the Registrant is set forth in the sections “Audit committee financial expert”, “Information concerning nominees for director and directors continuing in office” and “Compliance with Section 16 of the Securities Exchange Act of 1934” of the Registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 16, 2006 to be filed with the Commission on or about September 29, 2006 and is incorporated herein by reference.

In addition, the Company’s Code of Ethics that applies to the Registrant’s principal executive officer, principal financial officer and principal accounting officer or controller, is posted on the Registrant’s website at www.quixotecorp.com/investor/corpgovernance.asp.

The executive officers of the Company, their ages and offices held by each during fiscal 2006 are as follows:

Leslie J. Jezuit	60	Chairman & Chief Executive Officer—Quixote Corporation
Daniel P. Gorey	55	Chief Financial Officer, Vice President & Treasurer—Quixote Corporation
Joan R. Riley	53	Vice President, General Counsel & Secretary—Quixote Corporation

Mr. Jezuit joined the Company as President and Chief Operating Officer of Quixote Corporation in 1996. Prior to that time, Mr. Jezuit served as President and Chief Operating Officer of Robert Shaw Controls Company. In October, 1999 Mr. Jezuit assumed the position of Chief Executive Officer and in July 2001 was elected Chairman of the Board of Directors.

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

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 “Remuneration of Directors and Executive Officers” of the Registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 16, 2006 to be filed with the Commission on or about September 29, 2006 and is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management

The information required in response to this item is set forth under the caption “Stock Ownership of Certain Beneficial Owners” of the Registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 16, 2006 to be filed with the Commission on or about September 29, 2006 and is incorporated herein by reference.

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Item 13.Certain Relationships and Related Transactions

The information required in response to this item is set forth under the caption “Certain Transactions and Business Relationships” of the Registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 16, 2006 to be filed with the Commission on or about September 29, 2006 and is incorporated herein by reference.

PART IV

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 the Registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 16, 2006 to be filed with the Commission on or about September 29, 2006 and is incorporated herein by reference.

Item 15.Exhibits and Financial Statement Schedule

Item		Page Number in
Number		This Report
(a).1.	Financial Statements
	Reports of Independent Registered Public Accounting Firm	32-33
	Consolidated Statements of Operations for the years ended June 30, 2006, 2005 and 2004	34
	Consolidated Balance Sheets as of June 30, 2006 and 2005	35
	Consolidated Statements of Shareholders’ Equity for the years ended June 30, 2006, 2005 and 2004	36
	Consolidated Statements of Cash Flows for the years ended June 30, 2006, 2005 and 2004	37
	Notes to Consolidated Financial Statements	38-61
(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	The Asset Purchase Agreement between Green Light Acquisition Company, U.S. Traffic Corporation and Myers/Nuart Electrical Products, Inc. dated as of May 16, 2003, filed as Exhibit 2.1 to the Company’s Form 8-K Current Report dated May 21, 2003 and filed on June 5, 2003, File No. 001-08123, and incorporated herein by reference.
2.2	The Asset Purchase Agreement dated December 10, 2003 between Vision Acquisition Corporation, Peek Traffic, Inc. and Peek Traffic Systems, Inc., filed as Exhibit 2.1 to the Company’s Form 8-K Current Report dated December 10, 2003 and filed on December 19, 2003, File No. 001-08123, and incorporated herein by reference.

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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, Preferences and Rights of Series B Junior Participating Preferred Stock dated July 24, 1998, filed as Exhibit 1 to the Company’s Form 8-A Registration Statement dated July 23, 1998, File No. 001-08123, and incorporated herein by reference.
	(b)	Amended and Restated By-Laws of the Company as amended through January 24, 2006, filed as Exhibit 3(b) to the Company’s Current Report on Form 8-K , File No. 001-08123, dated January 26, 2006, and incorporated herein by reference.
4.	(a)	Rights Agreement dated as of July 24, 1998, between the Company and BankBoston, N.A, as Rights Agent, filed as Exhibit 1 to the Company’s Form 8-A Registration Statement dated July 23, 1998, File No. 001-08123, and incorporated herein by reference; Amendment to Rights Agreement dated as of October 15, 2001, filed as Exhibit 4(a) to the Company’s Form 10-Q for the quarter ended December 31, 2001, File No. 001-08123, and incorporated herein by reference.
4.	(b)	Indenture dated as of February 9, 2005 between Quixote Corporation and LaSalle Bank National Association, as Trustee, filed on February 10, 2005 as Exhibit 4(a) to the Company’s Current Report on Form 8-K, File No. 001-08123, dated February 9, 2005, and incorporated herein by reference.
4.	(c)	Form of 7% Convertible Senior Subordinated Note Due 2025, filed on February 10, 2005 as Exhibit 4(b) to the Company’s Current Report on Form 8-K, File No. 001-08123, dated February 9, 2005 and incorporated herein by reference.
4.	(d)	Registration Rights Agreement dated as of February 9, 2005 by and among Quixote Corporation, and the Buyers as defined therein, filed on February 10, 2005 as Exhibit 4(c) to the Company’s Current Report on Form 8-K, dated February 9, 2005, 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.
	(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.

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(c)*	1993 Long-Term Stock Ownership Incentive Plan, as amended through August 16, 2000, filed as Exhibit 10(c) 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; Retirement Award Agreement dated as of June 30, 1997 between the Company and Daniel P. Gorey, filed as Exhibit 10(d) to the Company’s Form 10-K Report for the fiscal year ended June 30, 1997, File No. 001-08123, and incorporated herein by reference; Retirement Award Agreement dated as of February 19, 1998 between the Company and Leslie J. Jezuit filed as Exhibit 10(a) to the Company’s Form 10-Q Report for the quarter ended March 31, 1998 and incorporated herein by reference; Retirement Award Agreement dated as of February 19, 1998 between the Company and Joan R. Riley, filed as Exhibit 10(d) to the Company’s Form 10-K Report for the fiscal year ended June 30, 1998, File No. 001-08123, and incorporated herein by reference.
(d)*	2001 Employee Stock Incentive Plan, as amended November 18, 2004 and  filed as Exhibit F to the Company’s DEF Schedule  14A Proxy Statement, File No. 001-08123, filed on October 6, 2004 and incorporated herein by reference; 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.
(e)*	2001 Non-Employee Directors Stock Option Plan as amended November 18, 2004 and filed as Exhibit G to the Company’s DEF Schedule 14A Proxy Statement, File No. 001-08123, filed on October 6, 2004 and incorporated herein by reference; 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.
(f)	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. 001-08123, and incorporated herein by reference; First Amendment to Office Lease dated as of July 1, 2004 between the Company and Landlord, filed herewith; Office Lease between Amberjack, Ltd. and Litigation Sciences, Inc. dated July 2, 1990, filed as Exhibit 10(a) to the Company’s Form 10-Q Report for the quarter ended December 31, 1993, File No. 001-08123 and incorporated herein by reference; First Amendment to Office Lease between Amberjack Ltd. and Stenograph Corporation dated as of June 23, 1994, filed as Exhibit 10(h) to the Company’s Form 10-K Report for the fiscal year ended June 30, 1994, 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/Warehouse Lease dated August, 2002 between Teduke Investment Company c/o Bakewell Corporation and Surface Systems, Inc., filed as Exhibit 10 (f) to the Company’s 10-K Report for the fiscal year ended June 30, 2002, File No. 001-08123, and incorporated herein by reference; Lease between Green Light Acquisition Company and Cambridge Real Estate Corporation dated as of May 16, 2003, filed as Exhibit 10.7 to the Company’s Form 8-K Current Report dated May 21, 2003 and filed on June 5, 2003, File No. 001-08123, and incorporated herein by reference; Lease Contract between Quixote Safety Transportation Mexico S. de R. L. C. V. and Intersection Development Corporation S. A. de C. V. dated as of May 16, 2003, filed as Exhibit 10.8 to the Company’s Form 8-K Current Report dated May 21, 2003 and filed on June 5, 2003, File No. 001-08123, and incorporated herein by reference; Lease dated September 22, 2005 by and between Gulfcoast Property No. 1, LLC and Peek Traffic Corporation filed as Exhibit 10(f) to the Company’s Form 10-Q Report for the quarter ended

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	September 30, 2005, File No. 001-08123, and incorporated herein by reference; Lease Addendum dated January 17, 2006 by and between Gulfcoast Property No. 1, LLC and Peek Traffic Corporation filed as Exhibit 10(f) to the Company’s Form 10-Q for the quarter ended December 31, 2005, File No. 001-08123 and incorporated herein by reference; Sublease dated June 22, 2006 by and between U.S. Traffic Corporation and National Signal, Inc. filed herewith.
(g)*	Letter Agreement dated December 15, 1995 between the Company and Leslie J. Jezuit, filed as Exhibit 10(d) to the Company’s Form 10-Q Report for the quarter ended December 31, 1995, File No. 001-08123, and incorporated herein by reference; Change of Control Agreements dated December 1,1997 by and between the Company and each of  Leslie J. Jezuit and Daniel P. Gorey, filed as Exhibit 10(f) to the Company’s Form 10-Q Report for the quarter ended December 31, 1997, File No. 001-08123, and incorporated herein by reference; Change of Control Agreement dated December 1, 1997 between the Company and Joan R. Riley, filed as Exhibit 10(f) to the Company’s 10-K Report for the fiscal year ended June 30, 1998, File No. 001-08123, and incorporated herein by reference.
(h)	Asset Purchase Agreement made October 10, 1997, and effective October 1, 1997, by and between Quixote Corporation, TranSafe Corporation, Roadway Safety Service, Inc., Momentum Management, Inc., and Fitch Barrier Corporation; 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; Consulting Agreement made October 10, 1997, and effective October 1, 1997, by and between TranSafe Corporation and E. Scott Walter, all filed as Exhibits 2.1, 2.2, and  2.3 to the Company’s Form 8-K Report dated October 10, 1997, File No. 001-08123, and incorporated herein by reference.
(i)	Subordinated Promissory Note of Green Light Acquisition Company dated as of May 16, 2003, filed as Exhibit 10.2 to the Company’s Form 8-K Current Report dated May 21, 2003 and filed on June 5, 2003, File No. 001-08123, and incorporated herein by reference.
(j)	Guaranties of Quixote Corporation to U.S. Traffic Corporation, Myers/Nuart Electrical Products, Inc., Cambridge Leasing Corporation and Intersection Development Corporation S. A. de C. V. dated as of May 16, 2003, filed as Exhibit 10.4 to the Company’s Form 8-K Current Report dated May 21, 2003 and filed on June 5, 2003, File No. 001-08123, and incorporated herein by reference.
(k)	Stockholders Covenant Not to Compete and Other Post-Asset Sale Obligations between Green Light Acquisition Company and Raymond International W.L.L., Raymond Overseas Holding Limited and Basil K. Vasiliou dated as of May 16, 2003, filed as Exhibit 10.10 to the Company’s Form 8-K Current Report dated May 21, 2003 and filed on June 5, 2003, File No. 001-08123, and incorporated herein by reference.
(l)	The OEM Supply Agreement between Green Light Acquisition Company and Myers Power Products, Inc. dated as of May 16, 2003, filed as Exhibit 10.11 to the Company’s Form 8-K Current Report dated May 21, 2003 and filed on June 5, 2003, File No. 001-08123, and incorporated herein by reference.
(m)	Settlement Agreement dated May 30, 2006 by and among U.S. Traffic corporation, Quixote Corporation, Myers America, Inc., Myers Power Products, Inc., Myers/NuArt Electrical Products, Inc., Raymond International W.L.L., Raymond Overseas Holding, Limited and Basil Vasilou, filed as Exhibit 10(u) to the Company’s Current Report on Form 8-K dated May 30, 2006, File No. 001-08123, and incorporated herein by reference.

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(n)	Non-Competition Agreement dated December 10, 2003 between Vision Acquisition Corporation, Peek Holding Corporation, Peek Corporation, Peek Traffic, Inc., and Peek Traffic Systems, Inc. filed as Exhibit 10.5 to the Company’s Form 8-K Current Report dated December 11, 2003 and filed on December 19, 2003, File No. 001-08123, and incorporated herein by reference.
(o)	Perpetual License Agreement dated December 10, 2003 between Peek Traffic, Inc., Peek Traffic Systems, Inc. and Vision Acquisition Corporation filed as Exhibit 10.6 to the Company’s Form 8-K Current Report dated December 11, 2003 and filed on December 19, 2003, File No. 001-08123, and incorporated herein by reference.
(p)	Asset Purchase Agreement dated June 22, 2006 by and between U.S. Traffic Corporation and National Signal, Inc., filed herewith.
(q)	Asset Purchase Agreement dated June 30, 2006 between Data Transmission Network Corporation and Surface Systems, Inc., filed herewith.

21.Subsidiaries of the Company

23.Consent of Grant Thornton LLP as an Independent Registered Public Accounting Firm

23.1Consent of PricewaterhouseCoopers 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 and Reserves

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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 12, 2006		By: /s/ Leslie J. Jezuit
			Leslie J. Jezuit, 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/ Leslie J. Jezuit		Chairman and Director		September 12, 2006
Leslie J. Jezuit		(President, Chief Executive Officer)
/s/ Daniel P. Gorey		Vice President, Chief Financial Officer,		September 12, 2006
Daniel P. Gorey		Treasurer and Director
/s/ Joan R. Riley		Vice President, General Counsel		September 12, 2006
Joan R. Riley		and Secretary
/s/ James H. DeVries		Director		September 11, 2006
James H. DeVries
/s/ Lawrence C. McQuade		Director		September 11, 2006
Lawrence C. McQuade
/s/ Duane M. Tyler		Director		September 12, 2006
Duane M. Tyler
/s/ Robert D. van Roijen, Jr.		Director		September 11, 2006
Robert D. van Roijen, Jr.

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QUIXOTE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended June 30, 2006, 2005 and 2004

Column A	Column B		Column C			Column D(a)				Column E
			Additions
	Balance at		Charged to							Balance at
	Beginning of		Costs and							End of
Description	Period		Expenses			Deductions				Period
Reserve for Doubtful Accounts and Credit Memos:
Year ended
June 30, 2006	$	1,581,000		$	693,000		$	(458,000	)	$	1,816,000
Year ended
June 30, 2005	$	1,872,000		$	647,000		$	(938,000	)	$	1,581,000
Year ended
June 30, 2004	$	1,267,000		$	686,000		$	(81,000	)	$	1,872,000

NOTE:

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

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EXHIBIT INDEX

EXHIBIT NUMBER	EXHIBITS
10(f)	Sublease dated June 22, 2006 by and between U.S. Traffic Corporation and National Signal, Inc.
10(p)	Asset Purchase Agreement dated June 22, 2006 by and between U.S. Traffic Corporation and National Signal, Inc.
10(q)	Asset Purchase Agreement dated June 30, 2006 between Data Transmission Network Corporation and Surface Systems, Inc.
21	Subsidiaries of the Company
23	Consent of Independent Registered Public Accounting Firm
23.1	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

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EX-10.F

Exhibit 10(f)

SUBLEASE

THIS SUBLEASE (this “Sublease”) is made and entered into as of the 22nd day of June, 2006, by and between U.S. Traffic Corporation f/k/a Green Light Acquisition Company, a Delaware corporation (“Landlord”), and National Signal, Inc., a California corporation (“Tenant”).

1.PRIME LEASE.  Landlord is the tenant under that certain Lease Agreement (the “Prime Lease”) dated May 16, 2003 with Cambridge Leasing Corporation, a Delaware corporation, who has assigned its interest under the Prime Lease to Greenlaw Partners LLC,  a California limited liability company (the “Prime Landlord”), for the lease of the building situated at 9601 and 9603 John Street, Santa Fe Springs, California (the “Property”).  Landlord warrants that (a) Landlord has delivered to Tenant a complete copy of the Prime Lease and all other agreements between Prime Landlord and Landlord relating to the leasing, use or occupancy of the Property, (b) the Prime Lease is, as of the date of this Sublease, in full force and effect, and (c) no event of default has occurred under the Prime Lease by any party thereto and, to Landlord’s knowledge, no event has occurred and is continuing that would constitute an event of default by Landlord, but for the requirement of the giving of notice and the expiration of the period of time to cure.

2.SUBLEASE.  Landlord, for and in consideration of the rents herein reserved and of the covenants and agreements herein contained on the part of the Tenant to be performed by Tenant, hereby subleases to Tenant the premises shown on Exhibit A (the “Premises”) attached that are located in the building (the “Building”), which Building is located on and a part of the Property, and the Tenant hereby accepts the Premises from the Landlord.

3.SUBLEASE TERM.  The term of this Sublease (the “Term”) shall commence on the later of (a) the date hereof, and (b) the date Prime Landlord consents in writing to this Sublease (such later date being hereinafter referred to as the “Commencement Date”).  The Term shall expire on May 31, 2008 (the “Expiration Date”), unless sooner terminated as otherwise provided elsewhere in this Sublease.

4.POSSESSION.  Landlord agrees to deliver possession of the Premises on or before the Commencement Date in their condition as of the execution and delivery hereof, reasonable wear and tear excepted; that is to say, AS IS.  Notwithstanding the foregoing, Landlord represents that the roofs, walls, foundations and other major structural components of the Premises are in good repair, free from material defects, and suitable for Tenant’s Use (as described in Section 5 below).

5.TENANT’S USE.  The Premises shall be used and occupied only for manufacturing, sales and related office use, subject to, and in accordance with all applicable laws, regulations, orders, codes and zoning regulations (including the applicable certificate of occupancy), and for no other purposes.

6.RENT.  Beginning on the Commencement Date, Tenant shall pay during the Term, as “Base Rent”, Twenty Five Thousand Six Hundred Fifty and No/100ths Dollars ($25,650.00) per month.  Tenant shall pay Base Rent and Additional Rent (as hereinafter defined) to and at the address specified herein for Landlord or to such other payee or at such other address as may be designated by notice in writing from Landlord to Tenant, without prior demand therefor and without any deduction, setoff, diminution, abatement, counterclaim or deduction whatsoever.  Base Rent shall be paid in equal monthly installments in advance on the first (1st) day of each month of the Term, except that the first installment of Base Rent shall be paid by Tenant to Landlord upon execution of this Sublease by Tenant.  Base Rent shall be pro-rated for partial months at the beginning and end of the Term.  All charges, costs, and sums required to be paid by Tenant to Landlord under Section 7 of this Sublease in addition to Base Rent shall be deemed “Additional Rent,” and Base Rent and Additional Rent shall hereinafter collectively be referred to as “Rent.”

7.TENANT’S OBLIGATIONS.  Tenant shall be responsible for, and shall pay the following:  . All utility consumption costs, including without limitation, water, sewer, gas, and electric and other charges incurred in connection with lighting and providing electrical power to the Premises. The foregoing notwithstanding, if the Premises are not separately metered for utilities at any time during the Term, Tenant agrees to pay Landlord the amount attributable to the Premises from time to time as reasonably estimated by Landlord within ten (10) days

after demand by Landlord specifying such charge.  Tenant shall hold Landlord harmless from all costs or expenses Landlord may incur from Tenant’s failure to pay utility bills or to perform any of its obligations with respect to the purchase of utilities.

Tenant agrees that neither Landlord nor its agents shall be liable in damages, by abatement of Rent or otherwise, for any failure of Tenant to secure gas, electrical or other utility services for the Premises. Tenant further agrees that neither Landlord nor its agents shall be liable in damages, by abatement of Rent or otherwise, for Landlord’s failure to furnish or delay in furnishing any service which Landlord is obligated to provide pursuant to the terms and provisions of this Sublease, if any, when such failure or delay is occasioned, in whole or in part, by repairs, renewals or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Property, by any accident or casualty whatsoever, by the act or default of Tenant or other parties, or by any cause beyond the reasonable control of Landlord; and such failures or delays, or the nonexistence of any utility, whether occasioned by Landlord or some third party, shall never be deemed to constitute an eviction or disturbance of the Tenant’s use and possession of the Premises or relieve the Tenant from paying Rent or performing any of its obligations under this Sublease.

8.QUIET ENJOYMENT. Landlord represents that it has full power and authority to enter into this Sublease, subject to the consent of the Prime Landlord.  So long as no Event of Default (defined in Section 19) has occurred, Tenant’s quiet and peaceable enjoyment of the Premises shall not be disturbed by Landlord or Prime Landlord or by anyone claiming through Landlord or Prime Landlord.

9.INSURANCE; INDEMNITY

(a)Tenant shall keep in full force and effect a policy of commercial general liability insurance for the Premises.  Tenant shall furnish Landlord a certificate of insurance evidencing such coverage and naming Landlord as an additional insured therein.  Tenant’s insurer shall agree to furnish Landlord at least ten (10) days’ advance written notice of any cancellation of coverage.  Renewal certificates shall be supplied promptly following the expiration of the current certificate.

(b)Tenant shall indemnify Landlord from all liability, loss or other damage claims for obligations resulting from any bodily injuries or losses to persons or property occurring in or on the Premises and caused by the negligence or willful misconduct of Tenant, its agents, employees, contractors or invitees, including reasonable attorneys’ fees and court costs incurred by Landlord in defending any such claims, except when caused by the negligence of Landlord or its agents, employees, contractors or invitees.

(c)Landlord, at its sole cost and expense, shall continuously maintain in full force and effect during the Term a policy or policies of insurance insuring the Building against loss or damage by fire and extended perils and other perils for the full replacement cost of the Building.  Landlord shall keep in full force and effect a policy of commercial general liability insurance for the Property.

(d)Anything in this Sublease to the contrary notwithstanding, Landlord and Tenant each hereby waives any and all rights of recovery, claim, action or cause of action against the other for any loss or damage that may occur to the Premises or any improvements thereto, or any personal property of Landlord or Tenant, arising from any cause that (a) would be insured against under the terms of any property insurance required to be carried hereunder; or (b) is insured against under the terms of any property insurance actually carried, regardless of whether the same is required hereunder.  The foregoing waiver shall apply regardless of the cause or origin of such claim, including, but not limited to, the negligence of a party or such party’s agents, officers, employees or contractors.  The foregoing waiver shall not apply if it would have the effect, but only to the extent of such effect, of invalidating any insurance coverage of Landlord or Tenant.  The foregoing waiver shall also apply to any deductible, as if the same were a part of the insurance recovery.  Landlord and Tenant will cause their respective insurers to issue appropriate waiver of subrogation rights endorsements, and shall supply each other with appropriate information from their respective insurers confirming such waiver to be in effect.

10.ASSIGNMENT OR SUBLETTING.  Without Landlord’s consent, Tenant shall not (i) assign, convey, or mortgage this Sublease or any interest under it; (ii) allow any transfer thereof or any lien upon Tenant’s interest by operation of law; (iii) sub-sublet the Premises or any part thereof; or (iv) permit the occupancy of the

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Premises or any part thereof by anyone other than Tenant. Landlord’s consent to an assignment of this Sublease or a sub-subletting of the Premises shall not be unreasonably withheld, and if Landlord consents, Landlord shall use reasonable efforts to obtain the consent of Prime Landlord if its consent is required under the Prime Lease. Any cost of obtaining Prime Landlord’s consent shall be borne by Tenant.

No permitted assignment shall be effective and no permitted sub-subletting shall commence unless and until any default by Tenant hereunder shall have been cured.  Unless otherwise agreed by the Landlord and Tenant, no permitted assignment or sub-subletting shall relieve Tenant from its obligations and agreements hereunder and Tenant shall continue to be liable as a principal and not as a guarantor or surety, to the same extent as though no assignment or sub-subletting had occurred.

11.REPAIRS AND COMPLIANCE.

(a)Landlord represents that the Premises comply with all rules, ordinances, building codes, and laws applicable to the present use of the Premises.  Landlord shall obey, observe and promptly comply with all rules, regulations, ordinances, building codes, and laws which shall be applicable, now or at any time during the Term, to the ownership of the Premises and shall promptly comply with all orders, rules, rulings and directives of any governmental authority or agency having jurisdiction over the Premises, including, without limitation, existing and outstanding orders and requirements.  Notwithstanding anything herein to the contrary, Landlord shall, at Landlord’s sole cost and expense, at all times ensure that the Premises are in compliance with the Americans With Disabilities Act of 1990 (42 U. S. C. 12 101 et seq.) and all regulations and guidelines promulgated thereunder, as all of the same may be amended and supplemented from time to time.

(b)Tenant shall obey, observe and promptly comply with all rules, regulations, ordinances and laws which shall be applicable to the operation of its business, now or at any time during the Term, provided, however, that Tenant shall not be required to make any capital expenditure to the Premises in order to achieve such compliance.

(c)Unless expressly made the obligation of Tenant hereunder, Landlord shall, at its sole expense, be responsible for all repairs, maintenance, and replacement of the Premises including, without limitation, the roof, foundation, plumbing, mechanical components, HVAC components, electrical components and structural components of the Premises.  When used in this Sublease, “repair” shall include making all replacements, renewals, alterations, additions and betterments necessary or desirable to the good operation of the Premises.   All repairs made by Landlord shall be at least equal in quality to the original work performed in constructing the Building and shall be made by Landlord in accordance with all applicable laws, ordinances and regulations.

(d)Tenant shall be responsible for the routine maintenance of interior demising walls, interior doors, locks, and the electrical, plumbing, mechanical, and HVAC components, provided that any capital expenditure required for the repair and maintenance of such components shall be the responsibility of Landlord.

12.FIRE OR CASUALTY OR EMINENT DOMAIN.  In the event of a fire or other casualty affecting the Property, or of a taking of all or part of the Property by the exercise of the power of eminent domain, Landlord shall not exercise any right that may have the effect of terminating the Prime Lease without first obtaining the prior consent of Tenant.  If Landlord is entitled, under the Prime Lease, to a rent abatement as a result of a fire or other casualty or as a result of a taking under the power of eminent domain, then Tenant shall be entitled its proportionate share of such rent abatement.  If the Prime Lease imposes on Landlord the obligation to repair or restore leasehold improvements or alterations, Tenant shall be responsible for repair or restoration of leasehold improvements or alterations it shall have installed in the Premises, and Landlord shall be responsible for the repair or restoration of the balance of the leasehold improvements or alterations.  Tenant shall make any insurance proceeds resulting from the loss that Landlord is obligated to repair or restore available to Landlord and shall permit Landlord to enter the Premises to perform the same.

13.ALTERATIONS.  Anything to the contrary contained herein notwithstanding, Tenant shall not make or cause to be made any alterations or additions, including any signage, or perform or cause to be performed any other repairs or replacements (except as required by Section 7(B)) in or to the Premises (collectively “Alterations”) without Landlord’s prior written consent, which consent shall not be unreasonably withheld, and, if

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Prime Landlord’s consent is required under the Prime Lease, without Prime Landlord’s consent, and Landlord may impose such conditions on its consent as Landlord requires or Landlord may, at its option, in the case of maintenance, repairs or replacements, perform or cause to be performed the same itself and Tenant shall reimburse Landlord for the cost thereof within ten (10) days after demand therefore by Landlord.

14.SURRENDER.  Upon the expiration of this Sublease, or upon the termination of this Sublease or of the Tenant’s right to possession of the Premises, Tenant will at once surrender and deliver up the Premises, together with all improvements thereon, to Landlord, in good order and broom-clean (ordinary wear and tear, damage due to casualty and repairs required to be performed by Landlord under this Sublease excepted).  Tenant shall be permitted, at Tenant’s option, to leave all Alterations made by Tenant at the Premises.  All Alterations to the Premises made by or for Tenant and left by Tenant shall become a part of and shall remain upon the Premises upon such termination without compensation, allowance or credit to Tenant.  If Tenant removes Alterations, Tenant shall restore the Premises to their condition prior to the making of the Alterations, repairing any damage resulting from the removal or restoration.  If Tenant does not perform removal in accordance with this Section, Landlord may, at its option, remove the Alterations (and repair any damage occasioned thereby) and dispose thereof or deliver the same to any other place of business of Tenant, or warehouse the same and, to the fullest extent permitted by law Landlord shall in no event be responsible for the value, preservation or safekeeping thereof and Tenant shall pay the costs of such removal, repair, restoration, delivery or warehousing to Landlord on demand.

15.REMOVAL OF TENANT’S PROPERTY.  Upon the expiration or earlier termination of this Sublease, Tenant shall remove all of its contents, including trade fixtures, machinery, equipment, furniture, and furnishings (“Personalty”). Tenant shall repair any damage to the Premises or the Property that may result from such removal, and shall restore the Premises to the same condition as prior to their.  If Tenant does not remove the Personalty prior to the expiration or earlier termination of the Term, Landlord may, at its option, remove the same (and repair any resulting damage) and store, dispose of or deliver the Personalty to any other place of business of Tenant, or warehouse the same, and, to the fullest extent permitted by law, Landlord shall in no event be responsible for the value, preservation or safekeeping thereof and Tenant shall pay the cost of such removal, repair, restoration, delivery or warehousing to Landlord on demand.

16.HOLDING OVER.  Tenant shall have no right to occupy the Premises or any portion thereof after the expiration of this Sublease Term or after termination of this Sublease or of Tenant’s right to possession in consequence of an Event of Default.  If Tenant or any party claiming by, through, or under Tenant holds over, Landlord may exercise any and all remedies available to it at law or in equity to recover possession of the Premises, and to recover damages, including damages payable by Landlord to Prime Landlord by reason of such holdover.  For each and every month or partial month that Tenant or any party claiming by, through or under Tenant remains in occupancy of all or any portion of the Premises after the expiration of this Sublease or after termination of this Sublease or Tenant’s right to possession, Tenant shall pay, as minimum damages and not as a penalty, monthly rental at a rate equal to double the rate of Base Rent and Additional Rent payable by Tenant hereunder immediately prior to the expiration or other termination of this Sublease or of Tenant’s right to possession.  The acceptance by Landlord of any lesser sum shall be construed as payment on account and not in satisfaction of damages for such holding over.

17.ENCUMBERING TITLE.  Tenant shall not do anything that shall encumber the title of Prime Landlord or Landlord in and to the Building or the Property, nor shall the interest or estate of Prime Landlord or Landlord be subject to any claim by way of lien or encumbrance caused by Tenant.  Any claim to, or lien upon, the Premises, the Building or the Property arising from any act or omission of Tenant shall accrue only against the subleasehold estate of Tenant and shall be subject and subordinate to the paramount title and rights of Prime Landlord and Landlord in and to the Premises, Building and the Property.  Without limiting the generality of the foregoing, Tenant shall not permit the Premises, the Building or the Property to become subject to any mechanics,’ laborers’ or materialmen’s lien on account of labor or material furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed on the Premises by, or at the direction or sufferance of Tenant, provided, however, that if permitted under the Prime Lease, Tenant shall have the right to contest in good faith if done with reasonable diligence the validity of any lien or claimed lien if Tenant shall give to Prime Landlord and Landlord such security as may be deemed satisfactory to them to assure payment and to prevent any sale, foreclosure, or forfeiture of the Premises, the Building, or the

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Property by reason of non-payment. On final determination of the lien or claim of lien, Tenant shall immediately pay any judgment rendered, with all costs and charges, and shall have the lien released and any judgment satisfied.

18.LANDLORD’S RESERVED RIGHTS.  Landlord reserves the following rights, exercisable on reasonable prior notice to Tenant but without liability to Tenant for damage or injury to property, person or business and without effecting an eviction or disturbance of Tenant’s use or possession or giving rise to any claim for setoff or abatement of rent or affecting any of Tenant’s obligations under this Sublease:

(a)From time to time, with prior notice to Tenant and during usual business hours, to inspect the Premises or to exhibit them to persons having a legitimate interest at any time during this Sublease Term.

(b)To decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy at any time after Tenant vacates or abandons the Premises.

19.DEFAULTS.  Tenant further agrees that any one or more of the following events shall be considered Events of Default:

(a)Tenant is adjudged an involuntary bankrupt, or a decree or order approving, as properly filed, a petition or answer filed against Tenant asking for reorganization of Tenant under the Federal bankruptcy laws as now or hereafter amended, or under the laws of any State, shall be entered, and any such decree or judgment or order shall not have been vacated or stayed within sixty (60) days from the date of the entry or granting thereof;

(b)Tenant files, or admits the jurisdiction of the court and the material allegations contained in, any petition in bankruptcy, or any petition pursuant or purporting to be pursuant to the Federal bankruptcy laws as now or hereafter amended, or Tenant shall institute any proceedings for relief of Tenant under any bankruptcy or insolvency laws or any laws relating to the relief of debtors, readjustment of indebtedness, reorganization, arrangements, composition or extension;

(c)Tenant makes an assignment for the benefit of creditors or applies for or consents to the appointment of a receiver for Tenant or any of the property of Tenant;

(d)Tenant admits in writing its inability to pay its debts as they become due;

(e)A decree or order appointing a receiver of the property of Tenant is made, and such decree or order shall not have been vacated, stayed, or set aside within sixty (60) days from the date of entry or granting thereof;

(f)Tenant abandons the Premises during the Terms hereof;

(g)Tenant defaults in any payment of Rent required to be made by Tenant hereunder when due as herein provided and such default shall continue for five (5) days after notice thereof in writing to Tenant;

(h)Tenant shall default in securing insurance or in providing evidence of insurance as set forth in Section 9 of this Sublease or shall default with respect to lien claims as set forth in Section 17 of this Sublease and either such default shall continue for five (5) days after notice thereof in writing to Tenant;

(i)Tenant shall, by its act or omission to act, cause a default under the Prime Lease, and such default, if curable, is not cured within the time, if any, permitted for such cure under the Prime Lease; or

(j)Tenant defaults in any of the other agreements contained to be kept, observed, and performed by Tenant, and such default shall continue for thirty (30) days after notice thereof in writing to Tenant.

20.REMEDIES.  Upon the occurrence of any one or more events of default, Landlord may exercise any remedy against Tenant which Prime Landlord may exercise for default by Landlord under the Prime Lease or otherwise available herein, at law, in equity or otherwise including, without limitation, termination of this Sublease.

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If Tenant is in default, upon demand, Tenant shall surrender possession and vacate the Premises immediately and deliver possession thereof to the Landlord, and Landlord may then or at any time thereafter re-enter and take complete and peaceful possession of the Premises, with or without process of law, full and complete license so to do being hereby granted to the Landlord, and Landlord may remove all occupants and property therefrom, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without relinquishing Landlord’s right to Rent or any other right given to Landlord hereunder or by operation of law.  Tenant shall pay all of Landlord’s costs, charges and expenses, including court costs and attorneys’ fees, incurred in enforcing Tenant’s obligations under this Sublease or incurred by Landlord in any litigation, negotiation or transactions in which Tenant causes the Landlord, without Landlord’s fault, to become involved or concerned.  In addition to all other rights and remedies available to Landlord for an default by Tenant, Landlord may enforce the provisions of this Sublease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, Landlord not being required to prove special damages, it being hereby stipulated that legal remedies would be inadequate, and for the enforcement of any other appropriate legal or equitable remedy, including without limitation (i) injunctive relief, and (ii) any other damages incurred by Landlord by reason of Tenant’s default under this Sublease.

21.COMMUNICATIONS.  All notices, demands, requests, consents, approvals, agreements, or other communications (“Communications”) that may or are required to be given by either party to the other under this Sublease shall be in writing and shall be deemed given when received or refused if sent by United States registered or certified mail, postage prepaid, return receipt requested, or if sent by overnight commercial courier service (a) if to Tenant, addressed to Tenant at the Premises or at such other place as Tenant may from time to time designate by notice in writing to Landlord or (b) if to Landlord, addressed to Landlord at Daniel P. Gorey, c/o Quixote Corporation, 11th Floor, 35 East Wacker Drive, Chicago, Illinois 60601, with a copy to Holland & Knight LLP, 131 South Dearborn Street, 30th Floor, Chicago, Illinois 60603, Attention:  Anthony L. Frink, or at such other place as Landlord may from time to time designate by notice to Tenant.  Each party agrees to deliver promptly a copy of each Communication from the other party to Prime Landlord, and to deliver promptly to the other party, a copy of any Communications received from Prime Landlord, that affect this Sublease.  Such copies shall be delivered by commercial courier for delivery on the next business day.  Attorneys for Landlord and Tenant are authorized to give notices for and on behalf of such parties.

22.PROVISIONS REGARDING SUBLEASE.  This Sublease and all the rights of parties hereunder are subject and subordinate to the Prime Lease.   Each party agrees that it will not, by its act or omission to act, cause a default under the Prime Lease.  In furtherance of the foregoing, the parties hereby confirm, each to the other, that it is not practical in this Sublease to enumerate all of the rights and obligations of the various parties under the Prime Lease and to specifically allocate those rights and obligations in this Sublease.  Accordingly, in order to afford to Tenant the benefits of this Sublease and of those provisions of the Prime Lease that by their nature are intended to benefit the party in possession of the Premises, and in order to protect Landlord against a default by Tenant that might cause a default or event of default by Landlord under the Prime Lease, the parties agree:

A.Provided Tenant shall timely pay all Rent when due under this Sublease, Landlord shall pay, when due, within any applicable cure periods, all rent and other changes payable by Landlord to Prime Landlord under the Prime Lease.

B.Except as otherwise expressly provided herein, Landlord shall perform its covenants and obligations under the Prime Lease that do not require possession of the Premises for their performance and that are not otherwise to be performed hereunder by Tenant on behalf of Landlord.  For example, Landlord shall at all times keep in full force and effect all insurance required of Landlord as tenant under the Prime Lease unless that requirement is waived in writing by Prime Landlord.

C.Except as otherwise expressly provided herein, Tenant shall perform all affirmative covenants and shall refrain from performing any act that is prohibited by the negative covenants of the Prime Lease, where the obligation to perform or refrain from performing is by its nature imposed upon the party in possession of the Premises.  If practicable, Tenant shall perform affirmative covenants that are also covenants of Landlord under the Prime Lease at least five (5) days prior to the date when Landlord’s performance is required under the Prime Lease.  Landlord shall have the right to enter the Premises to cure any default by Tenant under this Sub-Section 25(C).

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D. Landlord shall not agree to any amendment to the Prime Lease that might have an adverse effect on Tenant’s occupancy of the Premises or its use of the Premises for their intended purpose, unless Landlord shall first obtain Tenant’s prior approval.

E.Landlord grants to Tenant the right to receive all of the services and benefits with respect to the Premises that are to be provided by Prime Landlord under the Prime Lease.  Unless required pursuant to this Sublease, Landlord shall have no duty to perform any obligations of Prime Landlord that are, by their nature, the obligation of an owner or manager of real property.  Landlord shall have no responsibility for or be liable to Tenant for any default, failure or delay on the part of Prime Landlord in the performance or observance by Prime Landlord of any of its obligations under the Prime Lease, nor shall such default, failure or delay by Prime Landlord affect this Sublease or waive or defer the performance of any of Tenant’s obligations hereunder except to the extent that such default by Prime Landlord excuses performance by Landlord as tenant under the Prime Lease.  Notwithstanding the foregoing, the parties contemplate that Prime Landlord will perform its obligations under the Prime Lease and in the event of any default or failure of such performance by Prime Landlord, Landlord agrees that it will, upon notice from Tenant, make demand upon Prime Landlord to perform its obligations under the Prime Lease.

23.ADDITIONAL SERVICES. Landlord shall cooperate with Tenant to cause Prime Landlord to provide services required by Tenant in addition to those otherwise required to be provided by Prime Landlord under the Prime Lease (such as after hours heating or cooling). Tenant shall pay Prime Landlord’s charge for those services promptly after having been billed by Prime Landlord or by Landlord. If at any time a charge for the additional services is attributable to the use of the services both by Landlord and by Tenant, the cost shall be equitably divided between them.

24.PRIME LANDLORD’S CONSENT.  This Sublease and the obligations of the parties under it are expressly conditioned upon Landlord’s obtaining Prime Landlord’s consent to this Sublease. Tenant shall promptly deliver to Landlord any information reasonably requested by Prime Landlord (in connection with Prime Landlord’s approval of this Sublease) with respect to the nature and operation of Tenant’s business, the financial condition of Tenant, or both. Landlord and Tenant agree, for the benefit of Prime Landlord, that this Sublease and Prime Landlord’s consent hereto shall not: (a) create privity of contract between Prime Landlord and Tenant; (b) be deemed to have amended the Prime Lease in any regard (unless Prime Landlord shall have expressly agreed to the amendment); or (c) be construed as a waiver of Prime Landlord’s right to consent to any assignment of the Prime Lease by Landlord or any further subletting of premises leased pursuant to the Prime Lease, or as a waiver of Prime Landlord’s right to consent to any assignment by Tenant of this Sublease or any sub-subletting of all or any part of the Premises. Prime Landlord’s consent shall, however, be deemed to evidence Prime Landlord’s agreement that Tenant may use the Premises for Tenant’s Use and Tenant shall be entitled to any waiver of claims and of the right of subrogation for damage to Prime Landlord’s property if and to the extent that the Prime Lease provides such waivers for the benefit of Landlord. If Prime Landlord fails to consent to this Sublease within five (5) days after the execution and delivery of this Sublease, either party may terminate this Sublease by giving notice to the other at any time thereafter, but before Prime Landlord grants consent.

25.BROKERAGE.  Each party warrants to the other that it has had no dealings with any broker or agent in connection with this Sublease.  Each party agrees to indemnify the other party from and against any and all costs (including reasonable attorneys’ fees), expense or liability for any compensation, commissions and charges claimed by any broker or other agent with respect to this Sublease or its negotiation thereof on behalf of the party through whom the claim is made.

26.DEFINITIONS AND CONSTRUCTION.

A.The words “including,” “include,” or “includes” or words of similar import shall not, unless otherwise provided, be construed as words of limitation.

B.The phrase “not unreasonably withheld” means “not unreasonably withheld, delayed, or conditioned”.

C.“Indemnify” includes indemnify, hold harmless, and defend against any loss, liability, claim, charge, cost, or expense (including reasonable legal fees and expenses).

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27.   ADDITIONAL PROVISIONS.

A. Time of the Essence. Time is of the essence of this Sublease and each and every provision hereof.

B. Non-Waiver. No action or failure to act by any party hereto shall constitute a waiver of any right or duty afforded to such party under this Sublease, nor shall any such action or failure to act constitute an approval of, or acquiescence in, any breach hereof except as may be specifically agreed in writing. Acceptance of any amounts due hereunder by Landlord at any time when the Tenant is in default under any covenant or condition hereof shall not be construed as a waiver of such default.

C. Entire Agreement. This Sublease represents the entire agreement of the parties with respect to the subject matter hereof. This Sublease may not be changed, modified or rescinded, and no provision hereof may be waived, except by written consent of the parties, and any attempt at an oral modification of this Sublease shall be void and have no effect.

D. Captions. The captions contained herein are for reference purposes only and shall not, in any way, affect any of the meaning or interpretation of the terms of this Sublease.

E. Severability. In the event that any provision of this Sublease, or the application thereof to any person or circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Sublease shall not be affected thereby and each provision of this Sublease shall be valid and enforceable to the fullest extent permitted by law, unless either party is substantially deprived of its consideration for entering into this transaction.

F. Recording.  Neither this Sublease, nor any memorandum, affidavit or other writing with respect to this Sublease, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Sublease null and void at Landlord’s election.

G. Counterparts. This Sublease may be executed in multiple counterparts. All counterparts, collectively, shall be deemed to constitute one and the same instrument and each counterpart shall be deemed an original.

H. Facsimile. A facsimile copy of this Sublease containing facsimile signatures shall constitute a valid and binding counterpart of this Sublease.

I. Successors and Assigns. The terms and provisions of this Sublease shall be binding upon and inure to the benefit of the parties and their respective heirs, directors, shareholders, officers, legal representatives, successors and assigns but this provision shall not operate to permit any transfer, assignment, mortgage, encumbrance, lien, charge, or subletting contrary to the provisions of Section 10.

J. Delivery for Examination. Submission of this Sublease for examination shall not bind Landlord in any manner, and no sublease or obligations of the Landlord shall arise until both Landlord and Tenant sign this instrument and delivery is made to each.

K. Default Interest; Late Payments. All amounts (including, without limitation, Base Rent and Additional Rent) owed by Tenant to Landlord pursuant to any provision of this Sublease shall bear interest from the date due until paid at the annual rate equal to the greater of (a) twelve percent (12%) per annum and (b) five percentage points (5%) in excess of the rate of interest announced from time to time by Bank of America or any successor thereto, as its corporate base rate, changing as and when said corporate base rate changes, unless a lesser rate shall then be the maximum rate permissible by law with respect thereto, in which event said lesser rate shall be charged. In addition, to the extent not prohibited by law, if any payment of Rent is not received by Landlord within five (5) days after the date due, then Tenant shall pay Landlord a late charge equal to five percent (5%) of the amount of said delinquent payment.

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L. Application of Payments. Landlord shall have the right to apply payments received from Tenant pursuant to this Sublease (regardless of Tenant’s designation of such payments) to satisfy any obligations of Tenant hereunder, in such order and amounts, as Landlord in its sole discretion, may elect.

M. Landlord. The term “Landlord” as used in this Sublease means only the owner or owners at the time being of Landlord’s interest in the Prime Lease so that in the event of any assignment once or successively, of Landlord’s interest in the Prime Lease, said Landlord making such assignment shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing after such assignment, and Tenant agrees to look solely to such assignee with respect thereto. This Sublease shall not be affected by any such assignment, and Tenant agrees to attorn to the assignee.

N. Tenant-Corporation. Each party represents and warrants to the other that this Sublease has been duly authorized, executed and delivered by and on behalf of the each party.

O.Environmental.

(a).Landlord warrants to Tenant that to the best knowledge of Landlord, the Premises, the Building, and the Property are free and clear of Hazardous Materials, except to the extent such use of Hazardous Materials is in compliance with all applicable law.  For the purposes of this Sublease, “Hazardous Materials” means substances regulated under federal law or by the laws of the state or municipality in which the Premises are located, and including but not limited to asbestos, radioactive and petroleum-related products.  Tenant shall not be responsible for any Hazardous Materials located on the Premises or the Building at the time Landlord delivers possession of the Premises to Tenant.

(b)Landlord agrees to indemnify, defend and hold harmless Tenant, its representatives, agents and employees (collectively, the “Tenant Indemnitees”) from and against any and all debts, liens, claims, causes of action, administrative orders or notices, costs, personal injuries, losses, damages, liabilities, demands, interest, fines, penalties or expenses, including reasonable attorneys’ fees and expenses, reasonable consultants’ fees and expenses, court costs and all other out-of-pocket expenses, suffered or incurred by the Tenant Indemnitees resulting from actions or omissions at any time prior to, during, or after the Term related to any handling, releasing, storage, insertion or any other manner of Hazardous Material in, upon or under the surface of the Premises or the Property or in any surface waters or ground waters on or under the Property or any migration off the Property, unless caused by the acts or omissions of Tenant, its representatives, agents or employees.  Landlord’s obligations under this section shall survive the expiration or termination of this Sublease.

[signatures on following page]

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The parties have executed this Sublease the day and year first above written.

LANDLORD:
	U.S. Traffic Corporation f/k/a Green Light Acquisition Company,
	a Delaware company
By:		/s/ Daniel P. Gorey
Printed Name:					Daniel P. Gorey
Printed Title:				Vice President
	TENANT:
	National Signal, Inc.
By:		/s/Mark Fernandez
Printed Name:					Mark Fernandez
Printed Title:			President

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EX-10.P

Exhibit 10(p)

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (“Agreement”) is made June 22, 2006, by and between National Signal, Inc., a California corporation (“Purchaser”), and U.S. Traffic Corporation, a Delaware corporation (“Seller”).

R E C I T A L S

A.Seller is engaged, among other things, in the manufacture and sale of portable, changeable message signs, arrow boards, radar trailers and other miscellaneous portable traffic-related signage (“PCMS”) and lighting products (“Lighting”) (PCMS and Lighting collectively, the “Product Line”).

B.Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, certain of Seller’s assets used primarily in or related primarily to the Product Line, on the terms contained in this Agreement.

A G R E E M E N T S

Therefore, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Agreement to Purchase and Sell.  On the terms contained in this Agreement, at the Closing (as herein defined) Purchaser shall purchase from Seller, and Seller shall sell to Purchaser, all of Seller’s right, title and interest in certain of Seller’s rights and assets used exclusively in or held in connection with and/or relating primarily to the Product Line (the “Purchased Assets”), free and clear of any liens, claims, encumbrances or security interests (collectively, “Claims”), exclusive of the Excluded Assets (as herein defined) and shall include the following assets of Seller which are used primarily in or relate primarily to the Product Line:

(a)The inventory of packaging supplies, purchased parts, raw materials, work in process and finished goods (“Inventory”), including without limitation, the Inventory listed in Exhibit A hereto;

(b)The furniture, fixtures, equipment, tools, dies, jigs, patterns, molds and other tangible personal property located at Seller’s facilities in Santa Fe Springs, California, Salt Lake City, Utah or Tecate, Mexico (the “Equipment”), including without limitation the items of Equipment listed on Exhibit B and the molds listed on Exhibit B-1 hereto;

(c)The trademarks, trademark applications, trade names, service marks, patents, patent applications and copyrights relating primarily to the Product Line, including, without limitation, the names “Display Solutions,” “National Signal,” “Nu-Art,” “Holcor,” and “Intermark” (the “Intellectual Property”) that are identified on Exhibit C, all goodwill associated

with the Intellectual Property and other intangible property rights associated therewith and all claims for past infringement thereof; all proprietary unpatented know-how and methods utilized to produce the products of the Product Line, and all engineering drawings, Gerber files, software and related source code that are identified as Exhibit C;

(d)The contracts and agreements listed on Exhibit D hereto (the “Contracts”);

(e)The purchase orders listed on Exhibit E hereto, except any purchase orders that require purchases of components that will not be used within one year in the ordinary course of business (the “Purchase Orders”);

(f)The sales orders and sales contracts listed on Exhibit F hereto (the “Sales Orders”);

(g)The customer lists, records and information, and all other books and records; and

(h)The claims and rights (and benefits arising therefrom) with or against all persons whomsoever, including all rights against suppliers under warranties covering any of the Inventory or Equipment.

2.Excluded Assets.  Seller shall retain the following assets (the “Excluded Assets”), which shall not be Purchased Assets under this Agreement:  (a) all assets of Seller which are not specifically identified in Section 1 as being Purchased Assets; (b) all accounts receivable resulting from sales of products of the Product Line prior to Closing; (c) all accounts payable resulting from operations of the Product Line prior to Closing; (d) the “U.S. Traffic” name and mark; (e) Seller’s corporate name; (f) Seller’s documents relating to the organization, maintenance and existence of Seller as a corporation, including without limitation Seller’s corporate charter, by-laws, minute and stock records, corporate seal; qualifications to conduct business as a foreign corporation, arrangements with registered agents, taxpayer and other identification numbers; (g) Seller’s insurance policies in effect on the Closing Date; and (h) all cash, cash equivalents and investments.

3.Liabilities.

(a)On the terms and subject to the conditions contained in this Agreement, at the Closing, Purchaser assumes and agrees to discharge and perform when due all liabilities of Seller under the Contracts, Purchase Orders and Sales Orders, to the extent such liabilities relate to performance after the Closing Date and all product warranty and return claims assumed by Purchaser pursuant to Section 9(f) (the “Assumed Liabilities”).

(b)Other than as set forth in Section 3(a) above, Seller shall retain and Purchaser shall not assume, and nothing contained in this Agreement shall be construed as an assumption by Purchaser of any liabilities, obligations or undertakings of Seller of any nature whatsoever, whether accrued, absolute, fixed or contingent, known or unknown, due or to become due, unliquidated or otherwise.  Seller shall be responsible for all of the liabilities, obligations and undertakings of Seller which are not Assumed Liabilities pursuant to Section 3(a) above, and such liabilities shall remain the sole liabilities of Seller, and Purchaser does not

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assume and shall not be responsible for, and shall not otherwise bear the economic burden of, any other liabilities of Seller, including liabilities for accounts payable, accrued expenses,  taxes, indebtedness for borrowed money, or violations of or obligations under law (including environmental matters) or otherwise (the “Excluded Liabilities”).  Seller agrees to discharge and perform in full when due, all of the Excluded Liabilities.

4.Purchase Price.  The aggregate purchase price of the Purchased Assets (the “Purchase Price”) is One Million Five Hundred Thousand Dollars ($1,500,000).  The Purchase Price shall be allocated among the Purchased Assets in the manner required by Section 1060 of the Internal Revenue Code of 1986, as amended, in accordance with Exhibit G.  Purchaser shall pay the Purchase Price by wire-transfer of immediately available funds to such bank account as Seller shall specify by written notice delivered on or prior to the Closing Date.

5.Time and Place of Closing.  The transactions contemplated by this Agreement shall be consummated (the “Closing”) at 10:00 a.m., prevailing business time, at the offices of Holland & Knight LLP, 131 S. Dearborn Street, Chicago, Illinois 60603, and remotely at such other offices and locations as may be suited by delivery by facsimile or overnight courier, on the date hereof (the “Closing Date”).  The Closing shall be deemed to be effective for all purposes as of the commencement of business on June 22, 2006.

At the Closing, Seller shall deliver the Purchased Assets to Purchaser, Purchaser shall confirm receipt of the Purchased Assets and Seller shall confirm receipt of the Purchase Price.  At the Closing, the Seller and the Purchaser shall execute and deliver:

(a) a Sublease of approximately 57,000 square feet of the Seller’s facilities at 9603 John Street, Santa Fe Springs, California in the form substantially similar to Exhibit H (the “Santa Fe Springs Sublease”);

(b)a Sublease of approximately 2,000 square feet of the Seller’s facilities at 3612 West 2100 South Street, Salt Lake City, Utah in the form substantially similar to Exhibit I (the “Salt Lake City Sublease,” and together with the Santa Fe Springs Sublease, the “Subleases”)

(c)a Transition Services Agreement in the form substantially similar to Exhibit J (the “Transition Services Agreement”).

6.Purchaser’s Representations and Warranties.  Purchaser represents and warrants to Seller that:

(a)Corporate.  Purchaser is a corporation duly organized, validly existing and in good standing under the laws of California.

(b)Power and Authority.  Purchaser has full corporate power and authority to enter into and perform (i) this Agreement, (ii) the Sublease, and (iii) the Transition Services Agreement.  This Agreement, the Sublease and the Transition Services Agreement have been duly executed and delivered by a duly authorized officer or manager of Purchaser.  Neither the execution and delivery of this Agreement, the Sublease, and the Transition Services Agreement by Purchaser, nor the consummation by Purchaser of the transactions contemplated hereby, will

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conflict with or result in a breach of any of the terms, conditions or provisions of Purchaser’s Articles of Incorporation or by-laws, or of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award.

(c)Consents.  No consent, authorization, order or approval of, or filing or registration with, any governmental authority or other person, organization or association is required for the execution and delivery by Purchaser of this Agreement, the Sublease and the Transition Services Agreement, and the consummation by Purchaser of the transactions contemplated by this Agreement.

7.Representations and Warranties of Seller.  Seller represents and warrants to Purchaser that:

(a)Corporate.  Seller is a corporation duly organized, existing and in good standing, under the laws of the State of Delaware.  Seller has all necessary corporate power and authority and all authorizations, licenses, permits and certifications necessary to manufacture and sell the Product Line in the manner in which the Product Line is presently being manufactured and sold.  Seller has qualified as a foreign corporation, and is in good standing, under the laws of the States of California and Utah, and all other jurisdictions where the nature of the Product Line or the nature or location of the assets of the Product Line requires such qualification.

(b)Power and Authority.  Seller has full power and authority to enter into and perform this Agreement, the Sublease and the Transition Services Agreement.  This Agreement, the Sublease and the Transition Services Agreement have been duly executed and delivered by a duly authorized officer of Seller.  Neither the execution and delivery of this Agreement, the Sublease and the Transition Services Agreement by Seller, nor the consummation by Seller of the transactions contemplated hereby, will conflict with or result in a breach of (i) any of the terms, conditions or provisions of Seller’s Certificate of Incorporation or By laws, (ii) of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or any governmental authority or of any arbitration award, (iii) constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject, or (iv) result in the imposition of any security interest, lien, claim or other encumbrance upon any of the Purchased Assets.

(c)Consents.   Except with respect to Seller’s lender and Seller’s landlord, no consent, authorization, order or approval of, or filing or registration with, any governmental authority or other person, organization or association is required for the execution and delivery by Seller of this Agreement, the Sublease and the Transition Services Agreement and the consummation by Seller of the transactions contemplated by this Agreement, the Sublease and the Transition Services Agreement.

(d)Equipment.  The Equipment constitutes all tangible personal property necessary in order for Seller to manufacture products of the Product Line in the manner in which

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Seller has done so in the past.  All Equipment is in reasonable operating condition and repair (ordinary wear and tear excepted).

(e)Title to Assets.  Subject to the liens of Seller’s lender which will be released at Closing, Seller has good and marketable title to the Purchased Assets, free and clear of any Claims, and no unreleased mortgage, trust deed, chattel mortgage, security agreement, financing statement or other instrument encumbering any of the Purchased Assets has been recorded, filed, executed or delivered.

(f)Contracts.  The Contracts, Purchase Orders and Sales Orders constitute all of the contracts and agreements between Seller and any other party which relate to the manufacture or sale of the products of the Product Line.  Except as set forth on Schedule 7(f), the Contracts, Purchase Orders and Sales Orders are legal and in full force and binding upon the parties thereto, and the Contracts, Purchase Orders and Sales Orders will continue to be legal, binding and in full force and effect on identical terms immediately after the Closing Date.  No default by Seller has occurred thereunder and, to the best of Seller’s knowledge, no default by the other contracting parties has occurred thereunder.  To Seller’s knowledge, no event, occurrence or condition exists which, with the lapse of time, the giving of notice, or both, or the happening of any further event or condition, would become a default by Seller thereunder.  Complete and accurate copies of all Contracts, Purchase Orders and Sales Orders have previously been delivered to Purchaser.

(g)Conflicts. Subject to the liens of Seller’s lender which will be released at Closing and receipt of Seller’s landlord’s consent, Seller is not a party to, or bound by, any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instrument under the terms of which performance by Seller according to the terms of this Agreement will be a default or an event of acceleration, or whereby timely performance by Seller according to the terms of this Agreement may be prohibited, prevented or delayed.

(h)Tax Matters.  Seller has filed all tax returns that it was required to file and all such tax returns were correct and complete in all material respects.  All taxes owed by Seller have been paid.  There are no liens or security interests on any of the assets of the Seller that arose in connection with any failure to pay any tax.  The Seller has withheld and paid all taxes that the Seller is required to withhold and pay in connection with amounts paid or owing to any employee, independent contractor, creditor, or other third party.

(i)Intellectual Property.  Seller owns or has the right to use pursuant to license, sublicense agreement, or permission all intellectual property necessary for the operation of the Product Line as presently conducted, and Seller has taken all necessary action to maintain and protect each item of intellectual property that it owns or uses in connection with the Product Line.  To its knowledge, Seller has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any intellectual property rights of third parties, and Seller has not received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that Seller must license or refrain from using any intellectual property rights of any third party) that has not previously been resolved.  To Seller’s knowledge, no third party has interfered with, infringed upon,

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misappropriated, or otherwise come into conflict with any intellectual property rights of Seller with respect to the Product Line.  To Seller’s knowledge, none of the intellectual property will interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any intellectual property rights of third parties as a result of the continued operation of its Product Line as presently conducted.  Sellers owns or has the right to use pursuant to license, sublicense, agreement or permission all Intellectual Property identified on Exhibit C.  Except as set forth on Schedule 7(i), each item of Intellectual Property owned or used by Seller immediately prior to the Closing Date will be owned or available for use by the Purchaser on identical terms and conditions immediately subsequent to the Closing Date hereunder.

(j)Product Warranty.  No product of the Product Line manufactured, sold, leased, or delivered by Seller is subject to any guaranty, warranty, or other indemnity beyond the applicable standard terms and conditions of sale or lease of Seller.  Seller has made available to Purchaser copies of the standard terms and conditions of sale or lease used by Seller (containing applicable guaranty, warranty, and indemnity provisions) in the Product Line.

(k)Product Liability; Product Safety.  Except as set forth on Schedule 7(k), Seller has not been notified, nor is it aware of any liability arising out of any death or injury to individuals or damage to property as a result of the ownership, possession, or use of any product manufactured, sold, leased, or delivered, or any service provided, by Seller with respect to the Product Line.  Seller has not been required to file any notification or other report with or provide information to any product safety agency, commission, board or other governmental authority of any jurisdiction concerning actual or potential hazards with respect to any product manufactured or sold by Seller with respect to the Product Line.  To the best of Seller’s knowledge, each product manufactured, distributed or sold by Seller in the conduct of the Product Line complies in all material respects with all product safety standards of each applicable product safety agency, commission, board or other governmental authority.

(l)Employee Benefits.  Seller has provided Purchaser with a description of each employee benefit plan that Seller maintains or to which Seller contributes for the benefit of any current employee of Seller with respect to the Product Line.  Seller has no obligation to contribute to any multiemployer benefit plan.  Seller has complied with all HIPAA requirements.

(m)Environmental, Health and Safety.  Seller has complied with all environmental laws, and no action has been filed or commenced against it alleging any violation of any environmental law.  Seller has obtained and is in compliance in all material respects with all of the terms and conditions of all permits, licenses, and other authorization which are required under, and has complied in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all environmental laws.  Seller has no environmental liabilities, and there are no conditions or circumstances which might reasonably result in any environmental liabilities, including any environmental liabilities with respect to:  (i) noncompliance with any applicable environmental laws, or (ii) the presence or release or threatened release of any hazardous materials, or (iii) personal injury, wrongful death, or other tortious conduct relating specifically to any hazardous materials used, manufactured, sold, or disposed of by or on behalf of seller.  Seller has complied in all materials respects, and is currently in compliance in all material respects with, all legal requirements relating to public health and safety, and worker health and

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safety (including, without limitation, the Occupational Safety and Health Act).  Seller has provided Purchaser the opportunity to review all documentary information in its possession or control regarding environmental liabilities associated with the Product Line.  To Seller’s knowledge, the Santa Fe Springs and the Salt Lake City facilities of Seller are currently, and at all times during the Seller’s possession and/or operations at these facilities have been, in compliance and in all material respects with all applicable environmental laws.

(n)Suppliers.  The Seller currently is not in dispute with any current or former supplier of merchandise relating to the Product Line.

(o)Litigation.  Except as set forth at Schedule 7(o), no action, suit, or proceeding is pending or, to the Seller’s knowledge, threatened against the Seller before any court or quai-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (iii) affect adversely the right of the Purchaser to own the Purchased Assets.  Except as set forth at Schedule 7(o), the Seller has no reason to believe that any such action, suit, proceeding, hearing, or investigation may be brought or threatened against the Seller.

(p)Legal Compliance.  The Seller has complied in all material respects with all laws applicable to the Seller, and the Seller has not received any notice of any violation of any applicable federal, state, or local statute, law, or regulation (including, without limitation, any applicable building, zoning, environmental protection, or other law, ordinance, or regulation) affecting its properties or the operation of the Product Line.  The Seller has, in full force and effect, all licenses, permits and certificates, from federal, state, local and foreign authorities (including, without limitation, federal and state agencies regulating occupational health and safety) necessary to conduct the business of the Seller and own and operate the Purchased Assets (collectively, the “Permits”).  A true, correct and complete list of all the Permits is set forth under Schedule 7(p), with an indication as to whether the Permit is assignable to the Purchaser.  The Seller has conducted its business in compliance with all term and conditions of the Permits.

(q)Complete Disclosure.  The representations and warranties of Seller in this Agreement do not omit to state a material fact necessary in order to make the representations, warranties or statements contained herein not misleading.

Except for the representations and warranties specifically set forth in this Section 7, Seller makes no, and expressly disclaims all, express, implied or statutory warranties of any kind whatsoever, including with respect to (a) any information furnished by Seller or any of Seller’s other representatives or agents, (b) the physical condition or value of any of the Purchased Assets or (c) the future profitability or future earnings performance of the Product Line.  ALL IMPLIED OR STATUTORY WARRANTIES, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE EXPRESSLY EXCLUDED.

8.Closing Deliveries.  At the Closing, each party shall deliver to the party entitled to the receipt thereof the documents required to be delivered pursuant to Section 5 hereof and such

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other documents, instruments and materials as may be reasonably required to effectuate the intent and provisions of this Agreement, and all such documents, instruments and materials shall be satisfactory in form and substance to counsel for the receiving party.  The conveyance, transfer, assignment and delivery of the Purchased Assets shall be effected by Seller’s execution and delivery to Purchaser of a bill of sale substantially in the form attached hereto as Exhibit K (the “Bill of Sale”) and such other instruments of conveyance, transfer, assignment and delivery as Purchaser may reasonably request, and the assignment and assumption of the Assumed Liabilities to Purchaser shall be effected by Seller’s and Purchaser’s execution of an assignment and assumption agreement substantially in the form attached hereto as Exhibit L (the “Assumption Agreement”).

9.Post Closing Agreements.  From and after the Closing:

(a)Employees.  On or before July 31, 2006, the Purchaser will offer at-will employment to Seller’s employees identified on Exhibit M (“Business Employees”) in positions and at compensation, with benefits, and upon terms and conditions which are, in the aggregate, substantially similar to the positions, compensation, benefits and terms and conditions of the Seller in effect on the Closing Date. Until July 31, 2006, Seller will use its best efforts to retain the Business Employees in positions and at compensation, with benefits, and upon terms and conditions which are, in the aggregate, substantially similar to the positions, compensation, benefits and terms and conditions of the Seller in effect on the Closing Date. Prior to July 31, 2006, the Seller will use the Business Employees to provide certain of the services required of the Seller under the Transition Services Agreement.

(b)Payments of Receivables.  In the event Seller shall receive any instrument of payment of any of Purchaser’s accounts receivable, Seller shall forthwith deliver such instrument to Purchaser, endorsed where necessary, without recourse, in favor of Purchaser.  In the event Purchaser shall receive any instrument of payment of any of Seller’s accounts receivable, Purchaser shall forthwith deliver such instrument to Seller, endorsed where necessary, without recourse, in favor of Seller.

(c)Sales and Transfer Taxes and Fees.  Seller shall pay when due all sales taxes and/or use taxes, recording fees, personal property title application fees, patent and trademark assignment registration fees and all other taxes and fees on the transfer of the Purchased Assets arising by virtue of the sale of the Purchased Assets to Purchaser.

(d)Inspection.  Seller, on the one hand, and Purchaser, on the other hand, shall each retain and make their respective books and records (including work papers in the possession of their respective accountants) with respect to the Product Line available for inspection by the other party, or by its duly authorized representatives, for reasonable business purposes at all reasonable times during normal business hours, for a three (3) year period following the Closing Date, with respect to all transactions relating to the Product Line occurring prior to and those relating to the Closing, the historical financial condition, assets, liabilities, results of operations and cash flows of the Product Line.  As used in this Section 9(d), the right of inspection includes the right to make extracts or copies.  The representatives of a party inspecting the records of the other party shall be reasonably satisfactory to the other party.

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(e)Unassigned Assets.  Notwithstanding any provision to the contrary contained herein, Seller shall not be obligated to assign to Purchaser any Contract, Purchaser Order or Sales Order which provides that it may not be assigned without the consent of the other party thereto and for which such consent is not obtained, but in any such event, Seller shall, to the extent reasonably necessary, cooperate with Purchaser in any reasonable arrangement designed to provide the benefits thereof to Purchaser.  Without limiting the generality of any provision elsewhere herein contained, the non-assignment of any of the foregoing shall not, to the extent the liabilities thereunder would have been Assumed Liabilities but for this paragraph (e), affect the status of such liabilities as Assumed Liabilities, provided the full benefits of such Contract, Purchase Order or Sales Order are obtained by Purchaser.

(f)Product Returns and Product Warranties.  During the applicable warranty period for products shipped by Seller, (i) Purchaser will be obligated to accept returns of products of the Product Line shipped by Seller on and prior to the Closing Date, or which constitute finished goods or partially finished goods inventory on the Closing Date, which are defective or which fail to conform to the customer’s order in accordance with the customer’s request, consistent with Seller’s past practices and in accordance with applicable law; and (ii) Purchaser shall be obligated to honor any product warranties which are in effect as of the Closing Date with respect to products of the Product Line which were sold prior to the Closing Date.  Seller shall reimburse the Purchaser the costs and expenses related to product warranty and return claims that exceed an aggregate amount of $100,000 during such period.  Purchaser will advise Seller on a quarterly basis of expenses and costs incurred by Purchaser with respect to product returns and warranties, and estimates of costs and expenses related thereto.  Purchaser shall invoice the Seller on a quarterly basis in arrears with respect to all costs and expenses that are reimbursable.  Seller has provided Purchaser with a written list of all such product returns and/or product warranties, and an estimate of the costs and expenses related thereto, known or to which Seller has reason to believe will be subject to product returns and product warranties as of the Closing Date.

(g)Non-Competition; Non-Solicitation.  In consideration of the benefits of this Agreement to Seller and in order to induce Purchaser to enter into this Agreement, Seller hereby covenants and agrees that from and after the Closing and until the fifth anniversary of the Closing Date, neither Seller nor any of its affiliates (including, without limitation, Quixote Corporation, and any present or future subsidiary of Quixote Corporation) shall, directly, or indirectly, as a partner, stockholder, proprietor, consultant, joint venturer, investor or in any other capacity:

(i)Engage in, or own, manage, operate, control, finance, or participate in the ownership, management, operation, control, or financing of, any business or entity which engages in the business of manufacturing products which are competitive with the products of the Product Line;

(ii)Hire or solicit to perform services (as an employee, consultant or otherwise) any Persons who are or, within the twelve (12) month period immediately preceding Seller’s action were, employees of Purchaser or any of its affiliates or take any actions which are intended to persuade any employee of Purchaser or any of such affiliates to terminate his or her association with Purchaser or such affiliates; provided, however, that general solicitations of

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employment published in a journal, newspaper or other publication of general circulation and not specifically directed towards such employees shall not be deemed to constitute solicitation for purposes of this subparagraph (ii); or

(iii)Solicit any customer of Purchaser to purchase products or services which could be supplied by Purchaser from the Product Line; provided however, notwithstanding the provisions of this paragraph (g)(iii), Seller and its affiliates shall have the right to continue to solicit for and sell products of the Product Line if those products are components of an integrated system.

(h)Confidentiality.  From and after the Closing, Seller and its affiliates shall keep confidential and not disclose to any other person or entity or use for their own benefit or the benefit of any other person or entity, any information regarding the Product Line or Seller’s conduct of the business or manufacturing and selling products of the Product Line.  The obligation of Seller under this paragraph shall not apply to information which:  (i) is or becomes generally available to the public without breach of the commitment provided for in this paragraph; or (ii) is required to be disclosed by law, order or regulation of a court or tribunal or government authority; provided, however, that in any such case, Seller shall notify Purchaser as early as reasonably practicable prior to disclosure to allow Purchaser to take appropriate measures to preserve the confidentiality of such information.

(i)Injunctive Relief.  Seller acknowledges that, given the nature of the business of manufacturing and selling the products of the Product Line, the covenants contained in this Section paragraphs (g) and (h) contain reasonable limitations as to time, geographical area and scope of activity to be restrained, and do not impose a greater restraint than is necessary to protect and preserve for the benefit of Purchaser the goodwill of Seller and to protect the legitimate business interests of Purchaser. If, however, paragraphs (g) or (h) (or any portion thereof) is determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too long a period of time or over too large a geographic area or by reason of its being too extensive in any other respect or for any other reason it will be interpreted to extend only over the longest period of time for which it may be enforceable and/or over the largest geographical area as to which it may be enforceable and/or to the maximum extent in all other aspects as to which it may be enforceable, all as determined by such court and in such action.  Seller agrees that Purchaser’s remedies at law for any breach or threat of breach by Seller or any of its affiliates of the provisions of paragraph (h) or (i) will be inadequate, and that Purchaser shall be entitled to an injunction or injunctions, without the necessity  for the posting of a bond or other collateral security, to prevent breaches of the provisions of paragraphs (g) and (h) and to enforce specifically the terms and provisions thereof.

(j)Further Assurances.  The parties shall execute such further documents, and perform such further acts, as may be necessary to transfer and convey the Purchased Assets to Purchaser, on the terms herein contained, and to otherwise comply with the terms of this Agreement and to consummate the transaction contemplated hereby.

(k)Notwithstanding the provisions of paragraph (g), for a period of twelve months from the Closing Date, (i) Seller and its affiliates may continue to market and sell products of the Product Line outside of North America; (ii) Seller or its affiliates will offer to

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buy such products from Purchaser, which Purchaser may or may not have to accept; and (iii) if Purchaser accepts such order, Purchaser will pay Seller or its affiliates a 5% commission on such purchase order.

10.Indemnification Obligations of Seller.  From and after the Closing for eighteen (18) months with respect to matters identified in (a) below and forever with respect to matters identified in (b), (c) and (d) below, Seller shall defend, indemnify, save and keep harmless Purchaser and its officers, directors, shareholders, lenders, successors and permitted assigns against and from all Damages (as herein defined) sustained or incurred by any of them resulting from or arising out of or by virtue of:

(a)any inaccuracy in or breach of any representation and warranty made by Seller in this Agreement;

(b)any breach by Seller of, or failure by Seller to comply with, any of its covenants or obligations under this Agreement;

(c)the failure to discharge when due any liability or obligation of Seller other than the Assumed Liabilities, or any claim against Purchaser with respect to any such liability or obligation or alleged liability or obligation, including, without limitation, liability on account of taxes payable by Seller, or for which Seller is liable, either by operation of law or pursuant to the provisions of this Agreement;

(d)any claims by parties other than Purchaser to the extent caused by acts or omissions of Seller on or prior to the Closing Date.

As used in this Agreement, the term “Damages” shall mean all liabilities, demands, claims, actions or causes of action, regulatory, legislative or judicial proceedings or investigations, assessments, levies, losses, fines, penalties, damages, costs and expenses, including reasonable attorneys’, accountants’, investigators’, and experts’ fees and expenses, sustained or incurred in connection with the defense or investigation of any claim.

11.Indemnification Obligations of Purchaser.  From and after the Closing for eighteen (18) months with respect to matters identified in paragraph (a) below and forever with respect to matters identified in paragraphs (b), (c) and (d) below, Purchaser shall defend, indemnify, save and keep harmless Seller from all Damages sustained or incurred by Seller or Shareholder resulting from or arising out of or by virtue of:

(a)any inaccuracy in or breach of any representation and warranty made by Purchaser in this Agreement;

(b)any breach by Purchaser of, or failure by Purchaser to comply with, any of its covenants or obligations under this Agreement;

(c)any failure of Purchaser to pay and/or discharge any of the Assumed Liabilities; and

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(d)any claims by parties other than Seller to the extent caused by acts or omissions of Purchaser after the Closing Date, (provided such acts or omissions do not arise as a result of Seller’s actions at or prior to the Closing), including claims for Damages which arise or arose out of Purchaser’s manufacture and sale of products of the Product Line after the Closing.

12.Miscellaneous.

(a)Publicity.  Except as otherwise required by law, press releases concerning this transaction shall be made only with the prior agreement of Seller and Purchaser.

(b)Notices.  All notices required or permitted to be given hereunder shall be in writing and may be delivered by hand, by facsimile, by nationally recognized private courier, or by United States mail.  Notices delivered by mail shall be deemed given three (3) business days after being deposited in the United States mail, postage prepaid, registered or certified mail.  Notices delivered by hand, by facsimile, or by nationally recognized private carrier shall be deemed given on the first business day following receipt; provided, however, that a notice delivered by facsimile shall only be effective if such notice is also delivered by hand, or deposited in the United States mail, postage prepaid, registered or certified mail, on or before two (2) business days following its delivery by facsimile.  All notices shall be addressed as follows:  (1) if to Seller, addressed to Seller c/o Quixote Corporation, 35 E. Wacker Drive, Chicago, Illinois 60601, Attention:  Daniel P. Gorey, facsimile (312) 476-1356, with a copy to Holland & Knight, LLP, 131 S. Dearborn, Chicago, Illinois 60603, Attention:  Anne Hamblin Schiave, facsimile (312) 578-6666; (2) if to Purchaser, National Signal, Inc., 9601 John Street, Santa Fe Springs, California 90670, Attention:  Mark Fernandez, with a copy to Rutan & Tucker, 611 Anton Boulevard, Suite 1400, Costa Mesa, CA 92626, Attn: Vicki Dallas, facsimile 714-546-9035 or (3) to such other respective addresses and/or addressees as may be designated by notice given in accordance with the provisions of this Section 12(b).

(c)Fees and Expenses.  Each party hereto shall bear all fees and expenses incurred by such party in connection with, relating to or arising out of the execution, delivery and performance of this Agreement and the consummation of the transaction contemplated hereby, including attorneys’, accountants’, brokers’ and other professional fees and expenses.

(d)Entire Agreement.  This Agreement, and the exhibits hereto, the Sublease, and the Transition Services Agreement constitute the entire agreement between the parties and shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns.

(e)Survival; Non-Waiver.  All representations and warranties shall survive the Closing  (and none shall merge into any instrument of conveyance) regardless of any investigation or lack of investigation by any of the parties hereto.  The failure in any one or more instances of a party to insist upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege in this Agreement conferred, or the waiver by said party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, right or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or

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waiver had occurred.  No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

(f)Applicable Law.  This Agreement shall be governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the internal laws of the State of California applicable to contracts made in that State, without regard to any conflict of law principles of the State of California.

(g)Consent to Jurisdiction.  This Agreement has been executed and delivered in and shall be deemed to have been made in California.  Each of the parties agrees to the exclusive jurisdiction of any state or Federal court within Los Angeles, California, with respect to any claim or cause of action arising under or relating to this Agreement, and waives personal service of any and all process upon it, and consents that all services of process be made by registered or certified mail or delivered by hand, directed to it as provided in the following sentence, and service so made shall be deemed to be completed when received.  Process to be served upon Seller shall be mailed or delivered c/o Anne Hamblin Schiave, Holland & Knight, LLP, 131 S. Dearborn Street, Chicago, Illinois 60603.  Process to be served upon Purchaser shall be mailed or delivered to Vicki Dallas, Rutan & Tucker, 611 Anton Boulevard, Suite 1400, Costa Mesa, CA 92626.  Each of the parties waives any objection based on forum non conveniens and waives any objection to venue of any action instituted hereunder.  Nothing in this paragraph shall affect the right to serve legal process in any other manner permitted by applicable law.

(h)Waiver of Trial by Jury.  Each of the parties waives the right to a jury trial in connection with any suit, action or proceeding seeking enforcement of such party’s rights under this Agreement.

(i)Binding Effect.  This Agreement shall inure to the benefit of and be binding upon the parties hereto, and their successors and permitted assigns.  Nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto, and their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

(j)Assignment.  This Agreement shall not be assignable by either party without the prior written consent of the other party.  Notwithstanding the foregoing, Purchaser may assign this Agreement to any of its affiliates, or to a purchaser of substantially all of its assets.  Any permitted assignee will be obligated to assume the obligations of the assignor, and the assignor shall remain liable performance of all obligations of the assignee.

(k)Amendments.  This Agreement shall not be modified or amended except pursuant to an instrument in writing executed and delivered on behalf of each of the parties hereto.

(l)Headings.  The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

(m)Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any

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provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction so as to best give effect to the intent of the parties under this Agreement.

(n)Counterparts.  Counterpart copies of this Agreement may be signed by all Parties and signature pages exchanged by facsimile or email.  The Parties intend and agree that counterpart copies signed and exchanged as provided in the preceding sentence shall be fully binding.  Counterpart originals of this Agreement shall be exchanged by U.S. mail or express service at the earliest reasonable time following the exchange of signature pages by facsimile or email, each of which shall be an original and all of which together shall constitute the one and same instrument.

(o)No Strict Construction.  The parties hereto jointly participated in the negotiation and drafting of this Agreement.  The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their collective mutual intent, this Agreement shall be construed as if drafted jointly by the parties hereto, and no rule of strict construction shall be applied against any person or entity.

(p)Gender.  As used in this Agreement, the masculine, feminine or neuter gender shall be deemed to include the others whenever the context so indicates or requires.

(q)Interpretation.  Whenever the term “include” or “including” is used in this Agreement, it shall mean “including, without limitation,” (whether or not such language is specifically set forth) and shall not be deemed to limit the range of possibilities to those items specifically enumerated.  The words “hereof”, “herein” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision. Terms defined in the singular have a comparable meaning when used in the plural and vice versa.

(r)The parties  hereby waive compliance with the California Bulk Sales law.  Purchaser will pay all of the Assumed Liabilities and Seller will pay the Excluded Liabilities.

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IN WITNESS WHEREOF, the parties have executed this Asset Purchase Agreement on the date first above written.

U.S. TRAFFIC CORPORATION
By:		/s/ Daniel P. Gorey
Its: Vice President
NATIONAL SIGNAL, INC.
By	:     /s/ Mark Fernandez
	President

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EX-10.Q

Exhibit 10(q)

EXECUTION COPY

ASSET PURCHASE AGREEMENT

between

DATA TRANSMISSION NETWORK CORPORATION

and

SURFACE SYSTEMS, INC.

Dated as of June 30, 2006

TABLE OF CONTENTS

		Page
	ARTICLE I
	CONSTRUCTION
Section 1.01.	Construction and Interpretation	1
	ARTICLE II
	TRANSFER OF ASSETS AND RIGHTS
Section 2.01.	Purchase and Sale of Assets	1
Section 2.02.	Excluded Assets	3
Section 2.03.	Assumed Forward Looking Obligations; Excluded Liabilities	4
Section 2.04.	Purchase Price	4
Section 2.05.	Closing	4
Section 2.06.	Payment of Purchase Price	4
Section 2.07.	Purchase Price Adjustment	5
Section 2.08.	Allocation of Purchase Price	6
	ARTICLE III
	REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.01.	Organization	6
Section 3.02.	Authorization	6
Section 3.03.	Noncontravention	7
Section 3.04.	Litigation	7
Section 3.05.	Assumed Agreements	7
Section 3.06.	Customers	8
Section 3.07.	Hardware and Other Equipment	9
Section 3.08.	Software, Licenses and Data Bases	9
Section 3.09.	Intellectual Property	10
Section 3.10.	Supplies	11
Section 3.11.	St. Louis Facility	11
Section 3.12.	Compliance With Laws	11
Section 3.13.	Tax Matters	11
Section 3.14.	Financial Statements	11
Section 3.15.	Absence of Specified Changes	12
Section 3.16.	Title	13
Section 3.17.	Licenses and Permits	13
Section 3.18.	Consents and Approvals	14
Section 3.19.	Broker or Finders’ Fees	14
Section 3.20.	Employees; Compensation; Labor	14
Section 3.21.	Employee Benefit Plans	15

Section 3.22.	Insurance	15
Section 3.23.	Fair Value	15
Section 3.24.	Solvency	15
Section 3.25.	Disclosure	16
	ARTICLE IV
	REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.01.	Organization	17
Section 4.02.	Authorization	17
Section 4.03.	Noncontravention	17
Section 4.04.	Litigation	17
Section 4.05.	Broker or Finders’ Fees	17
	ARTICLE V
	ADDITIONAL AGREEMENTS
Section 5.01.	Conduct of Business	17
Section 5.02.	Employee Leasing Agreement	18
Section 5.03.	Product Marketing Agreement	18
Section 5.04.	Subcontract	18
Section 5.05.	Public Announcements	18
Section 5.06.	No Solicitation	19
Section 5.07.	Representations and Warranties	19
Section 5.08.	Disclosure Schedules	19
Section 5.09.	Due Diligence	20
	ARTICLE VI
	POST-CLOSING COVENANTS
Section 6.01.	Further Action	20
Section 6.02.	Consents and Authorizations	20
Section 6.03.	Litigation Support	20
Section 6.04.	Transition	21
Section 6.05.	Confidentiality	20
Section 6.06.	Noncompetition/Nonsolicitation Agreement	22
Section 6.07.	Access to Records After the Closing	22
Section 6.08.	RWIS Data Access	23
	ARTICLE VII
	CONDITIONS TO CLOSING
Section 7.01.	Conditions to Obligation of Buyer	23

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Section 7.02.	Conditions to Obligation of Seller	25
	ARTICLE VIII
	SURVIVAL AND INDEMNIFICATION
Section 8.01.	Survival	26
Section 8.02.	Indemnification	27
Section 8.03.	Time Limitation on Indemnification	28
Section 8.04.	Third Party Claims, Etc	28
Section 8.05.	Certain Other Indemnity Matters	28
	ARTICLE IX
	TERMINATION
Section 9.01.	Termination Events	29
Section 9.02.	Effect of Termination	30
	ARTICLE X
	MISCELLANEOUS
Section 10.01.	Notices	30
Section 10.02.	Amendments and Waivers	31
Section 10.03.	Expenses	31
Section 10.04.	Successors and Assigns; Assignment	31
Section 10.05.	Governing Law	31
Section 10.06.	Counterparts; Effectiveness	31
Section 10.07.	Entire Agreement; Third Party Beneficiaries	32
Section 10.08.	Severability	32
	ARTICLE XI
	DEFINITIONS
Section 11.01.	Definitions	32

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Exhibit A:	Employee Leasing Agreement
Exhibit B:	Product Marketing Agreement
Exhibit C:	Form of Subcontract
Exhibit D:	Opinion of Seller’s Counsel
Exhibit E:	Bill of Sale, Assignment and Assumption Agreement
Schedule 2.01(a):	Customer Contracts and Customers
Schedule 2.01(b):	Software and Licenses
Schedule 2.01(c):	Data Bases
Schedule 2.01(d):	IP Rights
Schedule 2.01(e):	Hardware
Schedule 2.01(f):	Other Equipment
Schedule 2.01(g):	Supplies
Schedule 2.01(h):	Other Agreements
Schedule 2.02(c):	Storm Beacon Customers
Schedule 2.02(d):	Excluded Hardware
Schedule 2.02(h):	Unrelated Assets
Schedule 2.07:	Customers Contracts Requiring Consent
Schedule 3.04:	Litigation
Schedule 3.06(b):	Customer Disputes
Schedule 3.06(c):	Customer Bankruptcies
Schedule 3.09:	Non-Exclusive IP Rights
Schedule 3.13:	Tax Matters
Schedule 3.14:	Financial Statements
Schedule 3.15:	Absence of Specified Changes
Schedule 3.16(a):	Title
Schedule 3.17:	Licenses and Permits
Schedule 3.18:	Consents and Approvals
Schedule 3.20:	Employment Matters
Schedule 3.21:	Employee Benefit Plans
Schedule 3.22:	Insurance
Schedule 5.04:	Subcontract Customers

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ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (this “Agreement”) is made and entered into this         day of June, 2006 by and between DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation (“Buyer”), and SURFACE SYSTEMS, INC., a Missouri corporation (“Seller”).  Buyer and Seller are jointly referred to herein as the “Parties.”

W I T N E S S E T H :

WHEREAS, Seller is engaged in the business of selling information, software and other products related to the weather forecasting business and providing services related thereto (the “Business”); and

WHEREAS, Buyer desires to purchase substantially all of Seller’s assets associated with the Business, and Seller desires to sell such assets to Buyer.

NOW, THEREFORE, in consideration of the promises and the mutual representations, promises and covenants herein contained and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

ARTICLE I

CONSTRUCTION

Section 1.01.  Construction and Interpretation.  All capitalized words or terms herein have the meaning ascribed to them as immediately thereafter defined or as defined in Article XI hereof.  The captions or headings in this Agreement are for convenience of reference only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Agreement.  All references in this Agreement to particular Articles or Sections are references to the Articles or Sections of this Agreement, unless some other references are clearly indicated.  All accounting terms not specifically defined in this Agreement shall be construed in accordance with United States generally accepted accounting principles as in effect on the date hereof.  In this Agreement, unless the context otherwise requires, (a) words describing the singular number shall include the plural and vice versa, (b) words denoting any gender shall include all genders and (c) the word “including” shall mean “including, without limitation.”  This Agreement and the other instruments and documents to be delivered pursuant hereto shall not be construed more favorably against one Party than the other based on who drafted the same, it being acknowledged that all Parties hereto contributed meaningfully to the drafting of this Agreement.

ARTICLE II

TRANSFER OF ASSETS AND RIGHTS

Section 2.01.  Purchase and Sale of Assets.  Subject to the terms and conditions of this Agreement, Seller agrees to sell, convey, assign, transfer and deliver to Buyer as of the Effective Time, free and clear of any and all liabilities, claims, liens, restrictions on transfer and

encumbrances (except for the Forward Looking Obligations and Permitted Liens, if any), and Buyer agrees to purchase from Seller, all of the assets listed below, whether tangible, intangible, real, personal or mixed, and wherever located, all of which are sometimes collectively referred to in this Agreement as the “Purchased Assets”:

(a)           All rights of Seller in and to the customer agreements identified on Schedule 2.01(a) (the “Customer Contracts”), all rights of Seller to provide products and services to the customers who are parties to such agreements or customers who otherwise receive products and services related to the Business from Seller, each of whom is also identified on Schedule 2.01(a) (the “Customers”) and all rights to provide products and services to the prospective customers to whom proposals have been presented by Seller as of the Effective Time (the “Proposals”), a list of which shall be provided by Seller to Buyer as soon as reasonably practicable following the Closing;

(b)           All computer software systems and computer software licenses used and/or held by Seller in connection with or otherwise related to the Business, including but not limited to those identified on Schedule 2.01(b) (the “Software and Licenses”);

(c)           All data bases, including those storing weather graphics and related content, used in connection with or otherwise related to the Business, including but not limited to those identified on Schedule 2.01(c) (the “Data Bases”);

(d)           All intellectual property rights (e.g., trade names, trademarks, service marks, copyrights, patents, website addresses, website content, domain names, e-mail addresses, patent rights, licenses, brand names, trade secrets and trade dress) owned or used by Seller in the operation of the Business, including but not limited to those identified on Schedule 2.01(d) (the “IP Rights”);

(e)           All computer hardware owned by Seller and used in connection with or otherwise related to the Business, including but not limited to the computer hardware identified on Schedule 2.01(e) (the “Hardware”);

(f)            All other equipment, furniture and appurtenances owned by Seller and used in connection with or otherwise related to the Business, including but not limited to the equipment, furniture and appurtenances identified on Schedule 2.01(f) (the “Other Equipment”);

(g)           All inventory, supplies and expendable assets specifically related to the Business, including but not limited to those identified on Schedule 2.01(g) (the “Supplies”);

(h)           All rights of Seller under the contracts, commitments, leases, licenses and other agreements related to the Business (other than Customer Contracts) which are specifically identified on Schedule 2.01(h) (the “Other Agreements”);

(j)            All permits, licenses, franchises, consents or authorizations issued by, and all registrations and filings with, any Governmental Authority solely in connection with

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the Business, whenever issued or filed, excepting only those which by law or by their terms are non-transferable and those which have expired (the “Permits”);

(k)           All warranties and guarantees of manufacturers, contractors or suppliers which pertain to the Business (the “Warranties”);

(l)            All claims of Seller against third parties related to the Business, whether known or unknown, fixed or continent (the “Claims”);

(m)          All of Seller’s goodwill and other intangibles associated with the Business and the operation thereof, including but not limited to any goodwill associated with any Customers; and

(n)           All papers, documents, files and records in Seller’s care, custody or control, whether paper or electronic, relating to any or all of the above-described Purchased Assets, including but not limited to all Customer lists, contracts, logs, correspondence, billing records, files and sales records.

Section 2.02.  Excluded Assets.  Seller shall retain and not sell, convey, assign or deliver to Buyer, and Buyer shall not purchase or accept from Seller, any and all other assets not specifically identified as the Purchased Assets, including, without limitation, the following properties and assets of Seller (the “Excluded Assets”):

(a)           All cash and accounts receivable;

(b)           All rights of Seller pursuant to any real estate leases, vehicle leases and equipment leases;

(c)           All customers of Seller’s “Storm Beacon” product, including but not limited to those identified on Schedule 2.02(c) (the “Storm Beacon Customers”);

(d)           All computer hardware and related items not specifically listed on Schedule 2.01(e) that have a shared use, including but not limited to those identified on Schedule 2.02(d) (“Excluded Hardware”);

(e)           All general office equipment not specifically listed on Schedule 2.01(f), including, but not limited to copy machines, telephones, facsimile machines and office furniture;

(f)            All rights and interests under any Employee Benefit Plan;

(g)           Except as provided in Section 3.14, all financial and business records of Seller which do not directly and solely relate to the Purchased Assets;

(h)           Any assets not related to the Business, including but not limited to those identified on Schedule 2.02(h) (the “Unrelated Assets”);

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(i)            All other assets and properties of Seller of every kind, character or description, other than the Purchased Assets, which are owned, used or held for use (whether or not exclusively) by Seller, wherever located, whether or not similar to the items detailed under the Purchased Assets; and

(j)            All consideration to be received by Seller under this Agreement and all other rights of Seller hereunder.

Section 2.03.  Assumed Forward Looking Obligations; Excluded Liabilities.  Buyer shall assume all obligations incurred after the Effective Time or accruing after the Effective Time related to the Customer Contracts and Other Agreements purchased by Buyer pursuant to Section 2.01 hereof (the “Forward Looking Obligations”).  Buyer shall not assume any other Liabilities, obligations, contracts, leases and/or commitments of Seller of any nature, and nothing contained or described in this Agreement shall obligate Buyer to assume any other Liabilities, obligations, contracts or commitments of Seller, it being agreed that Buyer shall not assume nor in any manner be liable for, and Seller shall remain liable for and discharge and shall indemnify Buyer against and hold Buyer harmless from, all other debts, Liabilities and obligations of Seller incurred prior to or as of the Effective Time or arising prior to or as of the Effective Time, or incurred after the Effective Time or arising after the Effective Time in connection with or relating to the Business prior to the Effective Time.  Without limiting the foregoing, the Parties agree that Seller shall be solely responsible and liable for, among other things, all Liabilities for Taxes and similar items however designated, and all interest, penalties and additions to Tax, including Income Taxes and all accrued real property, personal property, sales, use and payroll Taxes incurred or arising prior to or as of the Effective Time, or incurred or accrued after the Effective Time in connection with or relating to the operation of the Business prior to the Effective Time.

Section 2.04.  Purchase Price.  Subject to adjustment as provided in Section 2.07, the total purchase price to be paid for the Purchased Assets and the other covenants and agreements of Seller set forth herein (the “Purchase Price”) shall be $1,900,000, less the amount of any fees or other amounts paid by Customers to Seller prior to the Effective Time on account of products or services to be provided to Customers after the Effective Time (the “Prepaid Fees”), with the amount of such Prepaid Fees to be determined by the Parties prior to Closing.  The Purchase Price shall be payable to Seller as set forth in Section 2.06.

Section 2.05.  Closing.  Subject to the satisfaction or waiver of the conditions set forth in Article VII hereof, the closing with respect to the transactions contemplated herein (the “Closing”) shall take place on June 30, 2006 or at such other time as Buyer and Seller may mutually agree in writing (the “Closing Date”) and shall become effective at 11:59:59 p.m. Central Daylight Savings Time on June 30, 2006 or at such other time as Buyer and Seller may mutually agree in writing (the “Effective Time”).  All Purchased Assets and related revenue, expenses, responsibility and risk of loss shall pass to Buyer as of the Effective Time.

Section 2.06.  Payment of Purchase Price.  Subject to adjustment as provided in Section 2.07 and set off for any indemnification claims of Buyer pursuant to Section 8.02(a), the Purchase Price shall be paid as follows:

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(a)           Closing Payment.  At Closing, Buyer shall pay to Seller (or its designee(s)) the sum of $1,566,137.39 (the “Closing Payment”), in immediately available funds via wire transfer pursuant to wiring instructions provided by Seller to Buyer at least three (3) Business Days prior to Closing.

(b)           Consent Holdback.  The amount of $285,000 (the “Consent Holdback”) shall be withheld from payment at Closing and shall be payable as follows:

(i)            On the date which is three (3) months following the Closing Date (the “First Consent Date”), Buyer shall pay to Seller the amount of the Consent Holdback which is in excess of the total of all Consent Revenue associated with all Non-Consenting Customers as of the First Consent Date.

(ii)           On the date which is six (6) months following the Closing Date (the “Second Consent Date”), Buyer shall pay to Seller the amount of the Consent Holdback which is in excess of the total of all Consent Revenue associated with all Non-Consenting Customers as of the Second Consent Date.

(iii)          On the date which is nine (9) months following the Closing Date (the “Third Consent Date”), Buyer shall pay to Seller the amount of the Consent Holdback which is in excess of the total of all Consent Revenue associated with all Non-Consenting Customers as of the Third Consent Date.

(iv)          On June 30, 2007 (the “Final Consent Date”), Buyer shall pay to Seller the amount of the Consent Holdback which is in excess of the total of all Consent Revenue associated with all Non-Consenting Customers as of the Final Consent Date

All amounts due pursuant to this Section 2.06(b) shall be paid in immediately available funds via wire transfer pursuant to wiring instructions provided by Seller to Buyer at least three (3) Business Days prior to the date on which such payment is due.

Section 2.07.  Purchase Price Adjustment.  Schedule 2.07 sets forth each Customer Contract for which consent to assignment is required (each an “Assignment Consent Customer”) and each Customer of Seller for which Buyer shall provide services pursuant to a Subcontract for which consent to subcontract is required (each a “Subcontract Consent Customer” and together with the Assignment Consent Customers, the “Consent Customers”) and for which such consent to assignment or subcontract has not been delivered to Buyer as of the date hereof, together with the estimated 2006 fiscal year annual revenues of each such Consent Customer (the “Consent Revenue”).  If Seller fails to deliver to Buyer the Consent of any Consent Customer to the assignment to Buyer of the Customer Contract of such Consent Customer or to the subcontracting of services to be provided by Buyer to such Consent Customer, as applicable (each a “Non-Consenting Customer”), on or prior to the Final Consent Date, then the Purchase Price shall be reduced by an amount equal to the total of all Consent Revenue associated with such Non-Consenting Customers.  For the purpose of this Section 2.07, (a) with respect to any Assignment Consent Customer, Consent shall mean: (i)  the receipt by Buyer of payment for services rendered from an Assignment Consent Customer pursuant to a Customer Contract, (ii)

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the written acknowledgement by an Assignment Consent Customer, in a form reasonably acceptable to Buyer (which may include e-mail or other form of electronic communication), whereby such Assignment Consent Customer agrees to the assignment of the Customer Contract, (iii) any subsequent award to Buyer of a contract put out to bid by an Assignment Consent Customer pursuant to which Buyer shall perform services substantially similar to services provided pursuant to the applicable Customer Contract, or (iv) the Consent by an Assignment Consent Customer to the subcontracting of such Customer Contract to Buyer (in the manner provided for in subparagraph (b) below) and the execution of a Subcontract by the parties hereto, and (b) with respect to any Subcontract Consent Customer, Consent shall mean the consent of a Subcontract Consent Customer in the form required pursuant to the applicable contract.  The amount of the Purchase Price reduction pursuant to this Section 2.07 shall be withheld from the payment of the Consent Holdback as provided in Section 2.06(b) and in no event shall the amount of such Purchase Price reduction exceed the amount of the Consent Holdback.

Section 2.08.  Allocation of Purchase Price.  The Purchase Price shall be allocated among the Purchased Assets as mutually agreed by Buyer and Seller within ninety (90) days following the Effective Time.  Buyer and Seller agree to use such allocation for all tax and reporting purposes and not to take any contrary position with respect thereto.  In the event that the Purchase Price is adjusted as the result of the operation of Section 2.07 or any indemnification obligation pursuant to Section 8.02(a), the allocation of the Purchase Price shall be revised accordingly as soon as reasonably practicable.  Buyer and Seller shall take all actions and file all Tax Returns (including but not limited to Internal Revenue Service Form 8594) consistent with such allocation unless required to do otherwise by law.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer that the statements contained in this Article III are correct and complete as of the date of this Agreement and will be correct and complete as of the Effective Time, except as set forth in the Disclosure Schedules attached hereto and incorporated herein by this reference (the “Disclosure Schedules”).  The Disclosure Schedules will be arranged in paragraphs corresponding to numbered Sections contained in this Article III.

Section 3.01.  Organization.  Seller has been duly organized and is a validly existing corporation in good standing under the laws of the State of Missouri.  Seller has all corporate power required to carry on the Business as now conducted and to sell, transfer and assign the Purchased Assets to Buyer.  Quixote Corporation, a Delaware corporation (“Quixote”) is the sole legal and beneficial owner of all of the outstanding capital stock of Quixote Transportation Safety, Inc., a Delaware corporation, which is the sole legal and beneficial owner of all of the outstanding capital stock of Seller.  There are no outstanding agreements for the purchase or acquisition of any of the shares of Seller’s capital stock from Seller or Quixote.  There are no outstanding securities exercisable for or convertible into any capital stock of Seller.

Section 3.02.  Authorization.  The execution, delivery and performance of this Agreement by Seller is within Seller’s corporate power, has been duly authorized by all necessary action on the part of Seller and, when executed and delivered in accordance with the

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terms hereof, will constitute a valid and legally binding obligation of Seller enforceable in accordance with its terms.

Section 3.03.  Noncontravention.  Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which Seller is subject or any provision of the articles of incorporation or bylaws of Seller or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any material agreement, contract, lease, license, instrument or other arrangement to which Seller is a party or by which Seller is bound or to which any of the Purchased Assets are subject (or result in the imposition of any Security Interest upon any of the Purchased Assets).

Section 3.04.  Litigation.  Except as disclosed in Schedule 3.04, there is no action, order, writ, judgment or decree outstanding or suit, litigation or proceeding pending or, to the Knowledge of Seller, threatened, against Seller with respect to the Business, the Purchased Assets or the execution of this Agreement or the consummation of the transaction contemplated thereby, nor has any such action, order, writ, judgment or decree been outstanding or suit, litigation or proceeding been pending against Seller during the past three (3) years.

Section 3.05.  Assumed Agreements.

(a)           Schedule 2.01(a) identifies all of the contracts, agreements or other relationships, whether written or oral, which are in effect as of the date of this Agreement and pursuant to which Seller sells, licenses or otherwise provides products or services of the Business to third parties.  Seller has no contracts, agreements or other relationships pursuant to which Seller sells, licenses or otherwise provides products or services of the Business to third parties other than the Customer Contracts.

(b)           Current, correct and complete copies of all written agreements included within the Purchased Assets (including but not limited to written Customer Contracts and Other Agreements), and summaries of all oral agreements included within the Purchased Assets (including but not limited to oral Customer Contracts and Other Agreements), have been provided to or made available for inspection by Buyer.

(c)           Each written agreement included within the Purchased Assets was duly executed and delivered by, and constitutes a valid and binding obligation of, Seller, enforceable against Seller in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(d)           Each written agreement included within the Purchased Assets was duly executed and delivered by, and to the Knowledge of Seller, as of the Effective Time will constitute a valid and binding obligation of, the other party to the agreement, enforceable against the other party to the agreement in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws

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of general applicability relating to or affecting creditors’ rights and to general equity principles.

(e)           Each agreement included within the Purchased Assets constitutes the entire agreement to which Seller is a party with respect to the products and/or services being sold, licensed, acquired or retained to or from the other party thereto.

(f)            There has been no material breach of the terms of any agreement included within the Purchased Assets by Buyer or, to Seller’s Knowledge, by any other party to such agreement.

(g)           As of the Effective Time, each agreement included within the Purchased Assets will be legal, valid, binding and enforceable by Buyer, and in full force and effect on identical terms.

(h)           Seller has not received any notice and has no Knowledge of any actual or threatened termination of any agreement included within the Purchased Assets.

(i)            Except as set forth on Schedule 3.18, each agreement included within the Purchased Assets is assignable to Buyer without any consent or approval of any person.

Section 3.06.  Customers.

(a)           Except for customers of Seller’s “Storm Beacon” product which will be terminated by Seller under their agreements or as soon as otherwise practicable, Schedule 2.01(a) sets forth a complete and correct list of all customers of the Business, together with the estimated 2006 fiscal year annual revenues of each such customer identified therein.  Seller provides no products or services of the Business to any third-parties other than the Customers.

(b)           Except as set forth in Schedule 3.06(b), Seller is not and has not been engaged in any material dispute with any of its Customers since June 30, 2005.  Seller has not received any actual notice and does not have any reason to believe that any of its Customers has ceased, or after the Effective Time will cease, to use the products or services of the Business or that any of its Customers has substantially reduced, or after the Effective Time will substantially reduce, the use of such products or services at any time.

(c)           Except as set forth in Schedule 3.06(c), to the Knowledge of Seller, none of the Customers have filed a petition in bankruptcy or voluntary reorganization, commenced any case or proceeding under applicable bankruptcy laws or other similar laws, or had commenced against them any case or proceeding under any applicable bankruptcy or other similar laws, other than any petitions, cases or proceedings which have been dismissed prior to the date of this Agreement.

(d)           Seller has provided Buyer with true, accurate and complete Customer information, including but not limited to contracts, pricing and addresses, as requested by Buyer.

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Section 3.07.  Hardware and Other Equipment.  Schedules 2.01(e) and 2.01(f) set forth an accurate and complete list of all Hardware and Other Equipment owned by Seller and used in connection with or otherwise related to the Business, and all of such Hardware and Other Equipment is in good operating condition (reasonable wear and tear excepted).

Section 3.08.  Software, Licenses and Data Bases.

(a)           Schedule 2.01(b) sets forth a list of all of the software and licenses which are used by Seller in connection with or otherwise related to the Business and are material to the operations thereof, including all computer software programs and related documentation and materials, other than any computer software programs and related documentation and materials subject to “shrink wrap” and/or “click wrap” licenses.  Schedule 2.01(c) sets forth a list of all data bases which are used by Seller in connection with or otherwise related to the Business and are material to the operations thereof.

(b)           As specified on Schedules 2.01(b) and (c), Seller either owns, free and clear of any liens, all right, title and interest in all Software and Licenses and Data Bases and the media included in the Purchased Assets on which such Software and Licenses and Data Bases owned by Seller is contained, or has a valid license to use such Software and Licenses and Data Bases contained on such media included in the Purchased Assets and licensed or otherwise made available for use to it.

(c)           The use by Seller of any Software and Licenses and Data Bases that are proprietary to Seller does not conflict with, misappropriate or infringe upon the rights or ownership interests of any other Person and, to the Knowledge of Seller, the use by Seller of any third-party Software and Licenses and Data Bases does not conflict with, misappropriate or infringe upon the rights or ownership interests of any other Person.

(d)           No claims (i) challenging the validity, effectiveness or, other than with respect to any licensed Software and Licenses and Data Bases, ownership by Seller of any of the Software and Licenses and Data Bases or (ii) to the effect that the use, distribution, licensing, sublicensing, sale or any other exercise of rights in the Software and Licenses and Data Bases by Seller or its agents or use by its customers infringes or will infringe on any rights or interests of any Person, have been asserted or, to the Knowledge of Seller, are threatened by any Person, and Seller has no Knowledge of the existence of any facts which could reasonably support such a claim.

(e)           None of the Software and Licenses or Data Bases contain any Self-Help Code or any Unauthorized Code.

(f)            The Software and Licenses and Data Bases and the transferred rights and licenses thereto are sufficient to operate the Business after Closing in the manner it was operated prior to Closing and will not result in any additional license fees or charges after Closing in the operation of the Business other than any license fees required to be paid pursuant to the licenses identified on Schedules 2.01(b) and (c).

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Section 3.09.  Intellectual Property.

(a)           Schedule 2.01(d) sets forth a true and complete list of (i) all United States, state and foreign registrations of and applications for patents, trademarks, service marks, trade names and copyrights owned by Seller, (ii) all patent licenses, trademark licenses, service mark licenses, trade name licenses, trade secret licenses and copyright licenses held by Seller, and (iii) all other intellectual property rights, owned, held or used by Seller in connection with the Business.

(b)           Except as set forth on Schedule 3.09, Seller is the sole and exclusive owner of the entire right, title, and interest in and to all IP Rights listed on Schedule 2.01(d).

(c)           All IP Rights are subsisting and have not been adjudged invalid or unenforceable, in whole or in part, and Seller has performed all acts and has paid all renewal, maintenance, and other fees and taxes required to maintain each and every registration and application of patents, trademarks, service marks, trade names and copyrights in full force and effect.

(d)           Except as set forth on Schedule 3.09, all of the IP Rights are valid and enforceable; no holding, decision, or judgment has been rendered in any action or proceeding before any court or administrative authority challenging the validity of, Seller’s right to register, or Seller’s rights to own or use, any IP Rights and no such action or proceeding is pending or, to the Knowledge of Seller, threatened.

(e)           All registrations and applications for patents, trademarks, service marks, trade names and copyrights are standing in the name of Seller, and none of the patents, trademarks, service marks, trade names, copyrights or trade secrets has been licensed by Seller to any Affiliate or third party.

(f)            Seller has been using appropriate statutory notice of registration in connection with its use of registered trademarks and service marks, proper marking practices in connection with the use of patents, and appropriate notice of copyright in connection with the publication of copyrights.

(g)           Except as set forth on Schedule 3.09, Seller’s operation of the Business does not infringe upon or otherwise violate any trademark, service mark, trade name, patent, copyright, trade secret or other intellectual property right owned or controlled by a third party; no claim has been made that the use of any IP Rights owned or used by Seller (or any of its respective licensees) violates the asserted rights of any third party.

(h)           To the Knowledge of Seller, no third party is infringing upon or otherwise violating any rights in any IP Rights owned or used by Seller, or any of its licensees.

(i)            No settlement or consents, covenants not to sue, nonassertion assurances, or releases have been entered into by  or otherwise binding upon Seller that adversely affect Seller’s rights to own or use any IP Rights.

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(j)            Seller has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale, transfer or agreement related to any IP Rights that has not been terminated or released.

(k)           The IP Rights are sufficient to operate the Business after Closing in the manner in which it was operated prior to Closing and will not result in any additional license fees or charges after Closing in the operation of the Business, other than those regularly paid by Seller in the ordinary course of business prior to Closing.

Section 3.10.  Supplies.  Schedule 2.01(g) sets forth an accurate and complete list of all of the inventory, supplies and expendable assets which are used by Seller in connection with the Business.

Section 3.11.  St. Louis Facility.  A correct and complete copy of the real estate lease pertaining to Seller’s facility located at 11612 Lilburn Park Road, St. Louis, Missouri (such facility being referred to herein as the “St. Louis Facility,” and such real estate lease being referred to herein as the “St. Louis Real Estate Lease”) has been provided to or made available for inspection by Buyer.  The employees to be leased under the Employee Leasing Agreement will continue to have access to the St. Louis Facility and while there will have the use of all of the tools and equipment necessary for them to provide the same services for Buyer that they have provided to Seller prior to the Closing.

Section 3.12.  Compliance With Laws.  Seller is in compliance with, is not in violation of and, to Seller’s Knowledge, is not under investigation with respect to any suspected or alleged violation of, any laws applicable to the Purchased Assets and/or conduct of the Business.

Section 3.13.  Tax Matters.  Except as set forth on Schedule 3.13, all Tax Returns for all periods ending on or before the Effective Time that are, were or may in the future be required to be filed by or with respect to the Business or the Purchased Assets, either separately or as a member of an affiliated group of entities, have been filed or will be filed on a timely basis, and in accordance in all material respects with the laws, regulations and administrative requirements of any applicable Taxing Authority.  All such Tax Returns that have been filed on or before the Effective Time or will be filed after the Effective Time relating to the Business or Purchased Assets prior to the Effective Time, were and continue to be or, when filed, will be true, correct and complete in all material respects; and, except as set forth on Schedule 3.13, Seller has paid, or will pay when due, all Taxes relating to the Business or the Purchased Assets, including personal property taxes and payroll taxes, that have or may become due for all periods (or portions thereof) ending on or before the Effective Time.  There are no liens with respect to Taxes upon any of the Purchased Assets (except for Taxes not yet due).

Section 3.14.  Financial Statements.

(a)           Schedule 3.14 to this Agreement sets forth the unaudited balance sheets and statements of income pertaining to the Business for the twelve (12) month periods ending June 30, 2005 and 2004, certified by an officer of Seller (the “Financial Statements”).  The revenue set forth in the income statement for the Business has been recognized in accordance with generally accepted accounting principles in the United

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States in all material respects.  The Financial Statements have been prepared in accordance with accepted accounting principles in the United States, applied on a consistent basis through the periods indicated and with each other, are complete and correct in all material respects, are consistent with the books and records of Seller, and accurately and fairly present the financial position of the Business as of the date of the Financial Statements, as well as the results of Seller’s Business operations for the periods indicated.

(b)           The books and records of Seller (i) accurately reflect all material items of income and expense and all assets and Liabilities of Seller, (ii) are in all material respects complete and correct and do not contain any material inaccuracies or discrepancies, (iii) have been maintained in accordance with good business and accounting practices, and (iv) have been made available to Buyer for its inspection.

(c)           Seller has no Liability (and there is no basis for any present or future proceeding against Seller giving rise to any Liability), other than (i) Liabilities set forth on the face of the Financial Statements (rather than the notes thereto), (ii) Liabilities incurred in the Ordinary Course of Business consistent with past practice subsequent to December 31, 2005 and (iii) obligations under Customer Contracts and Other Agreements incurred in the Ordinary Course of Business consistent with past practice subsequent to December 31, 2005, all of which Liabilities and obligations referred to in the foregoing clauses (i) through (iii), individually or in the aggregate, are not material to the financial condition or operating results, assets or prospects of Seller.

Section 3.15.  Absence of Specified Changes.  Except as listed on Schedule 3.15, since December 31, 2005, there has not been any:

(a)           Material Adverse Effect on the financial condition, Liabilities, assets, business, operating results or prospects of the Business and/or the Purchased Assets;

(b)           destruction, damage to or loss of any Business assets of Seller (whether or not covered by insurance) that has had or may have a Material Adverse Effect on the assets, financial condition, business, operating results or prospects of the Business;

(c)           labor disputes, preliminary union organization or requests for union representation concerning the Business;

(d)           increase in the salary or other compensation or benefits payable or to become payable to any of the employees of Seller whose duties relate to the Business (“Employees”), other than those increases provided to Employees in the Ordinary Course of Business;

(e)           sale or transfer of any Business asset of Seller;

(f)            execution, creation, amendment, nonrenewal or termination of any contract, agreement or license pertaining to the Business;

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(g)           additional indebtedness for borrowed money involving or relating to the Business or any of the Purchased Assets;

(h)           creation or assumption by Seller of any mortgage, lien, Security Interest, pledge or other encumbrance on any of the Purchased Assets;

(i)            waiver of any rights or cancellation or forgiveness of any claims or indebtedness related to any Purchased Asset or that would otherwise be a Purchased Assets;

(j)            any receipt by Seller of (i) notice of any loss of, (ii) material order cancellation by, (iii) material pricing or other contract changes with respect to, (iv) material dispute with or (v) material complaints from, any Customers;

(k)           initiation, receipt or settlement of any action, arbitration, audit, hearing, investigation, litigation, lawsuit or other similar proceeding affecting the Business or the Purchased Assets;

(l)            other event or condition of any character that has or might reasonably have a Material Adverse Effect on the financial condition, business, assets, operating results or prospects of the Business and/or the Purchased Assets;

(m)          conduct or activity concerning the Business and/or the Purchased Assets which has not been in the Ordinary Course of Business; or

(n)           agreement by Seller to do any of the things described in the preceding clauses (a) through (m).

Section 3.16.  Title.

(a)           Except as identified on Schedule 3.16(a), Seller is the owner of good and valid title to all of the Purchased Assets, free and clear of all liabilities, liens, charges, claims, licenses, rights, encumbrances and restrictions on transfers other than the Forward Looking Obligations and Permitted Liens, if any; and, no financing statement covering all or any portion of the Purchased Assets and naming Seller as debtor has been filed in any public office which has not been released, and Seller has not signed any financing statement or security agreement as debtor or borrower which financing statement or security agreement covers all or any portion of the Purchased Assets which has not been released.

(b)           As of the Effective Time, Buyer will acquire the Purchased Assets for its exclusive use free and clear of all liabilities, liens, charges, claims, licenses, rights, encumbrances and restrictions on transfers, except those that may arise from acts of Buyer, the Forward Looking Obligations or any Permitted Liens.  As of the Effective Time, Seller shall have no right, title or interest in the Purchased Assets.

Section 3.17.  Licenses and Permits.  Schedule 3.17 hereto contains a list and description of all licenses, authorizations and permits required by any Governmental Authority in

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connection with the operation of the Business as presently being conducted, including but not limited to the Permits.  Seller has all governmental licenses, authorizations and permits required to carry on the Business as now conducted and to sell, transfer and assign the Purchased Assets to Buyer, and all such licenses, authorizations and permits are in full force and effect, except for any licenses, authorizations and permits the absence of which, individually or in the aggregate, would not have a Material Adverse Effect.  Seller is, and at all times during the past two (2) years has been, in full compliance with all of the terms and requirements of each of the licenses, authorizations and permits listed on Schedule 3.17.  No event has occurred or circumstance exists that may (with or without notice or lapse of time): (a) constitute or result directly or indirectly in a violation of, or a failure to comply with, any term or requirement of any license, authorization or permit listed on Schedule 3.17, or (b) result directly or indirectly in the revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any license, authorization or permit listed on Schedule 3.17.

Section 3.18.  Consents and Approvals.  Schedule 3.18 hereto contains a list and description of all notices or filings to and consents or approvals of any third parties, including but not limited to any Governmental Authorities, customers, suppliers, lessors or lenders, which may be necessary in order to effectively and legally transfer all of the Purchased Assets to Buyer or to otherwise complete the transactions contemplated by this Agreement, except for any notices, filings, consents or approvals the absence of which, individually or in the aggregate, would not have a Material Adverse Effect on the Business or the Purchased Assets.

Section 3.19.  Broker or Finders’ Fees.  There is no third party investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Seller who would be entitled to any fee or commission in connection with this Agreement or the transactions contemplated hereby.

Section 3.20.  Employees; Compensation; Labor.  Except as set forth on Schedule 3.20:

(a)           None of the Employees are subject to a written employment agreement or change of control agreement;

(b)           As of the date of this Agreement and as of the Closing Date, no general manager, operations manager, sales manager or, to the Knowledge of Seller, any other Employee has formally indicated his or her intention to reject an offer of employment from Buyer;

(c)           There are no unions representing the interests of any of the Employees and, to the Knowledge of Seller, there are no Employees seeking or attempting to organize other union representation;

(d)           There are no agreements between Seller and any labor organizations representing any of the Employees;

(e)           There are neither pending nor, to the Knowledge of Seller, threatened any strikes, work stoppages, work disruptions or employment disruptions by any of the Employees;

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(f)            There are not any pending or, to the Knowledge of Seller, threatened suits, actions, administrative proceedings, hearings, arbitrations or other proceedings between Seller and any of the Employees;

(g)           Since June 30, 2004, Seller (i) has complied in all material respects with all laws and regulations relating to the employment of labor, including any provisions thereof relating to wages, hours, collective bargaining and the payment of social security and similar Taxes, (ii) is not liable for any material arrearages of wages or any Taxes or penalties for failure to comply with any of the foregoing, (iii) has not committed any material unfair labor practices, and (iv) has complied in all material respects with all applicable provisions of the Occupational Safety and Health Act of 1970 and regulations promulgated pursuant thereto; and

(h)           To the Knowledge of Seller, since June 30, 2004, none of the Employees has filed any complaint relating to Seller, the Business or the employment of such Employee with any governmental or regulatory authority or brought any action in law or in equity with respect to.

Section 3.21.  Employee Benefit Plans.  Except as set forth on Schedule 3.21, each Employee Benefit Plan that covers Employees (and each related trust, insurance contract, or fund) complies in form and in operation in all material respects with the applicable requirements of ERISA, the Code, and other applicable laws.  Buyer shall not incur any liability with respect to any Employee Benefit Plan that covers Employees.

Section 3.22.  Insurance.  Schedule 3.22 sets forth an accurate and complete list of all indemnity bonds for the Business. With respect to each bond:  (a) all premiums with respect thereto are currently paid and the bond is legal, valid, binding and enforceable in accordance with its terms and is in full force and effect, (b) Seller is not in material breach or default of the bond and, to Seller’s Knowledge, no event has occurred which, with notice or lapse of time, would constitute such a breach or default, or permit termination or modification of the bond, (c) Seller has not received any notice of cancellation or non-renewal of the bond, and (d) the consummation of the transactions contemplated by this Agreement will not cause a breach, termination, modification or acceleration of the bond.

Section 3.23.  Fair Value.  After due consideration, Seller’s Board of Directors has determined and represent to Buyer that the Purchase Price constitutes full and fair consideration and reasonably equivalent value for the sale of the Purchased Assets.

Section 3.24.  Solvency.

(a)           Seller is not now insolvent and will not be rendered insolvent by the execution and performance of this Agreement or any of the related agreements or the consummation of the transactions contemplated by this Agreement or any of the related agreements.  As used in this Section 3.24, “insolvent” means that the sum of the debts and other probable liabilities of Seller exceed the present fair saleable value of Seller’s assets.

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(b)           Immediately after giving effect to the transactions contemplated by this Agreement:  (i) Seller will be able to pay its liabilities as they become due in the usual course of its business; (ii) Seller will not have unreasonably small capital with which to conduct its present or future business; (iii) Seller will have assets (calculated at fair market value) that exceed its liabilities; and (iv) taking into account all pending and threatened litigation, any final judgments against Seller in actions for money damages are not reasonably anticipated to be rendered at a time when, or in amounts such that, Seller will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum probable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered) as well as all other obligations of Seller.  The cash available to Seller, after taking into account all other anticipated uses of the cash, will be sufficient to pay all such debts and judgments promptly in accordance with their terms.

(c)           No action has been taken by or on behalf of Seller for the termination, winding up, liquidation or dissolution of it or to make any assignment for the benefit of creditors.  Seller is not unable to pay its debts as they mature.  Seller has not filed a petition in voluntary liquidation or bankruptcy or under other similar laws and has not commenced any case or proceeding under applicable insolvency or bankruptcy laws or other similar laws.  Seller has not consented to the appointment of a receiver, administrator, custodian, liquidator or trustee of all or any part of its assets.  Seller has not taken any action for the purpose of effecting any of the foregoing.  No order or decree has been rendered by any Governmental Authority with respect to Seller regarding any of the foregoing.  Seller has not been adjudicated as bankrupt or insolvent.  No petition for any proceeding in bankruptcy, liquidation or insolvency or for the reorganization or readjustment of indebtedness has been filed with respect to Seller.  No case or proceeding has been commenced under any applicable bankruptcy or insolvency laws against Seller.  No receiver, administrator, custodian, liquidator or trustee has been appointed for Seller or any part of the assets of Seller.

Section 3.25.  Disclosure.  No representation or warranty of Seller in this Agreement, nor any certificate, schedule, exhibit or written information furnished or to be furnished by Seller pursuant to this Agreement or the related agreements, or any document or certificate delivered to Buyers by or on behalf of Seller pursuant to this Agreement or the related agreements, contains or will contain, on the date of such statement, certificate, schedule, exhibit or document, any untrue statement of material fact, or omits or will omit, on such date, a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller that the statements contained in this Article IV are correct and complete as of the date of this Agreement, and will be correct and complete as of the Effective Time.

Section 4.01.  Organization.  Buyer has been duly organized and is a validly existing corporation in good standing under the laws of the State of Delaware.  Buyer has all power required to purchase, acquire and assume the Purchased Assets from Seller.

Section 4.02.  Authorization.  The execution, delivery and performance of this Agreement by Buyer is within Buyer’s power, has been duly authorized by all necessary action on the part of Buyer and, when executed and delivered in accordance with the terms hereof, will constitute a valid and legally binding obligation of Buyer enforceable in accordance with its terms.

Section 4.03.  Noncontravention.  Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which Buyer is subject or any provision of the articles of organization or operating agreement of Buyer or (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any material agreement, contract, lease, license, instrument or other arrangement to which Buyer is a party or by which Buyer is bound.

Section 4.04.  Litigation.  There is no action, order, writ, judgment or decree outstanding or suit, litigation or proceeding pending or, to the Knowledge of Buyer, threatened, against Buyer with respect to the execution of this Agreement or the consummation of the transaction contemplated thereby.

Section 4.05.  Broker or Finders’ Fees.  There is no third party investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Buyer who would be entitled to any fee or commission in connection with this Agreement or the transactions contemplated hereby.

ARTICLE V

ADDITIONAL AGREEMENTS

Section 5.01.  Conduct of Business.  During the period from the date of this Agreement to the Effective Time, Seller shall carry on the Business only in the Ordinary Course of Business and in the same manner as conducted prior to the date of this Agreement.  To the extent consistent therewith, Seller shall use its Best Efforts to perform and satisfy its obligations under the Customer Contracts and Other Agreements, preserve intact the current business organization of the Business, keep available the services of the current Employees and preserve such business

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relationships and goodwill with Employees, agents, brokers, intermediaries, customers, suppliers, vendors and others having business relationships with or interests in such business.

Section 5.02.  Employee Leasing Agreement.  Buyer and Seller shall, simultaneously with the Closing, execute an employee leasing agreement with respect to the leasing and outsourcing of certain employees  of Seller to Buyer and the use of the St. Louis Facility by such employees and Buyer (the “Employee Leasing Agreement”), substantially in the form of Exhibit A hereto, effective as of the Effective Time.

Section 5.03.  Product Marketing Agreement.  Buyer and Quixote Transportation Technologies, Inc., a Delaware corporation (“QTT”) shall, simultaneously with the Closing, execute a product marketing agreement for the cross-sale and promotion of the business services and products of Buyer and QTT (the “Product Marketing Agreement”), substantially in the form of Exhibit B hereto, effective as of the Effective Time.

Section 5.04.  Subcontract.

(a)           On or before July 7, 2006, Buyer and Seller shall execute a subcontract (each a “Subcontract”) substantially in the form of Exhibit C hereto, for the provision of services by Buyer for the customers of Seller identified on Schedule 5.04, each Subcontract to be effective as of the Effective Time and to continue throughout the remaining duration of the contract being subcontracted.  Promptly following the receipt of Consent, Buyer and Seller shall execute a Subcontract with respect to all other contracts identified on Schedule 5.04, to be effective throughout the remaining duration of the contract being subcontracted.  Notwithstanding the foregoing, the parties agree that, effective upon the Effective Time, Buyer shall perform the forecasting requirements set forth in each of the contracts listed on Schedule 5.04 and, in consideration of such services, Seller shall pay to Buyer that share of the payments received by Seller from the customer which are allocable to such forecasting services.

 (b)          In the event Seller enters into subsequent or additional contracts that include forecasting services with those customers identified on Schedule 5.04, or any customers for which a Subcontract is entered into due to the inability to otherwise obtain a Consent pursuant to Section 2.07, then such forecasting services shall also be subcontracted to Buyer.

Section 5.05.  Public Announcements.  Prior to July 6, 2006, Seller shall make no internal or external announcement to its Employees and shall make no public announcements relating to the subject matter of this Agreement.  Seller shall not issue any press release and shall direct and cause its officers, directors, employees, consultants and advisors not to issue any press release relating to the subject matter of this Agreement without the prior written approval of Buyer.  Seller and Buyer will consult with each other concerning the means by which Seller’s employees, Customers, vendors and suppliers and others having dealings with Seller will be informed of the contemplated transactions for a reasonable time following the Closing, and Buyer will have the right to be present for any such communication.

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Section 5.06.  No Solicitation.  From and after the date of this Agreement, until the earlier of the Effective Time or the termination of this Agreement pursuant to Article VIII, Seller shall not, and Seller shall cause its officers, directors, shareholders, employees, agents, representatives and advisors not to:  (a) solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate the submission of, any inquiry, proposal or offer from any Person relating to (i) any purchase, pledge or other acquisition of any material portion of the Business assets of Seller or of any of Seller’s capital stock or options of or for any such capital stock, options or equity interests, whether by any merger, consolidation, business combination, amalgamation, asset sale, stock issuance, recapitalization, tender offer, exchange offer, liquidation, dissolution, license or any other similar transaction (other than the transaction contemplated by this Agreement), or (ii) any other similar transaction, the consummation of which could reasonably be expected to impair, impede, interfere with, prevent or materially delay the transaction contemplated by this Agreement or could reasonably be expected to dilute the benefits to Buyer of the transactions contemplated by this Agreement (collectively, “Transaction Proposals”); (b) agree to or endorse any Transaction Proposal (whether such agreement or endorsement is oral, in writing, absolute, revocable, contingent or conditional); or (c) enter into or participate in any discussions or negotiations regarding any Transaction Proposal, or furnish to any other Person any information with respect to Seller, the Purchased Assets or the Business in connection with any Transaction Proposal, or otherwise cooperate in any way with, or assist, participate in, facilitate or encourage, any effort or attempt by any other Person to submit or otherwise act in furtherance of a Transaction Proposal.  Without limiting any of the foregoing provisions of this Section 5.06, it is understood that any violation of the restrictions set forth in this Section 5.06 by any investment banker, financial advisor, attorney, accountant or other agent or representative of Seller shall be deemed a breach of this Section 5.06 by Seller.

Section 5.07.  Representations and Warranties.  Each Party shall promptly notify the other Party of any events or occurrences after the date hereof which cause or result, or may cause or result, in any of the representations or warranties set forth in this Agreement ceasing to be true and accurate in any material respect.

Section 5.08.  Disclosure Schedules.  On or prior to the date hereof, Seller has delivered to Buyer all Disclosure Schedules required to be prepared and delivered by Seller hereunder and delivered on the date hereof.  Seller shall be entitled to further supplement or amend any Disclosure Schedule only if doing so is required to update such Disclosure Schedule to reflect events or occurrences after the date hereof, and Seller shall promptly provide to Buyer any such updates after such event or occurrence.  In the event that any item included on any supplement or amendment to the Disclosure Schedules reveals any facts or circumstances which, in the reasonable opinion of Buyer, would have, individually or in the aggregate, a Material Adverse Effect on the Purchased Assets or the Forward Looking Obligations, or Buyer’s ability to conduct the Business immediately following the Closing substantially as such is presently conducted, Buyer and Seller shall immediately commence negotiations with respect to a mutually agreeable adjustment to the Purchase Price and if Buyer and Seller are unable to mutually agree upon an adjustment to the Purchase Price within five (5) Business Days following the commencement of negotiations, Buyer may, by written notice to Seller, terminate this Agreement.

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Section 5.09.  Due Diligence.  During the period from the date of this Agreement to the Effective Time, Buyer shall have the right to inspect and review, and Seller agrees to make available to Buyer or its representatives, any of the Purchased Assets and any documents, records, data, agreements, financial statements or other items related to the Purchased Assets or the Business which Buyer reasonably deems necessary in order to evaluate the Purchased Assets, the Business and/or the transactions contemplated by this Agreement.  Unless the Parties otherwise agree to the contrary, any inspection or review to be conducted on Seller’s premises shall be conducted during normal business hours and upon reasonable prior notice.  Seller shall use its Best Efforts to cooperate and assist with Buyer’s due diligence and to provide to Buyer all documents, records, data, agreements, financial statements and other items reasonably requested by Buyer in connection with its due diligence.

ARTICLE VI

POST-CLOSING COVENANTS

Section 6.01.  Further Action.  The Parties agree that with respect to the period following the Closing, in case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, and all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefore under Section 8.02 hereof); provided that such cost and expense shall be limited to reasonable out-of-pocket expenses without any application of overhead or profit.

Section 6.02.  Consents and Authorizations.  To the extent waived or otherwise not required as a condition of Closing, by the Final Consent Date with respect to those consents identified on Schedule 2.07 and within thirty (30) days following the Closing with respect to all others, Seller shall deliver to Buyer written confirmation of all consents, approvals, authorizations or orders of and all registrations, declarations or filings with third parties, including creditors, contract parties or Governmental Authorities, necessary for the authorization, execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated by this Agreement, including but not limited to those referred to in Sections 3.17 and 3.18.  Between the Effective Time and the date any consent, approval, authorization or order is obtained as required by this Section 6.02, subject to the terms of the applicable agreement and to the extent permitted by law, the Parties will use their Best Efforts to (a) provide to Buyer the benefits of the applicable agreement, (b) relieve Seller of the performance obligations of the applicable agreement, to the extent possible, (c) cooperate in any reasonable and lawful arrangement designed to provide the benefits to Buyer, including entering into subcontracts for performance, and (d) enforce at the request and sole expense of Buyer and for the account of Buyer any rights of Seller arising from any such agreement (including the right to elect to terminate such agreement in accordance with the terms thereof upon the request of Buyer).

Section 6.03.  Litigation Agreement.  In the event, and for so long as, any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand (other than against the other Party) in connection with (i) any

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transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction on or prior to the Effective Time involving the Business or any of the Purchased Assets, the other Party will cooperate with the contesting or defending Party and its counsel in the contest or defense thereof, make available its personnel and provide such testimony and access to its books and records as shall be reasonably necessary in connection with the contest or defense thereof, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 8.02 hereof).

Section 6.04.  Transition.  Seller will not take any action that is designed or intended to have the effect of discouraging any licensor, customer, supplier or other business associate from maintaining the same business relationships with Buyer after the Effective Time as such party maintained with Seller prior to the Effective Time.  Seller will refer all customer inquiries relating to the Business to Buyer from and after the Effective Time.  Buyer and Seller shall each use their Best Efforts to cooperate with the other, and to cause their respective employees to act accordingly, in order to fulfill the intent and purpose of this Agreement.

Section 6.05.  Confidentiality.

(a)           Seller will treat and hold as confidential all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement and deliver promptly to Buyer or destroy, at the request and option of Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession.  In the event that Seller is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, Seller will notify Buyer promptly of the request or requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 6.05.  If, in the absence of a protective order or the receipt of a waiver hereunder, Seller is, on the advice of counsel, compelled to disclose any Confidential Information, Seller may disclose the Confidential Information; provided, however, that Seller shall use its Best Efforts to obtain, at the request and expense of Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as Buyer shall designate.

(b)           Buyer and Seller each acknowledge that: (i) they are not acting as an advisor to any other party and will not receive any amount that could be construed as a “minimum fee” within the meaning of Treas. Reg. §1.6011-4(b)(3) (or any successor thereto); and (ii) notwithstanding any provision to the contrary set forth in this Agreement or the Mutual Non-Disclosure Agreement between DTN Holding Company, LLC and its affiliates and Quixote, dated May 19, 2005, as amended (the “Non-Disclosure Agreement”), no Party is under any obligation to the other to keep confidential the tax treatment or tax structure of the transactions contemplated by this Agreement.

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Section 6.06.  Noncompetition/Nonsolicitation.

(a)           Except as set forth in the Product Marketing Agreement and the Employee Leasing Agreement, in consideration of the promises contained herein and the consideration to be received hereunder, Seller shall not, from and after the Closing until the date which is five (5) years from the Closing Date (the “Restricted Period”), directly or indirectly (including, but not limited to actions taken by or through its parent, Quixote), own, manage, control, participate in, consult with, or render services for, whether as an agent, employee, consultant, advisor, stockholder, member, partner or joint venturer, or in any manner engage in any business that competes with the Business within the Restricted Territory or solicit, divert, take away or attempt to take away any of the customers of the Business or interfere with or attempt to interfere with any then existing relationship between Buyer and any of its customers, suppliers or other Persons with whom it deals.  For purposes of this Section 6.06, the “Restricted Territory” shall mean the United States and Canada.  Notwithstanding any provision of this Agreement to the contrary, Seller may bid on and fulfill any projects that include weather forecasting services when combined with equipment, software and/or maintenance services to be provided by Seller, so long as Seller relies on a third-party provider for the weather forecasting portion of such contracts; provided, however, that Buyer shall have a first priority right to bid on and fulfill any such weather forecasting services to be provided under such contracts on terms and conditions no less favorable than those formally offered by such prospective third-party provider.  Buyer’s decision to bid on or fulfill such projects shall be made promptly and in a timely fashion as determined by the nature of the procurement process for each such opportunity.

(b)           During the Restricted Period, Seller shall not, directly or indirectly, hire or solicit to hire any employee of Buyer or induce or attempt to induce any such employee to leave his or her employment with Buyer after the Closing.

(c)           It is the desire and intent of the parties that the provisions of this Section 6.06 be enforced to the fullest extent permissible under applicable laws and public policies applied in each jurisdiction in which enforcement is sought.  Accordingly, if any particular provision of this Section 6.06 shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to the extent necessary in order that such provision be valid and enforceable, such amendment to apply only with respect to the operation of such provision of this Section 6.06 in the particular jurisdiction in which such adjudication is made.

Section 6.07.  Access to Records After the Closing.

(a)           After the Closing, upon reasonable prior notice, Buyer and its representatives shall be permitted reasonable access, during normal business hours, to and to make inspection of Seller’s books and records regarding the Business and the Purchased Assets, so long as such records are maintained by Seller in accordance with its customary records retention policy, and to make copies thereof as reasonably necessary to allow Buyer to obtain information in Seller’s possession regarding the Business and the Purchased Assets (but excluding attorney work product or other privileged

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communications).  Buyer shall pay Seller’s reasonable out-of-pocket costs and expenses in connection with satisfying such requests.  Seller shall provide Buyer with at least thirty (30) days written notice prior to the destruction of any books and records pertaining to the Business and the Purchased Assets, and Buyer shall have the option of taking possession of any such books and records, at its sole expense, prior to the expiration of such thirty (30) day period.

(b)           After the Closing, upon reasonable prior notice, Seller and its representatives shall be permitted reasonable access, during normal business hours, to and to make inspection of Buyer’s books and records regarding the Purchased Assets, so long as such records are maintained by Buyer in accordance with its customary records retention policy, and to make copies thereof as reasonably necessary to allow Seller to obtain information in Buyer’s possession regarding the Purchased Assets (but excluding attorney work product or other privileged communications) for the limited purposes of preparing Seller’s books and records (including Tax Returns) relating to the Purchased Assets.  Seller shall pay Buyer’s reasonable out-of-pocket costs and expenses in connection with satisfying such requests.

Section 6.08.  RWIS Data Access.  From the Closing Date and until April 30, 2007, Seller will cooperate and assist Buyer in acquiring any roadway information sensor data (“RWIS Data”) from any Customer or customer of Seller being provided services by Buyer pursuant to a Subcontract (a “Subcontract Customer”) that, despite its commercially reasonable efforts, Buyer is unable to obtain directly from such Customer or Subcontract Customer.  To the extent it is contractually or legally permitted to do so, Seller will provide Buyer with access to the RWIS Data in the most expedient manner possible.  Buyer shall be responsible for payment of any reasonable transmission or hardware costs incurred in connection with the acquisition of such RWIS Data.

ARTICLE VII

CONDITIONS TO CLOSING

Section 7.01.  Conditions to Obligation of Buyer.  The obligation of Buyer to consummate the Closing under this Agreement is subject to the satisfaction of all of the following conditions, compliance with which, or the occurrence of which, may be waived in writing by Buyer in its sole discretion.

(a)           Accuracy of Representations.  All of the representations and warranties of Seller in this Agreement (considered collectively), and each of these representations and warranties (considered individually), shall have been accurate in all material respects as of the date of this Agreement, and shall be accurate in all material respects as of the time of the Closing as if then made, without giving effect to any supplement to the Disclosure Schedules, except that those representations and warranties that are qualified by terms such as “material” or “Material Adverse Effect” shall be true and correct in all respects.  On the Closing Date, Seller shall have delivered to Buyer a certificate, dated as of the Closing Date and signed by an executive officer of Seller, as to the matters set forth in this Section.

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(b)           Seller’s Performance.  All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), shall have been duly performed and complied with in all material respects.  On the Closing Date, Seller shall have delivered to Buyer a certificate, dated as of the Closing Date and signed by an executive officer of Seller, as to the matters set forth in this Section.

(c)           [Intentionally omitted]

(d)           Officer’s Certificate.  Seller shall have delivered to Buyer a certificate of an executive officer of Seller, dated as of the Closing Date, certifying as to the articles of incorporation and bylaws of Seller and to the resolutions of Seller’s Board of Directors and sole shareholder authorizing the execution, delivery and performance of this Agreement and the related agreements.

(e)           Opinion of Counsel.  Seller shall have delivered to Buyer an opinion of its General Counsel, substantially in the form attached hereto as Exhibit D.

(f)            Delivery of Financial Statements.  Seller shall have delivered to Buyer the Financial Statements referenced in Section 3.14.

(g)           Delivery of Employee Leasing Agreement.  Seller shall have executed and delivered to Buyer the Employee Leasing Agreement referred to in Section 5.02.

(h)           Delivery of Product Marketing Agreement.  QTT shall have executed and delivered to Buyer the Product Marketing Agreement referred to in Section 5.03.

(i)            [Intentionally omitted]

(j)            No Material Adverse Change.  Since December 31, 2005, there shall not have been adverse changes in the business, operations, financial position or assets of the Business which would have, individually or in the aggregate, a Material Adverse Effect.

(k)           Due Diligence.  Buyer shall have completed its due diligence as described in Section 5.09 hereof, and the results of such due diligence shall be satisfactory to Buyer, in its sole discretion.

(l)            Legality; Governmental Authorization.  The acquisition of the Purchased Assets and the consummation of the other transactions contemplated hereby shall not be enjoined or prohibited by any applicable law.

(m)          Litigation.  No action, suit or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation or (iii) affect adversely the right of

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Buyer to own the Purchased Assets or assume the Customer Contracts and Other Agreements as contemplated herein (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect).

(n)           Certificate of Good Standing.  Seller shall have delivered to Buyer a certificate of good standing for Seller issued by the Secretary of State of the State of Missouri as of a date reasonably close to the Closing Date.

(o)           Board of Directors Approval.  The acquisition of the Purchased Assets and the consummation of the other transactions contemplated hereby shall have been approved by the Board of Directors of Buyer.

(p)           Bill of Sale, Assignments and Transfers; Lien Releases.  Seller shall have executed and delivered to Buyer a Bill of Sale, Assignment and Assumption Agreement (the “Bill of Sale”) with respect to the Purchased Assets, substantially in the form of Exhibit E hereto, effective as of the Effective Time, and such other good and sufficient bills of sale and other instruments of transfer as shall be necessary to assign and transfer to and vest in Buyer good and valid title to all of the Purchased Assets, free and clear of any and all liabilities, liens, claims, rights, restrictions on transfer and encumbrances except any Permitted Liens, and shall have delivered to Buyer a release of any encumbrances on the Purchased Assets, including but not limited to those identified on Schedule 3.16 but excluding any Permitted Liens, effective as of the Effective Time.

(q)           Other Documents.  Seller shall have delivered to Buyer all other documents reasonably requested by Buyer and contemplated by this Agreement or required to be delivered by Seller to Buyer pursuant to this Agreement and not previously delivered.

Section 7.02.  Conditions to Obligation of Seller.  The obligations of Seller to consummate the Closing under this Agreement are subject to the satisfaction of all of the following conditions, compliance with which, or the occurrence of which, may be waived in writing by Seller in its sole discretion.

(a)           Accuracy of Representations.  All of Buyer’s representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), shall have been accurate in all material respects as of the date of this Agreement, and shall be accurate in all material respects as of the time of the Closing as if then made, except that those representations and warranties that are qualified by terms such as “material” or “Material Adverse Effect” shall be true and correct in all respects.

(b)           Buyer’s Performance.  All of the covenants and obligations Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), shall have been duly performed and complied with in all material respects.

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(c)           Legality; Governmental Authorization; Litigation.  The acquisition of the Purchased Assets and the consummation of the other transactions contemplated hereby shall not be enjoined or prohibited by any applicable law.  No action, suit or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation or (iii) affect adversely the right of Buyer to own the Purchased Assets or assume the Customer Contracts and Other Agreements as contemplated herein (and no such injunction, judgment, order, decree, ruling or charge shall be in effect).

(d)           Delivery of Employee Leasing Agreement.  Buyer shall have executed and delivered to Seller the Employee Leasing Agreement referred to in Section 5.02.

(e)           Delivery of Product Marketing Agreement.  Buyer shall have executed and delivered to QTT the Product Marketing Agreement referred to in Section 5.03.

(f)            [Intentionally omitted]

(g)           Bill of Sale.  Buyer shall have delivered to Seller the Bill of Sale referred to in Section 7.01(p), effective as of the Effective Time.

(h)           Purchase Price.  Buyer shall have paid the Closing Payment to Seller pursuant to Section 2.06(a) hereof.

(i)            Other Documents.  Buyer shall have delivered to Seller all other documents reasonably requested by Seller and contemplated by this Agreement or required to be delivered by Buyer to Seller pursuant to this Agreement and not previously delivered.

ARTICLE VIII

SURVIVAL AND INDEMNIFICATION

Section 8.01.  Survival.  The representations and warranties of the Parties contained in this Agreement, any related agreement or in any certificate delivered pursuant hereto, and any covenants and obligations of the Parties contained in this Agreement, any related agreement or in any certificate delivered pursuant hereto which are to be performed prior to the Closing, shall survive the Closing for a period of eighteen (18) months, except for those relating to Sections 3.01, 3.02, 3.13, 3.16 and 3.21 which will survive until the one hundred eighty (180) days following the expiration of the applicable statute of limitation.  The covenants and obligations of the Parties contained in this Agreement, any related agreement or in any certificate delivered pursuant hereto which are to be performed after the Closing shall survive the Closing indefinitely.

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Section 8.02.  Indemnification.

(a)           Subject to the limitations set forth herein, Seller hereby agrees to indemnify Buyer against, and agree to hold Buyer harmless from, any loss, liabilities, fines, penalties or assessments incurred or suffered by Buyer arising out of:

(i)            the failure of Seller to satisfy, discharge or pay any Liability related to the Purchased Assets or the Business which was incurred or accrued prior to the Effective Time, or which was incurred or accrued after the Effective Time in connection with or related to the Purchased Assets or the Business prior to the Effective Time;

(ii)           Seller’s operation or conduct of the Business and/or ownership or use of the Purchased Assets prior to the Effective Time;

(iii)          any misrepresentation or breach of warranty by Seller in this Agreement or in any certificate delivered hereunder or any breach of covenant or agreement made or to be performed by Seller pursuant to this Agreement;

(iv)          any claim or litigation involving Seller that is pending as of the Effective Time with respect to the Purchased Assets or the Business or that arises out of the conduct of the Business by Seller prior to the Effective Time; and

(v)           any claim or litigation related to the employment practices of Seller prior to the Effective Time or any individual’s employment by or with Seller or the termination of such employment by Seller;

(vi)          the failure to file any Tax Returns and/or the failure to pay any Taxes incurred or arising prior to or as of the Effective Time or incurred or accrued after the Effective Time in connection with or relating to the Business and/or the Purchased Assets prior to the Effective Time, including but not limited to those identified on Schedule 3.13.

(b)           Buyer hereby indemnifies Seller against, and agrees to hold Seller harmless from, any loss incurred or suffered by Seller arising out of:

(i)            the failure of Buyer to satisfy or discharge any Forward Looking Obligation;

(ii)           any misrepresentation or breach of warranty by Buyer in this Agreement or in any certificate delivered hereunder or any breach of covenant or agreement made or to be performed by Buyer pursuant to this Agreement; and

(iii)          any claim or litigation arising out of Buyer’s operation of the Business and/or ownership or use of the Purchased Assets after the Effective Time.

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Section 8.03.  Time Limitation on Indemnification.  Except for claims relating to Sections 3.01, 3.02, 3.13, 3.16 and 3.21 and claims relating to covenants and obligations contained in this Agreement which are to be performed after the Closing, no claim may be made and no suit may be instituted by Buyer or Seller under Sections 8.02(a)(iii) or 8.02(b)(ii) of this Agreement after eighteen (18) months from the Effective Time.  In regard to all other claims relating to this Agreement, including, but not limited to claims relating to Sections 3.01, 3.02, 3.13, 3.16 and 3.21 and claims relating to covenants and obligations contained in this Agreement, such claims may be made or suit instituted by Buyer or Seller only until one hundred eighty (180) days following the expiration of the applicable statute of limitation.

Section 8.04.  Third Party Claims, Etc.  Promptly after the receipt by any Indemnitee of a notice of the commencement of any action or other claim against an Indemnitee by a third party, an Indemnitee shall, if a claim with respect thereto is or may be made by the Indemnitee against any Indemnifying Party pursuant to this Article VIII, give such Indemnifying Party written notice of the nature and basis of such claim, but the failure to notify an Indemnifying Party will not relieve the Indemnifying Party of any Liability that it may have to any Indemnitee, except to the extent that the Indemnifying Party demonstrates that the defense of such action is prejudiced by the Indemnitee’s failure to give such notice.  Prior to the assumption by the Indemnifying Party of the defense of such claim as described in the next sentence, the Indemnitee will defend against such claim (provided that the Indemnitee may not settle such claim).  The Indemnifying Party shall have the right to defend such claim, at the Indemnifying Party’s expense and with counsel of its choice, which counsel is reasonably satisfactory to the Indemnitee.  So long as the Indemnifying Party is conducting the defense of such claim as provided in the immediately preceding sentence, the Indemnitee may retain separate co-counsel at its sole cost and expense and may participate in defense of such claim.  Provided, however, if there is or may be a conflict of interest between the Indemnifying Party and the Indemnitee, the Indemnitee may retain separate counsel at the cost and expense of the Indemnifying Party.  In the event the Indemnifying Party does not assume defense of such claim as so provided, the Indemnitee may defend against such at the Indemnifying Party’s cost and expense.  Regardless of which party shall assume the defense of such claim, each party shall provide to the other party on request all information and documentation reasonably necessary to defend such claim and shall provide reasonable access to all books, records and personnel in its possession or under its control which would have a bearing on the defense of such claim.  For purposes of this Section, “Indemnitee” shall mean the party seeking indemnification under this Article VIII, and “Indemnifying Party” shall mean the party from whom indemnification is sought under this Article VIII.

Section 8.05.  Certain Other Indemnity Matters.

(a)           Upon making any payment to an Indemnitee for any indemnification claim pursuant to this Article VIII, the Indemnifying Party shall be subrogated, to the extent of such payment, to any rights which the Indemnitee may have against other Persons with respect to the subject matter underlying such indemnification claim.

(b)           If after an indemnification payment is made hereunder, the Party to which such payment is made receives insurance proceeds in respect of the loss, such amount shall promptly be remitted to the Indemnifying Party.

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(c)           Notwithstanding the foregoing, except as provided by Section 8.02(a)(i), 8.02(a)(iv), 8.02(a)(v) and 8.02(a)(vi), the Seller shall have no obligation to indemnify Buyer with respect to any breach of a representation or warranty contained herein or in any certificate delivered by the Seller pursuant hereto unless and until, and only to the extent that, the aggregate of all such individual losses incurred or sustained by all Buyer with respect to which Buyer is entitled to indemnification with respect to such breach of a representation or warranty exceeds $20,000, in which case the Seller shall only be liable for the amount by which all such losses exceed such amount and (ii) the aggregate liability of the Seller to indemnify the Buyer for losses with respect to any breach of a representation or warranty contained herein or in any certificate delivered by the Seller pursuant hereto shall in no event exceed the Purchase Price; provided, that for purposes of determining whether any breach of a representation or warranty has occurred with respect to a claim for indemnification or for the purposes of measuring losses, such representations and warranties shall be deemed to have been made without any materiality, Material Adverse Effect or similar qualifications and without any dollar thresholds.

ARTICLE IX

TERMINATION

Section 9.01.  Termination Events.  Subject to the provisions of Section 9.02, this Agreement may, by written notice given at or prior to the Closing Date in the manner hereinafter provided, be terminated and abandoned only as follows:

(a)           By Seller upon written notice, if a material default or breach shall be made by Buyer with respect to the due and timely performance of any of Buyer’s covenants and agreements contained herein, or with respect to the due compliance with any of Buyer’s representations and warranties contained in Article IV, and such default cannot be cured prior to the Closing Date and has not been waived;

(b)           By Buyer, upon written notice, if a material default or breach shall be made by Seller with respect to the due and timely performance of any of its covenants and agreements contained herein, or with respect to the due compliance with any of the representations and warranties of Seller contained in Article III, and such default cannot be cured prior to the Closing Date and has not been waived;

(c)           By Buyer, in the event that any update, amendment or modification pursuant to the terms of Sections 5.07 and 5.08 hereof reflects or results in a Material Adverse Effect;

(d)           By mutual written consent of Buyer and Seller; or

(e)           By any Party, without further action of such Party, if the conditions to such Party’s obligation to consummate the Closing (as set forth in Article VII) shall not have been satisfied by close of business on August 31, 2006.

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Section 9.02.  Effect of Termination.  In the event this Agreement is terminated pursuant to Section 9.01, all further rights and obligations of the Parties hereunder shall terminate without liability on the part of any Party, except that the obligations under the Non-Disclosure Agreement, shall survive.  Notwithstanding the foregoing, the rights of the terminating Party to pursue all legal remedies for the breach of any representation, warranty, covenant or agreement set forth in this Agreement prior to such termination shall survive such termination, and the breaching Party shall be fully liable for any and all damages, costs and expenses sustained or incurred by the terminating Party as a result of such breach.

ARTICLE X

MISCELLANEOUS

Section 10.01.  Notices.  All notices, requests and other communications to any Party hereunder shall be in writing (including facsimile transmission) and shall be given by registered or certified mail (postage prepaid, return receipt requested), nationally-recognized overnight delivery service, or personally delivered to the address provided below or sent by facsimile transmission (with verification thereof by the sender) to the facsimile number provided below:

If to Seller:	Surface Systems, Inc.
	4021 Stirrup Creek Drive, Suite 100
	Durham, NC 27703
	Attention: Mr. Bruce Reimer
	Telephone: 919-433-8263
	Facsimile: 919-361-2948
with a copy to:	Quixote Corporation
	35 East Wacker, Suite 1100
	Chicago, IL 60601
	Attention: Ms. Joan Riley
	Telephone: 312-705-8410
	Facsimile: 312-467-0197
If to Buyer:	Data Transmission Network Corporation
	9110 West Dodge Road, Suite 200
	Omaha, NE 68114
	Attention: Mr. Richard Halle
	Telephone: (402) 399-6468
	Facsimile: (402) 882-4500

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with a copy to:	Kutak Rock LLP
	1650 Farnam Street
	Omaha, NE 68102
	Attention: Ms. Lisa A. Sarver
	Telephone: (402) 346-6000
	Facsimile: (402) 346-1148

Unless otherwise specified herein, such notices or other communications shall be deemed received (a) on the date delivered, if delivered personally, (b) two (2) Business Days after being sent by Federal Express or other overnight courier of national reputation for next day delivery, (c) one (1) Business Day after being delivered, if delivered by facsimile and (d) two (2) Business Days after being sent, if sent by registered or certified mail.  Any of the Parties identified above shall be entitled to specify a different address by giving notice as aforesaid to each of the other Parties identified above.

Section 10.02.  Amendments and Waivers.

(a)           Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each Party to this Agreement, or in the case of a waiver, by the Party against whom the waiver is to be effective.

(b)           No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

Section 10.03.  Expenses.  All costs and expenses of whatsoever nature incurred in connection with this Agreement shall be paid by the Party incurring such cost or expense.  Seller shall be responsible for the payment of the costs and expenses of all transfer, documentary, gross receipts, sales and use taxes and similar liabilities, if any, resulting from the sale of the Purchased Assets to Buyer and the consummation of the transactions contemplated by this Agreement, other than taxes based on Buyer’s income, which taxes shall be the sole responsibility of Buyer.

Section 10.04.  Successors and Assigns; Assignment.  The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns, provided that no Party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the other Parties hereto.  Any other purported assignment or delegation in contravention of the foregoing shall be null and void.

Section 10.05.  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such state.

Section 10.06.  Counterparts; Effectiveness.  This Agreement may be executed and delivered in any number of counterparts, each of which shall be an original, but all of which

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together shall constitute one and the same instrument.  This Agreement may be executed and delivered via facsimile.  This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by the other Parties hereto.

Section 10.07.  Entire Agreement; Third Party Beneficiaries.  This Agreement, those agreements referred to hereunder and the Non-Disclosure Agreement constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, between the Parties with respect to the subject matter of this Agreement.  The exhibits and schedules hereto are in integral part hereof and are incorporated by reference herein for all purposes.  Where required by context, a reference to a schedule shall be deemed to refer to such schedule as amended or updated.  Neither this Agreement nor any provision hereof shall confer upon any Person other than the Parties hereto any rights or remedies hereunder.

Section 10.08.  Severability.  If any provision of this Agreement or the application of any such provision to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof.

ARTICLE XI

DEFINITIONS

Section 11.01.  Definitions.

 “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with, such Person.  For purposes of this definition, “Control” (including, with correlative meanings, the terms “Controlled by” and “under common Control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through Ownership of stock, by contract or credit arrangement or otherwise.

“Agreement” has the meaning set forth in the preface of this Agreement.

“Assignment Consent Customer” has the meaning set forth in Section 2.07 hereof.

“Best Efforts” are the commercially reasonable efforts that a prudent person desirous of achieving a result would use in similar circumstances to achieve that result as expeditiously as possible.

“Bill of Sale” has the meaning set forth in Section 7.01(p) hereof.

“Business”  has the meaning set forth in the preface of this Agreement.

“Business Day” means any day, other than a Saturday or Sunday or any other day on which banks are required or authorized to close in Omaha, Nebraska.

“Buyer” has the meaning set forth in the preface of this Agreement.

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“Claims” has the meaning set forth in Section 2.01(l) hereof.

“Closing” has the meaning set forth in Section 2.05 hereof.

“Closing Date” has the meaning set forth in Section 2.05 hereof.

“Closing Payment” has the meaning set forth in Section 2.06(a) hereof.

 “Code” means the Internal Revenue Code of 1986, as amended.

“Confidential Information” means any information that is not already generally available to the public concerning the business and operations of Buyer and Seller and their respective Affiliates insofar as such information relates to the Purchased Assets and/or the Business or Seller’s use of such information in connection with the Purchased Assets and/or the Business, or otherwise relating to this transaction.  Confidential Information shall include, without limitation, information relating to business operations (including customers, suppliers, equipment, services of employees, financial information or methods of operation), know-how, trade secrets, technical and economic data, computer programs, systems documentation, designs, procedures, formulas, improvements, ideas (including patent information), copyrights or publications of a confidential nature pertaining to a Party, its products and services or its customers.  Confidential Information shall not include information which (a) is now, or hereafter becomes, through no act or failure to act on the part of Seller, generally known or available to the public; (b) is furnished to others by Buyer without restriction on disclosure; or (c) is hereafter rightfully furnished to Seller by a third party without, to the Knowledge of Seller, any breach of any confidentiality obligation to Buyer.

“Consent Customers” has the meaning set forth in Section 2.07 hereof.

“Consent Holdback” has the meaning set forth in Section 2.06(b) hereof.

“Consent Revenue” has the meaning set forth in Section 2.07 hereof.

“Customers” has the meaning set forth in Section 2.01(a) hereof.

“Customer Contracts” has the meaning set forth in Section 2.01(a) hereof.

“Data Bases” has the meaning set forth in Section 2.01(c) hereof.

“Disclosure Schedules” has the meaning set forth in the preface to Article III herein.

 “Effective Time” has the meaning set forth in Section 2.05 hereof.

“Employees” has the meaning set forth in Section 3.15(d) hereof.

“Employee Benefit Plan” means any (a) nonqualified deferred compensation or retirement plan or arrangement, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any multiemployer pension plan as defined in the Taft-Hartley Act of 1947), or

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(d) Employee Welfare Benefit Plan or material fringe benefit or other retirement, bonus or incentive plan or program.

“Employee Leasing Agreement” has the meaning set forth in Section 5.02 hereof.

“Employee Pension Benefit Plan” has the meaning set forth in ERISA §3(2).

“Employee Welfare Benefit Plan” has the meaning set forth in ERISA §3(1).

“ERISA” means the Employee Retirement Income Security Act of 1974.

“Excluded Assets” has the meaning set forth in Section 2.02 herein.

“Excluded Hardware” has the meaning set forth in Section 2.02(d) hereof.

 “Financial Statements” has the meaning set forth in Section 3.14 hereof.

“Final Consent Date” has the meaning set forth in Section 2.06(b)(iv) hereof.

“First Consent Date” has the meaning set forth in Section 2.06(b)(i) hereof.

“Forward Looking Obligations” has the meaning set forth in Section 2.03 herein.

“Governmental Authority” means any branch or agency of government, domestic or foreign, having jurisdiction over the Parties or the subject matter of this Agreement.

“Hardware” has the meaning set forth in Section 2.01(e) hereof.

“Income Taxes” means any federal, state, local or foreign income or franchise taxes or other taxes imposed on or with respect to net income or capital, together with any interest or penalties or additions to tax imposed with respect thereto, and any obligations under any arrangements with respect to any Income Taxes.

“Income Tax Returns” means any federal, state, local or foreign Tax Returns required to be filed with any Taxing Authority that pertains to Income Taxes.

“Indemnifying Party” has the meaning set forth in Section 8.04 hereof.

“Indemnitee” has the meaning set forth in Section 8.04 hereof.

“IP Rights” has the meaning set forth in Section 2.01(d) hereof.

“Knowledge” means the actual knowledge of such party or, in the case of an entity, the officers of such party with responsibility for the matter in question after reasonable investigation.

 “Liability” means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including but not limited to any liability for Taxes.

34

“Material Adverse Effect” means any consequence, individually or in the aggregate, which has a material and adverse impact on the financial position, assets, liabilities, business or results of operations of Buyer, Seller, the Business and/or the Purchased Assets or which materially affects the ability of either Party to perform its obligations under this Agreement or to consummate the transactions contemplated by this Agreement.  Without limiting the generality of the foregoing, any change in the financial position, assets, liabilities, business or results of operations which results in a loss in excess of $10,000 shall be conclusively presumed to have a Material Adverse Effect.

“Non-Consenting Customer” has the meaning set forth in Section 2.07 hereof.

 “Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

“Other Agreements” has the meaning set forth in Section 2.01(h) hereof.

“Other Equipment” has the meaning set forth in Section 2.01(f) hereof.

 “Party” and “Parties” have the meaning set forth in the preface to this Agreement.

“Permits” has the meaning set forth in Section 2.01(j) hereof.

“Permitted Liens” means liens for Taxes not yet due and payable.

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity (or any department, agency or political subdivision thereof).

“Prepaid Fees” has the meaning set forth in Section 2.04 hereof.

“Product Marketing Agreement” has the meaning set forth in Section 5.03 hereof.

“Proposals” has the meaning set forth in Section 2.01(a) hereof.

 “Purchased Assets” has the meaning set forth in Section 2.01 hereof.  Purchased Assets shall not include any other asset other that those described above and, specifically, shall not include (i) the Excluded Assets, (ii) the organizational documents, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, shareholder records, and other documents relating to the organization, maintenance and existence of Seller as a corporation or (iii) any of the rights of Seller under this Agreement.

“Purchase Price” has the meaning set forth in Section 2.04 hereof.

“QTT” has the meaning set forth in Section 5.03 hereof.

“Quixote” has the meaning set forth in Section 3.01 hereof.

 “Restricted Period” has the meaning set forth in Section 6.06(a) hereof.

35

“Restricted Territory” has the meaning set forth in Section 6.06(a) hereof.

“RWIS Data” has the meaning set forth in Section 6.08 hereof.

“Second Consent Date” has the meaning set forth in Section 2.06(b)(ii) hereof.

 “Security Interest” means any lien, pledge, encumbrance, charge or other security interest, other than (a) mechanic’s, materialmen’s, and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, and (c) other liens which secure the performance of Forward Looking Obligations.

 “Seller” has the meaning set forth in the preface of this Agreement.

“Self-Help Code” means any back door, time bomb, drop dead device, or other software routine designed to disable a computer program automatically with the passage of time or under the positive control of a party other than the owner or authorized user of the system.

“Software and Licenses” has the meaning set forth in Section 2.01(b) hereof.

“St. Louise Facility” has the meaning set forth in Section 3.11 hereof.

“St. Louis Real Estate Lease” has the meaning set forth in Section 3.11 hereof.

“Storm Beacon Customers” has the meaning set forth in Section 2.02(c) hereof.

“Subcontract” has the meaning set forth in Section 5.04 hereof.

“Subcontract Consent Customer” has the meaning set forth in Section 2.07 hereof.

“Subcontract Customer” has the meaning set forth in Section 6.08 hereof.

“Supplies” has the meaning set forth in Section 2.01(g) hereof.

 “Tax” or “Taxes” means without limitation, any federal, state, local, foreign or other net income, gross income, gross receipts, license, lease, payroll, employment, excise, severance, stamp, occupation, premium, ad valorem, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, capital stock, franchise, service, service use, profits, withholding, social security (or similar), unemployment, disability, real property, customs duties, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not; and any obligations under any agreements or arrangements with respect to any Taxes described herein.

“Taxing Authority” means any Governmental Authority, domestic or foreign, having jurisdiction over the assessment, determination, collection or other imposition of Taxes.

“Tax Returns” means any returns, declarations, reports, information returns, claims for refund, forms, statements or other documents (including any related or supporting information or

36

schedules and any amendment thereof) required to be filed with any Taxing Authority in respect of any Taxes.

“Third Consent Date” has the meaning set forth in Section 2.06(b)(iii) hereof.

“Transaction Proposals” has the meaning set forth in Section 5.06 hereof.

“Unauthorized Code” means any virus, Trojan horse, worm, or other software routines or hardware components designed to permit unauthorized access; to disable, erase, or otherwise harm software, hardware, or data; or to perform any other similar actions.

“Unrelated Assets” has the meaning set forth in Section 2.02(h) hereof.

“Warranties” has the meaning set forth in Section 2.01(k) hereof.

{SIGNATURE PAGE FOLLOWS}

37

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

BUYER:
DATA TRANSMISSION NETWORK CORPORATION
By	/s/ Richard G. Halle
	Richard G. Hallé, Chief Financial Officer
SELLER:
SURFACE SYSTEMS, INC.
By	/s/ Bruce Reimer
	Bruce Reimer, Executive Vice President

38

EX-21

EXHIBIT 21

QUIXOTE CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
as of June 30, 2006

	Jurisdiction
	Under Which
QUIXOTE CORPORATION (PARENT)	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
U.S. Traffic Corporation	Delaware
Quixote Transportation Safety Mexico S. de R.L. de C.V.	Mexico
Energy Absorption Systems, Inc.	Delaware
E-Tech Testing Services, Inc.	Delaware
Spin-Cast Plastics, Inc.	Indiana
Energy Absorption Systems (Europe), Inc.	Delaware
Quixote Transportation Safety (Asia Pacific) Pty Limited	Australia
Quixote Asia Pacific, Inc.	Delaware
Quixote Europe, Inc.	Delaware
Energy Absorption Systems (AL) LLC	Delaware
Peek Traffic Corporation	Delaware
Quixote Traffic Corporation	Delaware
Quixote Transportation Technologies, Inc.	Delaware
Quixote Foreign Sales Corporation	U.S. Virgin Islands
Quixote Latin American, Inc.	Delaware
Quixote Middle East/Africa, Inc.	Delaware

Quixote Transportation Safety, Inc., Quixote Traffic Corporation, Quixote Transportation Technologies, Inc., Quixote Latin America, Inc., Quixote Middle East/Africa, Inc. and Quixote Foreign Sales Corporation are wholly-owned by Quixote Corporation.

TranSafe Corporation, Surface Systems, Inc., U.S. Traffic Corporation, Peek Traffic Corporation and Energy Absorption Systems, Inc. are wholly-owned by Quixote Transportation Safety, Inc.

All subsidiaries listed under TranSafe Corporation, Surface Systems, Inc., U.S. Traffic Corporation and Energy Absorption Systems, Inc. are wholly-owned by those corporations.

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated September 12, 2006, 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, 2006. We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-74488, 333-62933, 333-81955, 333-32872, 333-56120, 333-83404, 333-120850 and 333-120852) and on Form S-3 (Nos. 333-113504, 333-106895 and 333-12345) of Quixote Corporation of our report dated September 12, 2006 relating to the financial statements, financial statement schedule and management’s assessment of and effective operation of internal control over financial reporting  which appears in the Form 10-K.

/s/GRANT THORNTON LLP

Chicago, Illinois
September 12, 2006

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-74488, 333-62933, 333-81955, 333-32872, 333-56120 and 333-83404, 333-12850 and 333-120852) and on Form S-3 (Nos. 333-113504 , 333-106895, and 333-1123245) of Quixote Corporation of our report dated September 13, 2004 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
September 12, 2006

EX-31

EXHIBIT 31

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
(Rule 13a-14(a) / 15d-14(a))

I, Leslie J. Jezuit, 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 12, 2006	/s/ Leslie J. Jezuit
		Leslie J. Jezuit
		President and Chief Executive Officer

EXHIBIT 31

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.             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 12, 2006	/s/ Daniel P. Gorey
		Daniel P. Gorey
		Vice President, Chief Financial Officer and Treasurer

EX-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, 2006, 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 12, 2006	/s/ Leslie J. Jezuit
		Leslie J. Jezuit, Chief Executive Officer
Date:	September 12, 2006	/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.