-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SrXV4snJNrwqrliqRaiMbjNXpPMt5vmAARNz8EctYR0h/5gR2mkK9nIYfcNhBwoR MWkERMh5d/NXo5Y8UGMpfw== 0000912057-95-008088.txt : 19951002 0000912057-95-008088.hdr.sgml : 19951002 ACCESSION NUMBER: 0000912057-95-008088 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950927 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUIXOTE CORP CENTRAL INDEX KEY: 0000032870 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 362675371 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07903 FILM NUMBER: 95576585 BUSINESS ADDRESS: STREET 1: ONE E WACKER DR STREET 2: STE 3000 CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3124676755 MAIL ADDRESS: STREET 1: ONE EAST WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60601 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY ABSORPTION SYSTEMS INC DATE OF NAME CHANGE: 19800815 10-K 1 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) For the fiscal year ended June 30, 1995 ---------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to ------------------ ------------------- Commission file number 0-7903 -------------------------- Quixote Corporation ------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-2675371 - --------------------------- ------------------- State or other jurisdiction (I.R.S. Employer incorporation or organization Identification No.) ONE 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(g) of the Act: Common Stock ($.01-2/3 Par Value) ----------------------------------------------- (Title of Class) 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 ------- ------- 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. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. $ 94,369,210 as of August 31, 1995 ------------------------------------------------ -1- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of August 31, 1995 there were 7,862,495 shares of common stock outstanding. ------------------------------------------------------------------------------ DOCUMENTS INCORPORATED BY REFERENCE The definitive proxy statement relating to the Registrant's Annual Meeting of Stockholders, to be held November 16, 1995, is incorporated by reference in Part III to the extent described therein. -2- TABLE OF CONTENTS PART I PAGE ---- Item 1. Business...................................................... 4-16 Item 2. Properties.................................................... 17-18 Item 3. Legal Proceedings............................................. 19-23 Item 4. Submission of Matters to a Vote of Security Holders........... 23 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 24 Item 6. Selected Financial Data....................................... 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 25-28 Item 8. Financial Statements and Supplementary Data................... 29-44 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 44 PART III Item 10. Directors and Executive Officers of the Registrant............ 45 Item 11. Executive Compensation........................................ 45 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................................. 45 Item 13. Certain Relationships and Related Transactions................ 46 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................. 47 SIGNATURES................................................................ 53 -3- PART I THE COMPANY Quixote Corporation was originally incorporated under the laws of the State of Delaware in 1969 as Energy Absorption Systems, Inc. In June, 1980, Energy Absorption Systems, Inc. changed its name to Quixote Corporation. Unless otherwise indicated herein, the terms "Quixote" and the "Company" refer to Quixote Corporation and its subsidiaries. Item 1. Business - ----------------- Quixote Corporation is a diversified technology company which develops, manufactures and markets specialized products through three principal subsidiaries. Energy Absorption Systems, Inc. develops, manufactures and markets energy-absorbing highway crash cushions and related highway safety products for the protection of motorists and highway workers. Legal Technologies, Inc., created in July 1993 to hold the Company's investments in Stenograph Corporation and its subsidiaries, is a designer and supplier of hardware and software for the legal, judicial and court reporting markets. Disc Manufacturing, Inc. manufactures music compact discs (CD's) and CD-ROM discs. As of June 30, 1995, Quixote Corporation and its subsidiaries employed 1,599 people. -4- HIGHWAY SAFETY DEVICES - ---------------------- Description of Business - ----------------------- The patented highway crash cushions manufactured by Energy Absorption Systems, Inc. were first conceived and developed in 1969 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 that time, various types of Energy's 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; crash cushions have saved over 21,000 lives since 1969. Energy develops, manufactures and markets a line of patented highway crash cushion systems and other barriers which absorb and dissipate the force of impact in collisions between vehicles and fixed roadside objects, a line of crash-worthy guardrail end treatments, a line of energy absorbing products for use in construction zones, and a line of crash-worthy longitudinal barriers. The product lines utilize the principles of momentum transfer and kinetic energy to safely decelerate errant vehicles. The Hi-Dro(R) system consists of a specialized grouping of reusable water-filled vinyl tubes with orifices in the tube tops. In a collision, the system is compressed, the water is ejected from the tubes in a controlled manner and the force of the impact is absorbed and dissipated. The unit can be used again by repositioning the unit and refilling the tubes. The Hi-Dro Cushion system is favored for wide hazards at sites where a high frequency of impacts and low maintenance costs after an impact is a major consideration. The Hex-Foam(R) Sandwich system utilizes replaceable cartridges containing dry energy absorbing materials. The unit compresses when struck by a vehicle and the force of impact is dissipated by the crushing of the energy absorbing materials. The unit can be used again by repositioning the unit and replacing the spent cartridges. The Hex-Foam Sandwich system is favored for wide hazards where quick maintenance after an impact is a major consideration. The Guardrail Energy Absorbing Terminal (G-R-E-A-T)(R) system consists of cartridges containing dry energy absorbing materials surrounded by a framework of triple corrugated steel guardrail panels. When hit head on, the cartridges crush to absorb the force of impact while the guardrail panels telescope inwards. The guardrail panels are generally reusable, but after impact some or all of the cartridges must be replaced. This system is suited for sites having a relatively low frequency of impact or insufficient space available for a Hi- Dro Cushion system or a Hex-Foam Sandwich system. The G-R-E-A-T CZ (construction zone) system is a portable crash cushion system designed to shield construction zone barriers and to be moved and reused when construction is completed. The Energite(R) crash cushion system is an inertial barrier system consisting of a grouping of sand-filled plastic modules. When struck by a vehicle, the system dissipates the force of impact as the modules break up and the sand is thrown free. Although this crash cushion system has the lowest initial cost of all the crash cushion systems, it has the highest repair cost since the entire system may be destroyed during an impact. The BRAKEMASTER(R) System offers a cost-effective alternative for shielding narrow hazards in low frequency impact areas. The BRAKEMASTER System consists of a framework of W-beam steel guardrail panels and diaphragms which move rearward when hit head-on. A patented braking mechanism provides frictional resistance, which brings an impacting -5- vehicle to a controlled stop. When hit from the side, the overlapping W-beam panels and tensioned guidance cable assist in safely redirecting vehicles. The LMA(TM) (Low Maintenance Attenuator) System provides protection for narrow hazards in high-frequency impact areas. The LMA System consists of specially formulated elastomeric cylinders surrounded by a framework of triple-corrugated steel guardrail panels. When hit head-on, the elastomeric cylinders compress and the overlapping thrie-beam panels telescope rearward, absorbing the kinetic energy of the impact. The reusable components make the LMA System the ideal crash cushion for narrow hazards in high-frequency impact areas. Energy has also developed and markets safety end terminals called the TREND(TM) and the Sentre(TM) that have been designed to reduce the spearing or ramping which often occurs when lightweight vehicles impact the end of many existing guardrails. The TREND provides a level of crash protection equal to that of the Sentre, but in areas unsuited for the installation of the Sentre. The TMA (Truck Mounted Attenuator) system is a crash cushion designed for mounting on the back of slow moving or parked highway maintenance vehicles to protect against damage and injury resulting from rear end collisions. The system also shields personnel working in front of the construction vehicles. In 1993, Energy introduced the first TMA with capacity to safely decelerate a pickup truck impacting a crash cushion at 60 m.p.h. The system has a unique patented secondary absorbing system that when added to Energy's three stage cartridge provides its high capacity. In 1989, Energy acquired the world-wide patents and licensing agreements covering the movable traffic barrier system of Quick-Steel Engineering Pty. Ltd. of Botany, Australia. The patents and agreements cover a movable traffic barrier system used in construction zones to protect workers and in reversible lanes to increase the flow of high-density traffic. The system is currently marketed by two licensees; one covering the U.S. and Canada; the other covering Europe. Energy assists the licensees in the promotion and sale of the movable barrier system in other parts of the world. Energy receives an 8% royalty on the sales of such products by its licensees. Energy has also developed and markets the Triton Barrier(TM), a plastic water filled traffic barrier that can be easily moved into construction zones to protect workers. This barrier is the first of its type to meet the new FHWA specifications NCHRP 350, and was approved by FHWA as eligible for federal-aid funding. In 1993, Energy introduced the BarrierGate(TM), a patented, automatic, sliding gate for insertion in highway median barriers, permitting U-turns only by authorized vehicles. The unit meets all NCHRP 350 performance specifications and was approved by FHWA for use on federal-aid road projects. This product provides toll roads and states additional options to improve the safety of roads divided with concrete median barriers but have breaks for emergency vehicles. Energy generally does not perform site preparation or installation for any of its products. Such services must be obtained from others. Spin-Cast Plastics, Inc., a wholly-owned subsidiary of Energy Absorption Systems, manufacturers rotational molded plastic products including the Energite(R) system, plastic components used in Energy's other product lines, as well as custom designed plastic components for industrial products. In July 1992, Energy purchased the stock of Composite Components, Inc. CCI is a development-stage company organized to develop an Electro-Cured(TM) system for the repair and rehabilitation of underground sewer pipes. The CCI system uses existing manholes to pull a resin-soaked liner through the sewer pipe, and inflate the liner to the pipes full inner diameter with air pressure. An electrical circuit connected to the liner cures the liner into a strong, durable, corrosion-resistant pipe within a pipe. CCI continues to conduct research and development on the process. -6- In December of 1993, Energy purchased the stock of the Safe-Hit Corporation. Safe-Hit manufactures and markets a line of flexible sign and guide post systems and a glare screen system. The guide posts, extruded from polypropylene, are used to delineate a travel way, channelize vehicles or mark the location of an object. The post features an in-ground anchor system that permits rapid and inexpensive replacement techniques. The glare screen system, also made from polypropylene, is installed on top of median barriers to eliminate the distraction of lights from an oncoming vehicle on roads where the inside lanes are adjacent to the median barrier. Both products are covered by patents. Competition and Marketing - ------------------------- Energy's products have been sold in all 50 U.S. states. Six regional managers supervise Energy's domestic distributors and make direct sales in areas not covered by distributors. Although the Federal government provides matching funds for the purchase of highway safety products made by state and local governmental agencies, it is not a direct purchaser of Energy's products. Energy sells its products principally to its distributors and contractors with less than 5% sold directly to state and local government agencies. Many international governments are now beginning to recognize the need for crash cushions as a method to reduce traffic fatalities. Energy's products have been sold in 34 foreign countries. Energy's two international consultants and 38 foreign agents make sales to municipal and national governments and contractors who are responding to bids from the respective governments. Although Energy does experience some competition in specific product lines, particularly in the Energite, G-R-E-A-T and TMA lines, 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. Safe-Hit products are sold by regional managers who supervise a large number of distributors and make sales calls on certain state department of transportation offices and contracting firms. A number of other companies manufacturer flexible guide posts. Government Policies - ------------------- The market for crash cushions is directly affected by Federal, state and local governmental policies. A substantial portion of Energy's 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 Intermodal Surface Transportation Efficiency Act of 1991, signed into law on December 18, 1991, provides authorization for highways and highway safety. Total funding of approximately $150 billion could be available over a six year period. Once the funds are distributed to the states, each state must set aside 10 percent for safety construction activities such as hazard elimination. In order for highway devices to be eligible for Federal funding, such devices must be approved by the Federal Highway Administration. All stationary crash cushion systems that Energy currently markets have been so approved, and Energy is obligated to seek such approval for improvements or upgrades to those systems and for any new systems. Energy develops new products by working with Federal and state highway officials to determine highway traffic safety needs, and then designs products to satisfy those needs. Energy is 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 within the impact technology area, Energy is seeking to develop or to acquire new products which can be sold through its existing distribution networks to its existing customers. -7- Backlog - ------- As of June 30, 1995, 1994, and 1993, Energy had a backlog of unfilled orders for highway safety devices of $10,200,000, $8,057,000 and $5,626,000 respectively. The Company can usually fill an order within 6 to 8 weeks of receipt. Research and Development; Patents - --------------------------------- Energy conducts its own research, development and testing of new products before introducing them to the marketplace. The expenditures for research and development activities were $1,545,000, $1,972,000 and $1,864,000 in the years 1995, 1994, and 1993, respectively. Energy owns a number of U.S. and foreign patents covering its major highway safety products. It actively seeks 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, and plywood components. These raw materials are purchased from various suppliers and have been readily available throughout the last year. Energy believes that adequate supplies of these materials will continue to be available. Major Customers - --------------- No single customer represents a significant portion of Energy Absorption's highway safety business. Other - ----- In April 1995 Energy Absorption acquired a 40% interest in Quantic Industries, Inc. for $6.7 million. Quantic is a manufacturer of electronic and pyrotechnic devices for the aerospace and defense industries and has also developed a low- cost proprietary initiator for automobile airbag systems. -8- LEGAL TECHNOLOGIES - ------------------ Description of Business - ----------------------- Legal Technologies, Inc. was formed in July, 1993, to serve as the umbrella for several related legal companies: Stenograph Corporation, Discovery Products, Inc. (formerly Stenograph Legal Services, Inc.), Litigation Sciences, Inc., Integrated Information Services, Inc. and Court Technologies, Inc. These companies within Legal Technologies each specialize in particular areas of the legal market and work together to develop and market technologically advanced products and services for the legal market. Stenograph Corporation - ---------------------- Stenograph Corporation was the pioneer in the development of the shorthand machine. It is now the leading manufacturer of manual, electric and electronic shorthand machines. These shorthand machines are used primarily by court reporters and students studying to be court reporters. During the fifty years of Stenograph's business, machine shorthand has been widely accepted in the United States as the most accurate and efficient method for the verbatim reporting of court proceedings, depositions, hearings and meetings. The Stenograph family of shorthand machines are used by most of the court reporters in the United States. The machines use a unique keyboard which enables the reporter to "type" a machine shorthand phonetic code at speeds in excess of 225 words per minutes, approximately as fast as a person talks. Stenograph has automated the process by which the notes produced by a shorthand machine operator are transcribed into a final transcript. This innovation, known as computer-aided transcription or "CAT", has greatly increased the productivity of the court reporter and the speed within which a final transcript can be produced and delivered. Until the development of CAT systems, the standard practice had been for the machine shorthand reporter to translate the shorthand symbols imprinted on the manual shorthand machine's paper tape and to dictate this text into a tape recorder. A rough transcript was then prepared by a typist listening to the recording of the dictation. This rough transcript was next edited by the reporter and a final transcript was then prepared by the typist. Using this method, substantially more time was spent by the court reporter in dictating his or her notes and in editing the draft transcript than was spent in taking the shorthand notes. The principal components of a CAT system are an electronic shorthand machine, CAT software, computer and a printer. The primary input to a CAT system is an electronic shorthand machine, such as the Stentura(R) by Stenograph which can operate in two modes. The Stentura 8000 has the ability to translate the steno into text as it is written. The translated text may then enter the computer directly or on a 3-1/2 inch floppy disk. The Stentura 6000 performs all the functions of the 8000 but does not translate. The computer, after translation, displays the text on a screen where the necessary editing is done by the reporter. After editing, the final transcript is automatically produced on a letter-quality printer at speeds of up to 1,000 pages per hour. Stenograph introduced a new CAT software product called Premier Power(R) in 1993. It is a translation and advanced editing software system designed to replace Stenograph's three prior CAT software systems, Cimarron, OZ PC and OmniCat(R), as well as to introduced numerous advanced functions. -9- Stenograph's education and supplies division markets diskettes, cassettes, paper, tripods, video supplies, carrying cases, printer supplies, ink, ribbons and other supplies for shorthand machines and computer-aided transcription systems. Textbooks on machine shorthand, cassettes and other teaching materials are sold by Stenograph to schools which train users of shorthand machines and systems. Stenograph also sells the Stentura series of writers to court reporters for use with CAT systems manufactured by competitors. Competition and Marketing - ------------------------- Free-lance and official court reporters are the primary market for CAT systems and electronic shorthand machines. Stenograph also sells manual shorthand machines, supplies, textbooks and other teaching materials on machine shorthand to over 500 dealers and schools. CAT systems and electronic shorthand machines are sold by both a direct and indirect sales force. Stenograph also sells electronic shorthand machines to its competitors for use with their CAT systems. Stenograph offers a complete turnkey system that includes the CAT software, computer, printer and electronic shorthand machine. Stenograph continually evaluates current hardware technology, and offers hardware that provides the highest quality with the best service at affordable prices. Stenograph offers 24 hour-7 days a week software support along with training, electronic bulletin board, customer installations, and advanced seminars. The shorthand machine warranty is maintained by Stenograph. Other hardware sold is serviced under the manufacturer's warranty. Stenograph believes that there are some 36,000 court reporters in the United States. The vast majority of these court reporters learned their machine shorthand on a machine manufactured by Stenograph and currently own one or more manual or electronic Stenograph shorthand machines. Stenograph estimates that some 10,000 people enroll as new students in court reporting schools each year and that approximately 1,500 people enter the court reporting profession as certified court reporters each year. Stenograph has no significant competition in the manual shorthand machine market. In the electronic shorthand machine market Stenograph has several competitors in the U.S. and a number of additional competitors in the international markets. In the CAT software market, a number of companies sell computer-aided transcription systems. Stenograph believes that revenues from domestic CAT system sales industry-wide have remained relatively flat over the last several years and moreover does not expect revenues in the industry to increase significantly. The market for these products will increasingly depend on new reporters entering the court reporting profession and the replacement market. In its sale to courts and court reporters, Stenograph also faces competition from video taping and audio taping systems which are being used to provide the permanent record of court proceedings and depositions. These systems are marketed as being a lower cost method than the CAT systems. Competition and market saturation has had a limiting effect on gross profit margins. Stenograph believes it can continue to successfully compete in the CAT market by providing a high level of service to the market through continual development of software enhancements and system support. Stenograph also markets its products in foreign countries, particularly England and Australia, through distributors and Stenograph's own sales force. Stenograph has developed and is introducing shorthand theories in French, German, Spanish and Russian in an effort to expand foreign sales. -10- Discovery Products, Inc. - ------------------------ Discovery Products, Inc. was founded in 1990 to develop, market and sell software and other technology based products to the legal market. Since its formation, the company has developed a variety of litigation support products including Discovery ZX(R), Discovery Pro(TM) and Discovery Video ZX(R). These products provide legal professionals with tools to increase productivity by allowing lawyers and legal assistants the ability to rapidly search and retrieve audio, video and text of a court proceeding or deposition. Competition and Marketing - ------------------------- Discovery's products are sold by telemarketers to a dealer base of 930 court reporting firms who remarket the products directly to law firms. There are a number of competitors offering products similar to those of Discovery, including off-the-shelf software programs that offer many of the same features as Discovery's products. Litigation Sciences, Inc. - ------------------------- In December, 1993, Stenograph Corporation acquired the net assets of Litigation Sciences, Inc. (LSI), a firm specializing in three primary areas of the litigation process: jury research and trial consulting, communications training and preparation of demonstrative exhibits. The jury research and trial consulting group has a team of experienced social scientists that help trial lawyers understand the biases, prejudices and perceptions that people bring with them into the courtroom. This knowledge permits them to predict how people are likely to react to what a lawyer intends to do and say. Based upon these empirical findings, they are able to recommend strategies and tactics which will be maximally persuasive and effective. The LSI communications training practice was established to counsel lawyers and key witnesses on the most effective structure, language and style of communicating to the trier-of-fact. The graphic evidence group of LSI has a staff of experienced producers and directors that work closely with the client in the preparation of demonstrative exhibits. These exhibits may be as simple as a posterboard representation of facts to as complex as multi-dimensional computer animation. Competition and Marketing - ------------------------- LSI's services are sold by its consultants who are located within the major metropolitan areas across the country. There is significant competition in this business segment from a number of competitors offering consulting services and products similar to those of LSI. LSI competes on the basis of price and service. Integrated Information Services, Inc. - ------------------------------------- In July, 1993, Stenograph Corporation acquired the net assets of CompuLitS, Inc., an imaging services company specializing in computerized litigation support. The company was renamed Integrated Information Services, Inc. (IIS). -11- IIS is an electronic imaging service company specializing in the conversion of documents and data to a secure, accessible electronic format. The company provides flexible, customized solutions based on a proven methodology for handling millions of documents in an organized and efficient manner. IIS is an expert in high volume, fast turnaround image conversion. The company provides the following services: a. Conversion of microfilm, microfiche, paper, video and existing image documents to optical or CD-ROM media. b. The creation of searchable text for full-text database applications. IIS performs high quality OCR/ICR (Optical and Intelligent Character Recognition), including zone recognition and OCR clean-up services. c. Indexing, or the process of extracting critical descriptive information about each document and entering it into a client database for the retrieval of imaged documents. IIS provides high level objective and subjective indexing services to meet the requirements of their clients. Competition and Marketing - ------------------------- IIS has a direct sales force, which is supported by its telesales group, located at its corporate headquarters in Carmel, Indiana. The primary sales effort is concentrated within the legal market on a national basis, focusing on law firms, corporate legal departments and governmental groups. There are approximately 25 competitors offering services similar to those of IIS. This segment experiences significant competition that has had a limiting effect on profit margins. IIS competes on the basis of price and service. Court Technologies, Inc. - ------------------------ Court Technologies, Inc. (CTI) has developed an advanced integrated technology solution for the courtroom. This solution combines real time translation and multi-media to provide a multi-dimensional audio, video and text based approach to court proceedings. CTI's Visual Due Process(TM) product is a courtroom video system which combines video, audio and personal computer technology utilizing a unique six-way screen to allow for remote arraignment of a defendant or remote testimony of vulnerable witnesses. The Company believes that the market for courtroom systems is growing slower than it expected and in addition, the Company is involved in litigation related to this technology as discussed in Item 3.F. As a result, the Company has discontinued its sales and marketing effort at Court Technologies. Backlog - ------- As of June 30, 1995, 1994 and 1993, the Legal Technologies companies had a backlog of unfilled orders and contracts in progress of $1,412,000, $1,850,000 and $385,000, respectively. Research and Development; Patents - --------------------------------- Legal Technologies incurred research and development costs of approximately $1,889,000, $1,453,000 and $1,220,000 in the years 1995, 1994 and 1993 respectively. -12- Legal Technologies owns a number of U.S. and foreign patents, which protect portions of some of its products, as well as trademarks on its name and the names of some of its products and copyrights on its instructional materials and computer programs. Raw Materials - ------------- The principal raw materials used in the production of Legal Technologies' products are plastic, steel, aluminum and paper. Legal Technologies believes that adequate supplies of all materials will continue to be available. Major Customers - --------------- No single customer represents a significant portion of Legal Technologies business. Other - ----- The Legal Technologies segment continued to incur significant losses during fiscal 1995. The Company realizes that significant operating improvements must be made if Legal Technologies is to continue to operate under its existing structure. The Company is considering various alternatives to reduce the losses at Legal Technologies. -13- COMPACT DISC MANUFACTURING - -------------------------- Description of Business - ----------------------- Quixote established a venture in 1975 in Anaheim, California to research optical disc technology. In 1983, the venture, which was named LaserVideo, Inc., manufactured the first audio CD in the United States. LaserVideo opened its second, a significantly larger, CD manufacturing facility in Huntsville, Alabama in 1986. In December, 1987 Quixote sold LaserVideo to LaserVideo Acquisition Corporation (LVAC), a wholly owned subsidiary of Disctronics Australia Limited for $55,500,000, consisting of $29,000,000 in cash and $26,500,000 in a note. As a result of LVAC's failure to pay the note when due and after various legal actions and agreements between the parties, LaserVideo was reacquired on May 1, 1990 and renamed Disc Manufacturing, Inc. (DMI). The Company is involved in litigation related to this reacquisition of DMI which is discussed in Item 3 Legal Proceedings in this Form 10-K. DMI's principal activity is the manufacturing of optical discs. The optical disc is a medium for storing audio, video, text or graphics information and includes compact music discs (CD's) and CD-ROM, as well as other types of optical discs. DMI converts information, generally either music or data, supplied by its customers, to optical disc format and then manufactures these optical discs for its customers. In many cases, DMI may also package these discs such that they would be ready for retail distribution. The advantage of optical discs is that they provide superior sound quality to that of competing audio media and can store vast amounts of information. One CD-ROM can contain up to 650 megabytes of data, or the equivalent of 250,000 pages of text. During 1994, DMI began a three year expansion plan that upon completion will increase its annual capacity to approximately 200 million discs. In August 1994, DMI acquired a 218,000 square foot building in Anaheim, California to replace its smaller existing facility located nearby. DMI expects the total expansion to cost about $65 million. During May 1995, DMI began producing CD's at the new Anaheim facility. Approximately 58% of DMI's revenues during 1995 were from the manufacturing of CD's, 37% of revenues from CD-ROM manufacturing and the remainder from services such as special mastering and other contract research and development type activities. DMI is one of the ten largest compact disc manufacturers in the United States. DMI's plant in Huntsville, Alabama has a current annualized capacity of approximately 135 million discs. DMI's Anaheim facility has an annual production capacity of 52 million discs. While the plant continues to produce CD's to meet West Coast-based CD-ROM and music companies' requirements, the facility also is used for contract research and development of non-audio optical storage products. -14- Competition and Marketing - ------------------------- CD's - ---- Six large international music companies, known as the "majors," have historically accounted for nearly 90 percent of the industry's U.S. music sales. Each of these companies is vertically integrated to varying degrees. The majors are as follows: *WEA (Warner Elektra Atlantic, part of Time Warner); *Sony Music (previously CBS Records) *MCA (a subsidiary of Seagrams); *Capitol/EMI (a subsidiary of Thorn/EMI of the United Kingdom); *PolyGram (partially owned by NV Philips of Holland); and *BMG/RCA (part of the Bertelsmann Group of West Germany). Most of the majors use outside sources, as a complement to their own facilities, to manufacture their music. While the majors account for about 90 percent of the U.S. music market, the remainder of the market is comprised of a large group of small record companies. DMI sells CD's through a direct sales force to both the majors and independent record labels. Presently there are more than forty CD manufacturers in the United States. Although production capacity exceeds the anticipated calendar year 1995 shipments of CD's, this excess capacity is utilized to meet the seasonal demands and short turnaround times in the CD industry. DMI competes for CD business on price and service. As CD volumes have increased, selling prices for CD's have declined. This has adversely affected profit margins at DMI. The Company expects selling prices to continue to decline within the foreseeable future. The audio market may also be affected by new competing music formats. CD-ROM - ------ The market for CD-ROM's is much more widely dispersed than music CD's and includes publishers, consumer and commercial software distributors and other companies that need a cost effective way to disseminate large amounts of data with easy search and retrieval capabilities. There are more than 40 manufacturers of CD-ROM's in the United States. These manufacturers include many of those that make music CD's and in addition include some companies that manufacture CD-ROM's exclusively. DMI sells CD-ROM's through a direct sales force and value-added resellers. DMI competes on the basis of quality, price and customer service. While selling prices are greater for CD-ROM's than for music CD's, selling prices are declining as this market develops. The Company expects a continued decline in selling prices which will adversely affect profit margins at DMI. Backlog - ------- As of June 30, 1995, 1994 and 1993 DMI had a backlog of unfilled orders totaling $3,552,000, $2,033,000 and $2,170,000 respectively. Typically, music and CD-ROM companies demand manufacturing turnaround times (the time from which a sales order is received until that order is shipped) of ten days or less. Because of this, DMI believes the size of the backlog is not an effective indicator of its operating status. -15- Research and Development; Patents - --------------------------------- No significant research and development is conducted on DMI's own behalf. DMI has entered into licensing arrangements with certain companies holding patents with respect to optical disc technology. These arrangements require DMI to pay royalties on each disc produced. Other companies have sued DMI for infringement related to their patents on optical disc technology. This litigation is discussed more fully in Item 3 Legal Proceedings in this Form 10- K. Raw Materials - ------------- The principal raw materials in the manufacture of compact discs are polycarbonate, aluminum, UV curable protective coating and ink. All items are available from multiple sources and competitively priced. DMI understands there may be a short term shortage of polycarbonate and has purchased additional quantities of this material to ensure an adequate supply. DMI believes that adequate supplies of all materials will continue to be available in the long term. Major Customers - --------------- DMI has manufactured CD's for all six of the major U.S. music companies. The Bertelsmann Music Group, which includes the RCA label, has historically been the largest single customer of DMI, accounting for 38%, 41% and 50% of its annual revenue during the years ended June 30, 1995, 1994, and 1993 respectively. No other customer accounts for 10% or more of total DMI revenues. -16- Item 2. Properties - ------------------- Owned or Location Available Space Purpose Leased - -------- --------------- ------- -------- One East Wacker Drive 13,000 sq. ft. Executive Offices Leased Chicago, Illinois 250 Bamberg Drive 160,000 sq. ft. Manufacture of highway Owned Pell City, Alabama safety devices 3617 Cincinnati Avenue 22,000 sq. ft. Warehouse and research Owned Rocklin, California and development facility for highway safety devices 632 Wheeling Road 2,000 sq. ft. Research and development Leased Wheeling, Illinois for sewer repair 3300 N. Kenmore Street 81,000 sq. ft. Sale and manufacture of Owned South Bend, Indiana highway safety devices 739 College Drive 28,000 sq. ft. Storage facility for Owned South Bend, Indiana highway safety devices 1930 West Winton Avenue 20,000 sq. ft. Manufacture of highway Leased Hayward, California safety devices 1500 Bishop Court 75,000 sq. ft. Sale and manufacture of Leased Mount Prospect, Illinois Stenograph machines and systems 431 Lakeview Court 4,300 sq. ft. Sale of legal and Leased Mt. Prospect, Illinois judicial software 1420 Harbor Bay Parkway 10,900 sq. ft. Software development Leased Alameda, California 3000 Executive Parkway 5,000 sq. ft. Sublet Leased San Ramon, California 1120 Ave. of the Americas 230 sq. ft. Trial consulting office Leased New York, New York 11911 North Meridian Court 27,000 sq. ft. Provider of document Leased Carmel, Indiana imaging and litigation support services 200 Corporate Pointe 19,800 sq. ft. Trial consulting office Leased Culver City, California and graphics studio 110 Sutter Street 2,400 sq. ft. Trial consulting office Leased San Francisco, California -17- Owned or Location Available Space Purpose Leased - -------- --------------- ------- -------- 8214 Westchester 175 sq. ft. Trial consulting office Leased Dallas, Texas 999 Peachtree Street, N.E. 2,500 sq. ft. Trial consulting office Leased Atlanta, Georgia 225 West Washington 5,291 sq. ft. Trial consulting office Leased Chicago, Illinois and graphics studio 101 West Ohio 3,000 sq. ft. Sublet Leased Indianapolis, Indiana 10 Post Office Square 320 sq. ft. Trial consulting office Leased Boston, Massachusetts 111 Bagby Street 8,100 sq. ft. Trial consulting office Leased Houston, Texas and graphics studio 4905 Moores Mill Road 332,000 sq. ft. Manufacture of compact Owned Huntsville, Alabama discs and CD-ROM's 1120 Cosby Way 31,000 sq. ft. Manufacture of compact Owned Anaheim, California discs and CD-ROM's 3400 E. LaPalma Avenue 218,000 sq. ft. Manufacture of compact Owned Anaheim, California discs and CD-ROM's 3500 West Olive Street 1,500 sq. ft. Sale of compact discs Leased Burbank, California 1409 Foulk Road 3,000 sq. ft. Sale of CD-ROM's Leased Wilmington, Delaware 441 Lexington Avenue 1,000 sq. ft. Sale of compact discs Leased New York, New York Note: Present facilities are believed to be adequate to support the Company's current and anticipated requirements. -18- Item 3. Legal Proceedings - -------------------------- A. DMI - REACQUISITION RELATED LITIGATION. On January 17, 1989, in a case entitled QUIXOTE CORPORATION v. LASERVIDEO ACQUISITION CORPORATION a/k/a LV ACQUISITION CORP., DISCTRONICS AUSTRALIA LIMITED, AND QUATRO LIMITED, No. 89 CH 370, the Company filed suit in the Circuit Court of Cook County, Illinois, County Department, Chancery Division after LaserVideo Acquisition Corp. ("LVAC") defaulted on a $26.5 million note guaranteed by Quatro Limited ("Quatro") and Disctronics Australia Limited. The note was part of the payment due to Quixote in connection with the sale of its former LaserVideo, Inc. (now known as "Disc Manufacturing, Inc." or "DMI") subsidiary to the "Disctronics Group" (including Disctronics Limited, Disctronics Australia Limited, Quatro, LVAC, and their affiliates). On March 7, 1989, the Court entered a judgment in favor of the Company against LVAC, Disctronics and Quatro in the amount of $26,500,000, following the failure by the Disctronics Group to pay the amount due under a February 3, 1989 agreed settlement order. The judgment additionally entitled the Company to post-judgment interest of 10.5% per annum compounded quarterly until the judgment was satisfied. On March 17, 1989, the parties entered into an agreement pursuant to which, among other things, the parties entered into agreed orders staying the proceedings in the Illinois litigation and in a companion case filed in the Court of Chancery of the State of Delaware, New Castle County, on March 8, 1989 and entitled Civil Action No. 10668, QUIXOTE CORPORATION v. LASERVIDEO ACQUISITION CORPORATION, DISCTRONICS MANUFACTURING, INC., DISCTRONICS LIMITED, DISCTRONICS AUSTRALIA LIMITED AND QUATRO LIMITED. The Cook County and Delaware lawsuits were finally settled in December, 1989, when the parties entered into a comprehensive Work-Out Agreement pursuant to which Quixote became a DMI shareholder. On April 30, 1990, through the mechanisms established in the Work-Out Agreement, and as a result of the failure of the Disctronics Group to exercise an option to purchase Quixote's rights under the Work-Out Agreement, Quixote again became the sole shareholder of DMI. Since then, the following lawsuits have been filed and remain pending. 1. DISC MANUFACTURING, INC. ET AL. v. MASSEY ET AL., CV-90-H-01029-NE (U.S. District Court for the Northern District of Alabama). On May 21, 1990, Quixote and DMI filed this lawsuit against Disctronics Limited, Disctronics (US) Inc., Disctronics, Inc., Moray Investments Limited ("Moray"), Memory-Tech, Inc. ("Memory-Tech") and individuals Peter Massey, Kevin Donovan, David Mackie, and Douglas Adams. This lawsuit alleges that the individual defendants, each a DMI director until April 30, 1990, had in concert with Disctronics Limited and its affiliated companies, misappropriated DMI's corporate opportunity to acquire Memory-Tech, a competing compact disc manufacturer located in Plano, Texas. Rather than present this opportunity to DMI, the Disctronics Group and the individual directors caused Disctronics Limited to acquire Memory-Tech through a new subsidiary, Moray. While DMI and Memory-Tech were operated as an integrated company between March 2, 1990 (the acquisition date of Memory- Tech) and April 30, 1990, Memory-Tech competed with DMI after April 30, when Quixote gained control of DMI pursuant to the Work-Out Agreement. In this lawsuit, Quixote and DMI sought a constructive trust over Memory-Tech in favor of DMI, along with unspecified damages. The lawsuit also alleges that the defendants had violated DMI's federal trademark rights in the name "Disctronics", by operating Memory-Tech under the "Disctronics" name in competition with DMI. DMI was known as Disctronics Manufacturing, Inc. and used the trade name Disctronics, Inc. from approximately -19- June, 1988 until May 18, 1990. The complaint seeks both money damages and equitable relief. On June 11, 1990, the Court dismissed the claims against the individual defendants because of a lack of federal jurisdiction, and declined to exercise pendant jurisdiction over the state law corporate opportunity claims. Currently, Quixote and DMI's federal trademark claims are their only claims now pending in the federal district court action. On December 31, 1991 the remaining corporate defendants filed affirmative defenses to DMI's claims and certain of the defendants filed counterclaims alleging breach of contract, economic duress, tortious interference with contract and business relations, unjust enrichment, fraud, unfair competition and seizure of corporate opportunity among other claims. On January 17, 1992 DMI filed an answer and affirmative defenses to the counterclaim and also moved to dismiss the counterclaim and affirmative defenses, which motion was denied on February 10, 1992. On September 25, 1992, the Court dismissed all of the defendants' state law counterclaims, in order to allow those claims to be resolved in the parallel state court action. This left only the parties' federal trademark claims, which were stayed, pending resolution of the state court action. 2. DISC MANUFACTURING, INC. ET AL. v. MASSEY ET AL., CV90-1214L (Madison County Circuit Court, Alabama). On June 13, 1990, DMI and Quixote refiled their state law corporate opportunity claims, along with a claim under the Alabama trademark law, in the Circuit Court for Madison County, Alabama (Huntsville), the jurisdiction in which DMI is located. Quixote and DMI asked the Court to impose a constructive trust on Memory-Tech in addition to an unspecified amount of damages. The Court initially granted a temporary restraining order precluding defendants from transferring any interest in Memory-Tech pending the Court's determination following a preliminary injunction hearing. Following the preliminary injunction hearing, on July 30, 1990, the Court granted the motion for preliminary injunction. In connection with the preliminary injunction and pending the final outcome of the action, Quixote and DMI were required to post a $6 million bond with the Alabama Circuit Court on August 27, 1990. The defendants appealed the entry of the preliminary injunction and on May 15, 1992 the Alabama Supreme Court reversed the trial court's issuance of the injunction, remanding the case for further proceedings. Quixote's motion for a rehearing was denied on July 10, 1992. On May 21, 1992 defendants filed a Motion for Partial Summary Judgment on all counts of the complaint asserting breaches of fiduciary duty and using as its basis the Alabama Supreme Court decision. In addition, on March 4, 1991, the corporate defendants filed a counterclaim against Quixote, DMI and James H. DeVries. The counterclaim was made in twelve counts, including breach of the covenant of good faith and fair dealing, economic duress (as to the validity of the Work-Out Agreement), tortious interference with contract and business relations, unjust enrichment (also a claim with respect to the validity of the Work- Out Agreement), fraud, breach of contract (not under the Work-Out Agreement), account stated, claim for money had and received, unfair competition (with respect to the "Disctronics" trademark), state dilution claim, breach of fiduciary duty by Mr. DeVries and seizure of corporate opportunity by Quixote, and a claim for wrongfully seeking injunctive relief. The counterclaim sought damages of $73.8 million, to invalidate the Work- Out Agreement, punitive damages and other relief. The Company and DMI filed motions to dismiss the counterclaim. On September 9, 1992, Quixote and DMI filed three additional counts to specifically enforce a Settlement Agreement reached in June, 1991. On June 21, 1993, the Court entered judgment against Quixote and DMI on those settlement counts, in response to defendants' Motion for Summary Judgment. Quixote and DMI filed a motion for reconsideration of that ruling. -20- In April 1993, the Company and DMI filed a First Amended Complaint which added claims for unjust enrichment, fraud and tortious interference. Defendants moved to dismiss the First Amended Complaint. In May 1995, the Circuit Court ruled on various outstanding motions. The Court dismissed all of the Defendants' claims except the following claims: tortious interference with contract and business relations; fraud; breach of contract regarding a $300,000 escrow; a state dilution claim; and a claim for wrongfully seeking injunctive relief. In its May 1995 Order, the Court also dismissed all of the Company's and DMI's corporate opportunity claims based on breaches of fiduciary duties, along with the claims for unjust enrichment. The Court also denied the Company's and DMI's motion for a new trial with respect to the Court's prior summary judgment on the Company's and DMI's settlement-related counts. This left two counts of the Company's and DMI's First Amended Complaint in the case: a count for tortious interference with contract and business relations and a count for fraud. Both parties have appealed the Court's May 1995 ruling. The Court has referred the case for mediation. A mediator has been appointed and the mediation process is to be completed by December 1995. B. REPETITIVE STRESS INJURY LITIGATION. Stenograph is one of a number of manufacturers of keyboard and other equipment that have been sued by individuals for arm, wrist and hand injuries, including carpal tunnel syndrome. All twenty-nine cases filed to date against Stenograph, and in some cases the Company, contend that the Stenograph machine (or other keyboard equipment) was defectively designed and that Stenograph failed to provide adequate warnings about how the equipment should be used to avoid injury. The cases request actual damages, in some cases specified as ranging from $500,000 to $1,000,000, and, in most of the cases, punitive damages, with some cases specifying an amount of $10,000,000. All of the cases have been referred to the Company's insurance carriers and, at this time, the Company believes that liability resulting from these cases, if any, (excluding punitive damages) will be covered by its insurance policies. All cases are in the early stages of litigation, including the discovery stage. C. RESORT VIDEO LTD. v. LASERVIDEO, INC. In September, 1990, DMI was sued by Resort Video, Ltd. in the Superior Court of the State of California for the County of Los Angeles in an action entitled RESORT VIDEO, LTD. v. LASERVIDEO, INC., No. 74659. Resort Video, a former start-up company, claimed DMI failed to produce certain video discs on schedule, thereby injuring its business. After a trial, on August 25, 1992, the jury awarded Resort Video $975,000 in damages. DMI moved for a new trial which was granted in October, 1992. Plaintiff appealed that decision and DMI cross- appealed the jury's decision. In June 1995 the California Court of Appeals affirmed the trial court's order granting a new trial based on excessive damages. Resort Video's petition for a rehearing was denied and the case is expected to be returned to the trial court for a new trial by the end of December, 1995. D. THOMSON S.A. v TIME WARNER, ET AL. In February, 1994, Disc Manufacturing, Inc., Quixote Corporation and a number of other companies were sued by Thomson S.A. of France in the United States District Court for the District of Delaware in an action entitled THOMSON S.A. v. TIME WARNER, INC., ET AL., No 94-83. The complaint charges that the defendants have infringed four Thomson patents by making and selling audio compact discs and requests an order prohibiting defendants from making or selling compact discs which infringe on the patents. No specified damages have been asked for although the complaint asks that damages be trebled because it alleges the infringement is willful. In the fall of 1994, the Denon and Time Warner defendants entered into consent judgments with the plaintiff. A trial date in February 1996 has been assigned. -21- E. SHERRELL SEARS v. ENERGY ABSORPTION SYSTEMS. In June, 1994, the Company, Energy Absorption Systems, and two employees or former employees were sued in an action entitled SHERRELL AND ROY SEARS v. ENERGY ABSORPTION SYSTEMS, INC., QUIXOTE CORPORATION, GERALD HAND, KEN WIMMER, UPJOHN COMPANY, IPI ISOFOAM SYSTEMS AND RELIANCE INSURANCE COMPANY ET AL., in the Circuit Court of St. Clair County, Alabama, No:CV94-128. Plaintiff claims that she suffered a miscarriage caused by her exposure to fumes while working for Energy Absorption. The complaint contains alternating theories of workmen's compensation, tort, product liability, co-employee liability and/or negligent safety inspections. No monetary award is specified. In March 1995, the workmen's compensation claims against Energy Absorption were settled for a nominal amount. The claims against the Company remain pending. In August 1995 the Court granted Energy Absorption's motion for summary judgment, dismissing the claims against the Energy employees. Also, in August 1995, two of the defendants, UpJohn Company and IPI Isofoam, settled the claims against them. The case has been referred to the Company's insurance carriers and is in the early stages of discovery. At this time, the Company believes that liability resulting from this case, if any, will be covered by its insurance policies. F. JEFFREY SMITH v. ENERGY ABSORPTION SYSTEMS. In February, 1994 Energy Absorption Systems was sued in an action entitled JEFFREY AND JODY SMITH v. COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF TRANSPORTATION AND ENERGY ABSORPTION SYSTEMS, INC., in the Court of Common Pleas of Allegheny County, Pennsylvania, No. GD941220. The complaint alleges that leaking fluid from a crash cushion manufactured by Energy Absorption Systems caused plaintiff to lose control of his motorcycle and incur injuries. No monetary award is specified. The case has been referred to the Company's insurance carriers and discovery is proceeding. At this time, the Company believes that liability resulting from this case, if any, will be covered by its insurance policies. G. ASHBY v. DISC MANUFACTURING, INC. In January, 1995, Disc Manufacturing, Inc. and one former and two current employees wre sued in an action brought under the Civil Rights Act of 1964, as amended, by three female employees at DMI's Huntsville plant. The complaint seeks injunctive relief and compensatory and punitive damages for alleged sex discrimination, sexual harassment, retaliation and tort claims. The complaint also alleged DMI's failure to pay equal wages to females and seeks to certify a class on behalf of all similarly situated women. DMI's motion to dismiss the claims against the two DMI employees has been granted. Discovery is proceeding. H. DISCOVISION ASSOCIATES v. DISC MANUFACTURING, INC. In January, 1995, Disc Manufacturing, Inc. ("DMI") was served in an action entitled DISCOVISION ASSOCIATES v. DISC MANUFACTURING, INC., Case No. 95-21, U.S. District Court for the District of Delaware. The complaint alleged that DMI is infringing six DiscoVision patents and seeks injunctive relief and unspecified damages, including punitive damages, against DMI. In August, 1995, DiscoVision filed a motion for leave to amend its complaint to allege infringement by DMI of four additional patents which DMI is opposing. Discovery is proceeding. I. DISC MANUFACTURING, INC. v. PIONEER AND DISCOVISION. In January, 1995 DMI filed a complaint against Pioneer Electronic Corp., Pioneer Electronics (USA) Inc., Pioneer Capital Inc., and DiscoVision Associates in the U.S. District Court for the Central District of California, Case No. 95-0306, alleging violations of the antitrust laws and acts of unfair competition based on unlawful activities and anticompetitive tactics involving patents related to optical disc technology. DMI's complaint seeks damages, including punitive damages, and injunctive relief. This case has been transferred to the District Court in Delaware and consolidated with DiscoVision Associates' case against DMI pending in that jurisdiction (described in H. above). -22- J. ESTATE OF THIEL v. ENERGY ABSORPTION SYSTEMS, INC. In December, 1994, Energy Absorption Systems, Inc. ("Energy") was served in an action entitled FREDERICK W. THIEL AND MAUREEN THIEL v. SLATTERY ASSOCIATES ET AL., Superior Court of New Jersey, Docket No. MRS-L-1431-94. The complaint arises from a March, 1992 accident in which the decendent lost control of his car and allegedly struck one of Energy's crash cusions. The complaint seeks unspecified damages from Energy and numerous defendants, including the State of New Jersey, the U.S. Federal Highway Administration and various other governmental entities. The Company has referred the case to its insurance carrier and discovery is proceeding. At this time, the Company believes that liability resulting from this case, if any, will be covered by its insurance policies. K. TEKLICON, INC. v. QUIXOTE CORPORATION. In September 1994, the Company was served in an action entitled TEKLICON, INC. v. QUIXOTE CORPORATION, Santa Clara, California Superior Court, Docket No. CV743993. The complaint alleges that the Company owes plaintiff $140,000 for consulting services or broker fees arising out of the Company's acquisition of Litigation Sciences, Inc. In March 1995, the plaintiff filed an amended complaint, adding a claim of fraudulent misrepresentation and claiming $3,000,000 in additional damages. The Company has filed a general denial and discovery is proceeding. The parties have stipulated to non-binding arbitration. The Company is involved in other legal actions, believes it has defenses for all claims, and is vigorously defending the actions. In the opinion of management, based on the advice of legal counsel, liabilities, if any, arising from the Company's legal actions are not expected to, but could have a material effect on the Company's financial statements. 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 1995. -23- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER Matters The Company's common stock is quoted on the National Association of Securities Dealers Automated Quotation System (NASDAQ) under the symbol QUIX. Set forth are the daily high and low last sales prices for the Company's common stock for the periods indicated, as reported by the National Quotations Bureau, Inc. These prices represent quotations between dealers in securities, do not include retail markdowns or commissions, and do not necessarily represent actual transactions.
Quarter Ending 9/30 12/31 3/31 6/30 - -------------- ------- ------- -------- ------- FISCAL 1995 High $22-1/4 $19-1/8 $12-1/2 $12-3/4 Low 17-1/2 10-15/16 9-1/4 9-1/4 FISCAL 1994 High $15-1/4 $17-3/4 $ 21 $ 22 Low 12-1/4 15-1/2 16 16-1/2
The current quoted price of the stock is listed daily in The Wall Street Journal in the NASDAQ National Market System section. As of August 7, 1995, there were 2,040 shareholders of record. DIVIDEND POLICY During 1995, the Company declared semiannual cash dividends of eleven cents per share. During 1994 the Company declared semiannual cash dividends of ten cents and eleven cents per share. -24- ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA
Dollar amounts in thousands, except per share data For the years ended June 30, 1995 1994 1993 1992 1991 - ---------------------------- -------- -------- -------- -------- -------- Operating results: Net sales........................$ 185,411 $ 176,938 $ 145,111 $ 129,433 $ 111,811 Gross profit..................... 61,609 65,610 59,657 52,110 42,772 Selling and administrative expenses 44,715 41,787 36,727 29,757 29,607 Research and development expenses 3,434 3,426 3,084 3,335 4,764 Other income (expense)........... (4,285) (2,558) (2,587) (3,497) (4,868) Earnings from continuing operations 5,950 11,644 9,441 7,967 1,915 Net earnings (loss).............. 5,950 11,644 9,441 7,967 (3,131) Cash dividends per common share.. .22 .21 .20 Per share data: Earnings from continuing operations.....................$ 0.73 $ 1.44 $ 1.20 $ 1.03 $ .26 Net earnings (loss).............. 0.73 1.44 1.20 1.03 (.43) Book value per common share...... 7.49 6.94 5.53 4.51 3.40 Weighted average common and common equivalent shares outstanding 8,100,385 8,066,192 7,867,658 7,742,825 7,322,784 Financial position: Total assets.....................$ 169,946 $ 122,789 $ 109,816 $ 100,983 $ 104,477 Working capital.................. 10,574 19,773 14,526 18,207 3,738 Net property, plant and equipment 95,277 60,946 57,534 50,539 57,616 Long-term debt, net.............. 68,000 38,975 40,000 47,289 43,277 Shareholders' equity............. 58,915 54,069 41,898 33,583 24,802
Note: Operating results and financial position reflect Source Scientific Systems, Inc. as a discontinued operation for 1991. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 1995 COMPARED TO 1994 The Company's sales for 1995 increased 5% to $185,411,000 from $176,938,000 in 1994 due to revenue growth at each of the Company's business segments. Sales at Energy Absorption for 1995 increased 7% to $46,522,000 from $43,433,000 in 1994 due principally to the inclusion of a full year of sales at Safe-Hit Corporation, a manufacturer of flexible guide posts, acquired in December 1993. Safe-Hit contributed sales of $5,304,000 in 1995 compared to sales of $2,799,000 in 1994. Disc Manufacturing, Inc. (DMI) sales for 1995 increased 5% to $87,296,000 from $83,185,000 in 1994 due to increased unit sales of its CD-ROM discs. CD-ROM unit sales in 1995 increased 53% from 1994 while audio CD unit sales in 1995 increased 2% from 1994. These increases in unit volumes were offset somewhat by declines in the average unit selling prices of these products resulting in CD-ROM sales dollars increasing 21% from 1994 and CD audio sales dollars decreasing 5%. Legal Technologies, Inc. (LTI) sales for 1995 increased 3% to $51,593,000 from $50,320,000 in 1994. This was due principally to the inclusion of a full year of sales at Litigation Sciences, Inc. -25- (LSI), acquired in December 1993. LSI contributed $9,544,000 in sales in 1995 compared to $5,030,000 in sales for 1994. Offsetting this sales increase at LTI was a 9% sales decrease at Stenograph Corporation due to a decline in computer- aided transcription revenue. The major component of that decline was sales of low margin third party computer hardware. The gross profit margin in 1995 decreased to 33.2% from 37.1% in 1994 due to margin reductions at DMI and Energy Absorption. DMI's gross profit margin decreased as a result of a decrease in the average unit selling price of its products, particularly CD-ROM products due to competition. This was offset somewhat by volume efficiencies. The Company expects continued declines in selling prices of discs which may have a limiting effect on gross margins at DMI. Energy Absorption's gross profit margin decreased as a result of an unfavorable change in product mix and to the outsourcing of several manufactured component parts. The outsourcing of these component parts will continue until Energy Absorption's plant expansion is completed during the first half of fiscal 1996. Energy Absorption's gross profit margin was also reduced due to lower gross profit margins at Safe-Hit Corporation. LTI's gross profit margin in 1995 remained consistent with 1994. Selling and administrative expenses in 1995 increased 7% to $44,715,000 from $41,787,000 in 1994 attributable principally to DMI and Energy Absorption. DMI's selling and administrative expenses increased mainly due to increases in CD-ROM selling and marketing expenses and additional legal expenses. Energy Absorption's selling and administrative expenses increased due to the inclusion of selling and administrative expenses at Safe-Hit Corporation. Legal Technologies selling and administrative expenses remained at a level consistent with the same period last year. Research and development expenses in 1995 were $3,434,000 compared to $3,426,000 in 1994. This was due to an increase in research and expenditures at Legal Technologies related to the development of legal software. Offsetting this increase at LTI was a decrease in R&D at Energy Absorption as a result of reduced expenditures on its sewer rehabilitation technology. Interest income in 1995 was $396,000 compared to $302,000 in 1994 reflecting an increase in interest rates. Interest expense increased 31% in 1995 to $4,093,000 from $3,129,000 in 1994. This was due principally to the increase in long-term debt but also to an increase in interest rates. Other expenses in 1995 increased to $588,000 as a result of a legal settlement compared to income of $296,000 in 1994 as a result of a gain on the sale of a stock investment. 1994 COMPARED TO 1993 The Company's sales for 1994 increased 22% to $176,938,000 from $145,111,000 in 1993 due principally to growth at Disc Manufacturing, Inc. as well as from the Company's acquisition of several businesses during 1994. DMI's sales for 1994 increased 18% to $83,185,000 from $70,413,000 in 1993 due principally to increased unit sales of CD-ROM products. CD-ROM unit sales increased 155% in 1994 from 1993. Audio CD unit sales for 1994 increased 12% from 1993. These increases in unit volumes were offset somewhat by declines in the average unit selling price, resulting in CD-ROM and CD audio sales dollars increasing 89% and 1% respectively. Legal Technologies, Inc.'s (LTI) sales for 1994 increased 29% to $50,320,000 from $39,050,000 in 1993. This was due principally to the acquisition of Integrated Information Services, Inc. in July 1993 which contributed $9,254,000 in sales during 1994. Also contributing to the increase in sales at Legal Technologies was the December 1993 acquisition of Litigation Sciences, Inc. LSI had sales of $5,030,000 for 1994. Offsetting somewhat the increase in sales at Legal Technologies was a decrease in sales at Stenograph due principally to a decline in both the number of units and selling price of its Premier Power(TM) CAT software. Sales at Energy Absorption for 1994 increased 22% to $43,433,000 from $35,648,000 in 1993. Energy Absorption experienced increased sales principally from -26- sales of its newer products including the ALPHA 60 MD(TM) TMA (truck-mounted attenuator). Also contributing to the increase in sales at Energy Absorption was the December 1993 acquisition of Safe-Hit Corporation, which had sales of $2,799,000 for 1994. The gross profit margin in 1994 decreased to 37.1% from 41.1% in 1993 principally due to margin reductions at Legal Technologies, Inc. LTI's gross profit margin decreased due to decreased margins on Stenograph's CAT products as well as from lower gross profit margins at Integrated Information Services and Litigation Sciences than the historical gross profit margins at LTI. DMI's gross profit margin increased slightly as a result of volume efficiencies and a shift in product mix, both attributable to the growth in the CD-ROM segment of DMI's business. Energy Absorption's gross profit margin decreased as a result of lower gross profit margins at its recently acquired Safe-Hit Corporation than Energy Absorption's historical gross profit margins. Energy Absorption's gross profit margin also decreased due to a change in its product mix as a result of increased lower margin TMA sales. Selling and administrative expenses in 1994 increased 14% to $41,787,000 from $36,727,000 in 1993 attributable primarily to increased costs at Legal Technologies, Inc. Legal Technologies' selling and administrative expenses increased due to the acquisition of Integrated Information Services, Inc. and Litigation Sciences, Inc. Legal Technologies' selling and administrative expenses also increased due to increases in selling and marketing expenses related to its Court Technologies, Inc. subsidiary. This increase in selling and administrative expenses at Legal Technologies was offset somewhat by a decrease in selling and administrative expenses at Stenograph Corporation as a result of decreased salaries, legal expenses and bad debts. Energy Absorption's selling and administrative expenses increased due to the inclusion of selling and administrative expenses at Safe-Hit Corporation. Selling and administrative costs at DMI increased modestly in connection with its increase in sales. Research and development expenses increased 11% to $3,426,000 in 1994 from $3,084,000 in 1993. This was due principally to increases in R&D at Legal Technologies' Discovery Products subsidiary. Energy Absorption's research and development also increased due to expenditures on its sewer rehabilitation technology. Interest income decreased in 1994 to $302,000 from $428,000 in 1993 due to a decline in the rate of interest earned on invested funds. Interest expense for 1994 decreased modestly to $3,129,000 from $3,166,000 in 1993. Other income in 1994 increased due to a gain of $610,000 on the sale of a stock investment, offset somewhat by a decline in royalty income related to Energy Absorption's moveable barrier patent. The Company's effective tax rate, as computed pursuant to Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes", decreased from 45.3% in 1993 to 34.7% in 1994. This was in connection with a change in management's estimate associated with certain tax contingencies. -27- Liquidity and Capital Resources - ------------------------------- The Company has cash of $2,188,000 and additional funds of $11,000,000 available under its revolving credit facility at June 30, 1995. Operating activities were a source of cash for the Company during 1995 providing $21,305,000 as a result of strong cash flows generated by DMI and Energy Absorption. These cash flows were offset somewhat by the funding of significant losses at Legal Technologies. The Company is considering various alternatives to reduce the future losses at LTI. Cash of $48,609,000 was used during 1995 for investing activities. The Company's primary investing activity was the purchase of $38,415,000 in plant and equipment. These capital expenditures were made mostly at DMI ($31,890,000) as part of its expansion program to increase its capacity to 200 million discs annually. Among other purchases, DMI purchased a 218,000 square foot building in Anaheim, California as a replacement for its existing facility located nearby. Additional investing activities include the purchase of an equity investment in Quantic Industries, Inc., and the funding of an Industrial Development Bond for future capital expenditures at Energy Absorption. Financing activities provided cash of $28,471,000 principally from borrowings under the Company's revolving credit facility of $30,000,000 offset slightly by, among other things, the payment of two semiannual cash dividends. This cash along with cash generated from operating activities was used principally to fund the investment activities discussed above. In August 1995 the Company issued a $10,000,000 short-term note payable, due November 30, 1995 to its bank group. This arrangement was put in place to continue the funding of the expansion at DMI. The Company expects to replace this short-term arrangement with an increase in its revolving credit facility upon its renewal in October 1995. During fiscal 1996 the Company anticipates the need for approximately $28 million in cash for capital expenditures, $9 million of which relates to fiscal 1995 purchases unpaid as of June 30, 1995. In addition, the Company may have a need for $8.7 million in the event that certain shareholders of Quantic Industries, Inc. exercise their right to put their Quantic shares to the Company. In addition, the Company may consider acquiring additional businesses that complement its existing operating segments. Also, each of the Company's operating segments will require additional investments in working capital to maintain growth. These expenditures will be financed either through cash generated from operations or from borrowings under the Company's revolving credit facility. The Company believes its cash generated from operations and funds available under its existing credit facility or increases in its credit facility are sufficient for all planned operating and capital requirements. -28- Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- Report of Independent Accountants To the Shareholders and the Board of Directors Quixote Corporation We have audited the accompanying consolidated balance sheets of Quixote Corporation and Subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1995. We have also audited the financial statement schedules listed in Part IV of Form 10-K, Item 14(d) for each of the three years in the period ended June 30, 1995. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 signficant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Quixote Corporation and Subsidiaries as of June 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the years in the three year period ended June 30, 1995, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/Coopers & Lybrand L.L.P. Chicago, Illinois August 12, 1995, except for Note 4, as to which the date is September 6, 1995 -29- CONSOLIDATED STATEMENTS OF OPERATIONS Dollar amounts in thousands, except per share data
For the years ended June 30, 1995 1994 1993 - ---------------------------------- ---------- ---------- ---------- Net sales..............................$ 185,411 $ 176,938 $ 145,111 Cost of sales.......................... 123,802 111,328 85,454 ---------- ---------- ---------- Gross profit........................... 61,609 65,610 59,657 Operating expenses: Selling and adminsitrative........... 44,715 41,787 36,727 Research and development............. 3,434 3,426 3,084 ---------- ---------- ---------- 48,149 45,213 39,811 ---------- ---------- ---------- Operating profit....................... 13,460 20,397 19,846 ---------- ---------- ---------- Other income (expense): Interest income...................... 396 302 428 Interest expense..................... (4,093) (3,129) (3,166) Other................................ (588) 269 151 ---------- ---------- ---------- (4,285) (2,558) (2,587) ---------- ---------- ---------- Earnings before provision for income taxes................................ 9,175 17,839 17,259 Provison for income taxes.............. 3,225 6,195 7,818 ---------- ---------- ---------- Net earnings...........................$ 5,950 $ 11,644 $ 9,441 ========== ========== ========== Earnings per share data: Primary: Net earnings.......................$ 0.73 $ 1.44 $ 1.20 ========== ========== ========== Average shares outstanding......... 8,100,385 8,066,192 7,867,658 ========== ========== ========== Fully diluted: Net earnings.......................$ 0.73 $ 1.37 $ 1.17 ========== ========== ========== Average shares outstanding......... 9,151,701 9,203,492 8,920,290 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. -30- CONSOLIDATED BALANCE SHEETS
Dollar amounts in thousands, except per share data As of June 30, 1995 1994 ---------- ---------- Assets Current assets: Cash and cash equivalents.........................$ 2,188 $ 1,021 Accounts receivable, net of allowances for doubtful accounts of $2,738 in 1995 and $2,765 in 1994.............................. 33,866 33,771 Inventories....................................... 10,473 8,219 Other current assets.............................. 4,104 3,314 ---------- ---------- Total current assets........................... 50,631 46,325 Property, plant and equipment, at cost: Land.............................................. 6,325 2,534 Buildings and improvements........................ 24,354 13,210 Machinery and equipment........................... 104,927 74,654 Furniture and fixtures............................ 11,679 10,468 Leasehold improvements............................ 1,768 1,585 ---------- ---------- 149,053 102,451 Less accumulated depreciation and amortization.. (53,776) (41,505) ---------- ---------- 95,277 60,946 Other assets, including restricted certfificate of $6,000............................ 24,038 15,518 ---------- ---------- $ 169,946 $ 122,789 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt.................$ 975 $ Accounts payable.................................. 19,546 9,564 Accrued expenses: Payroll and commissions......................... 4,118 4,293 Income taxes payable............................ 1,723 1,535 Other........................................... 13,695 11,160 ---------- ---------- Total current liabilities..................... 40,057 26,552 Long-term debt, net of current portion.............. 68,000 38,975 Deferred income taxes............................... 2,974 3,193 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 8,581,416 shares-1995 and 8,504,815 shares-1994....................... 143 142 Capital in excess of par value of stock........... 29,268 28,551 Retained earnings................................. 34,977 30,749 Treasury stock, at cost, 718,921 shares-1995 and 712,260 shares-1994......................... (5,473) (5,373) ---------- ---------- 58,915 54,069 ---------- ---------- $ 169,946 $ 122,789 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. -31- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 1995 Capital in Dollar amounts in thousands, Excess of Par Retained Treasury except per share data Common Stock Value of Stock Earnings Stock - ------------------------------------------------- ------------ -------------- -------- -------- Balances, July 1, 1992: Shares........................................... 8,194,083 741,769 ============ ======== Amounts..........................................$ 137 $ 26,251 $ 12,791 $ (5,596) Exercise of options for 123,963 common shares...... 2 378 Net earnings - 1993................................ 9,441 Declaration of semiannual cash dividends ($.10 per share each)............................ (1,506) ------------ -------------- -------- -------- Balances, June 30, 1993:........................... 139 26,629 20,726 (5,596) Exercise of options for 116,096 common shares...... 2 481 Net earnings - 1994................................ 11,644 Declaration of semiannual cash dividends ($0.10 per share and $0.11 per share)............ (1,621) Issuance of 29,509 treasury shares pursuant to the acquisition of Safe-Hit Corporation.............. 221 223 Issuance of 69,358 common shares pursuant to the stock retirement plan............................ 1 1,195 Conversion of debentures into 1,315 common shares.. 25 ------------ -------------- -------- -------- Balances, June 30,1994:............................ 142 28,551 30,749 (5,373) Exercise of options for 41,922 common shares....... 285 Net earnings - 1995................................ 5,950 Declaration of semiannual cash dividends ($0.11 per share each)........................... (1,722) Issuance of 34,679 shares pursuant to the stock retirement plan.................................. 1 432 Purchase of 6,661 common shares at $15.01 per share (100) ------------ -------------- -------- -------- Balances, June 30, 1995: Amounts..........................................$ 143 $ 29,268 $ 34,977 $ (5,473) ============ ============== ======== ======== Shares........................................... 8,581,416 718,921 ============ ========
The accompanying notes are an integral part of the consolated financial statements. -32- CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollar amounts in thousands For the years ended June 30, 1995 1994 1993 -------- -------- -------- Cash Flows from Operating Activities: Net earnings.....................................$ 5,950 $ 11,644 $ 9,441 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment... 13,308 11,540 9,178 Amortization of capitalized software and other assets........................................ 2,275 2,497 1,721 Provision for losses on accounts receivable..... (27) (423) 19 Deferred income taxes........................... (1,081) 4 (73) Changes in operating assets and liabilities: Accounts receivable............................. (68) (4,619) 1,343 Inventories..................................... (2,254) 370 (980) Other current assets............................ (528) 875 (159) Accounts payable and accrued expenses........... 3,542 1,104 1,790 Income taxes payable............................ 188 (1,993) 2,909 -------- -------- -------- Net cash provided by operating activities......... 21,305 20,999 25,189 -------- -------- -------- Cash Flows Provided (Required) by Investing Activites: Purchase of property, plant and equipment........ (38,415) (10,994) (16,173) Cash paid for acquired businesses and equity investments.................................... (6,746) (8,075) Funds deposited with IDB Trustee................. (2,719) Capitalized and purchased systems, design and software costs............................. (308) (1,529) (776) Purchase of patent............................... (778) Other............................................ (421) (302) -------- -------- -------- Net cash required by investing activities........ (48,609) (20,598) (18,029) -------- -------- -------- Cash Flows Provided (Required) by Financing Activities: Net proceeds (payments) under revolving credit agreement............................... 30,000 (1,000) (7,187) Payment of cash dividends........................ (1,714) (1,621) (748) Principal payments on long-term debt............. (1,300) (175) Proceeds from exercise of stock options.......... 285 483 380 Repurchase of company stock for treasury......... (100) -------- -------- -------- Net cash provided (required) by financing activities..................................... 28,471 (3,438) (7,730) -------- -------- -------- Net change in cash and cash equivalents............ 1,167 (3,037) (570) Cash and cash equivalents at beginning of year..... 1,021 4,058 4,628 -------- -------- -------- Cash and cash equivalents at end of year...........$ 2,188 $ 1,021 $ 4,058 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. -33- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: ACCOUNTING POLICIES: The principal accounting policies of Quixote Corporation (the Company) and its subsidiaries are as follows: CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaires, all of which are wholly owned, as of June 30, 1995. 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. The Company considers these short-term instruments to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. PROPERTY, PLANT AND EQUIPMENT The Company capitalizes expenditures for major renewals and betterments and charges current operations with the cost of maintenance and repairs. Provisions for depreciation and amortization have been computed on the straight-line method based on the expected useful lives of the assets as indicated below: Buildings and improvements 20 to 40 years Machinery and equipment 3 to 10 years Furniture and fixtures 3 to 10 years Leasehold improvements 5 to 10 years The cost and accumulated depreciation and amortization relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of retirement or other disposition and the resultant gain or loss is credited or charged to earnings. GOODWILL AND PATENTS Goodwill and patents, included in other assets, are amortized on a stright-line basis over lives of 7 to 15 years. The Company assesses at each balance sheet date whether there has been a permanent impairment in the value of these assets. This assessment includes such factors as 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. CAPITALIZED SOFTWARE Capitalized software development costs and purchased software included in other assets, net of amortization, in the consolidated balance sheets are $890,000 and $1,782,000 at June 30, 1995 and 1994, respectively. Amortization is provided on a product-by-product basis based upon the greater of the ratio of current gross revenue to a product's current and anticipated revenue or on the straight-line method over the product's remaining estimated economic life. Amortization commences when the product is available for general release to customers. Unamortized capitalized costs determined to be in excess of the net realizable value of the product are expensed at the date of such detemination. -34- INCOME TAXES The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. In addition, the amount of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be fully realized. NOTE 2: ACQUISITIONS AND DISPOSITION: In April 1995, the Company acquired a 40% interest in Quantic Industries, Inc. (Quantic) for $6.7 million. Quantic is a manufacturer of electronic and pyrotechnic devices. This investment has been accounted for under the equity method of accounting. The cost in excess of the Company's pro rata share of the net assets of Quantic (approximately $4 million) is included in other assets and is being amortized over a 10 year life. The Company also entered into an agreement with certain stockholders of Quantic which grants those stockholders a right, on or before January 6, 1996, to require Quixote Corporation to purchase all of their shares (52.5% of the common stock) of Quantic for $8.7 million. In July 1993, the Company acquired the net assets of CompuLitS, Inc., a full service provider of document imaging and conversion services and computerized litigation support. CompuLitS's name was subsequently changed to Intergrated Information Services, Inc. In December 1993, the Company acquired the stock of Safe-Hit Corporation, a manufacturer of flexible guide post systems and portable sign systems for highway and parking lot applications. Also in December 1993, the Company acquired the net assets of Litigation Sciences, Inc., a company that specializes in trial consulting including jury research, courtroom communications training, and preparation of courtroom exhibits. The cost to acquire these three businesses was approximately $8 million. These acqusitions have been accounted for by the purchase method of accounting. The operating results of each acquisition have been included in the Company's consolidated results of operations since the date of acquisition. In connection with the above purchases, liabilities of $4,576,000 were assumed. NOTE 3: INVENTORIES: Inventories consist of the following at June 30:
Dollar amounts in thousands 1995 1994 - ---------------------------------------- ---------- ---------- Finished goods.......................... $ 2,140 $ 2,163 Work in process......................... 1,950 1,939 Raw materials........................... 6,383 4,117 ---------- ---------- $ 10,473 $ 8,219 ---------- ----------
-35- NOTE 4: LONG-TERM DEBT: Long-term debt consists of the following at June 30:
Dollar amounts in thousands 1995 1994 - ---------------------------------------- ---------- ---------- Revolving credit facility due October 31, 1997, interest at variable rates...... $ 49,000 $ 19,000 8% Convertible subordinated debentures due April 15, 2011, interest due semiannually with principal payable in annual sinking fund installments of $1,000,000, commencing in April 1996.. 19,975 19,975 ---------- ---------- Total long-term debt.................. 68,975 38,975 Less current portion.................. (975) ---------- ---------- Long-term debt, net................... $ 68,000 $ 38,975 ---------- ----------
The Company has a three-year unsecured revolving credit facility with its three primary banks. The agreement provides a $60 million credit facility and contains both fixed and floating interest rate options at the prime rate or lower and contains affirmative and negative covenants including requirements that the Company maintain certain financial ratios and be profitable each year. The agreement may be extended one additional year on each anniversary date (October 31) upon mutual consent of the Company and lenders. The Company may, at any time during the three years, elect to convert the loan to a four year term with equal quarterly principal payments due throughout the term to amortize the loan in full. In September 1995, the Company received a waiver of the capital expenditures covenant from the bank group which enabled the Company to comply with the revolving credit facility covenants at June 30, 1995. On August 4, 1995, the Company obtrained from its bank group, a $10,000,000 short-term loan which expires on November 30, 1995. The Company intends to replace the short-term loan with an increase in its revolving credit facility upon its renewal. The 8% debentures are convertible at any time prior to maturity into shares of common stock of the Company at a conversion price of $19.00 per share. They are redeemable at the option of the Company at par plus accrued interest and are subordinate to all senior indebedness of the Company and all obligations under various leases. Unamortized costs incurred in issuing the 8% convertible subordinated debentures and the revolving credit note wre $552,000 and $650,000 at June 30, 1995 and 1994, respectively, and are included in other assets. These costs are being amortized over the term of the related agreements. The aggregate amount of maturities of long-term debt for the four years subsequent to 1996 assuming renewal of the revolving credit note is as follows: $1,000,000 in 1997, $1,000,000 in 1998, $1,000,000 in 1999 and $1,000,000 in 2000. NOTE 5: STOCK OPTIONS AND STOCK TRANSACTIONS: The Company has stock option plans for directors and employees, providing for grants of options as may be determined by the Audit/Compensation Committee of the Board of Directors. Options under the long-Term Stock Ownership Incentive Plan and the Director Stock Option Plan are to be granted at no less than 100% of the current market price at the date of the grant. No charges are made to earnings in connection with the options. -36- Information for the year ended June 30, 1995 with respect to options under the Company's plan is as follows:
Number Option Price of Shares per Share --------- ------------------ Shares under option: July 1, 1994...................... 929,773 $ 4.25 to $20.50 Granted........................... 286,510 10.00 to 21.00 Exercised......................... (46,090) 4.25 to 12.88 Canceled or expired............... (223,051) 4.25 to 21.00 --------- June 30, 1995..................... 947,142 $ 4.25 to 21.00
On February 28, 1995, the Audit/Compensation Committee of the Company's Board of Directors repriced those employee stock options with an exercise price equal to or greater than $13.00 per share. Under the repricing arrangement and included in the above table, employees received new options to purchase 175,010 shares of common stock in exchange for options originally granted to purchase 181,368 shares. The expiration dates and vesting provisions of the new options remained the same as the original options, but each new option may not be exercised until March 1, 1996. The options outstanding at June 30, 1995 are exercisable to the extent of 842,155 shares in 1996, 69,966 shares in 1997 and 35,021 shares in 1998. As of June 30, 1995, the Company has 2,259,875 common shares reserved for various conversion privileges and options. NOTE 6: SHAREHOLDER RIGHTS PLAN: The Company has 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 the Company's stockholders. The Plan calls for stockholders of record on July 25, 1988 to receive a dividend distribution of one right for each outstanding share of the Company's 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 A Junior Participating Preferred Stock, no par value, for $25 per unit. In addition, if an acquiring person becomes the beneficial owner of more than 20 percent of the Company's 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 or $50. If the Company is acquired in a merger or other business combination in which the Company would not be the surviving corporation, or 50% or more of the Company's 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 or $50. The Company may redeem the rights in whole, for $.01 per right, under certain circumstances. NOTE 7: STOCK RETIREMENT PLAN: The Company's Long-Term Stock Ownership Incentive Plan contains a provision for a retirement stock award program for certain key executives of the Company. The award consists of shares of the Company's common stock and cash ending with the fiscal year in which the executive attains his or her 62nd birthday (with a minimum of five years for each executive). In order to receive each year's stock award, the executive must -37- remain employed with the Company 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 the Company or until age 65. The size of each particpant's annual award was 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 the Company's stock price appreciates at a sustained target rate. The Plan resulted in a charge to earnings of $766,000 for 1995 and $1,239,000 for 1994. NOTE 8: INCOME TAXES: The income tax provisions are comprised of the following for the three years ended June 30:
Dollar amounts in thousands 1995 1994 1993 -------- -------- -------- Current: Federal..........................$ 3,549 $ 4,248 $ 4,995 State............................ 757 1,638 1,074 -------- -------- -------- 4,306 5,886 6,069 Deferred........................... (1,081) 309 1,749 -------- -------- -------- Total..............................$ 3,225 $ 6,195 $ 7,818 ======== ======== ========
The components of the net deferred tax liability are as follows at June 30:
Dollar amounts in thousands 1995 1994 -------- -------- Deferred tax assets: Accounts receivable allowance.....................$ 1,054 $ 1,002 Inventory valuation............................... 946 822 Compensated absences and medical claims........... 699 694 Tax over book basis in affiliates................. 1,496 1,496 Capital loss carryforward......................... 1,589 1,589 Other liabilities and reserves.................... 2,559 1,978 Net operating loss carryforwards.................. 3,238 4,424 Various tax credit carryforwards.................. 30 38 Valuation allowance.................................(5,321) (5,784) -------- -------- Total.............................................$ 6,290 $ 6,259 ======== ======== Deferred tax liabilities: Book over tax basis of capital assets.............$ 6,659 $ 7,044 Miscellaneous..................................... 65 -------- -------- Total.............................................$ 6,659 $ 7,109 ======== ======== Net deferred tax liability........................$ 369 $ 850 ======== ========
The valuation allowance relates principally to deferred tax assets that the Company estimates may not be realizable, including portions of tax over book basis in affiliates, capital loss carryforwards, net operating loss carryforwards, and tax credit carryforwards. At June 30, 1995, certain subsidiaries of the Company have approximately $8,000,000 of net operating loss carryforwards for tax purposes which arose in periods prior to acquisition by the Company. Certain limitations on utilization are present and realization of a significant portion of the carryforwards is uncertain. These carryforwards expire in years from 1996 through 2005. In -38- addition, the Company has approximately $4,000,000 in capital loss carryforward that will expire in 1997 and 1998. The net deferred tax liability is presented on the balance sheet as follows at June 30:
Dollar amounts in thousands 1995 1994 -------- -------- Current deferred tax asset........................$ 2,605 $ 2,343 Noncurrent deferred tax liability................. 2,974 3,193 -------- -------- Net deferred tax liability........................$ 369 $ 850 ======== ========
The current deferred tax asset is included in other current assets in the consolidated balance sheet. Income tax provisions differed from the taxes calculated at the statutory federal tax rate as follows at June 30:
Dollar amounts in thousands 1995 1994 1993 -------- -------- -------- Taxes at statutory rate...........................$ 3,119 $ 6,065 $ 5,868 State income taxes................................ 340 1,127 669 Gain on equity investment......................... (207) (Income) loss of foreign subsidiary............... (32) 159 114 Other............................................. (202) (949) 1,167 -------- -------- ------- Income tax provision..............................$ 3,225 $ 6,195 $ 7,818 ======== ======== ========
NOTE 9: EARNINGS PER SHARE: Primary earnings per share is computed by dividing the net earnings for each period by the weighted average number of common and common equivalent shares outstanding. Fully diluted earnings per share is computed based on the assumption that all of the convertible debentures are converted into common shares. Under this assumption, the weighted average number of shares is increased accordingly and net earnings is increased by the amount of interest expense and amortization of deferred debenture costs relating to the convertible debentures, less income tax benefits. Since the effect is anti-dilutive in 1995, the amount reported is the same as primary earnings per share. -39- NOTE 10: COMMITMENTS AND CONTINGENCIES: Aggregate rental expense under operating leases, principally for office and manufacturing facilities, was $2,794,000 in 1995, $2,716,000 in 1994 and $1,681,000 in 1993. These operating leases include options for renewal or purchase of the leased property. Annual minimum future rentals for lease commitments are as follows:
Year ending June 30, Total --------- 1996...............................$ 2,705 1997............................... 2,575 1998............................... 2,224 1999............................... 1,669 2000............................... 1,355 --------- $ 10,528
The Company has employment 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, the Company would be liable for payment of benefits under these agreements. Stenograph Corporation sells customer receivables to a financial institution, with limited recourse. The proceeds of such sales were $4,609,000 in 1995, $7,009,000 in 1994 and $10,329,000 in 1993. The aggregate amounts of transferred receivables which remain uncollected at June 30, 1995 and 1994 are approximately $16,073,000 and $21,900,000, respectively. In 1990, Disc Manufacturing, Inc. (DMI) and the Company filed lawsuits in the federal and state courts in Alabama against the Distronics Group, the former owners of DMI, relating to DMI's misappropriated corporate opportunity to acquire Memory Tech, a competing compact disc manufacturer located in Plano, Texas, and certain trademark infringement claims. In response to two Alabama suits, the Distronics Group filed counterclaims alleging breach of contract, economic duress, fraud, unfair competition and seizure of corporate opportunity, among others. The Distronics Group also filed an action in Dallas, Texas which was subsequently dismissed. In 1990, the Alabama state court issued a preliminary injunction in favor of the Company and DMI, precluding the Distronics Group from transferring any interest in Memory Tech and other restrictions. As a condition for issuance of the preliminary injunction, the Company and DMI were required to post $6,100,000 as injunction security with the Clerk of the Circuit Court, of which $6,000,000 is included in the Company's consolidated balance sheets as of June 30, 1995 and 1994 as other assets. The certificate of deposit is restricted from use by the Commpany pending the final outcome of this litigation. The remaining $100,000 injunction security was posted as an injunction bond. In May 1992, the Alabama Supreme Court reversed the judge's order granting preliminary injunction. In September 1992, Quixote filed additional counts seeking to enforce a settlement agreement reached in June 1991. The court ruled against the Company and DMI on those counts, in response to the Distronics Group's motion for summary judgment. The Company and DMI sought reconsideration of that ruling, which the court denied in May, 1995. The Company also amended its complaint to add claims for unjust enrichment, fraud and tortious interference, which defendants moved to dismiss. In May 1995, the court dismissed all of the defendants' claims except the following: tortious interference with contract and business relations; fraud; breach of contract regarding a $300,000 escrow; a state dilution claim; and a claim for wrongfully seeking injunctive relief. The court dismissed all of the Company's and DMI's claims except their claims for tortious interference with contract and business relations and for fraud. Subsequent to the May 1995 order, defendants filed a notice of appeal and the Company and DMI have cross- appealed. After referring the case for mediation, the court -40- appointed a mediator in June 1995 and ordered the mediation process be completed by December 31, 1995. Several companies holding patents with respect to optical disc technology have contacted the Company to request that DMI enter into licensing arrangements with them, and two companies have filed suits against DMI for patent infringement in Delaware federal court. Royalties requested by the patent holders could result in a significant cost to DMI for past sales and in reduced future margins at DMI if licensing arrangements were entered into on the terms proposed by the patent holders. DMI has filed a lawsuit against the plaintiff in one of the cases and its controlling companies for antitrust violations and DMI's lawsuit has been consolidated with the plaintiff's patent case for all purposes. In the other lawsuit, DMI is one of several manufacturers of compact discs which have been sued. Discovery has been completed in the case and a trial date in February 1996 has been assigned. In September, 1990 DMI was sued by Resort Video, Ltd., a former start-up business that claimed DMI failed to produce certain videodiscs on schedule, thereby injuring its business. After a trial, on August 25, 1992 the jury awarded Resort Video $975,000 in damages. In October 1992 the court granted DMI's motion for a new trial. Resort Video appealed that decision and DMI cross-appealed the jury's decision. The appellate court has affirmed the trial court's decision and the case is expected to return to the trial court for a new trial bay the end of December 1995. In 1990 Convergent Business Systems, Inc. (CBSI) and its BaronData division (which division assets and certain liabilities, including this litigation, Stenograph Corporation subsequently acquired) filed a collection matter against a customer who in turn counterclaimed for breach of contract, misrepresentation and unfair business practices, among others. The action was tried and resulted in ajudgment on behalf of the Company for a nominal amount and a judgment against the Company for $514,616. In June 1993 the court denied the Company's motion for a new trial but reduced the customer's claimed legal fees from $523,061 to $369,087 for a total award of $937,655, including interest. The Company's appeal was denied in fiscal 1995 and the Company paid a total amount of $1,197,883 to satisfy the judgment and related legal costs awarded. Stenograph and a number of manufacturers of keyboards and other equipment have been sued by individuals for repetitive stress injuries. The 29 cases filed to date against Stenograph, and in some cases the Company, request actual damages, in some instances specified as ranging from $500,000 to $1,000,000 and in most cases, punitive damages, with some plaintiffs claiming an amount of $10,000,000. All cases have been referred to the Company's insurance carriers and the Company believes that liability resulting from these cases, if any, (excluding punitive damages) will be covered under its insurance policies. The Company does not believe there are grounds for the imposition of punitive damages and intends to vigorously defend all claims. The Company is involved in other legal actions common to its businesses. The Company believes it has defenses for all such claims and is vigorously defending the actions. In the opinion of management, based on the advice of legal counsel, liabilities, if any, arising from these legal actions are not expected to have, but could have a material effect on the Company's results of operations or financial condition. NOTE 11: SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES: Cash paid for interest was $4,015,000, $3,360,000 and $2,941,000 in 1995, 1994 and 1993, respectively. Cash paid for income taxes was $4,116,000, $7,878,000 and $5,184,000 in 1995, 1994 and 1993, respectively. Purchases of property, plant and equipment of $9,225,000 which are included in accounts payable at June 30, 1995, are noncash in nature and therefore not reflected in the Consolidated Statements of Cash Flows. -41- NOTE 12: LINES OF BUSINESS: The Company's operations are comprised of three industry segments: the manufacture and sale of energy absorbing highway safety devices, the development, manufacture and sale of products and systems for the legal community and the manufacture and sale of compact discs. Earnings from continuing operations before income taxes are net sales less operating expenses. Interest income on corporate investments, interest expense, and certain unallocated corporate expenses have not been added or deducted from earnings before income taxes. Identifiable assets by segment are those assets that are used in the Company's operations by each industry segment. Corporate assets are principally cash and cash equivalents, and equipment. Substantially all the sales of highway safety devices are to contractors on behalf of federal, state and local government units. Substantially all of the sales of legal technologies are to the legal and court reporting professions. Approximately 58% of the compact disc segment sales are to the recording industry. The Company derived approximately 18%, 21% and 24% of consolidated net sales in 1995, 1994 and 1993 from a single customer in the compact disc segment. -42-
Dollar amounts in thousands 1995 1994 1993 -------- -------- -------- Net Sales: Highway Safety Devices..................$ 46,522 $ 43,433 $ 35,648 Legal Technolgies....................... 51,593 50,320 39,050 Compact Discs........................... 87,296 83,185 70,413 -------- -------- -------- Total.................................$185,411 $176,938 $145,111 ======== ======== ======== Earnings (Loss) from Operations Before Income Taxes: Highway Safety Devices..................$ 11,797 $ 11,906 $ 11,374 Legal Technologies...................... (7,580) (7,357) (2,833) Compact Discs........................... 8,655 15,508 11,456 -------- -------- -------- Subtotal.............................. 12,872 20,057 19,997 Unallocated Corporate.................. 610 Interest expense, net................... (3,697) (2,828) (2,738) -------- -------- -------- Total.................................$ 9,175 $ 17,839 $ 17,259 ======== ======== ======== Identifable Assets at Year-End: Highway Safety Devices..................$ 35,809 $ 26,971 $ 23,664 Legal Technologies...................... 23,989 23,486 15,343 Compact Discs........................... 97,888 62,719 60,709 Corporate............................... 12,260 9,613 10,100 -------- -------- -------- Total.................................$169,946 $122,789 $109,816 ======== ======== ======== Depreciation and Amortization Expenses: Highway Safety Devices..................$ 1,676 $ 1,421 $ 1,249 Legal Technologies...................... 4,051 4,190 2,878 Compact Discs........................... 9,732 8,300 6,645 Corporate............................... 124 126 127 -------- -------- -------- Total.................................$ 15,583 $ 14,037 $ 10,899 ======== ======== ======== Capital Expenditures: Highway Safety Devices..................$ 3,107 $ 1,433 $ 2,038 Legal Technologies...................... 3,385 5,480 1,951 Compact Discs........................... 41,115 8,033 12,170 Corporate............................... 33 6 14 -------- -------- -------- Total.................................$ 47,640 $ 14,952 $ 16,173 ======== ======== ========
-43- NOTE 13: QUARTERLY AND FINANCIAL DATA (UNAUDITED): Summarized quarterly financial date for years 1995 and 1994 follows:
Dollar amounts in thousands, except per share data. 9/30 12/31 3/31 6/30 -------- -------- -------- -------- 1995 Net sales............................$ 46,150 $ 46,959 $ 45,559 $ 46,743 Gross profit......................... 15,943 15,524 15,330 14,812 Net earnings.........................$ 2,088 $ 877 $ 1,709 $ 1,276 Earnings per share: Primary............................$ .25 $ .11 $ .21 $ .16 Fully diluted......................$ .25 $ .11 $ .21 $ .16 Dollar amounts in thousands, except per share data 9/30 12/31 3/31 6/30 -------- -------- -------- -------- 1994 Net sales............................$ 40,088 $ 42,835 $ 43,906 $ 50,109 Gross profit......................... 16,052 17,395 16,429 15,734 Net earnings.........................$ 2,439 $ 3,226 $ 2,376 $ 3,603 Earnings per share: Primary............................$ .31 $ .40 $ .29 $ .44 Fully diluted......................$ .30 $ .38 $ .29 $ .41
Item 9. Changes in and Disagreement with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosures - --------------------- None. -44- 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 under "Election of Directors" on pages 2 and 3 of the Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 16, 1995 to be filed with the Commission on or about September 30, 1995 and is incorporated herein by reference. The executive officers of the Company, their ages and offices held by each during fiscal 1994 are as follows: Philip E. Rollhaus Jr. 60 Chairman, President & Director - Quixote Corporation Chairman, Stenograph Corporation, Energy Absorption Systems, Inc., Disc Manufacturing, Inc. James H. DeVries 63 Executive Vice President and Secretary; Director President, Legal Technologies, Inc. Myron R. Shain 55 Executive Vice President - Finance President, Disc Manufacturing, Inc. George D. Ebersole 59 President, Energy Absorption Systems, Inc. Michael J. La Forte 49 President, Stenograph Corporation Mr. Rollhaus has been the President and Chief Executive Officer and a Director of the Company since its formation in July, 1969. Mr. DeVries joined the Company as Vice President in 1982. Mr. DeVries has been a Director of the Company since its formation. Mr. Shain joined the Company as Controller in April, 1972, was elected Treasurer in 1975, Vice President in 1981 and Executive Vice President - Finance in 1986. Mr. Shain was elected President of Disc Manufacturing, Inc. in May, 1990. Mr. Ebersole joined the Company as President of Energy Absorption Systems, Inc. in 1980. Mr. La Forte joined the Company as President of Stenograph Corporation in 1994. Prior to that time, Mr. La Forte was Executive Vice President of XL/Datacomp. Mr. Fitzgibbons, age 66, who was Vice Chairman of Stenograph Corporation, resigned in June 1995. There is no family relationship between any of the officers described above. Except as set forth in Item 3, 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 "Renumeration of Directors and Executive Officers" of the Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 16, 1995 to be filed with the Commission on or about September 30, 1995 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 by Certain Beneficial Owners" of the Registrant's Definitive Proxy Statement -45- for the Annual Meeting of Stockholders to be held on November 16, 1995 to be filed with the Commission on or about September 30, 1995 and is incorporated herein by reference. 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, 1995 to be filed with the Commission on or about September 30, 1995 and is incorporated herein by reference. -46- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- Item Page Number in Number This Report - ------ -------------- (a).1. Financial Statements -------------------- Report of Independent Accountants 29 Consolidated Statements of Operations for the years ended June 30, 1995, 1994, and 1993 30 Consolidated Balance Sheets as of June 30, 1995 and 1994 31 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1995, 1994, and 1993 32 Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1994, and 1993 33 Notes to Consolidated Financial Statements 34-44 (a).2. Financial Statement Schedules ----------------------------- The financial statement schedules listed under Item 14(d) are 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. (a).3. The exhibits listed under Item 14(c) are filed as part of this annual report. (b). Reports on Form 8-K ------------------- On May 11, 1995, the Company filed a report on Form 8-K dated April 27, 1995 reporting under "Item 5--Other Events," the acquisition by Energy Absorption Systems, Inc. of a 40% interest in Quantic Industries, Inc. for approximately $6.7 million and in connection therewith, also entering into an agreement with the remaining stockholders of Quantic as described therein. (c). Exhibits -------- *Management contract or compensatory plan or agreement 3.(a) Restated Certificate of Incorporation dated June 27, 1980; Certificate of Amendment to Certificate of Incorporation dated November 17, 1981; Certificate of Amendment to Certificate of Incorporation dated February 15, 1985; Certificate of Amendment to Certificate of Incorporation dated -47- February 25, 1986; and Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock dated July 27, 1988, filed as Exhibit 3(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 1991, File No. 0-7903, and incorporated herein by reference. (b) Restated By-Laws of the Company as amended through August 11, 1986, filed as Exhibit 3(b) to the Company's Form 10-K Report for the fiscal year ended June 30, 1986, File No. 0-7903, and incorporated herein by reference. 4.(a) Indenture under the Trust Indenture Act of 1939 between the Company and LaSalle National Bank dated April 15, 1986, filed as Exhibit 4(b) to the Company's Form 10-Q Report for the quarter ended March 31, 1986, File No. 0-7903, and incorporated herein by reference. (b) Rights Agreement dated as of July 15, 1988, between the Company and First National Bank of Boston, as Rights Agent, filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated July 25, 1988, File No. 0-7903, and incorporated herein by reference. 10.(a) Loan Agreement ("Loan Agreement") dated as of June 26, 1992 among the Company, Energy Absorption Systems, Inc. ("Energy"), Disc Manufacturing, Inc. ("DMI"), Stenograph Corporation ("Stenograph"), The Northern Trust Company ("Northern"), NBD Bank, N.A. ("NBD") and LaSalle National Bank ("LaSalle"); First Amendment to Loan Agreement dated as of June 30, 1992 among the Company, Energy, DMI, Discovery Products, Inc. ("Discovery") f/n/a/ Stenograph Legal Services, Inc., Spin-Cast Plastics, Inc. ("Spin- Cast") and Northern in its own right and as agent for NBD and LaSalle, filed as Exhibit 10(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 1992, File No. 0-7903, and incorporated herein by reference; Second Amendment to Loan Agreement dated as of May 28, 1993 among the Company, Energy, DMI, Stenograph, Discovery, Spin-Cast, and Northern in its own right and as agent for NBD and LaSalle, filed as Exhibit 10(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, File No. 0-7903, and incorporated herein by reference; Third Amendment to Loan Agreement dated as of June 26, 1993 among the Company, Energy, DMI, Stenograph, Discovery, Spin-Cast, Composite Components, Inc. ("CCI"), Court Technologies, Inc. ("CTI") and Northern in its own right and as agent for NBD and LaSalle, filed as Exhibit 10(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, File No. 0-7903, and incorporated herein by reference; Fourth Amendment to Loan Agreement dated as of May 31, 1994 among the Company, Energy, DMI, Legal Technologies, Inc. ("LTI"), Stenograph, Discovery, Spin-Cast, CTI, CCI, Integrated Information Services, Inc. ("IIS"), Litigation Sciences, Inc. ("LSI"), Safe-Hit Corporation ("Safe-Hit") and Northern in its own right and as agent for NBD and LaSalle, filed as Exhibit 10(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 1994, File No. 0- 7903, and incorporated herein by reference; Fifth Amendment to Loan Agreement dated as of December 1, 1994 by and among the Company, Energy, DMI, Stenograph, LTI, Discovery, Spin-Cast, CTI, CCI, IIS, LSI, Safe-Hit and Northern in its own right and as agent for NBD and LaSalle, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended December 31, 1994, File No. 0-7903, and incorporated herein by reference; Sixth Amendment to Loan Agreement dated as of April 3, 1995 by and among the Company, Energy, DMI, LTI, Stenograph, Discovery, Spin-Cast, CTI, CCI, IIS, LSI, Safe-Hit and Northern in its own right and as agent for NBD and LaSalle, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended March 31, 1995, File No. 0-7903, and incorporated herein by reference; Revolving Credit Note dated May 31, 1994, from the Company, Energy, DMI, LTI, Stenograph, Discovery, Spin-Cast, CCI, CTI, IIS, LSI and Safe-Hit to The Northern; Revolving Credit Note dated May 31, 1994 from the Company, Energy, DMI, LTI, Stenograph, Discovery, Spin-Cast, CCI, CTI, IIS, LSI and Safe-Hit to -48- LaSalle; Revolving Credit Note dated May 31, 1994 from the Company, Energy, DMI, LTI, Stenograph, Discovery, Spin-Cast, CCI, CTI, IIS, LSI and Safe-Hit to NBD, filed as Exhibit 10(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 1994, File No. 0-7903, and incorporated herein by reference; Term Loan Agreement dated as of August 4, 1995 by and among the Company, Energy, DMI, Stenograph, LTI, Discovery, Spin-Cast, CTI, CCI, IIS, LSI, Safe-Hit and Northern in its own right and as agent for NBD and LaSalle, filed herewith; Term Note dated as of August 4, 1995 from the Company, Energy, DMI, Stenograph, LTI, Discovery, Spin-Cast, CTI, CCI, IIS, LSI and Safe-Hit to NBD; Term Note dated as of August 4, 1995 from the Company, Energy, DMI, Stenograph, LTI, Discovery, Spin-Cast, CTI, CCI, IIS, LSI and Safe-Hit to LaSalle, all filed herewith; Guaranty Agreement by and between DMI and First Alabama Bank dated as of March 1, 1993, filed as Exhibit 10(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, File No. 0-7903, and incorporated herein by reference. (b) Agreements regarding conditional sales and lease financing arrangements between the Company, Stenograph and the Continental Illinois National Bank and Trust Company of Chicago, dated February 21, 1980, filed as Exhibit 10(c) to S-7 Registration Statement No. 2-70372, and incorporated herein by reference; Guaranty dated May 31, 1982 and Agreement dated May 31, 1982 between the same parties, filed as Exhibit 10(d) to the Company's Form 10-K Report for the fiscal year ended June 30, 1982, File No. 0-7903, and incorporated herein by reference; and Letter Agreement between Stenograph and Sanwa Business Credit Corporation (the successor to the rights of Continental Illinois Bank and Trust Company under the above agreements) dated June 30, 1985 ("Sanwa Letter Agreement"), filed as Exhibit 10(b) to the Company's S-2 Registration Statement No. 33- 4489 ("S-2 No. 33-4489"), and incorporated herein by reference; First Amendment dated June 26, 1986 and Second Amendment dated May 29, 1990 to Sanwa Letter Agreement, filed as Exhibit 10(b) to the Company's Form 10-K Report for the fiscal year ended June 30, 1990, File No. 0-7903, and incorporated herein by reference; Fourth Amendment dated January, 1991 to Sanwa Letter Agreement, filed as Exhibit 10(b) to the Company's Form 10-K Report for the fiscal year ended June 30, 1991, File No. 0-7903, and incorporated herein by reference; Amended Schedule A to Sanwa Letter Agreement dated January 23, 1992, filed as Exhibit 10(b) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, File No. 0-7903, and incorporated herein by reference; Fifth Amendment to Sanwa Letter Agreement dated as of August 1, 1994 and Rider to Sanwa Letter Agreement dated October 28, 1994, filed as Exhibit 10(b) to the Company's Form 10-Q Report for the quarter ended December 31, 1994, File No. 0-7903 and incorporated herein by reference. (c)* 1981 Employee Incentive Stock Option Plan, as amended through June 3, 1988, filed as Exhibit 4.4 to the Company's Form S-8 Registration Statement No. 33-22289, and incorporated herein by reference; Amendment dated February 12, 1989 to the Employee Incentive Stock Option Plan, filed as Exhibit 10(c) to the Company's Form 10-K Report for the fiscal year ended June 30, 1989, File No. 0-7903, and incorporated herein by reference. (d)* 1991 Incentive Stock Option Plan, filed as Exhibit 4(a) to the Company's S-8 Registration Statement No. 33-50428, and incorporated herein by reference. (e)* Restated 1972 Director Stock Option Plan, as amended through June 3, 1988, filed as Exhibit 4.3 to the Company's S-8 Registration Statement No. 33-22289, and incorporated herein by reference; Amendment dated February 12, 1989 to the Restated Director Stock Option Plan, filed as Exhibit 10(d) to the Company's Form 10-K Report for the fiscal year ended June 30, 1989, File No. 0-7903, and incorporated herein by reference. -49- (f)* 1991 Director Stock Option Plan, filed as Exhibit 4(b) to the Company's S-8 Registration Statement No. 33-50428, and incorporated herein by reference. (g)* 1993 Long-Term Stock Ownership Incentive Plan, filed as Exhibit 4(a) to the Company's S-8 Registration Statement No. 33- 74488, and incorporated herein by reference. (h) Lease Agreement between the Company and United Insurance Company of America dated July 2, 1993, filed as Exhibit 10(j) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, File No. 0-7903, and incorporated herein by reference; Lease Amendment between the Company and United Insurance Company of America dated as of May 17, 1994, filed as Exhibit 10(h) to the Company's Form 10-K Report for the fiscal year ended June 30, 1994, File No. 0-7903, and incorporated herein by reference; Agreement of Lease dated March 21, 1988 between Opus North Corporation, as landlord, and Stenograph, as tenant, filed as Exhibit 10.1 to the Company's Form 10-Q Report for the quarter ended March 31, 1988, File No. 0-7903, and incorporated herein by reference; Amended and Restated Lease Agreement dated as of September 1, 1987 by and between the Industrial Development Board of the City of Huntsville, Alabama, (the "Board") and LaserVideo, Inc. (now known as Disc Manufacturing Inc. ("DMI")), filed as Exhibit 10(g) to the Company's Form 10-K Report for the fiscal year ended June 30, 1990, File No. 0-7903, and incorporated herein by reference; Series 1991 Amendment to Lease Agreement dated as of April 1, 1991 by and between DMI and the Board, filed as Exhibit 10(i) to the Company's Form 10-K Report for the fiscal year ended June 30, 1991, File No. 0-7903, and incorporated herein by reference; Series 1993 Amendment to Lease Agreement dated as of March 1, 1993 by and between DMI and the Board and Financing Statement, filed as Exhibit 10(j) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, and incorporated herein by reference; Lease Agreement between CompuLitS, Inc. and Meridian Mile Associates, L.P. for lease term commencing May 1, 1992, filed as Exhibit 10(j) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, File No. 0-7903, and incorporated herein by reference; Lease Agreement as amended between Litigation Sciences, Inc./LSI Graphic Evidence and Bailey Tarrytown Associates dated September 28, 1989, Office Building Lease Agreement between Stenograph Corporation and BGT Limited dated November 16, 1993, Office Lease between Amberjack, Ltd. and Litigation Sciences, Inc. dated July 2, 1990, Lease Agreement between Coventry Fund III, Ltd. and Litigation Sciences, Inc. dated July 30, 1990, all filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended December 31, 1993, File No. 0-7903 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. 0-7903, and incorporated herein by reference. (i)* Employment agreements dated as of June 24, 1991 between the Company and each of Messrs. Philip E. Rollhaus, James H. DeVries and Myron R. Shain, filed as Exhibit 10(k) to the Company's Form 10- K Report for the fiscal year ended June 30, 1991, File No. 0-7903, and incorporated herein by reference; Key Employee Severance Agreement between the Company and George D. Ebersole; Trust Agreement dated March 3, 1989 between the Company and The Northern Trust Company, as trustee, filed as Exhibits 28.4 and 28.5, respectively, to the Company's Form 8-K Report dated April 14, 1989, and incorporated herein by reference; Amendment to Trust Agreement dated November 9, 1989, filed as Exhibit 10(j) to the Company's Form 10-K Report for the fiscal year ended June 30, 1990, File No. 0- 7903, and incorporated herein by reference; Amendment to Trust Agreement dated as of June 13, 1991, filed as Exhibit 10(k) to the Company's Form 10-K Report for the fiscal year ended June 30, 1991, File No. 0-7903, and incorporated -50- herein by reference; Key Employee Severance Agreement dated June 1, 1994 by and between the Company and Michael J. La Forte, Jr.,and Letter Agreement dated April 27, 1994 between Stenograph and Michael J. La Forte, Jr., filed as Exhibit 10(i) to the Company's Form 10-K Report for the fiscal year ended June 30, 1994, File No. 0-7903, and incorporated herein by reference. (j) Summary Plan Description for the Incentive Savings Plan of the Company Amended and Restated to Reflect Provisions Effective July 1, 1993, filed as Exhibit 10(j) to the Company's Form 10-K Report for the fiscal year ended June 30, 1994, File No. 0-7903, and incorporated herein by reference. (k) Memorandum of Agreement between Philip E. Rollhaus and the Company dated as of January 24, 1986, filed as Exhibit 10(p) to Amendment No. 1 to the Company's S-2 No. 33-4489, and incorporated herein by reference; Agreements between the Company, Philip E. Rollhaus and Yukio Endo dated May 5, 1986, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended March 31, 1986, File No. 0-7903, and incorporated herein by reference. (l) Assignment Agreement between Quick-Steel Engineering Pty. Limited and Energy Absorption Systems, Inc. for the assignment of certain patents and related invention dated November 21, 1989, filed as Exhibit 10(n) to the Company's Form 10-K Report for the fiscal year ended June 30, 1990, File No. 0-7903, and incorporated herein by reference. (m) Asset Purchase Agreement between Stenograph Corporation and CompuLitS, Inc. dated July 20, 1993, filed as Exhibit 10(q) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, File No. 0-7903, and incorporated herein by reference. (n) Stock Purchase Agreement dated December 3, 1993 by and among Energy Absorption Systems, Inc., and Robert Cunningham and Gene Arthur, filed as Exhibit 10(b) to the Company's Form 10-Q Report for the quarter ended December 31, 1993, File No. 0-7903, and incorporated herein by reference. (o) Asset Purchase Agreement by and among Litigation Sciences, Inc., Saatchi & Saatchi Company PLC, Stenograph Corporation and Quixote Corporation dated as of December 13, 1993 filed as Exhibit 10(c) to the Company's Form 10-Q Report for the quarter ended December 31, 1993, File No. 0-7903, and incorporated herein by reference. (p) Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate dated as of April 5, 1994 by and between Disc Manufacturing, Inc. and Rockwell International Corporation, as amended; Disposition and Development Agreement dated August 30, 1994 by and among The Anaheim Redevelopment Agency, the City of Anaheim and Disc Manufacturing, Inc., filed as Exhibit 10(p) to the Company's Form 10-K Report for the fiscal year ended June 30, 1994, File No. 0-7903, and incorporated herein by reference. (q) Agreement between Quantic Industries, Inc. ("Quantic), Quantic Holdings, L.L.C., James S. Fetherston, Charles G. Davis, Jr., individually and as trustee, Robert M. Valenti, William David Fahey, Craig Bambrough, Myles H. Kitchen, Kenneth E. Willis, Robert P. Coler and Energy Absorption Systems, Inc. dated April 12, 1995; Purchase Agreement between Charterhouse Equity Partners, L.P., Northern & Midland Nominees Limited, George Sbordone and Energy Absorption Systems, Inc. dated April 3, 1995; and Surviving Stockholders Agreement between Quantic, James S. Fetherston, Charles G. Davis, Jr., individually and as trustee, Robert M. Valenti, William David Fahey, Craig Bambrough, Myles H. Kitchen, Kenneth E. Willis, Robert P. -51- Coler and Energy Absorption Systems, Inc. dated April 1995, filed as Exhibits 10(b), 10(c) and 10(d), respectively, to the Company's Form 10-Q Report for the quarter ended March 31, 1995, File No. 0-7903, and incorporated herein by reference. 11. Statement regarding computation of earnings per share 21. Subsidiaries of the Company 23. Consent of Coopers & Lybrand, L.L.P. as Independent Certified Public Accountants 27. Financial Data Schedule (d) Schedules: --------- II - Valuation and Qualifying Accounts and Reserves -52- 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 27, 1995 By: /s/Philip E. Rollhaus, Jr. -------------------------- -------------------------------- Philip E. Rollhaus Jr., President 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/Philip E. Rollhaus Jr. - --------------------------- Chairman and President, Director September 27, 1995 Philip E. Rollhaus Jr. (Chief Executive Officer) /s/Myron R. Shain - --------------------------- Executive Vice President-Finance September 27, 1995 Myron R. Shain (Chief Accounting and Financial Officer) /s/James H. DeVries - --------------------------- Executive Vice President and September 27, 1995 James H. DeVries Secretary, Director /s/William G. Fowler - --------------------------- Director September 27, 1995 William G. Fowler /s/Lawrence C. McQuade - --------------------------- Director September 27, 1995 Lawrence C. McQuade /s/David S. Ruder - --------------------------- Director September 27, 1995 David S. Ruder /s/Robert D. van Roijen Jr. - --------------------------- Director September 27, 1995 Robert D. van Roijen Jr.
-53- QUIXOTE CORPORATION & SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the years ended June 30, 1995, 1994, and 1993
Column A Column B Column C(1) Column C(2) Column D Column E - -------- -------- ----------- ----------- -------- --------- Additions Balance at Charged to Balance at Beginning of Costs and Other End of Description Period Expenses Additions Deductions Period - ----------- ------------ ---------- ----------- ---------- ---------- Deducted from Receivables: Allowance for Doubtful Accounts: Year ended June 30, 1995 $2,765,000 $ 955,000 $ 0 $ 982,000 $2,738,000 ========== ========== ========== ========== ========== Year ended June 30, 1994 $2,488,000 $1,222,000 $ 247,000 $1,192,000 $2,765,000 ========== ========== ========== ========== ========== Year ended June 30, 1993 $2,469,000 $ 999,000 $ 0 $ 980,000 $2,488,000 ========== ========== ========== ========== ==========
NOTES: (a) Column D represents accounts written off as uncollectable, net of collections on accounts previously written off. (b) Column C(2) relates to the Company's acquisition of Integrated Information Services, Litigation Sciences and Safe-Hit Corporation. -54- EXHIBIT INDEX EXHIBIT NUMBER EXHIBITS - ---------------------------- ----------------------------------------------- 10(a) TERM LOAN AGREEMENT DATED AS OF AUGUST 4, 1995. 10(a) TERM NOTE AGREEMENT DATED AS OF AUGUST 4, 1995. 11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE. 21 SUBSIDIARIES OF THE COMPANY. 23 CONSENT OF COOPERS & LYBRAND LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. 27 FINANCIAL DATA SCHEDULE. -55- EX-10.(A) 2 EXHIBIT 10(A) TERM LOAN AGREEMENT ------------------- TERM LOAN AGREEMENT, dated as of August 4, 1995, among QUIXOTE CORPORATION, a Delaware corporation ("Quixote"), and its subsidiaries signatory below, each having an office at One East Wacker Drive, Chicago, Illinois 60601 (the "Borrowers"), the lenders ("Lenders") signatory below, and THE NORTHERN TRUST COMPANY, an Illinois banking corporation having an office at Fifty South LaSalle Street, Chicago, Illinois 60675 ("Northern"), as agent for the Lenders (Northern, in such capacity, being "Agent"). RECITALS -------- WHEREAS, the Borrowers desire that the Lenders make a $10,000,000 term loan to the Borrowers to finance their short term capital expenditure needs; and WHEREAS, the Lenders desire to provide such loan to the Borrowers on the terms set forth herein. NOW, THEREFORE, the Borrowers, the Lenders and the Agent hereby agree as follows: SECTION 1; LOAN; INTEREST ------------------------ Section 1.1 LOAN; NOTES. (a) Subject to the terms and conditions of this Agreement, the Lenders hereby agree to lend to the Borrowers, and the Borrowers agree, jointly and severally, to borrow from the Lenders, on the date hereof, the sum of Ten Million and 00/00 Dollars ($10,000,000.00) (the "Loan"). The amount of the Loan to be made by each Lender is set forth next to such Lender's name on the signature pages hereto. (b) The Loan shall be evidenced by promissory notes (the "Notes"), substantially in the form of Exhibit A, with appropriate insertions, dated the date hereof, payable to the order of each Lender, and in the original principal amount of the portion of the Loan made by such Lender. The Loan shall be due and payable in full on November 30, 1995. Section 1.2 INTEREST. The unpaid principal from time to time outstanding under the Notes shall bear interest at the following rates per year: (a) before maturity of the Loan, whether by acceleration or otherwise, at the option of the Borrowers subject to the terms hereof at a rate equal to: (i) "LIBOR," which shall mean that fixed rate of interest per year for deposits with maturity periods of 1, 2, or 3 months (which maturity period the Borrowers shall select subject to the terms stated herein) in United States dollars offered to the Agent in or through the London interbank market at or about 11:00 A.M., London time, three days (during which banks are generally open in both Chicago and London) before the rate is to take effect in an amount corresponding to the amount of the requested advance ("advance" referring to the Loan or portion thereof) and for the London deposit maturity requested, DIVIDED BY one minus any applicable reserve requirement (expressed as a decimal) on Eurodollar deposits of the same amount and maturity as determined by the Agent in its sole discretion, plus one and five-eighths percent (1.625%); or (ii) the "PRIME RATE," which shall mean that rate of interest per year announced from time to time by Agent called its prime rate, which rate at any time may not be the lowest rate charged by Agent. Changes in the rate of interest on the Loan resulting from a change in the Prime Rate shall take effect on the date set forth in each announcement for a change in the Prime Rate; and (b) after the maturity of the Loan, until paid, at a rate equal to 2% in addition to the Prime Rate (as hereinabove defined)(but not less than the Prime Rate in effect at maturity). (c) Notwithstanding anything to the contrary set forth in this Section 1.2, if at any time until payment in full of the Loan the interest rate calculated pursuant to the foregoing paragraphs of this Section 1.2 (the "Stated Rate") exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in such event and so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; PROVIDED, HOWEVER, that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, the Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by the Lenders from the making of advances hereunder is equal to the total interest which the Lenders would have received had the Stated Rate been (but for the operation of this Section 1.2(c)) the interest rate payable since the date hereof. Thereafter, the interest rate payable hereunder shall be the Stated Rate unless and until the Stated Rate again exceeds the Maximum Lawful Rate, in which event this paragraph shall again apply. In no event shall the total interest received by the Lenders pursuant to the terms hereof exceed the amount which the Lenders could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. In the event that a court of competent jurisdiction, -2- notwithstanding the provisions of this Section 1.2(c) shall make a final determination that the Lenders have received interest hereunder in excess of the Maximum Lawful Rate, the Lenders shall, to the extent permitted by applicable law, promptly apply such excess first to any interest due and not yet paid under the Loan, then to any due and payable principal of the Loan. Section 1.3 RATE SELECTION. The Borrowers shall select and change their selection of the interest rate as between LIBOR and the Prime Rate to apply to any portion of the Loan of at least $l00,000, an integral multiple thereof or the total amount of the Loan, subject to the requirements herein stated: (a) At the time the Loan is made; (b) At the expiration of the particular LIBOR maturity period selected for the outstanding principal balance of any advance currently bearing interest at LIBOR; and (c) At any time for the outstanding principal balance of any advance currently bearing interest at the Prime Rate. Section 1.4 RATE CHANGES AND NOTIFICATIONS. (a) LIBOR. If the Borrowers wish to borrow any portion of the Loan initially at LIBOR (including the making of the Loan on the date hereof), or if the Borrowers wish to change the rate of interest on any advance, within the limits described above, from the Prime Rate to LIBOR, Quixote shall, not less than three banking days prior to the banking day on which such rate is to take effect, give the Agent written or telephonic notice thereof, which shall be irrevocable. Such notice shall specify the amount of the Loan to which LIBOR is to apply, and, in addition, the desired LIBOR maturity period of one, two, or three months. (b) FAILURE TO NOTIFY. If the Borrowers do not notify the Agent at the expiration of a selected maturity period with respect to any principal outstanding at LIBOR, then in the absence of such notice the Borrowers shall be deemed to have elected to have such principal accrue interest after the respective LIBOR maturity period at the Prime Rate. Section 1.5 INTEREST PAYMENT DATES. Accrued interest shall be paid in respect of each portion of principal to which the Prime Rate applies on September 30, 1995, at maturity, and upon payment in full, and to each portion of principal to which LIBOR applies, the earlier or more frequent of the end of each respective maturity period for such portion or every three months, at maturity, and upon payment in full. If any such payment of interest at LIBOR falls due on a day when the Agent is not open in both Chicago and London, payment shall be made on the next day the Lender is open in both Chicago and London; however, if such day would be in -3- the following month, such interest shall be paid on the last day the Agent is open in both Chicago and London in the month when the interest payment is due. After maturity of any installment, interest shall be payable upon demand. Interest shall be calculated on the basis of a 360 day year for the actual number of days elapsed. Section 1.6 ADDITIONAL PROVISIONS WITH RESPECT TO LIBOR. The selection by the Borrowers of LIBOR and the maintenance of any portion of the Loan at such rate shall be subject to the following additional terms and conditions: (a) AVAILABILITY OF DEPOSITS AT A DETERMINABLE RATE. If, after the Borrowers have elected to borrow or maintain any advance at LIBOR, the Agent notifies Borrowers that: (i) United States dollar deposits in the amount and for the maturity requested are not available to the Agent in the London interbank market, or (ii) Reasonable means do not exist for the Agent to determine LIBOR for the amount and maturity requested, all as determined by the Agent in its sole discretion, then the principal subject to LIBOR shall accrue or shall continue to accrue interest at the Prime Rate. (b) PROHIBITION OF MAKING, MAINTAINING, OR REPAYMENT OF PRINCIPAL AT LIBOR. If any treaty, statute, regulation, interpretation thereof, or any directive, guideline, or otherwise by a central bank or fiscal authority (whether or not having the force of law) shall either prohibit or extend the time at which any principal subject to LIBOR may be purchased, maintained, or repaid, all as determined by the Agent in its sole discretion, then on and as of the date the prohibition becomes effective, the principal subject to that prohibition shall continue at the Prime Rate. (c) PAYMENTS OF PRINCIPAL AND INTEREST TO BE NET OF ANY TAXES OR COSTS. All payments of principal and interest shall be made net of any taxes and costs incurred by the Lenders resulting from having principal outstanding hereunder at LIBOR, as determined by the Agent in its sole discretion. Without limiting the generality of the preceding obligation, illustrations of such taxes and costs are: (i) Taxes (or the withholding of amounts for taxes) of any nature whatsoever including income, excise, and interest equalization taxes (other than income taxes imposed by the United States or any state thereof on the income of the Lenders), as well as all levies, imposts, duties, or fees whether now in existence or resulting from a change in, or promulgation of, any treaty, statute, regulation, interpretation thereof, or any directive, guideline, or -4- otherwise, by a central bank or fiscal authority (whether or not having the force of law) or a change in the basis of, or time of payment of, such taxes and other amounts resulting therefrom; (ii) Any reserve or special deposit requirements (other than any included within the definition of LIBOR set forth hereinabove) against assets or liabilities of, or deposits with or for the account of, the Lenders with respect to principal outstanding at LIBOR (including those imposed under Regulation D of the Federal Reserve Board) or resulting from a change in, or the promulgation of, such requirements by treaty, statute, regulation, interpretation thereof, or any directive, guideline, or otherwise by a central bank or fiscal authority (whether or not having the force of law); (iii) Any other costs resulting from compliance with treaties, statutes, regulations, interpretations, or any directives or guidelines, or otherwise by a central bank or fiscal authority (whether or not having the force of law); (iv) Any loss (including loss of anticipated profits) or expense incurred by reason of the liquidation or re-employment of deposits acquired by the Lenders to make advances or maintain principal outstanding at LIBOR: (A) As the result of a voluntary prepayment at a date other than the maturity date selected for principal outstanding at LIBOR; or (B) As the result of a mandatory repayment at a date other than the maturity date selected for principal outstanding at LIBOR as a result of the Loan maturing or as the result of the occurrence of an Event of Default and the acceleration of any portion of the indebtedness hereunder; or (C) As the result of a prohibition on making, maintaining, or repaying principal outstanding at LIBOR. If any Lender incurs any such taxes or costs, the Borrowers, upon demand in writing specifying such taxes and costs, shall promptly pay them; save for manifest error such Lender's specification shall be presumptively deemed correct. All advances made or carried at LIBOR shall be conclusively deemed to have been funded by or on behalf of Lenders in the London interbank market by the purchase of deposits corresponding in amount and maturity to the amount and interest periods selected (or deemed to have been selected) by Borrowers hereunder. -5- Section 1.7 PAYMENT AND PREPAYMENT. The Borrowers may from time to time, upon at least three (3) days written notice to the Agent, prepay any principal bearing interest at the Prime Rate in whole or in part at any time and may prepay any amounts bearing interest at LIBOR at the end of the maturity period chosen or deemed elected by the Borrowers applicable to the Loan or portion of the Loan being prepaid, without premium or penalty; provided that any partial prepayment shall be in an aggregate principal amount of at least $10,000. Any prepayment of an amount bearing interest at LIBOR at a date other than the maturity date applicable to the Loan or the portion of the Loan being prepaid shall be subject to the provisions of Section 1.6. All prepayments of principal shall include interest accrued to the date of prepayment on the principal amount being prepaid. Section 1.8 SHARING OF PAYMENTS, ETC. (a) If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loan made by it hereunder in excess of the sum of its ratable share of payments on account of the Loan made by all Lenders hereunder, such Lender shall forthwith purchase from each other Lender such participations in the Loan as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each other Lender; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrowers agree that any Lender so purchasing a participation from another Lender pursuant to this Section 1.8 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrowers in the amount of such participation. (b) If, after an acceleration of the Loan, any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loan made by it hereunder or the loans made by it under the Previous Agreement in excess of its ratable share of the Loan and the loans made by all Lenders under the Previous Agreement, such Lender shall forthwith purchase from each other Lender such participations in the Loan or the loans made under the Previous Agreement as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each other Lender; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase -6- from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrowers agree that any Lender so purchasing a participation from another Lender pursuant to this Section 1.8 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrowers in the amount of such participation. Section 1.9 INDEMNITY. Each Borrower hereby indemnifies Agent, the Lenders, and their respective directors, officers, employees, Affiliates and agents (collectively, "Indemnified Persons") against, and agrees to hold each such Indemnified Person harmless from, any and all losses, claims, damages and liabilities, including claims brought by any stockholder or former stockholders of the Borrowers, and related expenses, including reasonable counsel fees and expenses, incurred by such Indemnified Person arising out of any claim, litigation, investigation or proceeding (whether or not such Indemnified Person is a party thereto) relating to this Agreement, the Notes or the Agent's or the Lenders' involvement therein or herein; PROVIDED, HOWEVER, that such indemnity shall not apply to any such losses, claims, damages, or liabilities or related expenses determined by a court of competent jurisdiction to have arisen from the gross negligence, or willful misconduct of such Indemnified Person. If any litigation or proceedings is brought against any Indemnified Person in respect of which indemnity may be sought against the Borrowers pursuant to this Section 1.9, such Indemnified Person shall promptly notify the Borrowers in writing of the commencement of such litigation or proceedings, but the omission so to notify the Borrowers shall not relieve the Borrowers from any other obligation or liability which it may have to any Indemnified Person otherwise than under this Section 1.9. Failure of the Indemnified Person to timely notify the Borrowers of the commencement of such litigation or proceeding shall not relieve the Borrowers of their obligations under this Section 1.9, except where such failure irrevocably prejudices the Borrowers' ability to defend such litigation or proceedings and to hold such Indemnified Person harmless therefrom. In case any such litigation or proceeding shall be brought against any Indemnified Person and such Indemnified Person shall notify the Borrowers of the commencement of such litigation or proceeding, the Borrowers shall be entitled to participate in such litigation or proceeding and, after written notice from the Borrowers to such Indemnified Person, to assume the defense of such litigation or proceeding with counsel of their choice at their expense, provided that such counsel is satisfactory to the Indemnified Person in the exercise of its reasonable judgment. Notwithstanding the election of the -7- Borrowers to assume the defense of such litigation or proceeding, such Indemnified Person shall have the right to employ separate counsel and to participate in the defense of such litigation or proceedings, and the Borrowers shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the Borrowers to represent such Indemnified Person would present such counsel with a conflict of interest; (ii) the defendants in, or targets of, any such litigation or proceeding include both an Indemnified Person and the Borrowers, and such Indemnified Person shall have reasonably concluded that there may be legal defenses available to it which are different from or additional to those available to the Borrowers (in which case the Borrowers shall not have the right to direct the defense of such action on behalf of the Indemnified Person); (iii) the Borrowers shall not have employed counsel satisfactory to such Indemnified Person in the exercise of the Indemnified Person's reasonable judgment to represent such Indemnified Person within a reasonable time after notice of the institution of such litigation or proceeding; or (iv) the Borrowers shall authorize such Indemnified Person to employ separate counsel at the expense of the Borrowers, PROVIDED that the Borrowers shall not be liable for the fees, costs and expenses of more than one separate counsel at the same time for all such Indemnified Persons in connection with the same action and any separate but substantially similar or related action in the same jurisdiction. The Borrowers shall not consent to the entry of any judgment or enter into any settlement in any such litigation or proceeding unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of a release from all liability in respect to such claim or litigation. The agreements of the Borrowers in this Section 1.9 shall be in addition to any liability that any Borrower may otherwise have. All amounts due under this Section 1.9 shall be payable as incurred upon written demand therefor. Section 1.10 JOINT AND SEVERAL OBLIGATIONS; CROSS GUARANTY. Each Borrower hereby acknowledges and agrees that such Borrower is jointly and severally liable for, and hereby absolutely and unconditionally guarantees to each other Borrower and the Lenders the full and prompt payment of the Loan. SECTION 2 PAYMENTS AND PREPAYMENTS ---------------------------------- Section 2.1 FUNDS. All payments and prepayments of principal, interest, and other amounts shall be made in immediately available funds to the Agent at its main banking office at 50 South LaSalle Street, Chicago, Illinois. Upon receipt from Borrowers of good funds, Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal and interest to the Lenders in proportion to the respective principal amount of the Loan held by such Lender. -8- SECTION 3 REPRESENTATIONS AND WARRANTIES ---------------------------------------- To induce the Lenders to make the Loan, the Borrowers represent and warrant to the Lenders that: Section 3.1 PREVIOUS AGREEMENT. The representations and warranties set forth in Section 4 of the Previous Agreement are true, correct and complete on the date hereof as if made on and as of the date hereof and that there exists no Default or Event of Default on the date hereof under the Previous Agreement. Section 3.2 AUTHORIZATION. The execution and delivery by each Borrower of this Agreement has been duly authorized by proper corporate proceedings of each Borrower and this Agreement constitutes a valid and binding obligation of each Borrower. Section 3.3 CONFLICT. Neither the execution and delivery by each Borrower of this Agreement, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on any Borrower or any Borrower's articles or certificate of incorporation or bylaws or the provisions of any indenture, instrument or agreement to which any Borrower is a party or is subject, or by which it or its property, is bound, or conflict with or constitute a default thereunder. SECTION 4 COVENANTS ------------------- Until all obligations of the Borrowers hereunder are paid and fulfilled in full, the Borrowers agree that they shall, and shall cause each subsidiary to, comply with the terms of Sections 5, 6 and 7 of the Previous Agreement. SECTION 5 CONDITIONS OF LENDING ------------------------------- The obligation of the Lenders to make the Loan is subject to the following conditions precedent: Section 5.1 DOCUMENTATION. The Agent shall have received all of the following, each duly executed and dated the date of the Loan, in form and substance satisfactory to the Agent and its counsel, at the expense of the Borrowers, and in such number of signed counterparts as the Agent may request (except for the Notes, of which only the originals shall be signed): (a) NOTES. The Notes; (b) RESOLUTIONS. A copy of a resolution of the Board of Directors of each Borrower authorizing or ratifying the execution, delivery and performance, respectively, of this -9- Agreement, the Notes and the other documents provided for in this Agreement, certified by the Secretary of each Borrower; (c) CERTIFICATE OF INCUMBENCY. A certificate of the Secretary of each Borrower certifying the names of the officer or officers of such Borrower authorized to sign this Agreement, the Notes and the other documents provided for in this Agreement, together with a sample of the true signature of each such officer (the Lenders may conclusively rely on such certificate until formally advised by a like certificate of any changes therein); (d) OPINION OF COUNSEL TO THE BORROWER. An opinion of in-house counsel to each Borrower to such effect as the Agent may require; and (e) MISCELLANEOUS. Such other documents and certificates as the Agent may request. SECTION 6 DEFAULT ----------------- SECTION N 6.1 EVENTS OF DEFAULT. Each of the following occurrences is hereby defined as an "Event of Default": (a) NONPAYMENT. The Borrowers shall fail to make any payment of principal, interest, or other amounts payable hereunder or under the Notes (i) in the case of principal payments, within three (3) days of the due date of such amounts and (ii) in the case of interest and other payments, within five (5) days of the due date of such amounts; or (b) DEFAULT UNDER RELATED DOCUMENTS. Any default, event of default, or similar event shall occur or continue under any instrument, document, note, agreement, or guaranty delivered to the Lenders in connection with the Loan, or any such instrument, document, note, agreement, or guaranty shall not be, or shall cease to be, enforceable in accordance with its terms; or (c) CROSS-DEFAULT. There shall occur any "Default" or "Event of Default" under the Previous Agreement; or (d) NONCOMPLIANCE WITH THIS AGREEMENT. The Borrowers shall fail to comply with any provision hereof, which failure does not otherwise constitute an Event of Default hereunder, and such failure shall continue for fifteen days after notice thereof to the Borrowers by the Agent or any other holder of the Notes; or (e) BANKRUPTCY. Any bankruptcy, insolvency, reorganization, arrangement, readjustment, liquidation, dissolution, or similar proceeding, domestic or foreign, is instituted by or against any Borrower or any subsidiary, or any Borrower or any subsidiary shall take any step toward, or to authorize, such a proceeding; or -10- (f) INSOLVENCY. Any Borrower or any subsidiary shall become insolvent, generally shall fail or be unable to pay its debts as they mature, shall admit in writing its inability to pay its debts as they mature, shall make a general assignment for the benefit of its creditors, shall enter into any composition or similar agreement, or shall suspend the transaction of all or a substantial portion of its usual business. SECTION 6.2 REMEDIES. Upon the occurrence of any Event of Default set forth in subsections (a)-(d) of Section 6.1 and during the continuance thereof, the Agent or any holder of the Notes may declare the Notes and any other amounts owed to the Lenders to be immediately due and payable, whereupon the Notes and any other amounts owed to the Lenders shall forthwith become due and payable. Upon the occurrence of any Event of Default set forth in subsections (e)-(f) Section 6.1, the Notes and any other amounts owed to the Lenders shall be immediately and automatically due and payable without action of any kind on the part of the Lenders or any other holder of the Notes. The Borrowers expressly waive presentment, demand, notice or protest of any kind in connection herewith. The Agent shall promptly give the Borrowers notice of any such declaration, but failure to do so shall not impair the effect of such declaration. No delay or omission on the part of the Lenders or any holder of the Notes in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any Event of Default or any acquiescence therein, nor shall any single or partial exercise of any power or right hereunder preclude other or further exercise thereof, or the exercise of any other power or right. SECTION 7 DEFINITIONS --------------------- SECTION 7.1 GENERAL. As used herein: (a) The term "affiliate" means any corporation of which any Borrower owns directly or indirectly 20% or more, but less than 50%, of the outstanding voting stock, or any partnership, joint venture, trust or other legal entity of which such Borrower has effective control, by contract or otherwise. (b) The term "subsidiary" means any corporation, partnership, joint venture, trust, or other legal entity of which any Borrower owns directly or indirectly 50% or more of the outstanding voting stock or interest, or of which such Borrower has effective control, by contract or otherwise. (c) The term "Unmatured Event of Default" means an event or condition which would become an Event of Default with notice or the passage of time or both. -11- (d) The term "Previous Agreement" shall mean that certain Loan Agreement among the Agent, the Lenders and the Borrowers dated June 26, 1992, as amended. (e) The term "Required Lenders" shall mean, as of any date, the holders of Notes evidencing 100% of the sum of the aggregate unpaid principal amount of the Notes. (f) The term "business day" has the meaning given to it in the Previous Agreement and the term "banking day" shall have the same meaning as "business day." (g) Except as and unless otherwise specifically provided herein, all accounting terms in this Agreement shall have the meanings given to them by generally accepted accounting principles. SECTION 7.2 APPLICABILITY OF SUBSIDIARY AND AFFILIATE REFERENCES. Terms hereof pertaining to any subsidiary or affiliate shall apply only during such times as such Borrower has any subsidiary or affiliate. SECTION 8 THE AGENT SECTION 8.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes the Agent to take such action on its behalf and to exercise such powers under this Agreement, as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders; PROVIDED, HOWEVER, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give each Lender prompt notice of each notice given to it by the Borrowers pursuant to the terms of this Agreement. Notwithstanding any provision to the contrary contained elsewhere in this Agreement, the Agent shall have no duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied duties or obligations shall be read into this Agreement. SECTION 8.2 AGENT'S RELIANCE, ETC. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be take by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of -12- the generality of the foregoing, Agent (i) may treat the payee of any Note as the holder thereof until Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (ii) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (iii) makes no warranty or representations to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrowers or to inspect the property (including the books and records) of the Borrowers; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.3 NORTHERN AND AFFILIATES. With respect to its commitment hereunder to make the Loan, Northern shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Northern in its individual capacity. Northern and its Affiliates may lend money to, and generally engage in any kind of business with, the Borrowers, any of their subsidiaries and any Person who may do business with or own securities of the Borrowers or any such Subsidiary, all as if Northern were not the Agent and without any duty to account therefor to the Lenders. SECTION 8.4 LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.5 INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrowers), ratably according to the respective principal amounts of the Notes then held by each of them, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or -13- nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, PROVIDED that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or wilful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable shares of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise), of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. SECTION 8.6 SUCCESSOR AGENT. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrowers. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent which shall be reasonably acceptable to Borrowers. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank or financial institution organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000 and which shall be reasonably acceptable to the Borrowers. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 8 shall insure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 9 MISCELLANEOUS SECTION 9.1 WAIVER OF DEFAULT. The Lenders may, by written notice to the Borrowers, at any time and from time to time, waive any Event of Default or Unmatured Event of Default, which shall be for such period and subject to such conditions as shall be specified in any such notice. In the case of any such waiver, the Lenders and the Borrowers shall be restored to their former position and rights hereunder and any Event of Default or Unmatured Event of Default so waived shall be deemed to be cured and not continuing; but no such waiver shall extend to or impair any right consequent thereon or to any subsequent or other Event of Default or Unmatured Event of Default. -14- SECTION 9.2 SALE OF INTEREST, ETC. Each Borrower hereby consents to the Agent's and any Lender's sale of participations, assignment, transfer or other disposition, at any time or times, of the Agreement or of any portion thereof or interest therein, including, without limitation, the Agent's and any Lender's rights, title, interests, remedies, powers or duties hereunder, whether evidenced by a writing or not, Borrower agrees that it will use its best efforts to assist and cooperate with the Agent in any manner reasonably requested by the Agent to effect the sale of participations in or assignments of the Agreement or of any portion thereof or interest therein, including, without limitation, assistance in the preparation of appropriate disclosure documents or placement memoranda and executing appropriate amendments to the signature pages hereto to reflect the addition of any Lenders and such Lender's respective commitments. No amendment or waiver of any provision of this Agreement or the Notes, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER: (a) that no amendment, waiver or consent shall, unless in writing and signed by each Lender affected thereby do any of the following: (i) increase the Loan or subject any Lender to any additional obligations, (ii) reduce the principal of, or interest on, the Notes or other amounts payable hereunder other than those payable only to Northern which may be reduced by Northern unilaterally, (iii) postpone any date fixed for any payment of principal of, or interest on, the Notes or other amounts payable hereunder, other than those payable only to Northern which may be postponed by Northern unilaterally, (iv) change the aggregate unpaid principal amount of the Notes, or the number of the Lenders which shall be required for the Lenders or any of them to take any action hereunder, (v) release or discharge any Person liable for the performance of any obligations of the Borrowers hereunder, or (vi) amend this Section 9.2 and (b) that no amendment, waiver or consent shall be effective unless in writing and signed by the Agent in addition to the Required Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note. SECTION 9.3 NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another any communication with respect to this Note, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be delivered in person (by personal delivery, delivery service or overnight courier service) with receipt acknowledged, or telecopied and confirmed -15- immediately in writing by a copy mailed by registered or certified mail, return receipt requested, postage prepaid, addressed as hereafter set forth, or mailed by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (a) If to Northern or the Agent, at The Northern Trust Company Fifty South LaSalle Street Chicago, Illinois 60675 Attention: Vice President, Division IV, Middle Market Banking Telecopier No.: (312) 444-7028 with copies to: Winston & Strawn 35 West Wacker Drive Chicago, Illinois 60601 Attention: Charles B. Boehrer Telecopier No.: (312) 558-5700 and The Northern Trust Company Fifty South LaSalle Street Chicago, Illinois 60675 Attention: Law Department Telecopier No.: (312) 630-1596 (b) If to any Borrower or the Borrowers, at c/o Quixote Corporation One East Wacker Drive Chicago, Illinois 60601 Attention: Controller Telecopier No.: (312) 467-1356 with a copy to: McBride Baker & Coles 500 West Madison Street, 40th Floor Chicago, Illinois 60661 Attention: Elias M. Matsakis, Esq. Telecopier No.: (312) 993-9350 (c) If to any Lender other than Northern, at its address indicated on the signatures pages hereof, or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. -16- Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, in person, by delivery service or by overnight courier service, with receipt acknowledged, or the date of the telecopy transmission, or three (3) Business Days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. SECTION 9.4 NONWAIVER; CUMULATIVE REMEDIES. No failure or the Agent to exercise, and no delay in exercising, on the part of the Lenders of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies of the Agent and the Lenders herein provided are cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.5 SURVIVAL OF AGREEMENTS. All agreements, representations and warranties made herein shall survive the delivery of this Agreement and the making of the Loan. SECTION 9.6 SUCCESSORS. This Agreement shall, upon execution and delivery by the Borrowers, the Agent and the Lenders in Chicago, Illinois, become effective and shall be binding upon and inure to the benefit of the Borrowers, the Agent, the Lenders and their respective successors and assigns, except that the Borrowers may not transfer or assign any of their rights or interest hereunder without the prior written consent of the Agent. SECTION 9.7 CAPTIONS. Captions in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. References herein to Sections or provisions without reference to the document in which they are contained are references to this Agreement. SECTION 9.8 SINGULAR AND PLURAL. Unless the context requires otherwise, wherever used herein the singular shall include the plural and vice versa, and the use of one gender shall also denote the others where appropriate. SECTION 9.9 COUNTERPARTS. This Agreement may be executed by the parties on any number of separate counterparts, and by each party on separate counterparts; each counterpart shall be deemed an original instrument; and all of the counterparts taken together shall be deemed to constitute one and the same instrument. SECTION 9.10 FEES. The Borrowers agree, upon written request of the Agent, to pay or reimburse the Lenders for all costs -17- and expenses of preparing, seeking advice in regard to, and enforcing this Agreement or the Notes, or preserving their rights hereunder or thereunder or under any document or instrument executed in connection herewith (including legal fees and reasonable time charges of attorneys who may be employees of the Lenders, whether in or out of court, in original or appellate proceedings or in bankruptcy). SECTION 9.11 CONSTRUCTION. This Agreement and any document or instrument executed in connection herewith shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of Illinois, and shall be deemed to have been executed in the State of Illinois. SECTION 9.12 SUBMISSION TO JURISDICTION; VENUE. TO INDUCE THE LENDERS TO MAKE THE LOAN, AS EVIDENCED BY THIS AGREEMENT, THE BORROWERS IRREVOCABLY AGREE THAT, SUBJECT TO THE AGENT'S SOLE AND ABSOLUTE ELECTION, ALL SUITS, ACTIONS OR OTHER PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION HEREWITH, SHALL BE SUBJECT TO LITIGATION IN COURTS HAVING SITUS WITHIN CHICAGO, ILLINOIS. THE BORROWERS HEREBY CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. THE BORROWERS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT AGAINST THE BORROWER BY THE LENDERS IN ACCORDANCE WITH THIS SECTION, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORM. SECTION 9.13 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT. -18- IN WITNESS WHEREOF, the undersigned have executed and delivered this Term Loan Agreement as of the date first above written. "Borrowers" QUIXOTE CORPORATION By: /s/Myron R. Shain ------------------------------- Its:Executive Vice President-Finance ------------------------------------ ENERGY ABSORPTION SYSTEMS, INC. By: /s/Myron R. Shain ----------------------- Its:Vice President and Treasurer -------------------------------- DISC MANUFACTURING, INC. By: /s/Myron R. Shain ----------------------- Its:President, Treasurer & Chief -------------------------------- Operating Officer ------------------------ STENOGRAPH CORPORATION By: /s/Myron R. Shain ----------------------- Its:Vice President and Treasurer -------------------------------- LEGAL TECHNOLOGIES, INC. By: /s/Myron R. Shain ----------------------- Its:Vice President and Treasurer -------------------------------- DISCOVERY PRODUCTS, INC. By: /s/Myron R. Shain ----------------------- Its:Vice President ------------------ INTEGRATED INFORMATION SERVICES, INC. By: /s/Myron R. Shain ----------------------- Its:Vice President and Treasurer -------------------------------- -19- SPIN-CAST PLASTICS, INC. By: /s/Myron R. Shain ------------------------ Its:Vice President and Treasurer -------------------------------- LITIGATION SCIENCES, INC. By: /s/Myron R. Shain ----------------------- Its:Vice President and Treasurer -------------------------------- COURT TECHNOLOGIES, INC. By: /s/Myron R. Shain ----------------------- Its:Vice President ------------------- SAFE-HIT CORPORATION By: /s/Myron R. Shain ----------------------- Its:Vice President and Treasurer -------------------------------- COMPOSITE COMPONENTS, INC. By: /s/Myron R. Shain ----------------------- Its:Vice President and Treasurer -------------------------------- Pro-Rata Amount of Loan: "Agent" and "Lenders" $1,733,000 THE NORTHERN TRUST COMPANY, as Agent and as a Lender By: /s/Robert T. Jank ----------------------- Its: Vice President ----------------------- $1,733,000 LASALLE NATIONAL BANK, as a Lender By: /s/Betty T. Latson ------------------------- Its: First Vice President ------------------------- Address: LaSalle National Bank 120 South LaSalle Street Chicago, Illinois 60603 Attention: Betty T. Latson Telecopier: (312) 606-8423 -20- $6,534,000 NBD BANK N.A., as a Lender By:Peter K. Gillespie ---------------------- Its:Vice President ------------------ Address: NBD Bank N.A. 600 North Meacham Road Suite 309 Schaumburg, Illinois 60173 Attention: Peter K. Gillespie Telecopier: (708) 240-1705 -21- EXHIBIT A TERM NOTE --------- $____________ Chicago, Illinois August __, 1995 FOR VALUE RECEIVED, the undersigned, QUIXOTE CORPORATION, a Delaware corporation, ENERGY ABSORPTION SYSTEMS, INC., a Delaware corporation, DISC MANUFACTURING, INC., a Delaware corporation, LEGAL TECHNOLOGIES, INC., a Delaware corporation, STENOGRAPH CORPORATION, a Delaware Corporation, DISCOVERY PRODUCTS, INC., a Delaware corporation, SPIN-CAST PLASTICS, INC., an Indiana corporation, COURT TECHNOLOGIES, INC., a Delaware corporation, COMPOSITE COMPONENTS, INC., a Delaware corporation, INTEGRATED INFORMATION SERVICES, INC., a Delaware corporation, LITIGATION SCIENCES, INC., a Delaware corporation, and SAFE-HIT CORPORATION, a Nevada corporation (each individually and collectively, "Borrower") hereby JOINTLY AND SEVERALLY PROMISE TO PAY to the order of ____________, ("Lender"), or its registered assigns, at ______________, or at such other place as the holder of this Note may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of ___________________ ($__________), together with interest on the unpaid principal amount of this Note outstanding from time to time. This Note is a Note issued pursuant to Section 1.1(b) of that certain Term Loan Agreement dated as of August __, 1995, as amended, among each Borrower, "Lenders" (as defined therein) and The Northern Trust Company, as agent for such Lenders, (the "Loan Agreement") to which reference is hereby made for a statement of all of the terms and conditions under which the loan evidenced hereby is made. All capitalized terms herein, unless otherwise defined, shall have the meanings ascribed to them in the Loan Agreement. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Loan Agreement. Interest thereon, less any taxes payable by withholding, shall be paid until such principal amount is paid in full at such interest rates and at such times as are specified in the Loan Agreement. If any payment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of an Event of Default, this Note shall or may, as provided in the Loan Agreement, and without demand, notice or legal process of any kind, become or be declared immediately due and payable. -22- Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. This Note shall be interpreted, governed by, and construed in accordance with the laws of the State of Illinois. QUIXOTE CORPORATION DISCOVERY PRODUCTS, INC. By /s/Myron R. Shain By /s/Myron R. Shain --------------------- -------------------- Myron R. Shain Myron R. Shain Executive Vice Vice President President-Finance ENERGY ABSORPTION SYSTEMS, INC. SPIN-CAST PLASTICS, INC. By /s/Myron R. Shain By /s/Myron R. Shain --------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President DISC MANUFACTURING, INC. COURT TECHNOLOGIES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- --------------------- Myron R. Shain Myron R. Shain President Vice President STENOGRAPH CORPORATION COMPOSITE COMPONENTS, INC. By /s/Myron R. Shain By /s/Myron R. Shain --------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President INTEGRATED INFORMATION SAFE-HIT CORPORATION SERVICES, INC. By /s/Myron R. Shain By /s/Myron R. Shain --------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President LITIGATION SCIENCES, INC. LEGAL TECHNOLOGIES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President -2- TERM NOTE $6,534,000.00 Chicago, Illinois August 4, 1995 FOR VALUE RECEIVED, the undersigned, QUIXOTE CORPORATION, a Delaware corporation, ENERGY ABSORPTION SYSTEMS, INC., a Delaware corporation, DISC MANUFACTURING, INC., a Delaware corporation, LEGAL TECHNOLOGIES, INC., a Delaware corporation, STENOGRAPH CORPORATION, a Delaware Corporation, DISCOVERY PRODUCTS, INC., a Delaware corporation, SPIN-CAST PLASTICS, INC., an Indiana corporation, COURT TECHNOLOGIES, INC., a Delaware corporation, COMPOSITE COMPONENTS, INC., a Delaware corporation, INTEGRATED INFORMATION SERVICES, INC., a Delaware corporation, LITIGATION SCIENCES, INC., a Delaware corporation, and SAFE-HIT CORPORATION, a Nevada corporation (each individually and collectively, "Borrower") hereby JOINTLY AND SEVERALLY PROMISE TO PAY to the order of NBD BANK N.A. ("Lender"), or its registered assigns, at 600 North Meacham Road, Suite 309, Schaumburg, Illinois 60173, or at such other place as the holder of this Note may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of Six Million Five Hundred Thirty-Four Thousand and 00/00 Dollars ($6,534,000.00), together with interest on the unpaid principal amount of this Note outstanding from time to time. This Note is a Note issued pursuant to Section 1.1(b) of that certain Term Loan Agreement dated as of August 4, 1995, as amended, among each Borrower, "Lenders" (as defined therein) and The Northern Trust Company, as agent for such Lenders, (the "Loan Agreement") to which reference is hereby made for a statement of all of the terms and conditions under which the loan evidenced hereby is made. All capitalized terms herein, unless otherwise defined, shall have the meanings ascribed to them in the Loan Agreement. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Loan Agreement. Interest thereon, less any taxes payable by withholding, shall be paid until such principal amount is paid in full at such interest rates and at such times as are specified in the Loan Agreement. If any payment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of an Event of Default, this Note shall or may, as provided in the Loan Agreement, and without demand, notice or legal process of any kind, become or be declared immediately due and payable. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. This Note shall be interpreted, governed by, and construed in accordance with the laws of the State of Illinois. QUIXOTE CORPORATION DISCOVERY PRODUCTS, INC. By /s/Myron R. Shain By /s/Myron R. Shain --------------------- -------------------- Myron R. Shain Myron R. Shain Executive Vice Vice President President-Finance ENERGY ABSORPTION SYSTEMS, INC. SPIN-CAST PLASTICS, INC. By /s/Myron R. Shain By /s/Myron R. Shain --------------------- --------------------- Myron R. Shain Myron R. Shain Vice President Vice President DISC MANUFACTURING, INC. COURT TECHNOLOGIES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain President Vice President STENOGRAPH CORPORATION COMPOSITE COMPONENTS, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- --------------------- Myron R. Shain Myron R. Shain Vice President Vice President INTEGRATED INFORMATION SAFE-HIT CORPORATION SERVICES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President LITIGATION SCIENCES, INC. LEGAL TECHNOLOGIES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- --------------------- Myron R. Shain Myron R. Shain Vice President Vice President TERM NOTE --------- $1,733,000.00 Chicago, Illinois August 4, 1995 FOR VALUE RECEIVED, the undersigned, QUIXOTE CORPORATION, a Delaware corporation, ENERGY ABSORPTION SYSTEMS, INC., a Delaware corporation, DISC MANUFACTURING, INC., a Delaware corporation, LEGAL TECHNOLOGIES, INC., a Delaware corporation, STENOGRAPH CORPORATION, a Delaware Corporation, DISCOVERY PRODUCTS, INC., a Delaware corporation, SPIN-CAST PLASTICS, INC., an Indiana corporation, COURT TECHNOLOGIES, INC., a Delaware corporation, COMPOSITE COMPONENTS, INC., a Delaware corporation, INTEGRATED INFORMATION SERVICES, INC., a Delaware corporation, LITIGATION SCIENCES, INC., a Delaware corporation, and SAFE-HIT CORPORATION, a Nevada corporation (each individually and collectively, "Borrower") hereby JOINTLY AND SEVERALLY PROMISE TO PAY to the order of LASALLE NATIONAL BANK ("Lender"), or its registered assigns, at 120 South LaSalle Street, Chicago, Illinois 60603, or at such other place as the holder of this Note may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of One Million Seven Hundred Thirty-Three Thousand and 00/00 Dollars ($1,733,000.00), together with interest on the unpaid principal amount of this Note outstanding from time to time. This Note is a Note issued pursuant to Section 1.1(b) of that certain Term Loan Agreement dated as of August 4, 1995, as amended, among each Borrower, "Lenders" (as defined therein) and The Northern Trust Company, as agent for such Lenders, (the "Loan Agreement") to which reference is hereby made for a statement of all of the terms and conditions under which the loan evidenced hereby is made. All capitalized terms herein, unless otherwise defined, shall have the meanings ascribed to them in the Loan Agreement. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Loan Agreement. Interest thereon, less any taxes payable by withholding, shall be paid until such principal amount is paid in full at such interest rates and at such times as are specified in the Loan Agreement. If any payment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of an Event of Default, this Note shall or may, as provided in the Loan Agreement, and without demand, notice or legal process of any kind, become or be declared immediately due and payable. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. This Note shall be interpreted, governed by, and construed in accordance with the laws of the State of Illinois. QUIXOTE CORPORATION DISCOVERY PRODUCTS, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain Executive Vice Vice President President-Finance ENERGY ABSORPTION SYSTEMS, INC. SPIN-CAST PLASTICS, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President DISC MANUFACTURING, INC. COURT TECHNOLOGIES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain President Vice President STENOGRAPH CORPORATION COMPOSITE COMPONENTS, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- --------------------- Myron R. Shain Myron R. Shain Vice President Vice President INTEGRATED INFORMATION SAFE-HIT CORPORATION SERVICES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President LITIGATION SCIENCES, INC. LEGAL TECHNOLOGIES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President TERM NOTE --------- $1,733,000.00 Chicago, Illinois August 4, 1995 FOR VALUE RECEIVED, the undersigned, QUIXOTE CORPORATION, a Delaware corporation, ENERGY ABSORPTION SYSTEMS, INC., a Delaware corporation, DISC MANUFACTURING, INC., a Delaware corporation, LEGAL TECHNOLOGIES, INC., a Delaware corporation, STENOGRAPH CORPORATION, a Delaware Corporation, DISCOVERY PRODUCTS, INC., a Delaware corporation, SPIN-CAST PLASTICS, INC., an Indiana corporation, COURT TECHNOLOGIES, INC., a Delaware corporation, COMPOSITE COMPONENTS, INC., a Delaware corporation, INTEGRATED INFORMATION SERVICES, INC., a Delaware corporation, LITIGATION SCIENCES, INC., a Delaware corporation, and SAFE-HIT CORPORATION, a Nevada corporation (each individually and collectively, "Borrower") hereby JOINTLY AND SEVERALLY PROMISE TO PAY to the order of THE NORTHERN TRUST COMPANY ("Lender"), or its registered assigns, at Fifty South LaSalle Street, Chicago, Illinois 60675, or at such other place as the holder of this Note may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of One Million Seven Hundred Thirty-Three Thousand and 00/00 Dollars ($1,733,000.00), together with interest on the unpaid principal amount of this Note outstanding from time to time. This Note is a Note issued pursuant to Section 1.1(b) of that certain Term Loan Agreement dated as of August 4, 1995, as amended, among each Borrower, "Lenders" (as defined therein) and The Northern Trust Company, as agent for such Lenders, (the "Loan Agreement") to which reference is hereby made for a statement of all of the terms and conditions under which the loan evidenced hereby is made. All capitalized terms herein, unless otherwise defined, shall have the meanings ascribed to them in the Loan Agreement. The principal amount of the indebtedness evidenced hereby shall be payable in the amounts and on the dates specified in the Loan Agreement. Interest thereon, less any taxes payable by withholding, shall be paid until such principal amount is paid in full at such interest rates and at such times as are specified in the Loan Agreement. If any payment on this Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of an Event of Default, this Note shall or may, as provided in the Loan Agreement, and without demand, notice or legal process of any kind, become or be declared immediately due and payable. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower. This Note shall be interpreted, governed by, and construed in accordance with the laws of the State of Illinois. QUIXOTE CORPORATION DISCOVERY PRODUCTS, INC. By /s/Myron R. Shain By /s/Myron R. Shain ---------------------- ---------------------- Myron R. Shain Myron R. Shain Executive Vice Vice President President-Finance ENERGY ABSORPTION SYSTEMS, INC. SPIN-CAST PLASTICS, INC. By /s/Myron R. Shain By /s/Myron R. Shain - ----------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President DISC MANUFACTURING, INC. COURT TECHNOLOGIES, INC. By /s/Myron R. Shain By /s/Myron R. Shain --------------------- -------------------- Myron R. Shain Myron R. Shain President Vice President STENOGRAPH CORPORATION COMPOSITE COMPONENTS, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President INTEGRATED INFORMATION SAFE-HIT CORPORATION SERVICES, INC. By /s/Myron R. Shain By /s/Myron R. Shain --------------------- --------------------- Myron R. Shain Myron R. Shain Vice President Vice President LITIGATION SCIENCES, INC. LEGAL TECHNOLOGIES, INC. By /s/Myron R. Shain By /s/Myron R. Shain -------------------- -------------------- Myron R. Shain Myron R. Shain Vice President Vice President EX-11 3 EXHIBIT 11 QUIXOTE CORPORATION & SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF NET EARNINGS PER AVERAGE COMMON AND COMMON EQUIVALENT SHARE For the year ended June 30, 1995
Fully Primary Diluted ------- ------- Net earnings as reported $5,950,000 $5,950,000 Add interest expense and deferred charge (net of income taxes) assuming conversion of debentures 981,000 (a) ---------- ---------- Adjusted net earnings for computation (A) $5,950,000 $6,931,000 --------- --------- --------- --------- Average common shares outstanding would be adjusted for the additional shares that would be issued assuming conversion of the debentures and exercise of stock options and warrants as follows: Weighted average shares outstanding 7,819,537 7,819,537 Shares assumed issued upon conversion of debentures 1,051,316 Incremental shares outstanding assuming exercise of stock options and warrants using the treasury stock method 280,848 280,848 Shares issuable under retirement plan ---------- --------- Average common and common equivalent shares outstanding (B) 8,100,385 9,151,701 --------- --------- --------- --------- Earnings per common and common equivalent shares outstanding (A/B) $ .73 $ .76 ----- ----- ----- ----- NOTE: (a) Net earnings for the fully diluted calculation is adjusted for interest expense and deferred charge amortization, assuming exercise of the conversion privilege on the 8% convertible debentures.
-56- QUIXOTE CORPORATION & SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF NET EARNINGS PER AVERAGE COMMON AND COMMON EQUIVALENT SHARE For the year ended June 30, 1994
Fully Primary Diluted ------- ------- Net earnings as reported $11,644,000 $11,644,000 Add interest expense and deferred charge (net of income taxes) assuming conversion of debentures 981,000 (a) ----------- ----------- Adjusted net earnings for computation (A) $11,644,000 $12,625,000 ----------- ----------- ----------- ----------- Average common shares outstanding would be adjusted for the additional shares that would be issued assuming conversion of the debentures and exercise of stock options and warrants as follows: Weighted average shares outstanding 7,680,192 7,680,192 Shares assumed issued upon conversion of debentures 1,051,316 Incremental shares outstanding assuming exercise of stock options and warrants using the treasury stock method 386,000 471,984 Shares issuable under retirement plan --------- --------- Average common and common equivalent shares outstanding (B) 8,066,192 9,203,492 ----------- ----------- ----------- ----------- Earnings per common and common equivalent shares outstanding (A/B) $1.44 $1.37 ----- ----- ----- ----- NOTE: (a) Net earnings for the fully diluted calculation is adjusted for interest expense and deferred charge amortization, assuming exercise of the conversion privilege on the 8% convertible debentures.
-57- QUIXOTE CORPORATION & SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF NET EARNINGS PER AVERAGE COMMON AND COMMON EQUIVALENT SHARE For the year ended June 30, 1993
Fully Primary Diluted ------- ------- Net earnings as reported $9,441,000 $ 9,441,000 Add interest expense and deferred charge (net of income taxes) assuming conversion of debentures 982,000 (a) ---------- ----------- Adjusted net earnings for computation (A) $9,441,000 $10,423,000 ----------- ----------- ----------- ----------- Average common shares outstanding would be adjusted for the additional shares that would be issued assuming conversion of the debentures and exercise of stock options and warrants as follows: Weighted average shares outstanding 7,513,326 7,513,326 Shares assumed issued upon conversion of debentures 1,052,632 Incremental shares outstanding assuming exercise of stock options and warrants using the treasury stock method 351,442 351,442 Shares issuable under retirement plan 2,890 2,890 --------- --------- Average common and common equivalent shares outstanding (B) 7,867,658 8,920,290 ----------- ----------- ----------- ----------- Earnings per common and common equivalent shares outstanding (A/B) $1.20 $1.17 ----- ----- ----- ----- NOTE: (a) Net earnings for the fully diluted calculation is adjusted for interest expense and deferred charge amortization, assuming exercise of the conversion privilege on the 8% convertible debentures.
-58- EX-21 4 EXHIBIT 21 EXHIBIT 21 QUIXOTE CORPORATION & SUBSIDIARIES SUBSIDIARIES OF THE COMPANY as of June 30, 1995 Jurisdiction Under Which QUIXOTE CORPORATION (PARENT) Organized - ---------------------------- ------------- Disc Manufacturing, Inc. Delaware Energy Absorption Systems, Inc. Delaware Composite Components, Inc. Delaware Safe-Hit Corporation Nevada Spin-Cast Plastics, Inc. Indiana E-Tech Testing Services, Inc. Delaware LaserVideo Acquisition Corporation Delaware Legal Technologies, Inc. Delaware Litigation Communications, Inc. Delaware Stenograph Corporation Delaware Discovery Products, Inc. Delaware Court Technologies, Inc. Delaware Integrated Information Services, Inc. Delaware Litigation Sciences, Inc. Delaware Legal Technologies Limited United Kingdom Myriad Entertainment, Inc. Delaware QualAir Corporation Delaware Quixote Foreign Sales Corporation U.S. Virgin Islands All of the subsidiaries listed above are wholly-owned by Quixote except as follows: Energy Absorption Systems, Inc. is the sole shareholder of Composite Components, Inc., Safe-Hit Corporation and Spin-Cast Plastics, Inc. Legal Technologies, Inc. is the sole shareholder of Litigation Communications, Inc. and Stenograph Corporation. Stenograph Corporation is the sole shareholder of Discovery Products, Inc., Integrated Information Services, Inc., Legal Technologies Limited, and Litigation Sciences, Inc. Discovery Products, Inc. is the sole shareholder of Court Technologies, Inc. The Company owns all of the preferred stock of LaserVideo Acquisition Corporation (LVAC) and shares voting power with respect to the outstanding common stock. The preferred stock has voting rights and represents 50% of the voting stock of LVAC. -59- EX-23 5 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 2-76697, 33-1805, 33-22289, 33-50248 and 33-74488) and the registration statements on Form S-3 (Files Nos. 2-96502 and 33-14873 Amendment No. 1) of our reports, dated August 12, 1995 except for Note 4, as to which the date is September 6, 1995, accompanying the consolidated financial statements and financial statement schedules of Quixote Corporationand Subsidiaries as of June 30, 1995 and 1994, and for each of the years ended June 30, 1995, 1994, and 1993, which report is included in this Annual Report on Form 10-K of Quixote Corporation. /s/ Coopers & Lybrand L.L.P. Chicago, Illinois September 27, 1995 EX-27 6 EXHIBIT 27
5 YEAR JUN-30-1995 JUL-01-1994 JUN-30-1995 2,188,000 0 36,604,000 2,738,000 10,473,000 50,631,000 149,053,000 53,776,000 169,946,000 40,057,000 68,000,000 143,000 0 0 58,772,000 169,946,000 185,411,000 185,411,000 123,802,000 123,802,000 48,149,000 0 4,093,000 9,175,000 3,225,000 0 0 0 0 5,950,000 .73 .73
-----END PRIVACY-ENHANCED MESSAGE-----