-----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, J4i8N7xZNm9c12pijxuDnmh8BKHCkYdJ4L0IA5TmeSnhyk2XPpL7MDTA/HMD0Qbw ddcadGoUVD7ocBMz/87w+Q== 0001047469-98-035668.txt : 19980929 0001047469-98-035668.hdr.sgml : 19980929 ACCESSION NUMBER: 0001047469-98-035668 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980928 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-K405 SEC ACT: SEC FILE NUMBER: 001-08123 FILM NUMBER: 98716007 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-K405 1 10-K405 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, 1998 ---------------------------- 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 of (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 (X). 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. $95,489,239 as of August 28, 1998 ------------------------------------------------ -1- TABLE OF CONTENTS
PART I PAGE ------- Item 1. Business...................................................... 3-6 Item 2. Properties.................................................... 7 Item 3. Legal Proceedings............................................. 8-11 Item 4. Submission of Matters to a Vote of Security Holders........... 11 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 12 Item 6. Selected Financial Data....................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 14-18 Item 8. Financial Statements and Supplementary Data................... 18-33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 33 PART III Item 10. Directors and Executive Officers of the Registrant............ 34 Item 11. Executive Compensation........................................ 34 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................................. 35 Item 13. Certain Relationships and Related Transactions................ 35 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................. 35-38 SIGNATURES................................................................ 39
-2- PART I THE COMPANY Quixote Corporation was incorporated under the laws of the State of Delaware in 1969 originally 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 and its subsidiaries develop, manufacture and market energy-absorbing highway crash cushions and other highway safety products for the protection of motorists and highway workers to both domestic and international markets. As of June 30, 1998, Quixote Corporation and its subsidiaries employed 409 people. HIGHWAY SAFETY DEVICES - ---------------------- Description of Business - ----------------------- The Company's business is highway and transportation safety with its current operating subsidiaries concentrating on safety problems and their solutions for the highways. There are two broad categories of products for improving safety on the roads: products which minimize the severity of crashes that occur and products designed to prevent crashes from occurring. In the category of reducing the severity of crashes, the patented highway crash cushions manufactured by the Company 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 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 an estimated 29,000 lives since 1969. The Company 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. The product lines utilize the principles of momentum transfer and kinetic energy to safely decelerate errant vehicles. Energy absorption or energy dissipation is accomplished by using different combinations of water, aluminum, steel, urethane foam systems, cardboard, plastic structures, elastometric cylinders and sand. Roadway Safety Service, Inc., acquired during fiscal 1998, markets two lines of highway crash cushions as well as a special purpose vehicle arresting system. Roadway's products, also, use the principles of momentum transfer and kinetic energy to safely decelerate errant vehicles. The crash cushions consist of either a two-piece sand filled barrel or a series of polyethylene cylinders connected by a steel cable. The cylinders collapse on impact and then begin to regain their original shape. Both products are easy to assemble and provide a low cost way to protect motorists. The vehicle arresting system consists of a net attached to energy-absorbing steel tape reels which cause vehicles to come to a controlled stop. Sales for products that reduce the severity of crashes that occur were $46,858,000, $38,670,000 and $39,515,000 in 1998, 1997 and 1996, respectively. The Company also manufactures and sells products that prevent crashes and help control the flow of traffic. The Company manufactures and markets a line of flexible sign and guide -3- post systems and a glare screen system through distributors and catalog offerings. The guide posts are extruded from polypropylene and are used to delineate a travel way, channel vehicles or mark the location of an object. The post features a patented in-ground anchor system that permits inexpensive repair and replacement techniques. The glare screen system, also made from polypropylene, is installed on top of median barriers to eliminate the distraction of lights from oncoming vehicles on roads where the inside lanes are adjacent to the median barrier. Sales of these crash prevention products for 1998, 1997 and 1996 were $5,811,000, $4,577,000 and $5,325,000, respectively. Highway Information Systems, Inc. (HIS), acquired in April 1998, manufactures and markets two different types of highway advisory radio systems that help control the flow of traffic by informing motorists of accidents and traffic delays. HIS has two principal products, a stationary system, the "Hiway Max-TM-" and a mobile system, the "Solar Max-TM-". The Hiway Max is intended to be used near long-term construction sites, a public arena, or other frequently congested traffic areas. The Solar Max is easily transported and is intended for short-term or emergency uses. Both systems use AM radio frequencies to communicate messages to motorists about traffic, road conditions and weather. The messages may be pre-recorded or may be updated real-time through a phone line. Sales for HIS for the quarter ended June 30, 1998 were $641,000. The Company also manufactures plastic components for industrial products. Sales of these products for 1998, 1997 and 1996 were $2,678,000, $1,790,000 and $1,910,000, respectively. Products can be further broken down into permanent and construction zone applications and, as such, are sold to those market segments. Most of the products for permanent and construction zone applications are approved as acceptable highway hardware according to procedures in the National Cooperative Highway Research Program number 230 or 350 which provide various test levels depending on the application. This approval is gained after a formal submission to the FHWA makes the products eligible for federal funds for highway projects. The Company's products all have patented features and include the truck-mounted attenuator-Registered Trademark- (TMA-TM-), the QuadGuard-Registered Trademark-System, the CushionWall-TM- , the BarrierGate-Registered Trademark-, the Energite System-Registered Trademark-, the Triton Barrier-Registered Trademark-, the REACT 350-Registered Trademark-, the Fitch Universal Module-Registered Trademark- and the Dragnet VAS-Registered Trademark-. The Company provides product education, selection and application assistance. The Company generally does not perform site preparation or installation for any of its products. They are performed through a distributor/contractor network. Competition and Marketing - ------------------------- The Company's products are sold in all 50 U.S. states. Regional managers supervise 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 the Company's domestic products. The Company sells its products principally to either distributors or to contractors (on behalf of state and local governments) with less than 5% sold directly to state and local government agencies. Safe-Hit's products are sold by their own regional managers who supervise 48 domestic distributors and make sales calls on certain state departments of transportation and contracting firms. Many international governments are now beginning to recognize the need for crash cushions as a method of reducing traffic fatalities. The Company's products are sold internationally through a network of 44 distributors who make sales to municipal and national governments and contractors who are responding to bids from their respective governments. International sales for 1998 were $4.5 million. -4- The Company does experience competition in specific crash cushion product lines, particularly in the sand barrel, QuadGuard, REACT 350 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 as the Company. A number of other companies manufacture flexible sign and guide post systems. There are several companies that manufacture and sell highway advisory radio systems. The Company competes on the basis of price, quality and service in all of its products lines. Government Policies - ------------------- The market for crash cushions is directly affected by federal, state and local governmental policies. A large portion of the Company'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. Legislation called the Transportation Equity Act for the 21st Century (TEA 21) was passed in May of 1998 and provides federal funding of approximately $218 billion over a six-year period, an increase of more than 40% over previous spending levels. This legislation also includes a guaranteed amount of funding for highway programs. The states must set aside 10% of the federal funds received each year under TEA 21 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 FHWA. Energy Absorption is obligated to seek such approval for improvements or upgrades to such devices and for any new devices. Backlog - ------- As of June 30, 1998, 1997 and 1996, the Company had a backlog of unfilled orders for highway safety devices of $12,204,000, $8,999,000, and $8,591,000 respectively. The Company can usually fill an order anywhere from two days to 8 weeks of receipt depending on the type of product. Research and Development; Patents - --------------------------------- The Company conducts its own research, development and testing of new products before introducing them to the marketplace. The expenditures for research and development activities were $1,570,000, $2,209,000, and $1,536,000, in the years 1998, 1997 and 1996, respectively. The Company 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. The Company 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, the Company is seeking to develop or to acquire new products which can be sold through its existing distribution networks to its existing customers. The Company 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, aluminum and wood components. These raw materials are purchased from various suppliers and have been readily available throughout the last year. The Company believes that adequate supplies of these materials will continue to be available. -5- Major Customers - --------------- No single customer of the Company represents a significant portion of total revenues. Other - ----- Investment in FIP Joint Venture: - -------------------------------- During fiscal 1996, the Company entered into a joint venture with FIP Industriale S.p.A. of Italy to market their seismic bridge bearings in the United States. The Company, accounting for this investment under the equity method of accounting, took charges of $1,402,000 and $300,000 for 1997 and 1996 respectively. In June 1997, the Company decided to wind down the activities of the joint venture due to the lack of revenues and progress to date. The 1997 charge includes $502,000 in accrued costs to exit this venture. During 1998, the joint venture was dissolved. DISCONTINUED OPERATIONS - ----------------------- In March 1997, the Company sold substantially all of the assets and transferred significant operating liabilities of Disc Manufacturing, Inc. (DMI) to Cinram Ltd. for $80,283,000 in cash. The transaction excluded DMI's Huntsville, Alabama land and building as well as certain DMI litigation. DMI was one of the largest independent manufacturers of compact discs and CD-Roms in the United States. During 1996, the Company discontinued the operations of its legal technologies businesses, which had been involved in the development, manufacture and sale of products and systems for the legal community. Under multiple arrangements the Company sold certain assets of this segment for an aggregate sales price of $5,981,000 and the assumption of certain liabilities. Liabilities retained by the Company at June 30, 1998 include repetitive stress injury litigation and liabilities under certain lease obligations. During 1998, the Company recorded additional losses from discontinued operations of $6,138,000, or $0.76 per share, which was net of income tax benefits of $3,162,000. The losses were recorded to provide for current and anticipated costs associated principally with the Company's legal contingencies related to DMI. -6- Item 2. Properties - -------------------
Owned or Location Available Space Purpose Leased - --------------------- --------------- ----------------- -------- One East Wacker Drive 19,000 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 3300 N. Kenmore Street 81,000 sq. ft. Sale and manufacture of Owned South Bend, Indiana highway safety devices and other plastic products 739 College Drive 28,000 sq. ft. Storage facility for Owned South Bend, Indiana highway safety devices 23785 Cabot Boulevard 2,300 sq. ft. Sales office Leased Hayward, California 1050 North Rand Road 1,000 sq. ft. Sales office Leased Wauconda, Illinois 4900 Prospectus Drive 4,600 sq. ft. Sale and manufacture of Leased Durham, North Carolina highway advisory radio equipment 1725 Carpenter Fletcher Road 850 sq. ft. Warehouse Leased Durham, North Carolina 4905 Moores Mill Road 332,000 sq. ft. Sublet Owned Huntsville, Alabama 200 Corporate Pointe 19,800 sq. ft. Sublet Leased Culver City, California 225 West Washington 5,300 sq. ft. Sublet Leased Chicago, Illinois
Note: Present facilities are believed to be adequate to support the Company's current and anticipated requirements. -7- Item 3. Legal Proceedings - -------------------------- A. 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 Disc Manufacturing, Inc. ("DMI"), a discontinued operation, 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 alleged that the individual defendants, each a DMI director until April 30, 1990, had in concert with Disctronics Limited and its affiliated companies (the "Disctronics Group"), during the time that the Disctronics Group owned DMI, misappropriated DMI's corporate opportunity to acquire Memory-Tech, a competing compact disc manufacturer located in Plano, Texas. The lawsuit also alleged that the defendants had violated DMI's federal trademark rights in the name "Disctronics". 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 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' (including defendants') federal trademark/Lanham Act claims, which were stayed, pending resolution of the state court action, described in B below. B. 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 (described in A above), along with a claim under the Alabama trademark law, in the Circuit Court for Madison County, Alabama (Huntsville), the jurisdiction in which DMI was located. Following a 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 certificate of deposit as injunction security. (In March 1996, the Court approved DMI's substitution of a $6 million surety bond backed by a $2 million letter of credit to replace the certificate of deposit). The defendants appealed the entry of the preliminary injunction and on May 15, 1992 the Alabama Supreme Court reversed the Circuit Court's issuance of the injunction, remanding the case for further proceedings. Quixote sought a rehearing which 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 sought damages of $73.8 million, to invalidate a 1989 Work-Out Agreement among the parties, punitive damages and other relief. 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 Circuit 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. 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 in connection with the Disctronics' Memory-Tech Inc. transaction. -8- Both parties appealed the Court's May 1995 ruling. In September 1996, the Alabama Supreme Court ruled on the appeal, reinstating all of DMI's claims which had been dismissed by the Circuit Court except the corporate opportunity to acquire Memory-Tech Inc. and unjust enrichment claims and upholding the dismissal of all of the defendants' claims except a "palming off" claim related to use of the name "Disctronics". Consequently, the Company and DMI had pending claims for breach of fiduciary duty, tortious interference and fraud. The defendants' pending claims were for wrongful injunction, "palming off", fraud, breach of contract and alleged interference cclaims. Defendants subsequently filed an amended counterclaim without seeking leave of court which sought to assert in slightly different form generically some of the same claims as previously asserted and against which judgment had already been granted and become final. Quixote and DMI moved to dismiss those claims. On June 1, 1998, all litigation between the parties described herein was settled on terms mutually satisfactory to the parties. C. REPETITIVE STRESS INJURY LITIGATION. Stenograph Corporation, a discontinued operation, 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 thirty-two 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. Of the 32 cases, six were dismissed in April 1997 after a jury verdict in favor of Stenograph and that decision is now final. In additions, eleven cases have been dismissed with prejudice and eight cases have been dismissed without prejudice to refile the complaints. 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. D. 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. On May 18, 1998, this litigation was settled on terms mutually satisfactory to the parties. E. 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 charged that the defendants infringed four Thomson patents by making and selling audio compact discs and requested an order prohibiting defendants from making or selling compact discs which infringe on the patents. No specified damages were asked for although the complaint asked that damages be trebled because it alleged the infringement was willful. In the fall of 1994, the Denon and Time Warner defendants entered into consent judgments with the plaintiff. After a trial, in July 1996, the jury found that the Thomson patents were invalid. Thomson moved for judgment as a matter of law or, in the alternative, for a new trial, which was denied. In July 1997, Thomson filed an appeal which is pending. -9- F. DISCOVISION ASSOCIATES v. DISC MANUFACTURING, INC. In January 1995, Disc Manufacturing, Inc. 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 alleges that DMI is infringing six DiscoVision patents relating to optical storage discs by the manufacture and sale of compact discs and seeks injunctive relief and unspecified damages, including punitive damages, against DMI. In August 1995, DiscoVision was granted leave to amend its complaint to allege infringement by DMI of four additional patents. Plaintiffs subsequently dropped four patents from the case leaving six patents in issue. In April 1997, the District Court denied a motion by DiscoVision to dismiss portions of the DMI antitrust case. In August 1997, the District Court granted a motion by DMI to limit the time period for which damages could be asserted against DMI and denied DMI's motion to assert the doctrine of laches. The District Court, in September 1997, deconsolidated DMI's antitrust claims for purposes of trial and issued its determination on claims interpretation. A trial on the issue of patent infringement was held in October 1997 and a decision is pending. G. 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 F. above). H. ESTATE OF THIEL v. ENERGY ABSORPTION SYSTEMS, INC. In December 1994, Energy Absorption Systems, Inc. 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 arose from a March 1992 accident in which the decendent lost control of his car and allegedly struck one of Energy's crash cushions. The complaint sought unspecified damages from Energy Absorption and numerous defendants, including the State of New Jersey, the U.S. Federal Highway Administration and various other governmental entities. This case was settled in April 1998 on terms mutually satisfactory to the parties. I. ERNEST CHICO v. ENERGY ABSORPTION SYSTEMS, INC. On April 12, 1996 Energy Absorption Systems, Inc. was served in an action entitled ERNEST CHICO V. THE STATE OF INDIANA, ENERGY ABSORPTION SYSTEMS, INC. AND HOOSIER COMPANY IN LAKE SUPERIOR COURT FOR THE STATE OF INDIANA, CAUSE NO. 45DO2-9605-CT-391 which arises from an accident in which the plaintiff hit one of Energy's crash cushions. The Company has referred the case to its insurance carrier and at this time believes that liability resulting from this case will be covered by its insurance policies. Discovery is proceeding and a trial is not expected until the year 2000. J. FEATHER V. ENERGY ABSORPTION SYSTEMS, INC., In July 1997, plaintiff filed this action in Superior Court of the State of California, Case No. SCV-6077 in an action entitled SUSAN FEATHER V. ENERGY ABSORPTION SYSTEMS, INC. ET AL. Plaintiff claimed special, general and punitive damages because of sexual discrimination/harassment, retaliation, intentional infliction of emotional distress, negligent infliction of emotional distress, and constructive discharge while an employee of Energy Absorption. After a trial in August 1998, the jury arrived at a defense verdict for Energy Absorption. K. DISC MANUFACTURING, INC. V. CD TITLES, INC.; DISC MANUFACTURING, INC. V. PALOMAR MEDICAL TECHNOLOGIES, INC., CONSOLIDATED Action No. 9705328-B, Superior Court of the Commonwealth of Massachusetts. This is an action brought by Disc Manufacturing, Inc. to recover approximately $680,000 for goods and services sold to CD Titles, of which $400,000 was guaranteed by Palomar Medical Technologies. CD Titles has answered the complaint, asserting a counterclaim for conversion of certain inventory valued by CD Titles at $1.3 million. Discovery has proceeded, but is presently stayed in accordance with an automatic stay that was entered upon an involuntary petition in bankruptcy filed against CD Titles in July 1998 by DMI and other creditors. CD Title's motion to dismiss the involuntary petition has been denied and a trustee has been appointed to proceed with the bankruptcy. -10- 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 should not have a material effect on the Company's results of operations or financial condition. 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 1998. -11- 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 1998 High $ 9-1/2 $ 9-3/8 $ 10 $ 13 Low 7-5/8 7-5/8 8 10-1/4 FISCAL 1997 High $ 8 $10-3/4 $ 9-7/8 $ 9-1/8 Low 5-3/4 7-5/8 8-1/4 6-3/4
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 4, 1998, there were approximately 1,775 shareholders of record. Dividend Policy - --------------- During 1998, the Company declared semiannual cash dividends of thirteen cents per share. During 1997, the Company declared semiannual cash dividends of twelve cents and thirteen cents per share. -12- Item 6. Selected Financial Data - -------------------------------- SELECTED FINANCIAL DATA Dollar amounts in thousands, except per share data
For the years ended June 30, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Operating Results: Net sales $ 55,988 $ 45,037 $ 46,750 $ 46,522 $ 43,433 Gross profit 25,543 22,249 24,291 23,382 23,453 Selling and administrative expenses 15,420 14,264 15,059 13,662 13,825 Research and development expenses 1,570 2,209 1,536 1,545 1,978 Other income (expense) 199 (2,112) (488) (1,887) (928) Earnings from continuing operations 6,147 2,907 4,390 4,470 4,989 Net earnings (loss) 9 (3,831) (9,892) 5,950 11,644 Cash dividends per common share .26 .25 .24 .22 .21 Per share data: Basic EPS: Earnings from continuing operations $ .77 $ .36 $ .56 $ .57 $ .65 Net earnings (loss) .00 (.48) (1.26) .76 1.52 Weighted average common and common equivalent shares outstanding 7,943,653 7,966,700 7,875,585 7,819,537 7,680,192 Diluted EPS: Earnings from continuing operations $ .76 $ .36 $ .52 $ .54 $ .60 Net earnings (loss) .00 (.48) (1.26) .76 1.38 Weighted average common and common equivalent shares outstanding 8,088,354 8,008,893 8,951,562 9,151,701 9,117,508 Financial position: Total assets $ 59,065 $ 55,220 $ 118,888 $ 135,662 $ 98,999 Working capital 15,146 20,639 4,055 5,541 8,204 Property, plant and equipment, net 13,482 12,903 13,113 10,645 8,532 Long-term debt, net 7,677 0 58,000 68,000 38,975 Shareholders' equity 38,886 41,655 47,619 58,915 54,069 Book value per common share 4.94 5.24 5.99 7.49 6.94
NOTE: OPERATING RESULTS AND FINANCIAL POSITION FOR ALL PERIODS PRESENTED REFLECT THE LEGAL TECHNOLOGIES, INC. AND DISC MANUFACTURING, INC. SEGMENTS AS DISCONTINUED OPERATIONS. -13- Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------------------- 1998 COMPARED TO 1997 - --------------------- The Company's sales for 1998 increased 24% to $55,988,000 from $45,037,000 in 1997 due to both internal sales growth as well as sales growth resulting from two acquisitions the Company completed during 1998. Internal sales, without the effect from acquisitions, increased 13% resulting from demand for Energy Absorption's newer products, introduced in later 1997. Energy Absorption's permanent crash cushion line of products increased due to strong unit sales of the newer QuadGuard-Registered Trademark- family of crash cushions. The QuadGuard family of products replaces the Company's GREAT-Registered Trademark-and GREAT CZ-Registered Trademark- crash cushion products. Sales dollars of the QuadGuard products increased at a lesser rate than its unit sales due to the lower selling price of these products. The Company also experienced sales increases in its TMA (truck-mounted attenuator) product line, including the newer Alpha 100k-Registered Trademark- TMA. Triton Barrier-Registered Trademark-sales along with sales of Safe-Hit's highway delineators and Spin-Cast's custom molded products also increased during the year. Roadway Safety Service, Inc., acquired in October 1997, contributed sales of $4,554,000 for the nine month period as part of the Company. Roadway Safety Service is a supplier of crash attenuators and vehicle arresting systems for the highways. Highway Information Systems, Inc. (HIS), acquired effective April 1, 1998, contributed sales of $641,000 for the period. HIS is a leading provider of computerized highway advisory radio transmitting systems. Somewhat offsetting these sales increases, sales of the Energite-Registered Trademark- barrel product line and parts sales declined slightly during 1998. The gross profit margin in 1998 decreased to 45.6% from 49.4% in 1997. This was due principally to a change in sales mix from the GREAT crash cushion to the lower margin QuadGuard crash cushion product line. The QuadGuard family of products is priced lower than the GREAT crash cushions as mentioned earlier. Roadway Safety Service also contributed to the decline in gross margin as its gross margins are lower than Energy Absorption's historical gross margins. HIS gross margins, although higher than the Company's average gross margin, had no material effect on gross margins due to its late acquisition date and therefore smaller sales contribution. Selling and administrative expenses in 1998 increased 8% to $15,420,000 from $14,264,000 in 1997. Selling and administrative expenses at Energy Absorption and its subsidiaries increased consistent with the increased level of sales. Roadway Safety Service and HIS added a combined $1,032,000 in selling and administrative costs during 1998. These increases in selling and administrative expenses were offset somewhat by corporate level expenses which decreased $713,000 in 1998 from 1997 as a result of a decrease in personnel, consulting and insurance expenses. Research and development expenses in 1998 decreased 29% to $1,570,000 from $2,209,000 in 1997. This was due to a reduction in the number of tests performed in the current year related to last year's upgrade of the Company's product line to a higher set of safety guidelines known as NCHRP 350. These guidelines increase safety standards to accommodate heavier and higher center of gravity vehicles such as sport utility vehicles and pick-up trucks. During the current year, the Company incurred development costs in connection with its testing of a wider version of the Company's QuadGuard and REACT 350 crash cushions and in the testing of a snowplowable road marker and other developmental projects. Interest income in 1998 was $540,000 compared to $339,000 in 1997 and relates to amounts earned on the Company's invested cash, $3,927,000 as of June 30, 1998. Interest expense in 1998 was $357,000 compared to $497,000 in 1997. Current period interest expense relates both to seller financing in connection with the acquisition of Roadway Safety Service as well as bank debt incurred in connection with the acquisition of HIS. Other income was $16,000 in 1998 compared to other expenses of $552,000 in 1997. -14- The Company's effective income tax rate for 1998 was 30% due to the realization of certain tax benefits during the current year along with the settlement of certain tax contingencies. The Company believes its effective income tax rate for 1999 will be approximately 35%. During 1998, the Company recorded additional losses from its discontinued operations of $6,138,000, or $0.76 per share, which was net of income tax benefits of $3,162,000. The losses were recorded to provide for current and anticipated costs associated principally with the Company's legal contingencies related to DMI. On October 10, 1997, the Company and its wholly-owned subsidiary, TranSafe Corporation, acquired certain assets and assumed certain contracts from Roadway Safety Service, Inc. The purchase price was $10,258,000, of which $4,822,000 was paid in cash at closing, and other payments, the present value of which is $5,436,000, will be paid over the next 10 years using a discount rate of 8.5%. The acquisition was accounted for as a purchase and was effective as of October 1, 1997. Goodwill of approximately $9,300,000 will be amortized over a twenty year life. On April 14, 1998, the Company and its wholly-owned subsidiary, TranSafe Corporation, acquired certain assets and assumed certain liabilities of Highway Information Systems, a division of Digital Recorders, Inc. for $2,800,000 in cash. The acquisition was accounted for as a purchase and was effective as of April 1, 1998. Goodwill of approximately $1,700,000 will be amortized over a twenty year life. 1997 COMPARED TO 1996 - --------------------- The Company's sales for 1997 decreased 4% to $45,037,000 from $46,750,000 in 1996. Sales declined in Energy Absorption's permanent system product lines which include the GREAT as well as the newly introduced QuadGuard crash cushion products. This was due to, among other things, increased competition which resulted in a decline in selling prices and to a lesser extent, a decrease in unit volume. In addition, the Company believes that some customers may have postponed their purchases earlier in 1997 in anticipation of several new products introduced later in the year that qualify under NCHRP 350, coupled with a delay in certifying one of these new products. Sales of the Triton Barrier and Safe-Hit delineator also declined. Somewhat offsetting these product line decreases were increases in the Energite and TMA product lines. The gross profit margin in 1997 decreased to 49.4% from 52.0% in 1996. This was due to a decrease in the average selling prices of its permanent systems products and to a lesser extent, lower sales volume. In addition, the gross margin also declined due to increased overhead from the expansion of Energy Absorption's Pell City, Alabama facility which was doubled in size to 160,000 square feet. Selling and administrative expenses in 1997 decreased 5% to $14,264,000 from $15,059,000 in 1996. This decrease was due principally to the 1996 write-off of $800,000 to discontinue the Company's sewer rehabilitation business. Corporate level administrative expenses remained at a level consistent with last year. Research and development expenses in 1997 increased 44% to $2,209,000 from $1,536,000 in 1996. This increase was due to expenditures for the development of new products as well as for the upgrade of the Company's existing product lines in order to meet the revised NCHRP 350 standards. -15- Interest income in 1997 was $339,000 compared to $358,000 in 1996. Interest income in 1997 was earned on the Company's cash of approximately $18 million which was being invested in short-term money market instruments. 1996 interest income was the result of the interest earned on a $6 million certificate of deposit posted as injunction security for certain litigation. This certificate of deposit was redeemed in the third quarter of 1996 and replaced with a surety bond backed by a letter of credit. Interest expense in 1997 decreased 71% to $497,000 from $1,726,000 in 1996. This was due to a decrease in the average long-term debt outstanding in 1997 compared to 1996. The Company paid off all long-term debt upon the sale of DMI in March 1997. In addition, as a result of the sale of DMI, total interest expense was allocated between continuing and discontinued operations based upon the relative net asset values of each. The Company recorded a loss of $1,402,000 in 1997 related to the Company's investment in a seismic bridge bearing joint venture with FIP Industriale S.p.A. This compares to a $300,000 loss from this venture in 1996. Other expenses were $552,000 in 1997 compared to income of $1,180,000 in 1996. The Company's effective tax rate decreased in 1997 to 20.7% from 39.1% in 1996 due to the realization of certain tax benefits in the current year along with the settlement of certain tax contingencies. As discussed in Note 3 to the Consolidated Financial Statements, on March 27, 1997, the Company sold substantially all of the assets and transferred significant operating liabilities of Disc Manufacturing, Inc. to Cinram LTD. for $80.3 million in cash. The transaction excluded the Huntsville, Alabama land and building as well as certain DMI litigation. The sale, approved by the Company's shareholders, resulted in a loss of $4,507,000 which was net of income tax benefits of $3,004,000. DMI incurred a loss on operations for 1997 and 1996 of $2,231,000 and $1,816,000 which are net of income tax benefits of $957,000 and $1,888,000 respectively. These results are presented as discontinued operations in the Company's Consolidated Statements of Operations. The Company used the proceeds of the sale to repay all of its $37.2 million in bank debt and to redeem all of its $18 million of 8% Convertible Subordinated Debentures and pay the related accrued interest. After paying transaction costs of approximately $2.6 million, the balance of the proceeds was invested in the highway safety and equipment business and in other opportunities deemed beneficial to stockholders, including the repurchase of a portion of the Company's common stock outstanding. LIQUIDITY AND CAPITAL RESOURCES - --------------------------------- The Company had cash and cash equivalents of $3,927,000 and access to additional funds of $36,500,000 under its bank arrangements as of June 30, 1998. Continuing operating activities were a source of cash for the Company during 1998 providing $2,354,000. Discontinued operations however, used cash of $6,849,000 primarily for legal fees and settlements related to the Company's ongoing litigation and for other expenses including lease commitments. This resulted in a net cash use from operating activities of $4,495,000. Cash of $9,560,000 was used for investing activities during 1998 of which $7,622,000 in cash was used for the purchase of the assets of Roadway Safety Service, Inc., acquired in October 1997, and for the purchase of the assets of Highway Information Systems, acquired in April 1998. In addition, the Company also used cash for the purchase of equipment during 1998 totalling $1,436,000. -16- Financing activities used cash of $481,000 during 1998. The payment of the Company's semi-annual cash dividends used cash of $2,071,000. Cash of $1,854,000 was used to purchase 224,985 shares of the Company's own stock for the treasury. Additional shares may be purchased from time to time. In addition, the Company used cash of $962,000 for payment of notes due in connection with the acquisition of Roadway Safety Service. Offsetting these cash payments somewhat, the Company received net cash of $3,500,000 through borrowings under its line of credit. Cash of $906,000 was also received from the exercise of common stock options. For fiscal 1999, the Company anticipates needing less than $2,500,000 in cash for capital expenditures. The Company may also need additional cash as it considers acquiring businesses that complement its existing operations. Also, the Company will require additional investments in working capital to maintain growth. In addition, the Company may also need funds to repurchase its own stock from time to time. These expenditures will be financed either through the Company's invested cash, cash generated from its operations, or from borrowings available under the Company's revolving credit facility. The Company believes its existing cash, cash generated from operations and funds available under its existing credit facility are sufficient for all planned operating and capital requirements. YEAR 2000 ISSUE - --------------- The "Year 2000 Issue" exists because many computer programs use only the last two digits of a number to refer to a year. Therefore, these computer programs may recognize a year such as 2002 as 1902. If not corrected, many computer applications could fail or create erroneous results. The Year 2000 problem may impact the Company as a result of its own computer deficiencies as well as those of its vendors, customers, or other third parties that interface with the Company if not addressed and corrected. The Company is in the process of making an assessment of its Year 2000 Issue relative to its own information technology and non-information technology as well as assessing the state of Year 2000 readiness of its vendors and customers. A task force consisting of certain members of senior management has been established by the Company to assess the Company's state of readiness and to implement an action plan to correct any deficiencies. The Company has determined that its principal software program for financial, order entry and manufacturing planning is not Year 2000 compliant and will need to be upgraded to a more advanced and recent version. The Company has ordered and received this software upgrade and has added additional computer hardware to accommodate this upgrade. The Company plans to complete implementation of this upgrade by December 1998. In addition, the Company is continuing to evaluate the impact of the Year 2000 Issue on its non-information technology systems, such as manufacturing machinery, equipment, computer-aided design and test equipment as well as its products with date sensitive software and embedded microprocessors. The Company expects to complete the assessment phase of its non-information technology systems during its second fiscal quarter with remedial action planned for the Company's third fiscal quarter. The Company has plans to initiate communications with significant suppliers, customers and other relevant third parties to identify and minimize disruptions to the Company's operations related to Year 2000 issues. However, there can be no certainty that the systems and products of other companies on which the Company relies will not have an adverse effect on the Company's operations. The Company expects to complete this assessment phase during its third fiscal quarter. The Company anticipates completing substantially all of its Year 2000 projects during fiscal 1999. In the event the Company falls short of these milestones, additional internal resources will be focused on completing these projects or developing contingency plans. The estimated cost to correct the Company's Year 2000 deficiencies is approximately $300,000. This estimate includes $200,000 in cost to upgrade its information technology systems with the balance of the estimate for any changes or modifications needed for non-information technology systems. While the Company believes that its non-information -17- technology and vendor and customer issues are of a lower risk, until the Company's assessment of these risks is complete, there can be no assurance that these issues will not have a material effect on the Company's operations. All estimates of Year 2000 related costs are based on numerous assumptions and there is no certainty that estimates will be achieved and actual costs could be materially greater than anticipated. In the event the Company is unable to take timely corrective measures related to its Year 2000 issues, the Company's ultimate contingency plan is to outsource critical computer applications where feasible and in addition create manual systems until such corrective measures are taken. FORWARD LOOKING STATEMENTS - -------------------------- Various statements made within the Management's Discussion and Analysis of Financial Condition and Results of Operations constitute "forward looking statements" for purposes of the Securities and Exchange Commission's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in the Company's filings with the Securities and Exchange Commission. There can be no assurance that actual results will not differ from the Company's expectations. Factors which could cause materially different results include, among others, uncertainties related to the introduction of the Company's products and services; the successful completion and integration of acquisitions; and competitive and general economic conditions. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF QUIXOTE CORPORATION: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of Quixote Corporation and its subsidiaries at June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in Part IV of Form 10-K, Item 14(a)2, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Chicago, Illinois August 7, 1998 -18- CONSOLIDATED STATEMENTS OF OPERATIONS For each of the three years ended June 30,
Dollar amounts in thousands, except per share data 1998 1997 1996 ---- ---- ---- Net sales $ 55,988 $ 45,037 $ 46,750 Cost of sales 30,445 22,788 22,459 --------- --------- --------- Gross profit 25,543 22,249 24,291 Operating expenses: Selling and administrative 15,420 14,264 15,059 Research and development 1,570 2,209 1,536 --------- --------- --------- 16,990 16,473 16,595 --------- --------- --------- Operating profit 8,553 5,776 7,696 Other income (expense): Interest income 540 339 358 Interest expense (357) (497) (1,726) Loss on investment in FIP joint venture (1,402) (300) Other 16 (552) 1,180 --------- --------- --------- 199 (2,112) (488) --------- --------- --------- Earnings from continuing operations before provision for income taxes 8,752 3,664 7,208 Provision for income taxes 2,605 757 2,818 --------- --------- --------- Earnings from continuing operations 6,147 2,907 4,390 Discontinued operations: Loss from operations, net of income taxes (2,231) (3,369) Loss on disposal, net of income taxes (6,138) (4,507) (10,913) --------- --------- --------- Loss from discontinued operations, net of income taxes (6,138) (6,738) (14,282) --------- --------- --------- Net earnings (loss) $ 9 $ (3,831) $ (9,892) --------- --------- --------- Basic earnings per share: Earnings from continuing operations $ .77 $ .36 $ .56 --------- --------- --------- Net earnings (loss) $ .00 $ (.48) $ (1.26) --------- --------- --------- Weighted average common and common equivalent shares outstanding 7,943,653 7,966,700 7,875,585 --------- --------- --------- Diluted earnings per share: Earnings from continuing operations $ .76 $ .36 $ .52 --------- --------- --------- Net earnings (loss) $ .00 $ (.48) $ (1.26) --------- --------- --------- Weighted average common and common equivalent shares outstanding 8,088,354 8,008,893 8,951,562 --------- --------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -19- CONSOLIDATED BALANCE SHEETS
As of June 30, Dollar amounts in thousands, except per share data 1998 1997 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 3,927 $ 18,463 Accounts receivable, net of allowance for doubtful accounts of $565 in 1998 and $165 in 1997 13,976 8,494 Refundable income taxes 1,132 1,329 Inventories 5,826 4,224 Deferred income tax assets 1,642 887 Other current assets 350 241 -------- -------- Total current assets 26,853 33,638 Property, plant and equipment at cost: Land 1,215 1,215 Buildings and improvements 9,132 8,691 Machinery and equipment 9,290 8,118 Furniture and fixtures 3,066 2,812 Leasehold improvements 533 519 -------- -------- 23,236 21,355 Less: accumulated depreciation and amortization (9,754) (8,452) -------- -------- 13,482 12,903 Intangible assets 12,553 2,045 Other assets 987 720 Assets of discontinued operations 5,190 5,914 -------- -------- $ 59,065 $ 55,220 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 497 Accounts payable 1,681 $ 1,743 Dividends payable 1,021 1,039 Accrued expenses: Payroll and commissions 1,679 1,366 Other 2,215 2,802 Liabilities of discontinued operations 4,614 6,049 -------- -------- Total current liabilities 11,707 12,999 Long-term debt, net of current portion 7,677 Deferred income tax liabilities 795 566 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 8,908,940 shares - 1998 and 8,753,333 shares - 1997 148 146 Capital in excess of par value of stock 31,396 30,269 Retained earnings 15,324 17,368 Treasury stock, at cost, 1,032,420 shares - 1998 and 807,435 shares - 1997 (7,982) (6,128) -------- -------- Total shareholders' equity 38,886 41,655 -------- -------- $ 59,065 $ 55,220 -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -20- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three years ended June 30, 1998 Capital in Excess of Common Par Value Retained Treasury Stock of Stock Earnings Stock ------- ---------- -------- -------- Dollar amount in thousands BALANCES, JUNE 30, 1995 $ 143 $ 29,268 $ 34,977 $ (5,473) Exercise of options for 55,006 shares 1 250 Net loss - 1996 (9,892) Declaration of semi-annual cash dividends ($.12 per share) (1,889) Issuance of 34,679 shares pursuant to the stock retirement plan 1 233 ------- ---------- -------- -------- BALANCES, JUNE 30, 1996 145 29,751 23,196 (5,473) Exercise of options for 39,847 shares 188 Net loss - 1997 (3,831) Declaration of semi-annual cash dividends($.12 per share and $.13 per share) (1,997) Issuance of 42,385 shares pursuant to the stock retirement plan 1 330 Purchase of 88,514 shares at $7.25 to $8.00 per share (655) ------- ---------- -------- -------- BALANCES, JUNE 30, 1997 146 30,269 17,368 (6,128) Exercise of options and grant of awards for 137,783 shares 2 904 Net earnings - 1998 9 Declaration of semi-annual cash dividends ($.13 per share) (2,053) Issuance of 17,824 shares pursuant to the stock retirement plan 223 Purchase of 224,985 shares at $7.75 to $9.25 per share (1,854) ------- ---------- -------- -------- BALANCES, JUNE 30, 1998 8,908,940 common shares and 1,032,420 treasury shares $ 148 $ 31,396 $ 15,324 $(7,982) ------- ---------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -21- CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three years ended June 30, Dollar amounts in thousands 1998 1997 1996 ---- ---- ---- Operating Activities: Earnings from continuing operations $ 6,147 $ 2,907 $ 4,390 Discontinued operations Loss from operations, net of income taxes (2,231) (3,369) Loss on disposal, net of income taxes (6,138) (4,507) (10,913) -------- -------- -------- Net earnings (loss) 9 (3,831) (9,892) ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY CONTINUING OPERATIONS: Discontinued operations 6,138 6,738 14,282 Depreciation 1,302 1,531 13,899 Amortization 1,034 351 552 Provision for losses on accounts receivable (71) Deferred income taxes 429 (404) (1,909) Changes in operating assets and liabilities: Accounts receivable (4,737) 548 2,202 Inventories (1,216) (868) 1,448 Refundable income taxes 197 1,687 (3,016) Other current assets (84) 249 (1,505) Accounts payable and accrued expenses (718) 744 (1,769) Income taxes payable (4,110) Loss on investment in FIP joint venture 1,402 300 Gain on sale of Quantic Industries, Inc. (1,287) Gain on sale of patent (347) Loss on sewer rehabilitation investment 601 -------- -------- -------- Net cash provided by operating activities of continuing operations 2,354 8,147 9,378 Net cash provided by (used in) discontinued operations (6,849) (8,754) 4,066 -------- -------- -------- Net cash provided by (used in) operating activities (4,495) (607) 13,444 -------- -------- -------- INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,436) (1,321) (24,419) Cash paid for acquired businesses (7,622) Proceeds from sales of discontinued operations 80,283 5,981 Investment in FIP joint venture (900) (300) Proceeds from sale of investment in Quantic Industries, Inc. 8,050 Proceeds from sale of patent 1,960 Decrease in funds deposited with IDB trustee 2,719 Other (502) 41 (731) -------- -------- -------- Net cash provided by (used in) investing activities (9,560) 78,103 (6,740) -------- -------- -------- FINANCING ACTIVITIES: Cash payments on notes payable (962) Payments on revolving credit agreement (2,300) (52,050) (32,000) Proceeds from revolving credit agreement 5,800 12,050 23,000 Payment of semi-annual cash dividend (2,071) (1,903) (1,805) Proceeds from exercise of common stock options 906 188 251 Repurchase of common stock for treasury (1,854) (655) Payments on convertible debentures (18,000) (1,975) Proceeds from redemption of certificate of deposit 6,000 -------- -------- -------- Net cash used in financing activities (481) (60,370) (6,529) -------- -------- -------- Net change in cash and cash equivalents (14,536) 17,126 175 Cash and cash equivalents at beginning of year 18,463 1,337 2,075 -------- -------- -------- Cash and cash equivalents at end of year $ 3,927 $ 18,463 $ 2,250 -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -22- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Quixote Corporation and its subsidiaries develop, manufacture and market, to both domestic and international markets, energy-absorbing highway crash cushions and other highway safety products for the protection of motorists and highway workers. 2. ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of Quixote Corporation and its wholly-owned subsidiaries. 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 market value. The Company considers these short-term instruments to be cash equivalents. Cash and cash equivalents in the consolidated statement of cash flows for 1996 includes cash related to discontinued operations. 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 earnings 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 10 to 40 years Machinery and equipment 3 to 12 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 with the gain or loss credited or charged to earnings. GOODWILL AND PATENTS Goodwill and patents are amortized on a straight-line basis over lives of 7 to 20 years. The Company assesses at each balance sheet date whether there has been a permanent impairment in the value of these assets. Such assessment includes consideration of possible 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. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax 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. -23- MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Management's estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During the second quarter of 1998, the Company adopted Statement of Financial Accounting Standards (FAS) No. 128, Earnings Per Share. This accounting pronouncement requires the presentation of basic earnings per share (EPS) and, for companies with potential dilutive securities, such as stock options and warrants, diluted EPS. It also requires restatement of EPS for prior periods. During 1998, the Company adopted FAS No. 129, Disclosure of Information about Capital Structure. This accounting pronouncement provides additional guidance on the disclosure of certain information about an entity's capital structure. In June 1997 FAS No. 131, Disclosures about Segments of an Enterprise and Related Information, was issued. This statement, effective for financial statements for periods beginning after December 15, 1997, requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company is evaluating the effects of this pronouncement. On June 15, 1998, the Financial Accounting Standards Board issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. FAS 133 is effective for all quarters beginning after June 15, 1999 (July 1, 1999 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that due to its limited use of derivative instruments the adoption of FAS 133 will not have a significant effect on the Company's results of operations or its financial position. RECLASSIFICATIONS Certain amounts for the years ended June 30, 1997 and June 30, 1996 were reclassified to conform to the current year presentation. These reclassifications did not affect net earnings. 3. ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS On October 10, 1997, the Company and its wholly-owned subsidiary, TranSafe Corporation, acquired certain assets and assumed certain contracts from Roadway Safety Service, Inc. This transaction was accounted for as a purchase and was effective as of October 1, 1997. The purchase price was $10,258,000, of which $4,822,000 was paid in cash at closing and other payments, the present value of which is $5,436,000, will be paid over the next 10 years using a discount rate of 8.5%. Goodwill of approximately $9,300,000 will be amortized over a 20 year life. On April 14,1998, the Company and its wholly-owned subsidiary, TranSafe Corporation, acquired the assets and assumed certain liabilities of Highway Information Systems, a division of Digital Recorders, Inc. for $2,800,000 in cash. The acquisition was accounted for as a purchase and was effective as of April 1, 1998. Goodwill of approximately $1,700,000 will be amortized over a 20 year life. The following unaudited pro forma summary presents the consolidated results of operations as if the acquisitions had occurred at the beginning of the period presented below: -24-
Dollar amounts in thousands 1998 1997 ---- ---- Net sales $ 59,074 $ 53,667 -------- -------- Net loss $ (447) $ (4,404) -------- -------- Net loss per diluted share $ (.06) $ (.55) -------- --------
In March 1997, the Company sold substantially all of the assets and transferred significant operating liabilities of Disc Manufacturing, Inc. (DMI) to Cinram LTD. for $80,283,000 in cash. The transaction excluded DMI's Huntsville, Alabama land and building as well as certain litigation related to DMI. The sale, approved by the Company's shareholders, resulted in a loss of $4,507,000 which was net of income tax benefits of $3,004,000. During 1998, the Company recorded additional losses from discontinued operations of $6,138,000, or $0.76 per share, which was net of income tax benefits of $3,162,000. The losses were recorded to provide for current and anticipated costs associated principally with the Company's legal contingencies related to DMI. During 1996, the Company discontinued the operations of its legal technologies businesses, which had been involved in the development, manufacture and sale of products and systems for the legal community. Under multiple arrangements, the Company sold certain assets and liabilities for an aggregate sales price of $5,981,000. The loss on disposal of $10,913,000 is net of income tax benefits of $7,275,000. The accompanying consolidated balance sheets and consolidated statements of operations have been restated in order to present the compact disc and legal technologies segments as discontinued operations for accounting purposes. As part of this restatement, interest expense was for 1997 and 1996 allocated between continuing and discontinued operations based upon the relative net assets of each. The income tax benefits for the results of discontinued operations for the years ended 1998, 1997 and 1996 are $3,162,000, $957,000 and $2,613,000, respectively. Net sales for the discontinued businesses were $0 in 1998, $66,206,000 in 1997 and $109,919,000 in 1996. The following assets and (liabilities) relate to discontinued operations:
Dollar amounts in thousands 1998 1997 ---- ---- Land and building, net $ 7,501 $ 7,501 Deferred income taxes 3,867 4,073 Accrued legal and accounting (6,539) (5,320) Lease obligations (1,974) (2,590) Severance (130) (280) Other accruals (2,149) (3,519) ------- ------- Net assets (liabilities) of discontinued operations $ 576 $ (135) ------- -------
These assets and liabilities are valued based upon management's estimates, utilizing currently available information as of the balance sheet date. It is reasonably possible, however, that these estimates could change materially. During 1996 Energy Absorption entered into a joint venture with FIP Industriale S.p.A. of Italy to market their seismic bridge bearings in the United States. In June 1997 the Company decided to wind down the activities of the joint venture due to the lack of revenues and progress to date. The Company, accounting for this investment under the equity method, took charges of $1,402,000 for 1997 which included $502,000 in accrued costs to exit this venture. In January 1996, the Company sold to Barrier Systems, Inc. certain patents related to its movable traffic barrier system. The sale price of $1,960,000 resulted in a gain of $347,000 which is included in other income for 1996. -25- 4. INVENTORIES Inventories consist of the following at June 30:
Dollar amounts in thousands 1998 1997 ---- ---- Finished goods $ 2,084 $ 832 Work-in-process 696 978 Raw materials 3,046 2,414 -------- -------- $ 5,826 $ 4,224 -------- --------
5. LONG-TERM DEBT Long-term debt consists of the following at June 30:
Dollar amounts in thousands 1998 1997 ---- ---- Revolving credit note due October 31, 2000, interest at variable rates $3,500 $ 0 Notes payable, interest imputed at 8.5%, payable quarterly through 2007 4,674 0 ------ ------- Total long-term debt 8,174 0 less current portion 497 0 ------ ------- Long-term debt, net $7,677 $ 0 ------ -------
The Company has a three-year unsecured revolving credit agreement with three banks. The agreement provides for a $40 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 from continuing operations each year. The agreement may be extended one additional year on each anniversary date upon mutual consent of the Company and the banks. At any time during the three years, the Company may 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. The Notes payable were entered into in connection with the acquisition of Roadway Safety Service, Inc. and are payable to several former owners and employees. The Notes are payable quarterly over a five or ten year period. The aggregate amount of maturities of long-term debt for the four years subsequent to 1999 assuming renewal of the revolving credit note is as follows: $541,000 in 2000, $588,000 in 2001, $640,000 in 2002 and $420,000 in 2003. -26- 6. 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 (Incentive Plan) and the Director Stock Option Plan (Director Plan) are to be granted at no less than 100% of the current market price at the date of the grant. Options vest equally over not less than a two year period and have a term of five years under the Incentive Plan and ten years under the Director Plan. No charges are made to earnings in connection with the options. Information with respect to options under the Company's plans is as follows:
Number of Option Price Common Shares per Share ------------- --------- Shares under option: July 1, 1996 897,949 $ 4.25 to $ 21.00 Granted 137,000 9.00 Exercised (54,500) 4.25 to 6.88 Cancelled or expired (108,175) 4.25 to 12.63 -------- June 30, 1997 872,274 $ 5.38 to $ 21.00 Granted 308,445 8.00 to 12.15 Exercised (78,000) 5.88 to 6.88 Cancelled or expired (115,424) 10.50 to 12.88 -------- June 30, 1998 987,295 $ 5.38 to $ 21.00 --------
Options outstanding at June 30, 1998 are exercisable as follows: 833,484 in 1999, 128,811 in 2000 and 25,000 thereafter. As of June 30, 1998, the Company has 1,257,266 common shares reserved for various conversion privileges and options. The following is the composition of the June 30, 1998 stock option balance:
Options Having A Weighted Average Per Share Exercise Weighted Average Exercise Price Per Number of Price of: Remaining Life Share Shares - ------------------ ---------------- ------------------ --------- $ 5.38 to $ 8.00 2.60 years $ 7.45 319,445 8.13 to 12.15 4.20 years 8.93 429,850 12.38 to 13.38 3.76 years 12.78 178,000 21.00 6.15 years 21.00 60,000 ------- 987,295 -------
During 1997, the Company adopted FAS No. 123, Accounting for Stock-Based Compensation, which encourages entities to adopt a fair value based method of accounting for stock-based compensation plans in place of the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), for all arrangements under which employees receive shares of stock or other equity instruments of the employer. As allowed by FAS 123, the Company will continue to apply the provisions of APB 25 in accounting for its stock-based employee compensation arrangements, and will disclose the pro forma net earnings and earnings per share information in its footnotes as if the fair value method had been applied. The Company recognizes compensation cost for stock-based compensation arrangements equal to the difference between the quoted market price of the stock option at the date of grant and the price to be paid by the employee upon exercise in accordance with the provisions of APB 25. Based upon the terms of the Company's current stock option plans, the stock price on the date of grant and price paid upon exercise are the same, thus no compensation charge is required to be recognized. -27- Had compensation cost for the Company's stock option plans been determined based on the fair value method for awards in 1998, 1997 and 1996 consistent with the provisions of FAS 123, the Company's net earnings(loss) and earnings(loss) per share would have been changed to the pro forma amounts indicated below:
Dollar amounts in thousands, except per share data 1998 1997 1996 ---- ---- ---- Net earnings (loss), as reported $ 9 $ (3,831) $ (9,892) ------- -------- -------- Net loss pro forma $ (598) $ (4,872) $ (9,951) ------- -------- -------- Net loss per diluted share, as reported $ .00 $ (.48) $ (1.26) ------- -------- -------- Net loss per diluted share, pro forma $ (.08) $ (.61) $ (1.26) ------- -------- --------
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998: dividend yield of 3.04%; expected volatility of 48%; risk-free interest rate of 5.5% to 6.5%; and expected life of 5.3 years. The weighted average fair value of options granted in 1998 is $3.28 per share. The weighted average exercise price of the options outstanding is $9.88 and the weighted average remaining contractual life of those options is 3.7 years. 7. SHAREHOLDER RIGHTS PLAN The Company has a Shareholder Rights Plan (the Plan) which was established to deter coercive takeover tactics and to prevent an acquiror 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 14, 1998 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 $40 per unit. In addition, if an acquiring person becomes the beneficial owner of more than 15 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 $40. If after an acquiring person becomes the beneficial holder of more than 15 percent of the Company's outstanding common stock and then 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 $40. The Company may redeem the rights, for $.01 per right, under certain circumstances. 8. 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. In order to receive each year's stock award, the executive must 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 participant's annual award is determined under accepted actuarial principles to provide a retirement income based upon a percentage of the executive's projected compensation and length of service at retirement, but only if the Company's stock price appreciates at a sustained target rate. The Plan resulted in a charge to earnings of $403,000 in 1998, $561,000 in 1997 and $463,000 in 1996. -28- 9. INCOME TAXES The income tax provisions (benefits) are comprised of the following for the three years ended June 30:
Dollar amounts in thousands 1998 1997 1996 ---- ---- ---- Current: Federal $ 1,786 $ 496 $ 2,660 State 390 665 850 ------- ------- ------- 2,176 1,161 3,510 ------- ------- ------- Deferred: Federal 360 ( 26) (536) State 69 (378) (156) ------- ------- ------- 429 (404) (692) ------- ------- ------- Income tax provision for continuing operations 2,605 757 2,818 Income tax benefit from discontinued operations (3,162) (3,961) (9,888) ------- ------- ------- Total income tax benefit $ (557) $(3,204) $(7,070) ------- ------- -------
The components of the net deferred tax asset are as follows at June 30:
Dollar amounts in thousands 1998 1997 ---- ---- Deferred tax assets: Accounts receivable allowance $ 226 $ 66 Inventory valuation 198 170 Compensated absences and medical claims 90 130 Tax over book basis in affiliates 1,854 1,612 Other liabilities and reserves 763 879 Net operating loss carryforwards 1,818 2,527 Various tax credit carryforwards 12 12 Contribution carryforwards 9 9 Provision for discontinued operations 3,928 4,064 Valuation allowance (2,742) (3,480) -------- ------- Total 6,156 5,989 -------- ------- Deferred tax liabilities: Book over tax basis of capital assets 1,442 1,595 -------- ------- Net deferred tax asset $ 4,714 $ 4,394 -------- -------
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, net operating loss carryforwards, and tax credit carryforwards. The decrease in the valuation allowance is due principally to the expiration of unutilized net operating loss carryforwards. At June 30, 1998, certain subsidiaries of the Company have approximately $3,935,000 of federal and $3,973,000 of state net operating loss carryforwards for tax purposes. Certain limitations on utilization are present and realization of a significant portion of the carryforwards is uncertain. These carryforwards expire in years from 1999 through 2005. -29- The net deferred tax asset is presented on the balance sheet as follows at June 30:
Dollar amounts in thousands 1998 1997 ---- ---- Current deferred tax asset $ 1,642 $ 887 Noncurrent deferred tax liability (795) (566) ------- ------- Net deferred tax asset of continuing operations 847 321 ------- ------- Current deferred tax asset of discontinued operations 3,520 2,458 Noncurrent deferred tax asset of discontinued operations 347 1,615 ------- ------- Net deferred tax asset of discontinued operations 3,867 4,073 ------- ------- Net deferred tax asset $ 4,714 $ 4,394 ------- -------
Income tax provisions differed from the taxes calculated at the statutory federal tax rate as follows for the three years ended June 30:
Dollar amounts in thousands 1998 1997 1996 ---- ---- ---- Taxes at statutory rate $ 2,975 $ 1,246 $ 2,451 State income taxes 303 189 458 Utilization of capital loss carryforwards (822) (561) Other (673) 144 470 ------- ------ ------- Income tax provision for continuing operations: $ 2,605 $ 757 $ 2,818 ------- ------- -------
10. EARNINGS PER SHARE The Company adopted FAS No. 128, Earnings Per Share, in 1998. This pronouncement eliminates the measure of performance called "primary" earnings per share (EPS) and replaces it with "basic" EPS. The essential difference between the two calculations is that the dilutive effects of stock options outstanding are not considered in the basic EPS computation. As a result, basic EPS tends to be slightly higher than primary EPS. The pronouncement also changed the measure previously reported as "fully diluted" EPS to "diluted" EPS. The computational differences between them are not material to the Company. All prior periods have been restated in conformity with FAS 128. Basic earnings per share is computed by dividing net earnings available to holders of common stock by the weighted average number of shares of common stock outstanding. Diluted EPS is computed assuming the exercise of all stock options that are profitable to the recipients under the treasury stock method and, for the 1996 year only, conversion of the convertible debentures 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. -30- The computation of basic and diluted earnings per share, as prescribed by FAS 128, is as follows:
1998 1997 1996 ---- ---- ---- Dollar Amounts in Thousands Net earnings (loss) per share of common stock: Basic $ .00 $ (.48) $ (1.26) ----- ------ ------- Diluted $ .00 $ (.48) $ (1.01) ----- ------ ------- Numerator: - ---------- Net earnings (loss) available to common shareholders-basic $ 9 $ (3,831) $ (9,892) ----- -------- -------- Adjustment for interest expense and amortization related to convertible debentures 886 ----- -------- -------- Adjusted earnings for diluted calculation $ 9 $ (3,831) $ (9,006) ------ -------- -------- Denominator: - ------------ Weighted average shares outstanding-basic 7,943,653 7,966,700 7,875,585 Effect of dilutive securities Options 144,701 42,193 128,339 Convertible debt 947,638 -------- -------- -------- Weighted average shares outstanding-diluted 8,088,354 8,008,893 8,951,562 --------- --------- ---------
There were outstanding options to purchase common stock at prices that exceeded the average market price for the income statement period as follows: Average exercise price per share $ 14.04 $ 9.63 $ 9.83 Number of shares 288,850 572,274 500,615
These options have been excluded from the computation of diluted earnings per share. 11. COMMITMENTS AND CONTINGENT LIABILITIES Aggregate rental expense under operating leases, principally for office and manufacturing facilities used in continuing operations was $477,000 in 1998, $450,000 in 1997 and $504,000 in 1996. These operating leases include options for renewal. Annual minimum future rentals for lease commitments related to continuing operations range from approximately $450,000 in 1999 to $317,000 in 2003, an aggregate of $1,482,000 through 2003. The Company has 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. The Company has retained liability for two patent infringement lawsuits filed in Delaware federal court against Disc Manufacturing, Inc. (DMI), a discontinued operation sold by the Company in March 1997. In one of the cases, a federal jury ruled that the plaintiff's patents were invalid and the plaintiffs have appealed. In the other case, DMI filed a lawsuit against the plaintiff for antitrust violations and DMI's lawsuit has been consolidated with the plaintiff's patent case for all purposes. A trial of the patent infringement and invalidity issues was conducted in October 1997 and a decision is pending. Royalties requested by the patent holders could result in a significant cost to the Company. -31- Stenograph Corporation, a discontinued operation, and a number of manufacturers of keyboards and related equipment have been sued by individuals for repetitive stress injuries. The cases against Stenograph, and in some cases the Company, request damages ranging from $500,000 to $1,000,000, and in most cases, punitive damages, with some plaintiffs claiming an amount of $10,000,000. Of the 32 cases filed to date, six were dismissed in April 1997 after a jury verdict in favor of Stenograph. In addition, eleven cases have been dismissed with prejudice and eight cases have been dismissed without prejudice to refile the complaints. All cases have been referred to the Company's insurance carriers and the Company believes that any liability (excluding punitive damages and deductibles in certain years) 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. In 1998, the Company settled three claims involving DMI. They include a lawsuit with the Disctronics Group, former owners of DMI, and a lawsuit by a customer that claimed DMI failed to produce certain video discs on schedule, thereby injuring its business. A third settlement resolved a trademark, copyright and related intellectual property rights infringement claim initiated by the Recording Industry Association of America. The settlements, in total, resulted in a fiscal 1998 fourth quarter after-tax charge of $4.2 million, or $0.51 per diluted share, to discontinued operations. The Company is involved in these and other legal actions common to its businesses. The Company has recorded loss contingencies where appropriate within the guidelines established by Statement of FAS No. 5, Accounting for Contingencies. 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,additional liabilities, if any, arising from these legal actions should not have a material effect on the Company's results of operations or financial condition. 12. SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES Cash paid for interest was $300,000 in 1998, $3,825,000 in 1997 and $6,105,000 in 1996. The Company received net refunds from income taxes of $1,388,000 in 1998 and $3,954,000 in 1997. Net cash paid for income taxes was $1,495,000 in 1996. In connection with the Company's acquisitions during 1998, liabilities of $114,000 were assumed. In addition, seller financed debt of $5,436,000 was incurred. The Company declared dividends that were payable at year end of $1,021,000 in 1998, $1,039,000 in 1997 and $946,000 in 1996. 13. INDUSTRY SEGMENT INFORMATION The Company's operations consist of one industry segment engaged in the manufacture and sale of highway safety products. Substantially all the sales of highway safety devices are to distributors and contractors providing product and services to federal, state and local governmental units. -32- 14. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for years 1998 and 1997 follows: Dollar amounts in thousands, except per share data
Three months ended 9/30 12/31 3/31 6/30 ---- ----- ---- ---- 1998 Net sales $ 12,334 $ 12,118 $ 12,821 $ 18,715 Gross profit 5,796 4,957 5,385 9,405 Earnings from continuing operations 1,588 642 820 3,097 Loss from discontinued operations (1,980) (4,158) --------- -------- -------- -------- Net earnings (loss) $ 1,588 $ (1,338) $ 820 $ (1,061) --------- -------- -------- -------- Basic earnings (loss) per share: Continuing operations $ .20 $ .08 $ .10 $ .39 --------- -------- -------- -------- Net earnings (loss) $ .20 $ (.17) $ .10 $ (.13) --------- -------- -------- -------- Diluted earnings (loss) per share: Continuing operations $ .20 $ .08 $ .10 $ .38 --------- -------- -------- -------- Net earnings (loss) $ .20 $ (.17) $ .10 $ (.13) --------- -------- -------- --------
Dollar amounts in thousands, except per share data
Three Months Ended 9/30 12/31 3/31 6/30 ---- ----- ---- ---- 1997 Net sales $ 11,096 $ 9,195 $ 10,268 $ 14,478 Gross profit 5,594 4,311 4,797 7,547 Earnings (loss) from continuing operations 691 (301) 189 2,328 Earnings (loss) from discontinued operations 105 1,340 (8,183) --------- -------- -------- -------- Net earnings (loss) $ 796 $ 1,039 $ (7,994) $ 2,328 --------- -------- -------- -------- Basic earnings (loss) per share: Continuing operations $ .09 $ (.04) $ .02 $ .29 --------- -------- -------- -------- Net earnings (loss) $ .10 $ .13 $ (1.00) $ .29 --------- -------- -------- -------- Diluted earnings (loss) per share: Continuing operations $ .08 $ (.04) $ .02 $ .29 --------- -------- -------- -------- Net earnings (loss) $ .10 $ .13 $ (1.00) $ .29 --------- -------- -------- --------
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures - ------------------------------------------------------------------------ None. -33- 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 18, 1998 to be filed with the Commission on or about September 28, 1998 and is incorporated herein by reference. The executive officers of the Company, their ages and offices held by each during fiscal 1998 are as follows:
Philip E. Rollhaus, Jr. 63 Chairman, Chief Executive Officer & Director - Quixote Corporation Chairman, Energy Absorption Systems, Inc. Leslie J. Jezuit 52 President, Chief Operating Officer & Director - Quixote Corporation, Vice Chairman - Energy Absorption Systems, Inc. Daniel P. Gorey 47 Chief Financial Officer, Vice President & Treasurer - Quixote Corporation Joan R. Riley 45 General Counsel & Secretary - Quixote Corporation George D. Ebersole 62 President, Energy Absorption Systems, Inc.
Mr. Rollhaus has been the Chairman and Chief Executive Officer and a Director of the Company since its formation in July 1969. Mr. Jezuit joined the Company as President and Chief Operating Officer of Quixote Corporation in 1996. Prior to that time, Mr. Jezuit served as President and Chief Operating Officer of RobertShaw Controls Company. Mr. Gorey joined the Company as Manager of Corporate Accounting in July 1985. He was made Controller of the Company in 1987, elected Vice President in 1994, and was elected Chief Financial Officer and Treasurer in November 1996. Ms. Riley joined the Company as Assistant General Counsel and Assistant Secretary in 1991 and was elected General Counsel and Secretary in 1997. Mr. Ebersole joined the Company as President of Energy Absorption Systems, Inc. in 1980. 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 "Remuneration of Directors and Executive Officers" of the Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 18, 1998 to be filed with the Commission on or about September 28, 1998 and is incorporated herein by reference. -34- 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 for the Annual Meeting of Stockholders to be held on November 18, 1998 to be filed with the Commission on or about September 28, 1998 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 18, 1998 to be filed with the Commission on or about September 28, 1998 and is incorporated herein by reference. 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 18 Consolidated Statements of Operations for the years ended June 30, 1998, 1997 and 1996 19 Consolidated Balance Sheets as of June 30, 1998 and 1997 20 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1998, 1997 and 1996 21 Consolidated Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996 22 Notes to Consolidated Financial Statements 23-33
(a).2. Financial Statement Schedule ----------------------------- The financial statement schedule listed under Item 14(d) is filed as part of this annual report. All other schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they are not applicable or not required. (a).3. The exhibits listed under Item 14(c) are filed as part of this annual report. -35- (b). Reports on Form 8-K ------------------- In June 1998, the Company filed a report on Form 8-K dated May 18, 1998, reporting under "Item 5 Other Events" the settlement of three claims against its formerly owned subsidiary, Disc Manufacturing, Inc., which included settlement of litigation described in Part 1, Item 3(A)(B) and (D) of this Report on Form 10K, as well as trademark, copyright and related intellectual property claims asserted by the Recording Industry Association of America. In July 1998 the Company filed a report on Form 8-K dated June 30, 1998, reporting the Company's adoption of a new Shareholder Rights Plan and, in connection therewith, the declaration of a dividend distribution of one Right (as described in the new Plan) to all stockholders of record on July 14, 1998. (c). Exhibits -------- *Management contract or compensatory plan or agreement 3.(a) Restated Certificate of Incorporation dated February 4, 1998 filed as Exhibit 3(a) to the Company's Form 10-Q Report for the quarter ended December 31, 1997, File No. 0-7903, and incorporated herein by reference; Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock dated July 24, 1998, filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated July 23, 1998, File No. 001-08123, and incorporated herein by reference. (b) Amended and Restated By-Laws of the Company as amended through July 13, 1998, filed herewith. 4. (a) Rights Agreement dated as of July 24, 1998, between the Company and BankBoston, N.A, as Rights Agent, filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated July 23, 1998, File No. 001-08123, and incorporated herein by reference. 10.(a) Amended and Restated Loan Agreement ("Loan Agreement") dated as of June 30, 1997 among Quixote Corporation and certain subsidiaries ("Quixote"), The Northern Trust Company ("Northern"), LaSalle National Bank ("LaSalle"), and American National Bank and Trust Company ("American")and Amended and Restated Revolving Credit Notes dated June 30, 1997 from the Company and certain of its subsidiaries to the Northern, LaSalle and American, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended September 30, 1997, File No. 0-7903, and incorporated herein by reference; First Amendment to the Loan Agreement dated May 31, 1998, filed herewith. (b)* 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. (c)* 1991 Director Stock Option Plan, as amended through August 21, 1998, filed herewith. (d)* 1993 Long-Term Stock Ownership Incentive Plan, as amended through August 21, 1998, filed herewith; Retirement Award Agreements for Philip E. Rollhaus, Jr. and George D. Ebersole, dated June 30, 1993 and as amended on August 23, 1996, filed as Exhibit 12(f) to the Company's Form 10-K Report for the fiscal year ended June 30, 1996, File No. 0-7903, and incorporated herein by reference; Retirement Award Agreement dated as of June 30, 1997 between the Company and Daniel P. Gorey, filed as Exhibit 10(d) to the Company's Form 10-K Report for the fiscal year ended June 30, 1997, File No. 0-7903, and incorporated herein by reference; Retirement Award Agreement dated as of February 19, 1998 between the Company and Leslie J. Jezuit filed as Exhibit 10(a) to the Company's Form -36- 10-Q Report for the quarter ended March 31, 1998 and incorporated herein by reference; Retirement Award Agreement dated as of February 19, 1998 between the Company and Joan R. Riley, filed herewith. (e) Lease Agreement between the Company and United Insurance Company of America ("Company Lease") 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 to Company Lease 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; Second Amendment to Company Lease dated January 30, 1995 and Third Amendment to Company Lease dated December 15, 1995, filed as Exhibits 10(b) and 10(c) to the Company's Form 10-Q Report for the quarter ended December 31, 1995, File No. 0-7903, and incorporated herein by reference; Fourth Amendment to Company Lease dated as of September 18, 1996 filed as Exhibit 10(b) to the Company's Form 10-Q Report for the quarter ended December 31, 1996 and incorporated herein by reference; Office Lease between Amberjack, Ltd. and Litigation Sciences, Inc. dated July 2, 1990, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended December 31, 1993, File No. 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; Promissory Note dated December 31, 1996 from Quixote Steno Corporation and Quixote Corporation to Coventry Fund III, Ltd., filed as Exhibit 10(e) to the Company's Form 10-K Report for the year ended June 30, 1997, File No. 0-7903, and incorporated herein by reference. (f)* Employment agreement ("Employment Agreement") dated as of June 24, 1991 between the Company and Philip E. Rollhaus, Jr., 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; Amended Executive Employment Agreement dated November 14, 1996 to Employment Agreement and Second Amendment to Employment Agreement dated January 12, 1997, filed as Exhibit 10(a) to the Company's form 10-Q Report for the quarter ended December 31, 1996, File No. 0-7903, and incorporated herein by reference; Letter Agreement dated December 15, 1995 between the Company and Leslie J. Jezuit, filed as Exhibit 10(d) to the Company's Form 10-Q Report for the quarter ended December 31, 1995, File No. 0-7903, and incorporated herein by reference; Letter Agreement dated August 12, 1997 between the Company and James H. DeVries, filed as Exhibit 10(f) to the Company's Form 10-K Report for the year ended June 30, 1997, File No. 0-7903, and incorporated herein by reference; Change of Control Agreements dated December 1,1997 by and between the Company and each of Philip E. Rollhaus, Jr., Leslie J. Jezuit, George D. Ebersole and Daniel P. Gorey, filed as Exhibit 10(f) to the Company's Form 10-Q Report for the quarter ended December 31, 1997, File No. 0-7903, and incorporated herein by reference; Change of Control Agreement dated December 1, 1997 between the Company and Joan R. Riley, filed herewith. (g) Summary Plan Description for the Incentive Savings Plan of the Company Amended o Reflect Provisions Effective July 1, 1997, filed herewith. (h) Agreements between the Company, Philip E. Rollhaus, Jr. 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. (i) Agreement for Purchase and Sale dated February 13, 1996 between Stenograph Acquisition Corp., IIS Acquisition Corp., Pettibone Corp., and Quixote Corporation, Stenograph Corporation, Legal Technologies, Inc., Legal Technologies Limited and Integrated Information Services filed as Exhibit 2.1 to the Company's 8-K Report dated March 4, 1996, File No. 0-7903, and -37- incorporated herein by reference. (j) Agreement for Purchase and Sale dated January 25, 1996 between Stenograph Corporation and LSI Acquisition, Inc. filed as Exhibit 2.2 to the Company's 8-K Report dated March 4, 1996, File No. 0-7903, and incorporated herein by reference. (k) Agreement for Purchase and Sale of Assets dated July 3, 1996 between Integrated Information Services, Inc., Pettibone Corporation, Quixote Corporation and Discovery Products, Inc., filed as Exhibit 10(k) to the Company's Form 10-K for the year ended June 30, 1996, File No. 0-0793, and incorporated herein by reference. (l) Asset Purchase Agreement dated as of December 8, 1996 among the Company, Disc Manufacturing, Inc., Cinram Ltd. and Cinram Inc., filed as Exhibit 10 (c) to the Company's Form 10-Q for the quarter ended December 31, 1996, File No. 0-7903, and incorporated herein by reference. (m) Asset Purchase Agreement made October 10, 1997, and effective October 1, 1997, by and between Quixote Corporation, TranSafe Corporation, Roadway Safety Service, Inc., Momentum Management, Inc., and Fitch Barrier Corporation; Exclusive License Agreement made October 10, 1997, and effective October 1, 1997, by and between Robert A. Mileti, Roadway Safety Systems, Inc., Quixote Corporation and TranSafe Corporation; Consulting Agreement made October 10, 1997, and effective October 1, 1997, by and between TranSafe Corporation and E. Scott Walter; Consulting Agreement made October 10, 1997, and effective October 1, 1997, by and between Quixote Corporation, Energy Absorption Systems, Inc., Roadway Safety Systems, Inc. and Robert A. Mileti, all filed as Exhibits 2.1, 2.2, 2.3 and 2.4 to the Company's Form 8-K Report dated October 10, 1997, File No. 0-7903, and incorporated herein by reference. (n) Asset Purchase Agreement dated as of April 14, 1998 by and between TranSafe Corporation and Digital Recorders, Inc., filed as Exhibit 10(b) to the Company's Form 10-Q Report for the quarter ended March 31, 1998 and incorporated herein by reference. 21. Subsidiaries of the Company 23. Consent of PricewaterhouseCoopers, LLP as Independent Certified Public Accountants 27. Financial Data Schedule (d) Schedules: ---------- II - Valuation and Qualifying Accounts and Reserves -38- 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 28, 1998 By: /s/ Philip E. Rollhaus, Jr. -------------------------- -------------------------------- Philip E. Rollhaus, Jr., Chairman 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 Director September 28, 1998 Philip E. Rollhaus, Jr. (Chief Executive Officer) /s/ Leslie J. Jezuit - --------------------------- President and Chief Operating September 28, 1998 Leslie J. Jezuit Officer /s/ Daniel P. Gorey - --------------------------- Chief Financial Officer, Vice September 28, 1998 Daniel P. Gorey President and Treasurer (Chief Accounting and Financial Officer) /s/ Joan R. Riley Secretary and General Counsel September 28, 1998 - --------------------------- Joan R. Riley /s/ James H. DeVries - --------------------------- Director September 28, 1998 James H. DeVries /s/ William G. Fowler - --------------------------- Director September 28, 1998 William G. Fowler /s/ Lawrence C. McQuade - --------------------------- Director September 28, 1998 Lawrence C. McQuade /s/ Robert D. van Roijen, Jr. - --------------------------- Director September 28, 1998 Robert D. van Roijen, Jr.
-39- QUIXOTE CORPORATION & SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the years ended June 30, 1998, 1997 and 1996
Column A Column B Column C Column D(a) Column E - -------- -------- ----------- ----------- --------- Additions Balance at Charged to Balance at Beginning of Costs and End of Description Period Expenses Deductions Period - ----------- ------------ ---------- ----------- --------- Deducted from Receivables: Allowance for Doubtful Accounts: Year ended June 30, 1998 $ 165,000 $ 405,000 $ 5,000 $ 565,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Year ended June 30, 1997 $ 165,000 $ 2,000 $ 2,000 $ 165,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Year ended June 30, 1996 $ 160,000 $ 21,000 $ 16,000 $ 165,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NOTES: (a) Column D represents accounts written off as uncollectable, net of collections on accounts previously written off. (b) Column C additions for 1998 include $400,000 related to the acquisition of Highway Information Systems. -40- EXHIBIT INDEX
EXHIBIT NUMBER EXHIBITS ---------------------- ----------------------------------------------- 3(b) AMENDED AND RESTATED BY-LAWS OF QUIXOTE CORPORATION 10(a) FIRST AMENDMENT TO THE REVOLVING CREDIT AGREEMENT DATED MAY 31, 1998 10(c) QUIXOTE CORPORATION 1991 DIRECTOR STOCK OPTION PLAN AMENDED AUGUST 21, 1998 10(d)1 QUIXOTE CORPORATION 1993 LONG-TERM STOCK OWNERSHIP INCENTIVE PLAN AS AMENDED AUGUST 21, 1998 10(d)2 RETIREMENT AWARD AGREEMENT DATED AS OF FEBRUARY 19, 1998 BETWEEN QUIXOTE CORPORATION AND JOAN R. RILEY 10(f) CHANGE OF CONTROL AGREEMENT DATED DECEMBER 1, 1997 BETWEEN QUIXOTE CORPORATION AND JOAN R. RILEY 10(g) SUMMARY PLAN DESCRIPTION FOR QUIXOTE CORPORATION'S INCENTIVE SAVINGS PLAN 21 SUBSIDIARIES OF THE COMPANY. 23 CONSENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. 27 FINANCIAL DATA SCHEDULE
-41- EX-3.(B) 2 EXHIBIT 3(B) EXHIBIT 3(b) AMENDED AND RESTATED BY-LAWS OF QUIXOTE CORPORATION (A Delaware Corporation) as adopted on March 16, 1991, and as amended through July 13, 1998 (the Corporation was named Energy Absorption Systems, Inc. from July 14, 1969 to June 30, 1980) ARTICLE I OFFICES AND RECORDS SECTION 1.1. DELAWARE OFFICE. The principal office of the Corporation in the State of Delaware shall be located in the City of Wilmington, County of New Castle, and the name and address of its registered agent is The Corporation Trust Company, No. 100 West Tenth Street, Wilmington, Delaware. SECTION 1.2. OTHER OFFICES. The Corporation may have such other offices, either within or without the State of Delaware, as the Board of Directors may designate or as the business of the Corporation may from time to time require. SECTION 1.3. BOOKS AND RECORDS. The books and records of the Corporation may be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors. ARTICLE II STOCKHOLDERS SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders of the Corporation shall be held on such date and at such place and time during the period commencing at 12:01 A.M. (Chicago Time) on October 1 and ending 11:59 P.M. (Chicago Time) on December 10 in each year as may be fixed by resolution of the Board of Directors adopted at least ten days prior to the date so fixed, for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. If, in any year the Board of Directors shall not fix an annual meeting date, place and time by the end of the 10th day next preceding the third Friday of October in that year, then the date, place and time of the annual meeting in such year shall be on the third Friday of October at the principal office of the Corporation in Chicago, Illinois at the hour of 10:30 A.M. (Chicago Time). If the date of the annual meeting shall be a legal holiday in the State where such meeting is to be held, such meeting shall be held on the next succeeding business day. SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders shall be called at any time by the Chairman, President or a majority of the Board of Directors. SECTION 2.3. PLACE OF MEETING. The Board of Directors may designate the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made by the Board of Directors or if a special meeting be otherwise called, the place of meeting shall be the principal office of the Corporation in Chicago, Illinois. SECTION 2.4. NOTICE OF MEETING. Written or printed notice stating the date, place and time of the meeting, and, in the case of a special meeting, the purpose and purposes for which the meeting is called, shall be given as required by the General Corporation Law of the State of Delaware. SECTION 2.5. FIXING OF RECORD DATE. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date to be not less than ten (10) days nor more than sixty (60) days prior to the date of the meeting or of the payment of a dividend or such other event. If no record date is fixed, the record date for such determination of stockholders shall be (a) the close of business on the day next preceding the date on which notice of the meeting is mailed, (b) the date on which the resolution of the Board of Directors declaring such dividend is adopted, or (c) the date on which notice is given to stockholders involving an event requiring a record date, as the case may be. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. SECTION 2.6. QUORUM. A majority of the outstanding shares entitled to vote shall constitute a quorum at meetings of stockholders, except that when specified business is to be voted on by a class or series, voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum for the transaction of such business. At all meetings of stockholders all questions shall be determined by a majority vote of the stockholders entitled to vote present in person or by proxy, except as otherwise provided by law or the Certificate of Incorporation or these By-Laws. SECTION 2.7. PROXIES. At all meetings of stockholders, a stockholder may vote by proxy. Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy, the following are valid means of granting such authority. A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. A stockholder may also authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. No proxy shall be valid after eleven (11) months from the date of its execution, unless the proxy shall otherwise provide. SECTION 2.8. JUDGES OF ELECTION. The Secretary of the Corporation, or any Assistant Secretary of the Corporation in the absence of the Secretary, shall serve as the Judge of each meeting of stockholders, provided, however, that the Chairman of the Board of the Corporation at his discretion may appoint, in place of the Secretary or any Assistant Secretary of the Corporation, three (3) judges of election to serve with respect to such meeting of stockholders, and if any judge so appointed shall refuse to serve or shall not be present at such stockholders' meeting, he shall be replaced by the Chairman of the Board of Directors in advance of such meeting or in advance of any voting at such meeting. All voting at stockholders' meetings shall be conducted solely under the direction of the judge(s), and the decision of the judge, or a majority of the judges if more than one, as to the outcome of all voting at such meetings shall be binding upon the Corporation and its stockholders in the absence of actual fraud in the decision of the judge(s). Any competent person over the age of 21 may be appointed as a judge of election. (a) In fulfilling the obligations hereunder, the judge(s) shall have the following responsibilities: (1) to determine whether the meeting itself is legally constituted for the purpose of the stockholders' action; (2) to determine the validity and effect of proxies and the authority of the person or persons designated in such proxies to vote pursuant thereto; (3) to determine the validity and effect of ballots cast for the matters to be voted on by the stockholders; and (4) to do all other acts and make all other determinations necessary or appropriate in connection with conducting the voting and deciding the results thereof. (b) In discharging any or all of the aforementioned responsibilities, the judge(s) (1) shall not have the duty of determining the names or addresses of the registered stockholders of the Corporation entitled to vote at such meeting, but may rely on a dated list of such stockholders if certified by either the transfer agent or the Secretary of the Corporation and if the date of such list coincides with the record date as fixed pursuant to these By-Laws, and (2) shall not have the duty of determining the date of mailing of the notices of the meeting or the persons to whom notices were sent, but may rely on a certificate of the transfer agent or the Secretary of the Corporation containing such information. (c) To aid them in carrying out any of the aforementioned duties, the judge(s) shall have the authority, but not the obligation, to appoint agents, including, but not necessarily limited to, accountants, attorneys and custodians. Any such agents so appointed shall be responsible only to the judge(s). (d) The judge(s) shall be entitled to possession of all ballots, together with any accompanying proxies, cast by the stockholders. The judge(s) shall retain possession, but not necessarily the physical custody, of such ballots and proxies until they have determined the results of the election, at which time they shall deliver such ballots and proxies, and certify the results of the election, to the secretary of the meeting. (e) Judge(s) shall be entitled to reimbursement from the Corporation for all expenses reasonably incurred by them in connection with the discharge of their responsibilities as judges, including fees and expenses of any agents appointed pursuant to the provisions of these By-Laws, and, in addition, the Corporation shall pay the judge(s) a fee commensurate with the services rendered and the responsibilities undertaken by them. ARTICLE III BOARD OF DIRECTORS SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation shall be managed by its Board of Directors. In addition to the powers and authority expressly conferred upon them by these By-Laws, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders. SECTION 3.2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the Corporation shall be six. Each director shall hold office until the third succeeding annual meeting of stockholders or until his successor shall have been elected and qualified. Directors need not be residents of the State of Delaware or stockholders of the Corporation. Directors may be nominated for office in advance of the annual meeting of stockholders. SECTION 3.3. CLASSES OF DIRECTORS. As provided in the Certificate of Incorporation, the directors shall be divided into three classes, as nearly equal in number as possible. At each annual meeting, directors to replace those whose term expires at such annual meeting shall be elected to hold office until the third succeeding annual meeting or until his successor shall have been elected and qualified. If the number of directors is changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as possible. No decrease in the Board shall shorten the term of any incumbent director. As used in these By-Laws, "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. Except as otherwise provided in the Certificate of Incorporation or the By-Laws, vacancies occurring in the Board of Directors may be filled for the unexpired term by a majority vote of the remaining directors. SECTION 3.4. CONDUCT OF MEETINGS. The Board of Directors shall adopt such rules and regulations for the conduct of the meetings and management of the affairs of the Corporation as it may deem proper, not inconsistent with the laws of the State of Delaware or these By-Laws. As soon as practicable after the annual meeting of stockholders, the Board of Directors shall meet for the purpose of organization and the transaction of business. SECTION 3.5. REGULAR MEETINGS. The Board of Directors may, by resolution, provide the time and place for the holding of regular meetings without other notice than such resolution. SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be called at the request of the Chairman of the Board, the President or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix the place and time for such meetings. SECTION 3.7. NOTICE. Notice of any special meeting shall be given to each director at his business address in writing or by telegram or by telephone communication. If mailed, such notice shall be deemed adequately delivered when deposited in the United States mail so addressed, with postage thereon prepaid at least five (5) days before such meeting. If by telegram, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company at least twenty-four (24) hours before such meeting. If by telephone, the notice shall be given at least twelve (12) hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these By-Laws as provided under Article VII. Notice of any special or regular meeting shall be waived if the director is present at any special or regular meeting. SECTION 3.8. QUORUM. A majority of the number of directors fixed by Section 3.2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at the meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. The directors present at a duly organized meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough directors to leave less than a quorum. SECTION 3.9 VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors. If the vacancy occurs less than sixty days before the annual meeting of stockholders, the director shall serve until the annual meeting succeeding the next annual meeting of stockholders, at which such meeting the stockholders shall appoint the director to fill the term of director If the vacancy occurs greater than sixty days before the annual meeting of stockholders, the director shall serve until the next annual meeting of stockholders at which such meeting the stockholders shall appoint the director to fill the term. If the size of the Board of Directors is enlarged or increased and a director is appointed to fill the new directorship, the Board of Directors may designate the term of the director appointed to fill the new directorship. No decrease in the size of the Board of Directors shall shorten the term of any incumbent director. SECTION 3.10 COMMITTEES. The Board of Directors, by resolution or resolutions passed by three-fourths of the entire Board of Directors, may designate from among its members an executive committee and other committees, each consisting of three or more directors, and each of which, to the extent provided in the Certificate of Incorporation, the By-Laws and in such resolution or resolutions, shall have the authority of the Board of Directors, except as may be provided otherwise by law. The Chairman of the Board and the President shall be members EX OFFICIO of any executive committee or finance committee. An executive committee or any other committee shall act only at such times as the Board of Directors is not in session and in no case to the exclusion of the right of the Board of Directors at any time to act as a Board upon any business of the Corporation. Each such committee shall cease to exist and function in any capacity upon the termination of its authority by resolution or resolutions passed by a majority of the entire Board of Directors. All action by any committee of the Board of Directors shall be referred to the Board of Directors at its meeting next succeeding such action, and shall be subject to revision or alteration by the Board of Directors, provided that no rights or acts of third parties shall be affected by any such revision or alteration. Subject to such applicable resolutions as may be adopted by the Board, each committee shall fix its own rules of procedure and shall meet where and as provided in such rules, but in any case the presence of a majority shall be necessary to constitute a quorum. ARTICLE IV OFFICERS SECTION 4.1. ELECTED OFFICERS. The elected officers of the Corporation shall be a Chairman of the Board, President, one or more Vice Presidents (the number thereof to be determined by the Board of Directors and one or more of whom may be designated as Executive Vice President), a Secretary, a Corporate Record Keeper, a Treasurer, and one or more Assistant Secretaries and one or more Assistant Treasurers (the number thereof to be determined by the Board of Directors). Any two or more offices may be held by the same person, except the offices of President and Secretary or Assistant Secretary. The Board of Directors may create such other office or offices from time to time as shall in its judgment be necessary or convenient and shall have power to prescribe the duties and authority of the officers elected thereto by the Board of Directors. SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed. SECTION 4.3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the chief executive officer of the Corporation and shall preside at all meetings of the Board of Directors and of the stockholders. He shall exercise the powers and perform the duties usual to the chief executive officer and have general responsibility for the business and affairs of the Corporation. Subject to the control and direction of the Board of Directors, the Chairman of the Board shall define the Corporation's long-term objectives, and consider and evaluate particular markets for the Corporation's future activities, as well as be generally responsible for the business and affairs of the Corporation. He shall see that all orders and resolutions of the Board of Directors are carried into effect and shall do and perform such other duties as from time to time may be assigned to him by the Board of Directors or these By-laws, and as are incident to the office of the chief executive officer. The Chairman of the Board shall have the power to execute bonds, mortgages and other contracts, agreements and instruments of the Corporation. SECTION 4.4. PRESIDENT. The President shall be the chief operating and administrative officer of the Corporation, and subject to the control and direction of the Board of Directors and the Chairman of the Board, shall direct, supervise and administer the affairs and daily operation of the business of the Corporation, including but not limited to supervision of the operations, performance and direction of the Corporation's subsidiaries and their activities. In the absence or disability of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors and of the stockholders, and otherwise shall exercise all of the duties of the Chairman of the Board. The President shall have the power to execute bonds, mortgages and other contracts, agreements and instruments of the Corporation and to perform such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board, or these By-Laws and as are incident to the office of President. SECTION 4.5. VICE PRESIDENTS. The Vice Presidents, one or more of whom may be designated Executive or Administrative Vice Presidents, shall perform such duties in such capacities or as heads of their respective operating divisions as may be assigned by the Board of Directors, the Chairman of the Board or the President and shall report to such person or persons with respect to the performance of such duties as the Board of Directors, the Chairman of the Board or the President may from time to time specify. In the absence or incapacity of the Chairman of the Board and the President, the duties of the offices of the Chairman of the Board and President shall be performed by the Vice Presidents in the order of priority established by the Board, and unless and until the Board of Directors shall otherwise direct. SECTION 4.6. SECRETARY TO THE BOARD OF DIRECTORS. The Secretary to the Board of Directors shall have the duty to record the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose, and such other duties as the Board of Directors may delegate to implement their activities. SECTION 4.7. CORPORATE RECORD KEEPER. The Corporate Record Keeper shall (a) see that all notices are duly given in accordance with the provisions by these By-Laws or as required by law; (b) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (c) keep a register of the post office address of each stockholder which shall be furnished to the Corporate Record Keeper by such stockholder; (d) sign with the President or Vice President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (e) have general charge of the stock transfer books of the Corporation; and (f) in general perform all duties incident to the office of Corporate Record Keeper and such other duties as from time to time may be assigned to him by the President or the Board of Directors. SECTION 4.8. TREASURER. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall (a) have charge and custody of and be responsible for all funds and securities of the Corporation, (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsover, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall be selected by the Board of Directors, and (c) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or the Board of Directors. SECTION 4.9. CONTROLLER. The Board of Directors may elect a Controller who shall be responsible for all accounting and auditing functions of the Corporation and who shall perform such other duties as may from time to time be required of him by the Board of Directors. SECTION 4.10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant Secretary, or any of them if there be more than one, may sign with the Chairman or Vice-Chairman of the Board of Directors, President or a Vice President certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and may attest the execution of contracts and other documents on behalf of the Corporation by duly authorized officers of the Corporation by affixing the corporate seal to such contracts and other documents. The Assistant Treasurer, or any of them if there be more than one, shall, if required by the Board of Directors, give bond for the faithful discharge of his duties with such sums and with such sureties as the Board of Directors shall determine. In general, the Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. The Assistant Secretaries in the order of their election, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary. The Assistant Treasurers, in order of their election, shall in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. SECTION 4.11. APPOINTIVE OFFICERS. Subject to the approval of the Chairman of the Board, the President may appoint other officers and agents on a division basis or otherwise, as such divisions or other operating units are created by the Board of Directors, and such other officers and agents shall receive such compensation, have such tenure and exercise such authority as the President shall specify. All appointments made by the President hereunder and all terms and conditions thereof must be reported to the Board of Directors. No appointive officer shall have any contractual rights against the corporation for compensation by virtue of such appointment beyond the date of the appointment of his successor, his death, his resignation, or his removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan. SECTION 4.12. SALARIES. The salaries of the elected officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. SECTION 4.13. REMOVAL. Any officer elected by the Board of Directors may be removed by the vote of three-fourths of the entire Board of Directors. No elected officer shall have any contractual rights against the Corporation for the compensation by virtue of such election beyond the date of the election of his successor, his death, his resignation or his removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan. SECTION 4.14. VACANCIES. A newly created office or a vacancy in any office because of death, resignation, or removal may be filled by the Board of Directors for the unexpired portion of the term at any meeting of the Board of Directors. ARTICLE V STOCK CERTIFICATES AND TRANSFERS SECTION 5.1. CERTIFICATES FOR SHARES. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary and sealed with the corporate seal. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued and dates of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. SECTION 5.2. TRANSFER OF SHARES. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder or record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by a power of attorney duly executed, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of July and end on the thirtieth day of June of each year. SECTION 6.2. DIVIDENDS. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Certificate of Incorporation. SECTION 6.3. SEAL. The corporate seal may bear the emblem of some object, and shall have inscribed thereunder the words "Corporation Seal" and around the margin thereof the words "QUIXOTE CORPORATION, Delaware". SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is required to be given to any stockholders or any director of the Corporation under the provisions of the General Corporation Law of the State of Delaware, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors need be specified in any waiver of notice of such meeting. SECTION 6.5. AUDITS. In the discretion of the Board of Directors the accounts, books and records of the Corporation may be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors. SECTION 6.6. RESIGNATIONS. Any director or any officer, whether elected or appointed, may resign at any time by serving written notice of such resignation on the President or the Secretary, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the President or Secretary. No formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective. SECTION 6.7. PUBLIC CONTRACTS. The following officers of the Corporation, or any of them, or any other person from time to time designated in writing by any one of said officers, are authorized to offer, make, sign, execute, submit, deliver and perform for and on behalf of the Corporation, or any operating divisions thereof, any bid or proposal or agreement or contract of this Corporation in connection with the offer for sale or sale of products or property to the United States, any state, any municipality, or any political subdivision, department, division, authority, commission or agency of any thereof, and to include in such bid, proposal, agreement or contract, or in any or all of them, any certificate as to non-collusion required by applicable law, as the act and deed of the Corporation, and for any inaccuracies or misstatements in such certificate the Corporation shall be liable under the penalties of perjury: The Chairman of the Board, the President, any Vice President, the Secretary, the Treasurer, any Assistant Secretary, any Assistant Treasurer, or any appointed divisional President or Vice President. ARTICLE VII AMENDMENTS SECTION 7.1. AMENDMENTS. The Board of Directors may make, alter, amend or repeal any of the By-Laws by the affirmative vote of at last a majority of the members of the entire Board of Directors as fixed by Section 3.2 of Article III of these By-Laws. ARTICLE VIII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS SECTION 8.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Except as prohibited by law, each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative including an internal corporation investigation or appeal ("Proceeding"), by reason of the fact that he is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan, or any other enterprise, shall be indemnified against expenses, attorneys' fees and disbursements, judgments, fines, excise taxes, other penalties, and amounts paid in settlement actually and reasonably incurred by him in connection with such Proceeding to the full extent permitted by law. Such indemnification shall extend to the payment of judgments against the directors and officers and to reimbursement of amounts paid in settlement of such claims or actions, and may apply to judgments in favor of the Corporation or amounts paid in settlement to the Corporation. The foregoing right of indemnification shall inure to each such director and officer, whether or not he is a director or officer at the time such cost or expenses are imposed or incurred, and whether or not the claim asserted against him is based on acts or omissions which occurred prior to or after the adoption of this By-law if the Proceeding is commenced after the adoption hereof, and in the event of his death, shall extend to his heirs, executors, and administrators. If the director or officer is determined to be not entitled to full indemnification, he shall have the right to partial indemnification to the full extend permitted by law. The right of indemnification provided in this Article shall not be exclusive of any other rights to which such director or officer may be entitled. The foregoing provisions of this Section 8.1 shall be deemed to be a contract between the Corporation and each director and officer who serves in such capacity at any time while this Article VIII and the relevant provisions of the General Corporation Law and other applicable law, if any, are in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing, with respect to any state of facts then or theretofore existing, or any Proceeding theretofore, or thereafter brought or threatened based in whole or in part upon any such state of facts. SECTION 8.2. INDEMNIFICATION OF OTHER PERSONS. Except as prohibited by law, each person who was or is a party or threatened to be made a party to any Proceeding by reason of the fact that he is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, may be entitled to indemnification against expenses, attorneys' fees and disbursements, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the expense or settlement of such Proceeding to the fullest extent permitted by law; provided that such employee or agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the interests of the Corporation or such other entity and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. SECTION 8.3. ADVANCEMENT OF EXPENSES. Expenses incurred with respect to any Proceeding shall be paid by the Corporation to any person entitled to indemnification pursuant to Sections 8.1 or 8.2 in advance of the final disposition of such Proceeding, upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to be indemnified by the Corporation. SECTION 8.4. INSURANCE AND FUNDING. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, trustee, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, trustee, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability. The Corporation may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to assure the payment of such sums as may become necessary to effect the indemnification provided herein. EX-10.(A) 3 EXHIBIT 10(A) FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT THIS FIRST AMENDMENT (this "FIRST AMENDMENT"), dated as of May 31, 1998, is among QUIXOTE CORPORATION, a Delaware corporation ("QUIXOTE"), ENERGY ABSORPTION SYSTEMS, INC., a Delaware corporation ("EAS"), QUIXOTE LASER CORPORATION (f/k/a Disc Manufacturing, Inc.), a Delaware corporation ("DMI"), QUIXOTE STENO CORPORATION (f/k/a Stenograph Corporation), a Delaware corporation ("STENOGRAPH"), LEGAL TECHNOLOGIES, INC., a Delaware corporation ("LTI"), TRANSAFE CORPORATION, a Delaware corporation ("TRANSAFE"), LITIGATION COMMUNICATIONS, INC., a Delaware corporation ("LCI") SPIN-CAST PLASTICS, INC., an Indiana corporation ("SPIN-CAST"), QUIXOTE LSI CORPORATION (f/k/a Litigation Services, Inc.), a Delaware corporation ("LSI"), E-TECH TESTING SERVICES, INC., a Delaware corporation ("E-TECH"), ROADWAY SAFETY SERVICE, INC., a Delaware corporation ("ROADWAY"), and SAFE-HIT CORPORATION, a Nevada corporation ("SAFE-HIT"), certain lenders signatory hereto ("LENDERS"), and THE NORTHERN TRUST COMPANY, an Illinois banking corporation, as agent for the Lenders hereunder ("AGENT"). Quixote, EAS, DMI, LTI, Stenograph, Transafe, LCI, Spin-Cast, LSI, E-Tech, Roadway and Safe-Hit are individually and collectively referred to herein as "BORROWER." This First Amendment shall amend that certain Amended and Restated Loan Agreement dated as of June 30, 1997 among the Borrower, the Lenders and the Agent (the "LOAN AGREEMENT"). WITNESSETH: WHEREAS, the Borrower, the Lenders and the Agent are parties to the Loan Agreement; and WHEREAS, the Borrower, the Lenders and the Agent desire to amend the Loan Agreement in certain respects as set forth herein; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. AMENDMENTS TO THE LOAN AGREEMENT. 1.1 TERMS USED. Terms used but not otherwise defined herein are used with the same meanings as provided therefor in the Loan Agreement. 1.2 SECTION 1. Section 1 of the Loan Agreement is hereby amended as of the date hereof by deleting the definition of "Base Rate" in its entirety and the following is hereby inserted in lieu thereof: "Base Rate" shall mean that rate of interest per year announced from time to time by Agent called its prime rate, which rate may not at any time be the lowest rate charged by Agent. Changes in the rate of interest on the Revolving Credit Loan or the Term Loan resulting from a change in the Base Rate shall take effect on the date set forth in each announcement for a change in the Base Rate. 2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby remakes, as at the date of execution hereof, all of the representations and warranties set forth in Section 4 of the Loan Agreement as amended hereby and additionally represents and warrants that: (a) the borrowings under the Loan Agreement as amended hereby, the execution and delivery by the Borrower of this First Amendment and the performance by the Borrower of its obligations under this First Amendment and the Loan Agreement as amended hereby are within the Borrower's corporate powers, have been authorized by all necessary corporate action, have received all necessary governmental approval (if any shall be required) and do not and will not contravene or conflict with any provision of law or of the charter or by-laws of the Borrower or any subsidiary or of any agreement binding upon the Borrower or any subsidiary; and (b) no Default or Event of Default under the Loan Agreement as amended hereby has occurred and is continuing on the date of execution hereof. 3. CONDITIONS OF EFFECTIVENESS. The effectiveness of this First Amendment is subject to the conditions precedent that the Agent shall have received all of the following, each duly executed and dated the date hereof, in form and substance satisfactory to the Agent and its counsel, at the expense of the Borrower, and in such number of signed counterparts as the Agent may request: (a) FIRST AMENDMENT. This First Amendment; (b) RESOLUTIONS/INCUMBENCY. A certificate from the Secretary or Assistant Secretary of each Borrower certifying the name(s) of the officer or officers of the Borrower authorized to sign this First Amendment and the other documents provided for in this First Amendment, together with a sample of the true signature of each such officer (the Agent may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein) and true copies of a resolutions of the Board of Directors of each Borrower authorizing or ratifying the execution, delivery and performance, of this First Amendment, the Loan Agreement as amended hereby, and the other documents provided for in this First Amendment; (c) NO DEFAULT - REPRESENTATIONS ACCURATE. A certificate of each Borrower, dated the date hereof, that (i) no Default or Event of Default has occurred and is continuing and (ii) all representations and warranties contained in the Loan Agreement as further amended hereby are true and complete as of the date hereof; and (d) MISCELLANEOUS. Such other documents as the Agent may request. 4. MISCELLANEOUS. 4.1 COUNTERPARTS. This First Amendment 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. 4.2 SUCCESSORS AND ASSIGNS. This First Amendment and the Loan Agreement as amended hereby shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agent and their respective successors and assigns. 4.3 CAPTIONS. Captions in this First Amendment are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 4.4 FEES. The Borrower agrees to pay or reimburse the Agent for all reasonable costs and expenses of preparing and seeking advice in regard to this First Amendment and any document or instrument executed in connection herewith and therewith (including legal fees and reasonable time charges of attorneys who may be employees of the Agent, whether in or out of court, in original or appellate proceedings or in bankruptcy). 4.5 CONSTRUCTION. THIS FIRST AMENDMENT, THE LOAN AGREEMENT AS AMENDED HEREBY AND ANY DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. AGENT, EACH LENDER AND BORROWER AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY OBJECTION AS TO VENUE IN THE COUNTY OF COOK, STATE OF ILLINOIS. BORROWER AGREES NOTHING HEREIN SHALL PRECLUDE AGENT, ANY LENDER OR BORROWER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. 4.6 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 ACTON, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS FIRST AMENDMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY OF THE OTHER AGREEMENTS. 4.7 AMENDMENT TO LOAN AGREEMENT. This First Amendment shall be deemed to be an amendment to the Loan Agreement. All references to the Loan Agreement in any other document or instrument shall be deemed to refer to the Loan Agreement as amended hereby. As hereby amended, the Loan Agreement is hereby ratified and confirmed in each and every respect. [signature page to follow] IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their duly authorized officers as of the day and year first written above. THE NORTHERN TRUST COMPANY, as Agent and as Lender By: /s/ Robert T. Jank Name: Robert T. Jank Title: Senior Vice President LASALLE NATIONAL BANK, as Lender By: /s/ Joseph D. Stewart Name: Joseph D. Stewart Title: Assistant Vice President AMERICAN NATIONAL BANK AND TRUST COMPANY, as Lender By:/s/ Kyle Freimuth Name: Kyle Freimuth Title: Assistant Vice President QUIXOTE CORPORATION ENERGY ABSORPTION SYSTEMS, INC. By: /s/ Leslie J. Jezuit By: /s/ Leslie J. Jezuit Name: Leslie J. Jezuit Name: Leslie J. Jezuit Title(s): President and COO Title(s): Vice Chairman QUIXOTE LASER CORPORATION QUIXOTE STENO CORPORATION (f/k/a Disc Manufacturing, Inc.) (f/k/a Stenograph Corporation) By: /s/ Leslie J. Jezuit By: /s/ Leslie J. Jezuit Name: Leslie J. Jezuit Name: Leslie J. Jezuit Title(s): President Title(s): President LEGAL TECHNOLOGIES, INC. TRANSAFE CORPORATION By: /s/ Leslie J. Jezuit By: /s/ Leslie J. Jezuit Name: Leslie J. Jezuit Name: Leslie J. Jezuit Title(s): President Title(s): Present & COO LITIGATION COMMUNICATIONS, INC. SPIN-CAST PLASTICS, INC. By: /s/ Leslie J. Jezuit By: /s/ George D. Ebersole Name: Leslie J. Jezuit Name: George D. Ebersole Title(s): President Title(s): President & COO QUIXOTE LSI CORPORATION SAFE-HIT CORPORATION (f/k/a Litigation Sciences, Inc.) By: /s/ Leslie J. Jezuit By: /s/ George D. Ebersole Name: Leslie J. Jezuit Name: George D. Ebersole Title(s): President Title(s): Chairman & President E-TECH TESTING SERVICES, INC. ROADWAY SAFETY SERVICE, INC. By: /s/ George D. Ebersole By: /s/ Leslie J. Jezuit Name: George D. Ebersole Name: Leslie J. Jezuit Title(s): Chairman of the Board Title(s): President & COO EX-10.(C) 4 1991 DIRECTOR STOCK OPTION PLAN QUIXOTE CORPORATION 1991 DIRECTOR STOCK OPTION PLAN AMENDED AUGUST 21, 1998 1. PURPOSE This Stock Option Plan (the "Plan") is intended as an incentive to encourage stock ownership by certain Directors of QUIXOTE CORPORATION (the "Corporation") so that they may acquire or increase their proprietary interest in the success of the Corporation and to encourage them to continue to render their services to the Corporation as Directors. It is further intended that options granted pursuant to this Plan may constitute "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code, as amended (the "Code"), if they satisfy the various requirements specified under Code Sec. 422A. Otherwise, options granted pursuant to this Plan shall be "nonqualified stock options". 2. ADMINISTRATION The Plan shall be administered by a committee appointed by the Board of Directors of the Corporation (the "Committee"). The Committee shall consist of all members of the Corporation's Board of Directors unless the Board adopts a resolution naming other individuals to serve on the Committee. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it may determine. A majority of the Committee at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The Committee shall from time to time at its discretion recommend to the Board of Directors with respect to the Directors who shall be granted options and the amount of stock to be optioned to each. The interpretation and construction by the Committee of any provisions of the Plan or of any option granted under it shall be final unless otherwise determined by the Board of Directors. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. 3. ELIGIBILITY The persons who shall be eligible to receive options shall be Directors of the Corporation as the Board of Directors shall select from time to time from among those nominated by the Committee, provided however, that only Directors who are also employees of the Corporation shall be eligible to receive "incentive stock options" under this Plan. An optionee may hold more than one option, but only on the terms and subject to the restrictions hereafter set forth. No person shall be eligible to receive an option for a larger number of shares of stock than is recommended for him by the Committee, and in no event shall any optionee in any calendar year receive options under this Plan for stock with an aggregate fair market value (determined at the time of the grant of the option) in excess of the limitations set forth in Section 5(b) of the Plan. The number of shares of stock with respect to which option rights under the Plan may be granted to any individual during the term of the Plan shall not exceed 90,000 shares, subject to adjustment as provided in Section 5(g) of the Plan. 4. STOCK The stock subject to options under the Plan shall be shares of the Corporation's authorized but unissued or reacquired $.01-2/3 par value common stock, hereafter sometimes called Common Stock. The aggregate number of shares that may be issued under options shall not exceed 539,445 shares of Common Stock. The limitations established by each of the preceding sentences shall be subject to adjustment as provided in Section 5(g) of the Plan. In the event that any outstanding option under the Plan for any reason expires or is terminated, the shares of Common Stock allocable to the unexercised portion of such option may again be subjected to an option under the Plan. 5. TERMS AND CONDITIONS OF OPTIONS Stock options granted under the Plan shall be authorized by the Board of Directors and shall be evidenced by agreements in such form as the Committee shall from time to time recommend and the Board of Directors shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions: (a) OPTIONEE'S AGREEMENT Each optionee shall agree to render to the Corporation his services as a Director (1) for a period of one year from the date of the option, or (2) until his death, whichever first occurs, but such agreement shall not impose upon the Corporation any obligation to retain the optionee in any capacity for any period; provided, however, the agreement shall permit an optionee to exercise the option after a "change of control" (as defined at Section 5(g)) notwithstanding the optionee's failure to have served as a Director for one year from the date of grant. (b) NUMBER OF SHARES Each option shall state the number of shares to which it pertains. Options granted under this Plan may be considered "incentive stock options" as defined in Code Sec. 422A to the extent that the aggregate fair market value of stock (determined at the time the option is granted) with respect to which any such option is exercisable for the first time in a calendar year is not more than $100,000. (c) OPTION PRICE Each option shall state the option price, which shall be not less than 100% of the current market price of the shares of Common Stock of the Corporation on the date of the granting of the option; provided, that in the event an optionee owns stock representing more than ten percent of the voting power or value of the stock of the Corporation on the date of grant, the option price of an option which is intended to qualify as an "incentive stock 2 option" shall not be less than 110% of the current market price of the shares on the date of grant. The current market price of the Common Stock at any date shall be deemed to be the average of the daily closing prices for the thirty (30) consecutive business days before the date in question. The closing price for each day shall be the last reported sale price determined in the regular way or, in case no such reported sale takes place on such day, the average of the last reported bid and asked prices determined in the regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any national securities exchange, the average of highest reported bid and lowest reported asked prices as reported by NASDAQ or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price as determined by the Board of Directors. Subject to the foregoing, the Board of Directors and the Committee shall have full authority and discretion in fixing the option price and be fully protected in doing so. (d) MEDIUM AND TIME OF PAYMENT The option price is to be paid in full in United States dollars upon the exercise of the option and may be paid in cash or by check, or with the approval of the Committee, by the optionee tendering to the Corporation shares of common stock of the Corporation owned by him and having a fair market value (determined at the time the Corporation receives written notice of the optionee's election to exercise the option) equal to the aggregate exercise price of the options being exercised. With the approval of the Board of Directors, the optionee may borrow from the Corporation all or any portion of the funds needed to pay the option price on such terms and conditions as the Committee deems appropriate, provided that: (1) the interest rate for any such loan by the Corporation shall not be less than the "applicable federal rate" (as defined by Code Section 1274(d)(1)(A) in effect on the date of such loan or any other rate as necessary to avoid the imputation of interest under the Code or other applicable law, (2) proceeds of the loan are used solely to pay the exercise price of an option granted pursuant to this Plan, and (3) the optionee executes a promissory note and such other documents as the Committee deems appropriate to evidence the optionee's indebtedness to the Corporation. (e) TERM AND EXERCISE OF OPTIONS Subject to this Section 5(e) and Sections 5(f) and 5(g) of this Plan, no option shall be exercised either in whole or in part prior to twelve months from the date it is granted. Subject to the right of cumulation provided in this Section 5(e), each option granted pursuant to the Plan shall be exercisable to the extent provided for in the agreement between the Corporation and each optionee as determined by the Committee in its discretion. The Committee may provide, however, for the exercise of options after the initial twelve month period, either as to an increased percentage of shares per year or as to all remaining shares, if the optionee shall, with the approval of the Corporation, retire as a Director of the Corporation. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, in any subsequent period, prior to the expiration of the term described in the next sentence of this Section 5(e). No option shall be exercisable after the expiration of ten years from the date it is granted, provided that in the event the optionee owned stock representing more than ten 3 percent (10%) of the voting power or value of the stock of the Corporation on the date the option was granted, any option which is intended to qualify as an "incentive stock option" must be exercised within five (5) years from the date of grant. During the optionee's lifetime, the options granted under this Plan may be exercised only by him. (f) DEATH OF OPTIONEE AND TRANSFER OF OPTION If the optionee shall die and shall not have fully exercised the option, the entire unexercised portion of the option may be exercised within one year from the date of the optionee's death by the executors or administrators of the optionee or by any person or persons who shall have acquired the option directly from the optionee by bequest or inheritance, subject to the condition that no option shall be exercisable after the expiration of ten years (five years for an option which is intended to qualify as an "incentive stock option" to an optionee who owned more than ten percent of the value or voting power of the stock of the Corporation on the date of grant) from the date it is granted. No option shall be assignable or transferable by the optionee otherwise than by will or the laws of descent and distribution. (g) RECAPITALIZATION Subject to any required action by the stockholders, the number of shares of Common Stock covered by each outstanding option, and the price per share thereof in each such option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock of the Corporation resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such shares effected without receipt of consideration by the Corporation. Subject to any required action by the stockholders, if the Corporation shall be the surviving corporation in any merger or consolidation, each outstanding option shall pertain to and apply to the securities to which a holder of the number of shares of Common Stock subject to the option would have been entitled. A dissolution or liquidation of the Corporation, or a merger or consolidation in which the Corporation is not the surviving corporation, or a change in control of the Corporation, as defined, shall cause each optionee to have the right to exercise his option in whole or in part, notwithstanding the provisions of Section 5(e) above: (i) immediately prior to such dissolution or liquidation or merger or consolidation in which the Corporation is not the surviving corporation, and thereafter; or (ii) after such change of control. "Change of control" of the Corporation shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act) is, or becomes, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation 4 representing twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities; or, (2) during any period of two consecutive years, individuals who at the beginning of such period constitute all members of the Board of Directors of the Corporation who are not employed by the Corporation (the "Outside Directors") shall cease for any reason to constitute at least a majority of the Outside Directors unless the election of each Outside Director, who was not an Outside Director at the beginning of the period, was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who were Directors at the beginning of the period; or, (3) there shall be consummated (A) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation's Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation or, (4) the stockholders of the Corporation approve a plan or proposal for the liquidation or dissolution of the Corporation. To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final and binding and conclusive; provided that each option granted pursuant to this Plan which could qualify as an "incentive stock option" shall not be adjusted in a manner that causes the option to fail to continue as an "incentive stock option" within the meaning of Code Section 422A. Except as hereinbefore expressly provided in this Section 5(g), the optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any change of control, dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation, and any issue of the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the option. The grant of an option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of its business or assets. 5 (h) RIGHTS AS A STOCKHOLDER An optionee or a transferee of an option shall have no rights as a stockholder with respect to any shares covered by his option until the date of the issuance of a stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 5(g) hereof. (i) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS Subject to the terms and conditions and within the limitations of the Plan, the Committee, with the approval of the Board of Directors, may modify, extend or renew outstanding options granted under the Plan, or accept the surrender of outstanding options (to the extent not theretofore exercised) and authorize the granting of new options in substitution therefor (to the extent not theretofore exercised). The Board of Directors shall not, however, modify any outstanding options so as to specify a lower price or accept the surrender of outstanding options and authorize the granting of new options in substitution therefor specifying a lower price. Notwithstanding the foregoing however no modification of an option shall, without the consent of the optionee, alter or impair any rights or obligations under any option theretofore granted under the Plan. (j) INVESTMENT PURPOSE Each option under the Plan shall be granted on the condition that the stock purchased shall be held for investment purposes, and not with a view to resale or distribution except that in the event the stock subject to such option is registered under the Securities Act of 1933, as amended, or in the event a resale of such stock without such registration would otherwise be permissible, such condition shall be inoperative if in the opinion of counsel for the Corporation such condition is not required under the Securities Act of 1933 or any other applicable law, regulation, or rule of any governmental agency. (k) OTHER PROVISIONS The option agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the option, as the Committee and the Board of Directors of the Corporation shall deem advisable. 6. TERM OF PLAN Options may be granted under the Plan from time to time within a period of ten years from the date the Plan is adopted, or the date the Plan is approved by the Stockholders, whichever is earlier. 6 7. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification as they may have as Directors or as members of the Committee, the members of the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorneys' fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his duties; provided that within sixty (60) days after institution of any such action, suit or proceeding a Committee member shall in writing offer the Corporation the opportunity at its own expense, to handle and defend the same. 8. AMENDMENT OF THE PLAN Upon recommendation of the Committee, the Board of Directors of the Corporation may, insofar as permitted by law, from time to time, with respect to any shares at the time not subject to options, suspend or discontinue the Plan or revise or amend it in any respect whatsoever except that without approval of the stockholders, no such revision or amendment shall change the number of shares subject to the Plan, change the designation of the individuals eligible to receive options, decrease the price at which options may be granted, remove the administration of the Plan from the Committee, or extend the period during which options may be granted. The Board of Directors of the Corporation shall, from time to time, revise, modify, or amend the Plan, in part or in total, without approval of the stockholders, as may be necessary to satisfy the requirements of the Code such that certain stock options which are granted under the Plan may qualify as "incentive stock options" as defined in Code Section 422A and any amendments or revisions thereof. 9. APPLICATION OF FUNDS The proceeds received by the Corporation from the sale of Common Stock pursuant to options will be used for general corporate purposes. 10. NO OBLIGATION TO EXERCISE OPTION The granting of an option shall impose no obligation upon the optionee to exercise such option. 7 Date Plan was adopted by Board of Directors: August 19, 1991 Date Plan was approved by Stockholders: November 19, 1991 Date Plan was amended by Board of Directors: June 25, 1997 Date Plan was amended by Board of Directors: August 28, 1997 Date amended Plan was approved by Stockholders: November 19, 1997 Date Plan was amended by the Board of Directors: August 21, 1998 Date amended Plan was approved by Stockholders: _________, 1998 8 EX-10.(D)1 5 EXHIBIT 10 (D)1 1993 LONG-TERM STOCK OWNERSHIP QUIXOTE CORPORATION 1993 LONG-TERM STOCK OWNERSHIP INCENTIVE PLAN As Amended August 21, 1998 THE PLAN. Quixote Corporation, a Delaware corporation (the "Company"), hereby amends and restates the substantive provisions of the Quixote Corporation 1991 Incentive Stock Option Plan (the "1991 Plan"), to establish the Quixote Corporation 1993 Long-Term Stock Ownership Incentive Plan as set forth herein and as may from time to time be amended (the "Plan"), in order to add provisions which will provide the Company with the ability to provide its senior executives with stock-based retirement benefits linked to increases in the value of the Company's Stock. The Plan is effective as of June 30, 1993 subject to the approval by a majority of the stockholders at the first annual meeting of stockholders held after the Effective Date. Until such time as stockholder approval of the Plan is obtained, the 1991 Plan will continue to exist and operate independently of the Plan. Options granted and outstanding under the 1991 Plan following stockholder approval of the Plan shall be governed by the provisions of the Plan. Nothing in this Plan is intended to, or shall be deemed to, modify, amend or alter any of the rights and benefits of holders of options granted under the 1991 Plan or provide any additional benefits to such holders. 1. PURPOSE The purposes of the Plan are to encourage selected employees of the Company and its Subsidiaries who are capable of having an impact on the performance of the Company to acquire a long-term proprietary interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company's future success and prosperity (thus enhancing the value of the Company for the benefit of its stockholders), and to enhance the ability of the Company and its Subsidiaries to attract and retain qualified individuals upon whom the sustained progress, growth, and profitability of the Company depend. It is further intended that options issued pursuant to this Plan shall constitute "incentive stock options" within the meaning of Sec. 422A of the Internal Revenue Code (such options are referred to herein as "Incentive Stock Options"). In the event that stock options granted pursuant to this Plan do not satisfy the requirements specified under Internal Revenue Code Sec. 422A, such options shall be "nonqualified stock options." 2. DEFINITIONS As used in the Plan, terms defined immediately after their use shall have the respective meanings provided by such definitions and the terms set forth below shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): (a) "Affiliate" is a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the Company. (b) "Award" means options, Retirement Stock Awards or Retirement Cash Awards granted under the Plan. (c) "Award Agreement" has the meaning specified in Section 4(b)(v). (d) "Board" means the Board of Directors of the Company. (e) "Code" means the Internal Revenue Code of 1986, as amended. References to a particular section of the Code shall include references to successor provisions. (f) "Committee" means the committee of the Board appointed pursuant to Section 4. (g) "Company" has the meaning set forth in the introductory paragraph. (h) "Current Market Price" of the Stock means at any date the average of the daily closing prices for thirty (30) consecutive business days commencing no more than forty-five (45) business days before the day in question. The closing price for each day shall be the last reported sales price determined in the regular way or, in case no such reported sales takes place on such day, the average of the last reported bid and asked prices determined in the regular way, in either case on the principal national securities exchange on which the Stock is admitted to trading or listed, or if not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as reported by NASDAQ or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price as determined by the Board. (i) "Disability" means, as relates to the exercise of an Incentive Stock Option after termination of employment, a disability within the meaning of Section 22(e)(3) of the Code, and for all other purposes, a mental or physical condition which, in the opinion of the Committee, renders a Grantee unable or incompetent to carry out the job responsibilities which such Grantee held or the tasks to which such Grantee was assigned at the time the disability was incurred, and which is expected to be permanent or for an indefinite duration exceeding one year. (j) "Effective Date" means June 30, 1993; provided that the Plan and any Retirement Awards granted prior to the 1993 annual meeting of the Company's stockholders are subject to approval of the Plan by the stockholders at such annual meeting. (k) "Grant Date" means the date on which the Committee grants the Award or such later date as specified in advance by the Committee; provided however, that references to the Grant Date of an option under this Plan shall, with respect to options granted under the 1991 Plan prior to stockholder approval of the Plan, refer to the date of grant of such option under the 1991 Plan. (l) "Grantee" means an individual who has been granted an Award. (m) "Including" or "includes" means "including, without limitation," or "includes, without limitation." (n) "1934 Act" means the Securities Exchange Act of 1934, as amended. References to a particular section of, or rule under, the 1934 Act shall include references to successor provisions. 2 (o) "Option Price" means the per share purchase price of Stock subject to an option. (p) "Plan" has the meaning set forth in the introductory paragraph. (q) "Retirement" means a termination of employment with the Company and its Subsidiaries any time after attaining age 60. (r) "SEC" means the Securities and Exchange Commission. (s) "Section 16 Grantee" means a person subject to potential liability under Section 16(b) of the 1934 Act with respect to transactions involving equity securities of the Company. (t) "Stock" means the common stock of the Company, $0.01-2/3 par value. (u) "Subsidiary" means (i) with respect to Incentive Stock Options, a corporation as defined in Section 424(f) of the Code with the Company being treated as the employer corporation for purposes of this definition, and (ii) for all other purposes any entity in which the Company directly or through intervening subsidiaries owns at least a majority interest of the total combined voting power or value of all classes of stock or, in the case of an unincorporated entity, at least a majority in the capital and profits. (v) "10% Owner" means a person who owns stock (including stock treated as owned under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company. 3. SCOPE OF THE PLAN (a) An aggregate of One Million Two Hundred and Eighty Thousand (1,280,000) shares of Stock are hereby made available and reserved for delivery on account of Awards and the exercise of Awards, with Nine Hundred and Thirty Thousand (930,000) shares of Stock being made available and reserved for delivery on account of options and Three Hundred Fifty Thousand (350,000) shares of stock being made available and reserved for delivery on account of Retirement Stock Awards. The limitations established by the preceding sentences shall be subject to adjustment as provided in Section 18 of the Plan. Such shares may be treasury shares, newly issued shares, or shares purchased on the open market (including private purchases) in accordance with applicable securities laws, or any combination of the foregoing, as may be determined from time to time by the Board or the Committee. (b) To the extent an Award shall expire or terminate for any reason without having been exercised in full (including a cancellation and re-grant of an option), or shall be forfeited, without, in either case, the Grantee having enjoyed any of the benefits of Stock ownership (other than voting rights or dividends that are also forfeited), the shares of Stock (including Retirement Stock) associated with such Award shall become available for other Awards. (c) For purposes of this Section 3, 3 (i) The aggregate number of shares covered by a Retirement Award Agreement shall be counted on the Grant Date of such Award (without respect to the timing of the Company's obligation to issue and deliver such shares) against the aggregate number of shares of Stock available for granting Retirement Stock Awards under the Plan; and (ii) the shares of Stock underlying outstanding options (without respect to any vesting schedule) shall be counted while the Award is outstanding against the aggregate number of shares of Stock available for granting Awards under the Plan; and (iii) in the event of a stock-for-stock exercise of an option, the gross number of shares of Stock subject to the option exercised, not the net number of shares actually issued upon exercise shall be counted against the aggregate number of shares of Stock available for granting Awards under the Plan. 4. ADMINISTRATION (a) Subject to Section 4(b), the Plan shall be administered by a committee ("Committee") which shall consist of not less than three persons who are Directors of the Company and who are not employees of the Company. Membership on the Committee shall be subject to such other limitations as the Board deems appropriate to permit transactions in Stock pursuant to the Plan to be exempt from liability under Section 16(b) of the 1934 Act pursuant to Rule 16b-3 thereunder. Unless the Board adopts a resolution naming other individuals to serve on the Committee, the Committee shall consist of all Directors of the Company who are not employees of the Company. The Board may from time to time remove members from, or add members to the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Committee shall select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. A majority of the Committee at which a quorum is present, or acts approved in writing by all of the members of the Committee, shall be the valid acts of the Committee. No member of the Committee shall be eligible to receive any grant of any Awards under this Plan. (b) The Committee, unless otherwise determined by the Board, shall have full and final authority, in its discretion, but subject to the express provisions of the Plan, as follows: (i) to grant Awards; (ii) to determine (A) when Awards may be granted, and (B) whether or not specific Awards shall be identified with other specific Awards, and if so, whether they shall be exercisable cumulatively with or alternatively to such other specific Awards; (iii) to interpret the Plan and to make all determinations necessary or advisable for the administration of the Plan; (iv) to prescribe, amend, and rescind rules and regulations relating to the Plan, including rules with respect to the exercisability and non-forfeitability of Awards upon the termination of employment of a Grantee; 4 (v) to determine the terms and provisions and any restrictions or conditions (including specifying such performance criteria as the Committee deems appropriate, and imposing restrictions with respect to Stock acquired upon exercise of an option or Retirement Award, which restrictions may continue beyond the Grantee's termination of employment) of the written agreements by which all Awards shall be evidenced ("Award Agreements") which need not be identical and, with the consent of the Grantee where required by contract law, to modify any such Award Agreement at any time; (vi) to impose, incidental to an Award, conditions with respect to competitive employment or other activities, to the extent such conditions do not conflict with the Plan; (vii) to cancel, with the consent of the Grantee, outstanding Awards and to grant new Awards in substitution therefor; provided, however, that any cancellation of outstanding options and grant of new option awards so as to specify a lower price shall be made to no more than ten percent (10%) of the options outstanding at such time; (viii) to accelerate the exercisability of, and to accelerate or waive any or all of the restrictions and conditions applicable to any Award or any group of Awards; (ix) subject to Section 6(c), to extend the time during which any Award or group of Awards may be exercised; (x) to make such adjustments or modifications to Awards to Grantees working outside the United States as are necessary and advisable to fulfill the purposes of the Plan which are not in conflict with the Plan; and (xi) to impose such additional conditions, restrictions, and limitations upon the grant, exercise or retention of Awards as the Committee may, before or concurrently with the grant thereof, deem appropriate, including requiring simultaneous exercise of related identified Awards, and limiting the percentage of Awards which may from time to time be exercised by a Grantee. The determination of the Committee on all matters relating to the Plan or any Award Agreement shall be conclusive and final. No member of the Committee or the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Award. (c) The Board may, in its discretion, reserve to itself or delegate to another committee of the Board, any or all of the authority and responsibility of the Committee with respect to Awards to Grantees who are not Section 16 Grantees at the time any such delegated authority or responsibility is exercised. Such other committee may consist of two or more Directors who may, but need not be, officers or employees of the Company or of any of its Subsidiaries. To the extent that the Board has reserved to itself or delegated to such other committee the authority and responsibility of the Committee, all references to the Committee in the Plan shall be to the Board or such other committee. 5 5. ELIGIBILITY Awards may be granted to any key employee (including any officer) of the Company or any of its Subsidiaries; provided, however, that Retirement Awards may be granted only to executive officers of the Company or its Subsidiaries who have completed 10 years of continuous service for the Company or its Subsidiaries; provided further that the Committee may, under appropriate circumstances and in its discretion, waive the requirement of ten years continuous service for a particular executive officer. In selecting the individuals to whom Awards may be granted, as well as in determining the number of shares of Stock subject to, and the other terms and conditions applicable to, each Award, the Committee shall take into consideration such factors as it deems relevant in promoting the purposes of the Plan. 6. TERMS AND CONDITIONS OF OPTION GRANTS Stock options granted by the Committee pursuant to the Plan shall be evidenced by Award Agreements in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions: (a) Each option shall state the number of shares to which it pertains. (b) The Option Price of any option shall not be less than 100% of the Current Market Price of the Stock on the Grant Date. (c) Any option granted under this Plan may be considered a Incentive Stock Option to the extent that it: (i) shall only be granted to individuals who are employed by the Company or any of its Subsidiaries on the Grant Date; (ii) shall not be granted to a 10% Owner unless the Option Price is at least 110% of the Current Market Price of the Stock subject to such option on the Grant Date and shall be exercisable for a period of not more than five (5) years from the Grant Date; (iii) except as provided in (ii) above, shall be exercisable for a period of not more than 10 years from the Grant Date, and shall be subject to earlier termination as provided herein or in the applicable Award Agreement; (iv) shall not have an aggregate fair market value (determined for each Incentive Stock Option at its Grant Date) of Stock with respect to which Incentive Stock Options are exercisable for the first time by such Grantee during any calendar year (under the Plan and any other employee stock option plan of the Grantee's employer or any parent or Subsidiary thereof determined in accordance with the provisions of Section 422 of the Code), which exceeds $100,000; and (v) shall require the Grantee to notify the Company of any disposition of any Stock issued pursuant to the exercise of the Incentive 6 Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition. Subject to the foregoing, the Committee shall have full authority and discretion in fixing the Option Price and the terms and conditions of the option Awards and shall be fully protected in doing so. (d) All options shall be granted on or before August 19, 2001. (e) Options shall not be assignable or transferable other than by will or the laws of descent and distribution and may be exercised during the Grantee's lifetime only by the Grantee; provided, however, that the Grantee may, to the extent provided in the Plan in any manner specified by the Committee, designate in writing a beneficiary to exercise his/her option after the Grantee's death. (f) Subject to Section 4(b)(viii) and such terms and conditions as the Committee may impose, each option shall be exercisable in one or more installments. Each option shall be exercised by delivery to the Company of written notice of intent to purchase a specific number of shares of Stock subject to the option. The Option Price of any shares of Stock as to which an option shall be exercised shall be paid in full at the time of the exercise. Payment may, at the election of the Grantee, be made in any one or any combination of the following: (i) United States dollars in cash or by check; (ii) Stock held by the Grantee for at least 6 months prior to exercise of the option, valued at its Current Market Price on the date of written notice of optionee's election to exercise the option; or (iii) with the approval of the Committee, shares of Retirement Stock held by the Grantee for at least 6 months prior to exercise of the option, valued at the Current Market Price of a share of Stock on the date of exercise. (g) Except as expressly provided in this Plan or the Award Agreement, no option may be exercised prior to twelve months from its Grant Date. Subject to the right of cumulation provided in the next sentence of this Section 6(g), each option shall be exercisable to the extent provided for in the Award Agreement as determined by the Committee in its discretion. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, in any subsequent period, prior to the expiration of the term described in the Award Agreement, provided that no option may be exercised more than ten years from its Grant Date. Notwithstanding the preceding sentence, in the event that the optionee is a 10% Owner (determined on the Grant Date) of the Company, no option intended to qualify as an Incentive Stock Option may be exercised more than five years from the date it is granted. During the lifetime of the optionee, the option shall be exercisable only by him and shall not be assignable or transferable by him and no other person shall acquire any rights therein. 7 (h) In the event that an optionee shall cease to be employed by the Company for any reason other than his death, Disability, or Retirement, subject to the condition that no option shall be exercisable after the expiration of ten years from its Grant Date (five years for an option which is intended to qualify as an Incentive Stock Option that is granted to a 10% Owner on the Grant Date), such optionee may, at the discretion of the Committee, be granted the right to exercise the option at any time within thirty (30) days after such termination of employment to the extent his right to exercise such option had not expired pursuant to Section 6(g) of this Plan, had vested and had not previously been exercised; provided, however, that if the employment of the optionee is terminated by the Company or any of its Subsidiaries for cause, fraud, breach of fiduciary duty, or other dishonesty, the optionee's rights to exercise the option otherwise provided herein shall expire on the last day of his employment. Whether authorized leave of absence or absence for military or governmental service, or any other reason, shall constitute termination of employment, for the purposes of the Plan, shall be determined by the Committee, which determination shall be final and conclusive. (i) (i) In the event an optionee terminates his employment with the Company or any Subsidiary because of a Disability, the Disabled optionee or a lawfully appointed custodian thereof may exercise an option granted pursuant to this Plan for a period of twelve months from the date of termination of employment to the extent his right to exercise such option had not expired pursuant to Section 6(g) of this Plan and had not previously been exercised at the date of such termination. (ii) If the employment of an optionee with the Company or any Subsidiary is terminated by reason of the optionee's Retirement and the optionee has been in the employ of either the Company or a Subsidiary continuously from the date such option was granted until such Retirement (except for leaves of absence approved in writing by the President of the Company or the President of the Subsidiary for which the optionee works), the entire unexercised portion of such option may be exercised by the optionee at any time or times in whole or in part during the three-month period after such retirement to the extent that such three-month period is included in the remainder of such option's term. (j) If the optionee shall die while in the employ of the Company or any Subsidiary and shall not have fully exercised the option, the unexercised portion of an option may be exercised at any time within one year after the optionee's death by the executors or administrators of the optionee or by any person or persons who shall have acquired the option directly from the optionee by bequest or inheritance, subject to the condition that no option shall be exercisable after the expiration of ten years from its Grant Date (five years for an optionee under an Incentive Stock Option who is a 10% Owner on the Grant Date). No option shall be transferable by the optionee otherwise than by will or the laws of descent and distribution. 7. TERMS AND CONDITIONS OF RETIREMENT AWARDS 8 Grants of Stock and cash Awards intended to fund retirement benefits for senior executives (the "Retirement Stock Awards" and "Retirement Cash Awards" (each more fully described below), respectively, and collectively the "Retirement Awards") pursuant to the Plan shall be authorized by the Committee and shall be evidenced by agreements in such form as the Committee shall from time to time approve (each a "Retirement Award Agreement"), which agreements shall comply with and be subject to the following terms and conditions: (a) The Committee may grant Retirement Awards to any individual eligible under Section 5 to receive such Retirement Awards. (b) The Committee shall, in its discretion, determine the amount, if any, that a Grantee shall pay for shares of Retirement Stock. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. If any such cash consideration is required, payment shall be made in full by the Grantee before the delivery of the shares and in any event no later than 10 days after the Grant Date for such shares. In the discretion of the Committee and to the extent permitted by law, payment may also be made in accordance with Section 11. (c) Each Retirement Award Agreement shall state the number of shares of Stock and the amount of cash to which it pertains. (d) The Retirement Award Agreement shall provide for an aggregate Award of Retirement Stock which the Company will agree to issue and deliver to the Grantee. Such Retirement Stock Award will be issued and delivered to the Grantee in equal annual installments commencing with the Grant Date and continuing over a period of years to be determined by the Committee and set forth in the Retirement Award Agreement, subject to the requirement that the Grantee be employed by the Company or any Subsidiary on the last day of the fiscal year in which Retirement Stock is issued and delivered; provided however, the Retirement Award Agreement may include a provision which excepts from this requirement the Grantee's death, disability or other involuntary termination of employment (excluding for cause) which occurs during the same fiscal year. Unless otherwise provided in the Agreement, the Retirement Award Agreement will have an initial term of five (5) years. In its discretion, the Committee may provide that the term of a Retirement Award Agreement be automatically extended for additional one-year periods until the Company gives the Grantee notice of its intention not to extend the Agreement at the end of its then-current term. (e) The Grantee may not sell, transfer, pledge, hypothecate, or otherwise transfer any shares of Retirement Stock he or she receives under the Plan during any period in which he or she is employed by the Company or any Subsidiary; provided, however, that following the earlier of (i) termination of the employment of the Grantee with the Company or any Subsidiary or (ii) the Grantee's attainment of normal retirement age (whether or not Grantee actually retires), all such restrictions with respect to Retirement Stock which has been issued and delivered to such Grantee prior to such time shall terminate. Notwithstanding the above, no Grantee may sell, transfer, pledge, hypothecate any shares of Retirement Stock he or she receives during the six months immediately following the later of Grant Date or the date the Plan is approved by the Company's stockholders unless the Grantee dies before the 9 expiration of the six month period. Each share of Retirement Stock subject to such restrictions shall bear an appropriate legend specifying that such share is non-transferable and subject to the restrictions set forth in the Plan and the Retirement Award Agreement. When all applicable restrictions have ended, the Company shall cause certificates for such shares to be issued or reissued without such legend. (f) In connection with any Retirement Stock Award, the Committee may grant cash bonus awards ("Retirement Cash Awards") to Grantees solely in order to, and in an amount it determines will, cover the federal and state income tax liability, and any other tax liability, to the Grantee, created by, or arising in connection with, the receipt of the Retirement Award by the Grantee. The Retirement Award Agreement shall provide that Retirement Cash Awards will be calculated annually at the time of the issuance of an annual installment of Retirement Stock to which the Retirement Cash Award relates by using the same maximum marginal federal and state income tax percentage which was used in the prior year and the Current Market Price of the Retirement Stock being issued in such year on the date of such issuance (unless the Committee approves an adjustment to that formula). (g) The Retirement Award shall be issued and delivered to the Grantee in accordance with the terms set forth in the Retirement Award Agreement; provided, however, that the Company shall have no obligation to issue or deliver any Retirement Award under a Retirement Award Agreement to any Grantee following (i) the termination of his employment with the Company or its Subsidiaries or (ii) any breach of the Grantee's obligations under the Retirement Award Agreement. (h) Any other provision of the Plan or the Retirement Award Agreement to the contrary notwithstanding, the Committee may at any time remove or limit any restrictions, if it determines that conditions, including but not limited to, changes in the economy, changes in competitive conditions, changes in laws or government regulations, changes in generally accepted accounting principles, changes in the Company's accounting policies, acquisitions or dispositions, or the occurrence of other unusual, unforseen, or extraordinary events, so warrant. (i) Notwithstanding the fact that the Company delivers notice of its intention not to extend the term of a Retirement Award Agreement at the end of its then current term (if such Agreement provides for such a notice), the Company shall remain obligated to issue and deliver all scheduled annual Retirement Awards in accordance with the Retirement Award Agreement. 8. NOTIFICATION UNDER CODE SECTION 83(b) The Committee may, on the Grant Date or any later date, prohibit a Grantee from making the election described in this Section 8. If the Committee has not prohibited such Grantee from making such election, and the Grantee, in connection with the exercise of any option or the grant of Retirement Stock, makes the election permitted under Section 83(b) of the Code (i.e., an election to include in such Grantee's gross income in the year of transfer the amounts specified in Section 83(b) of the Code), such Grantee shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service, in addition to any filing and 10 notification required pursuant to regulations issued under the authority of Section 83(b) of the Code. 9. MANDATORY WITHHOLDING OF TAXES (a) Whenever under the Plan, cash or shares of Stock are to be delivered upon exercise or payment of an Award or any other event occurs which subjects the Grantee to income taxes with respect to rights and benefits hereunder, the Company shall be entitled to require as a condition of delivery of the Award (i) that the Grantee remit an amount sufficient to satisfy all federal, state, and local withholding tax requirements related thereto, (ii) the withholding of such sums from compensation otherwise due to the Grantee or from any shares of Stock due to the Grantee under the Plan, or (iii) any combination of the foregoing. (b) If any disqualifying disposition described in Section 6(c)(v) is made with respect to shares of Stock acquired by exercising an Incentive Stock Option granted pursuant to the Plan or any election described in Section 8 is made, then the person making such disqualifying disposition or election shall remit to the Company an amount sufficient to satisfy all federal, state, and local withholding taxes thereby incurred; provided that, in lieu of or in addition to the foregoing, the Company shall have the right to withhold such sums from compensation otherwise due to the Grantee or from any shares of Stock due to the Grantee under the Plan. 10. LOANS With the approval of the Committee, the Grantee may borrow from the Company all or any portion of the funds needed to pay the Option Price or to pay for Retirement Stock on such terms and conditions as the Committee deems appropriate, provided that (i) the interest rate for any such loan by the Company shall not be less than the "applicable federal rate" (as defined by Code Section 1274(d)(1)(A)) in effect on the date of such loan or any other rate as necessary to avoid the imputation of interest under the Code or other applicable law, (ii) proceeds of the loan are used solely to pay either the exercise price of an option or to pay for Retirement Stock granted pursuant to this Plan, and (iii) the Grantee executes a promissory note and such other documents as the Committee deems appropriate to evidence the Grantee's indebtedness to the Company, and pledges the Stock received in exchange for such borrowed funds as Collateral for such loan. 11. SECURITIES LAW MATTERS (a) If the Committee deems it necessary to comply with the Securities Act of 1933, Committee may require a written investment intent representation by the Grantee and may require that a restrictive legend be affixed to certificates for shares of Stock. (b) If, based upon the opinion of counsel for the Company, the Committee determines that the exercise or non-forfeitability of, or delivery of benefits pursuant to, any Award would violate any applicable provision of (i) federal or state securities laws or (ii) the listing requirements of any national securities exchange on which are listed any of the Company's equity securities, then the Committee may postpone any such exercise, non- 11 forfeitability or delivery, as the case may be, but the Company shall use its best efforts to cause such exercise, non-forfeitability or delivery to comply with all such provisions at the earliest practicable date. (c) With respect to Section 16 Grantees, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent that any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 12. FUNDING; RESERVES Cash benefits payable under the Plan to any person shall be paid directly by the Company. The Company shall not be required to fund, or otherwise segregate assets to be used for payment of, cash benefits under the Plan. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Subsidiary and a Grantee or any other person. To the extent that any person acquires a right to receive payments from the Company or any Subsidiary pursuant to an Award, such right shall be no greater than the right of an unsecured general creditor of the Company or any Subsidiary. The Board shall cause the Company to reserve shares of Stock from its authorized but unissued shares for the purpose of making available shares of Stock to fund the Awards. 13. NO EMPLOYMENT RIGHTS Neither the establishment of the Plan, nor the granting of any Award nor the execution of an Award Agreement shall be construed to (a) give any Grantee the right to remain employed by the Company or any of its Subsidiaries or to any benefits not specifically provided by the Plan or an Award Agreement, or (b) in any manner modify the right of the Company or any of its Subsidiaries to modify, amend, or terminate any of its employee benefit plans. Further, the Company or Subsidiary may at any time dismiss a Grantee from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. 14. RIGHTS AS A STOCKHOLDER A Grantee shall not, by reason of any Award have any right as a stockholder of the Company with respect to the shares of Stock which may be deliverable in the future upon exercise of such Award, or otherwise as provided in an Award Agreement, until Stock has been actually issued and delivered to the Grantee. Shares of Retirement Stock issued and delivered to a Grantee in accordance with the Retirement Award Agreement shall confer on the Grantee all rights of a stockholder of the Company, except as otherwise provided in the Plan or the specific Retirement Award Agreement. 15. NATURE OF PAYMENTS Any and all grants, payments of cash, or deliveries of shares of Stock hereunder shall constitute special incentive payments to the Grantee and shall not be taken into account in computing the amount of salary or compensation of 12 the Grantee for the purposes of determining any pension, retirement, death or other benefits under (a) any pension, retirement, profit-sharing, bonus, life insurance or other employee benefit plan of the Company or any of its Subsidiaries or (b) any agreement between the Company or any Subsidiary, on the one hand, and the Grantee, on the other hand, except as such plan or agreement shall otherwise expressly provide. 16. NON-UNIFORM DETERMINATIONS Determinations made by the Committee or the Board under the Plan do not need to be uniform and may be made by the Committee or the Board selectively among persons who receive, or are eligible to receive, Awards (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations and to enter into non-uniform and selective Award Agreements, as to (a) the identity of the Grantees, (b) the terms and provisions of Awards, and (c) the treatment under Section 13 of terminations of employment. Notwithstanding the foregoing, the Committee's interpretation of Plan provisions shall be uniform as to similarly situated Grantees. 17. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION (a) Subject to any required action by the Stockholders, the Committee shall make such adjustment, as it shall deem equitable, to any or all of: (i) the aggregate numbers of shares of Stock available under Sections 3(a) and 3(b); (ii) the number of shares of Stock subject to an option or shares of Retirement Stock covered by an Award; (iii) the Option Price; (iv) the Retirement Cash Award; (v) any other terms or provisions of any outstanding grants of options or Retirement Awards: to reflect a stock dividend, stock split, reverse stock split, share combination, recapitalization, merger, consolidation, acquisition of property or shares, separation, asset spin-off, reorganization, stock rights offering, liquidation or similar event, of or by the Company, or, if deemed appropriate, the Committee may make provisions for a cash payment to the holder of an outstanding Award; provided, however, if the Company shall be the surviving corporation in any merger or consolidation, each outstanding option or Award Agreement shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to the option or Award Agreement would have been entitled; and provided further, upon a dissolution or liquidation of the Company, or a merger or consolidation in which the Company is not the surviving corporation, or a change in control of the Company, as defined in subsection (b) below, each optionee shall have the right to exercise his option in whole or in part notwithstanding the provisions of Section 6(g) 13 above: (i) immediately prior to such dissolution or liquidation or merger or consolidation in which the Company is not the surviving corporation, and thereafter; or (ii) after such change of control. However, with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that the authority to make such adjustments would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto and the number of shares subject to any Award denominated in shares of Stock shall always be a whole number. (b) "Change of control" of the Company shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred if: (i) any person (as that term is defined in Section 13(d) and Section 14(d) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20 percent, or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute all members of the Board who are not employed by the Company (the "Outside Directors") shall cease for any reason to constitute at least a majority of the Outside Directors, unless the election of each Outside Director, who was not an Outside Director at the beginning of such period, was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period; or, (iii) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or, (iv) the stockholders of the Company approve a plan or proposal for the liquidation or dissolution of the Company. (c) In the event of a change in the Stock of the Company as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Stock within the meaning of the Plan. (d) Except as hereinbefore expressly provided in this Section 18, the Grantee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any change of control, dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation, and any issue of the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Stock subject to Awards. 14 The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of its business or assets. 18. AMENDMENT OF THE PLAN Upon recommendation of the Committee, the Board of Directors of the Company may insofar as permitted by law, from time to time, with respect to any shares at the time not subject to options or Award Agreements, suspend or discontinue the Plan or revise or amend it in any respect whatsoever except that, without approval of the stockholders, no such revision or amendment shall: change the number of shares subject to the Plan; change the designation of the class of employees eligible to receive Awards; decrease the price at which Options may be granted; remove the administration of the Plan from the Committee other than as expressly provided by the Plan; extend the period during which Awards may be granted; or render any member of the Committee eligible to receive an Awards under the Plan while serving thereon. Furthermore, the Plan may not without the approval of the stockholders be amended in any manner that will cause Options issued under it to fail to qualify as Incentive Stock Options. Except as provided in this Section 19, the Board shall, from time to time, revise, modify, or amend the Plan, in part or in total, without approval of the stockholders, as may be necessary to satisfy the requirements of the Code and any amendments or revisions thereof, such that certain stock options which are granted under the Plan may qualify as Incentive Stock Options, and to satisfy all other applicable laws and regulations. 19. TERMINATION OF THE PLAN The Plan shall terminate on the tenth (10th) anniversary of the Effective Date or at such earlier time as the Board may determine. Any termination, whether in whole or in part, shall not affect any Award then outstanding under the Plan. 20. OTHER COMPENSATION PLANS Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. 21. NO ILLEGAL TRANSACTIONS The Plan and all Awards granted pursuant to it are subject to all laws and regulations of any governmental authority which may be applicable thereto; and notwithstanding any provision of the Plan or any Award, Grantees shall not be entitled to exercise Awards or receive the benefits thereof and the Company shall not be obligated to deliver any Stock or pay any benefits to a Grantee if such exercise, delivery, receipt or payment of benefits would constitute a violation by the Grantee or the Company of any provision of any such law or regulation. 15 22. CONTROLLING LAW The law of the State of Illinois, except its law with respect to choice of law and except as to matters relating to corporate law (in which case the corporate law of the State of Delaware shall control), shall be controlling in all matters relating to the Plan. 23. TAX LITIGATION The Company shall have the right, but not the obligation, to contest, at its expense, any tax ruling or decision, administrative or judicial, on any issue that is related to the Plan and that the Company believes to be important to Grantees and to conduct any such contest or any litigation arising therefrom to a final decision. 24. SEVERABILITY If all or any part of the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of the Plan not declared to be unlawful or invalid. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner in which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid. 25. INDEMNIFICATION Each person who is or at any time serves as a member of the Board or the Committee shall be indemnified and held harmless by the Company against and from: (i) any loss, cost, liability or expense, including attorneys' fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit, or proceeding to which such person may be a party or in which such person may be involved by reason of any action or failure to act under the Plan; and (ii) any and all amounts paid by such person in satisfaction of judgment in any such action, suit or proceeding relating to the Plan. Each person covered by this indemnification provision shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the By-Laws of the Company, as a matter of law, or otherwise, or any power that the Company may have to indemnify such person or hold such person harmless. 26. RELIANCE ON REPORTS Each member of the Board and the Committee shall be fully justified in relying or acting in good faith upon any report made by the independent public accountants of, or counsel for, the Company and upon any other information furnished in connection with the Plan. In no event shall any person who is or shall have been a member of the Board or the Committee be liable for any 16 determination made or other action taken or any failure to act in reliance upon any such report or information or for any action taken, including the furnishing of information, or failure to act, if done in good faith. 27. EXPENSES The Company shall bear all expenses of administering the Plan. 28. TITLES AND HEADINGS The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 29. APPLICATION OF FUNDS The proceeds received by the Company from the sale of Stock pursuant to any Awards will be used for general corporate purposes. Date Plan was adopted by Board of Directors: June 30, 1993 Date Plan was approved by Stockholders: November 16, 1993 Date Plan was amended by Board of Directors: June 25, 1997 Date Plan was amended by Board of Directors: August 28, 1997 Date amended Plan was approved by Stockholders: November 19, 1997 Date Plan was amended by Board of Directors: August 21, 1998 Date amended Plan was approved by stockholders: _______, 1998 17 EX-10.(D)2 6 EXHIBIT 10(D)2 RETIREMENT AWARD AGREEMENT RETIREMENT AWARD AGREEMENT This Retirement Award Agreement ("Agreement") is entered into as of this 19th day of February, 1998 between QUIXOTE CORPORATION ("the Company"), a Delaware corporation whose principal place of business is Chicago, Illinois, and JOAN R. RILEY of Chicago, Illinois ("Employee"). RECITALS WHEREAS, the Board of Directors of the Company adopted the Quixote Corporation 1993 Long-Term Stock Ownership Incentive Plan (the "Long-Term Plan") by amending and restating the Quixote Corporation 1991 Incentive Stock Option Plan, which is subject to approval by the stockholders of the Company; and WHEREAS, the Long-Term Plan authorizes the Audit/Compensation Committee of the Board of Directors (the "Committee") to select certain employees of the Company or any of its subsidiaries who are key executives to receive Retirement Awards; and WHEREAS, the Long-Term Plan provides that Retirement Awards may be in the form of Retirement Stock Awards and Retirement Cash Awards as those terms are defined in the Long-Term Plan; and WHEREAS, the Committee has selected the Employee as a grantee of a Retirement Award subject to the terms and conditions set forth in this Agreement; and WHEREAS, the Long-Term Plan requires that any Retirement Awards be documented by a written agreement with such terms and conditions as the Committee may determine. AGREEMENTS NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties agree as follows: 1. GRANT OF RETIREMENT AWARD. (a) Subject to the other terms and conditions of this Agreement and the Long-Term Plan, the Company hereby grants to Employee an aggregate Retirement Stock Award of 39,161 shares of the Company common stock, $.01 2/3 par value (the "Stock"), to be issued and delivered to Employee as fully paid and non-assessable Stock on the following Issuance Dates in the following amounts:
Number of Issuance Date Shares ------------- ------------- June 30, 1998 2,176 shares June 30, 1999 2,176 shares June 30, 2000 2,176 shares June 30, 2001 2,176 shares June 30, 2002 2,176 shares June 30, 2003 2,176 shares June 30, 2004 2,176 shares June 30, 2005 2,176 shares June 30, 2006 2,176 shares June 30, 2007 2,176 shares June 30, 2008 2,176 shares June 30, 2009 2,176 shares June 30, 2010 2,176 shares June 30, 2011 2,176 shares June 30, 2012 2,176 shares June 30, 2013 2,176 shares June 30, 2014 2,176 shares June 30, 2015 2,169 shares
(b) The Company shall issue and deliver the shares set forth in paragraph (a) above to the Employee on each Issuance Date only if on such date the Employee is employed by the Company or its subsidiaries. Notwithstanding the immediately preceding sentence, the Company shall issue and deliver the shares set forth above on an Issuance Date to the Employee even if the Employee is not employed by the Company or its subsidiaries on such Issuance Date solely because the Employee's employment was terminated during the fiscal year ending on that Issuance Date by reason of the Employee's death, disability or other involuntary termination of employment (excluding termination for cause). The Company will deliver to the Employee a Certificate with respect to that number of shares issued and delivered as of the Issuance Date. 2. GRANT OF RETIREMENT CASH AWARD. (a) Subject to the other terms and conditions of this Agreement and the Long-Term Plan, the Company hereby grants to the Employee a Retirement Cash Award for the sole purpose of paying federal and state income taxes arising from the issuance and delivery of Retirement Awards to the Employee pursuant to this Agreement, calculated -2- as follows: As of each Issuance Date, the Employee will receive a Retirement Cash Award equal to the quotient of (x) the Current Market Price of the Retirement Stock Award issued and delivered on that Issuance Date divided by (y) the percentage which is equal to 1 minus the maximum marginal federal and state income tax rate, less the Current Market Price of the Retirement Stock Award (the "Retirement Cash Award Formula"). A Retirement Cash Award shall only be paid in connection with the issuance and delivery of Retirement Stock under this Agreement. The Retirement Cash Award Formula may be changed by the Committee in its discretion. (b) A Retirement Cash Award shall not be paid directly to the Employee, but shall be paid to the appropriate federal and state tax officials by the Company on behalf of Employee. The Company will give the Employee written evidence of such payment. (c) For purposes of this Agreement, the parties agree that, given both the level of activity in the public trading of the Company's Stock and the price volatility of the Stock, the fair market value of the Stock shall mean the Current Market Price. The term "Current Market Price" of the Stock means the average of the daily closing prices for the thirty consecutive business days commencing no more than forty five business days before the day in question. The closing price for each day shall be the last reported sale price determined in the regular way or, in case no such reported sales takes place on such day, the average of the last reported bid and asked prices determined the regular way, in either case in the principal national securities exchange in which the Stock is admitted to trading a listed, or if not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as reported by NASDAQ or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price is determined by the Board. 3. RESTRICTIONS ON THE RIGHT TO SELL OR TRANSFER RETIREMENT STOCK. (a) As a condition of this Award, the Employee agrees that she will not sell, transfer, pledge, hypothecate, or otherwise transfer any Retirement Stock she receives pursuant to this Agreement during the period she is employed by the Company or its subsidiaries; provided, however, following the earlier of (i) the termination of the employment of the Employee with the Company or its subsidiaries, or (ii) the Employee's attaining age 65 (whether or not the Employee actually retires from employment), these restrictions shall terminate. The Employee agrees that the Company shall instruct its transfer agent to place a legend on each share certificate representing the Retirement Stock with respect to such restrictions in substantially the following form, and the Company shall cause such certificates to be issued without a legend when the applicable restrictions have terminated as provided herein: -3- The sale, transfer, pledge, hypothecation or other transfer of the shares represented by this Certificate are subject to the terms and conditions of a Retirement Award Agreement dated as of February 19, 1998 by and between Quixote Corporation and Joan R. Riley. The Retirement Award Agreement provides that the restrictions shall automatically expire upon the earlier of (i) the termination of Ms. Riley's employment by Quixote Corporation or its subsidiaries, or (ii) Ms. Riley's attaining 65 years of age. (b) Unless on an Issuance Date, there is in the opinion of Company's counsel a valid and effective registration statement under the Securities Act of 1933, as amended, and an appropriate qualification and registration under applicable state securities law with respect to the Retirement Stock to be issued and delivered, the Employee agrees, prior to the issuance and delivery of the Retirement Stock, to provide the Company a representation that she is acquiring the Stock for her own account for investment and not with a view to, or for sale in connection with, the resale or distribution of any such Stock and shall provide such other representations and covenants to the Company as may, in the opinion of its counsel, be required. In the event that any Retirement Stock issued is not so registered, then the Employee agrees that the certificates representing the Retirement Stock shall bear a restrictive legend, and that stop transfer instructions shall be issued to Company's transfer agents until such time as the Retirement Stock is registered. (c) If at any time the Committee determines, in its discretion, that the listing, registration or qualification of the Retirement Stock upon any securities exchange or under any state or federal law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of the Award or in connection with the issuance of Retirement Stock thereunder, the Award may not be granted in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 4. STOCKHOLDER RIGHTS AND ADJUSTMENTS TO STOCK. (a) The Employee shall not by reason of any Retirement Stock Award or by reason of this Agreement have any right as a stockholder of the Company with respect to the shares of Stock to which the Company has agreed to issue and deliver to the Employee in the future until such time as the Retirement Stock has been actually issued and delivered to the Employee. Except as provided in the Long-Term Plan, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to an Issuance Date for such Retirement Stock, and all adjustments to the Retirement Stock -4- by reason of a stock dividend, merger, consolidation or otherwise shall be made in accordance with the terms of the Long-Term Plan. (b) This Agreement shall not affect in any way the right or power of the Company to make adjustments, reclassification, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. 5. NO EMPLOYMENT RIGHTS. Neither the establishment of the Long-Term Plan nor the granting of this Award nor the execution of this Agreement shall be construed to give the Employee the right to remain employed by the Company or any of its subsidiaries, or to any benefits not specifically provided by the Long-Term Plan or by this Agreement, or in any manner modify the right of the Company or any of its subsidiaries to modify, amend or terminate any of its employee benefit plans or other arrangements available to Employee. The Company and or any of its subsidiaries may at any time dismiss the Employee from employment free from any liability or any claim under the Long-Term Plan. 6. SUCCESSORS AND ASSIGNS. The Award shall be binding in accordance with its terms upon any successors of the Company and upon the heirs, executors, administrators and successors of Employee. 7. GOVERNING LAW. This Agreement and the Retirement Award shall be governed by and construed in accordance with the laws of the State of Illinois relating to contracts made and to be performed in that State. 8. TERMINATION. (a) This Agreement shall terminate upon the earlier of (i) July 1, 2003 or (ii) the date of termination of the Employee's employment with the Company or subsidiaries, unless extended pursuant to Section 8(b) below. (b) Unless on or before March 1 of each year commencing March 1, 1999, the Company notifies the Employee in writing that the Company does not intend to extend the term of this Agreement, the term of this Agreement shall automatically be extended for an additional period of one year; provided, however, under no circumstances shall the term of this Agreement extend beyond July 1, 2015. -5- 9. NOTICES. All notices, certificates or other communication shall be sufficiently given when given in writing and mailed by first class mail, postage prepaid, with proper address as indicated below. Any of such parties may by written notice given to the other party designate any address or addresses to which notices, certificates or other communications to them shall be sent when required as contemplated by this Agreement. Until otherwise provided by the respective parties, all notices, certificates and communications to each of the parties shall be addressed as follows: To the Company: Quixote Corporation One East Wacker Drive Suite 3000 Chicago, IL 60601 Attn: Philip E. Rollhaus, Jr. With a copy to: Joan R. Riley, Esq. Quixote Corporation One East Wacker Drive Suite 3000 Chicago, IL 60601 To the Employee: Joan R. Riley 400 East Randolph Chicago, IL 60601 -6- IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. QUIXOTE CORPORATION By: /s/ Philip E. Rollhaus, Jr. ------------------------------- Its: Chairman and Chief Executive Officer ATTEST: /s/ Wendy H. Cary - ----------------- /s/ Joan R. Riley ------------------ Joan R. Riley -7- EX-10.(F) 7 EXHIBIT 10(F) CHANGE OF CONTROL AGREEMENT BETWEEN JOAN R. RILEY AND QUIXOTE CORPORATION THIS CHANGE OF CONTROL AGREEMENT, dated as of December 1, 1997 (the "Agreement"), is by and between Quixote Corporation, a Delaware corporation having its principal offices at One East Wacker Drive, Chicago, IL, 60601 ("the Company"), and Joan R. Riley, an employee of the Company (the "Employee"). WHEREAS, the Employee is presently serving as an employee and elected officer of the Company; and WHEREAS, the Board of Directors of the Company ("the Board") has recognized and continues to recognize that the Employee's contribution to the growth and success of the Company has been, and is expected to continue to be, substantial and desires to assure the Company of the Employee's continued employment by assuring her of fair treatment if that relationship is terminated; and WHEREAS, the Company and the Employee agree that, as a result of various factors, it is desirable to enter into this Change of Control Agreement; and WHEREAS, the Company desires to retain the Employee's services and the Employee is willing to continue her employment as an employee and elected officer of the Company on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. CERTAIN DEFINED TERMS. (a) "Change of Control", as used herein, shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred if : (i) any person (as that term is defined in Section 13(d) and Section 14(d) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute all members of the Board who are not employed by the Company (the "Outside Directors") shall cease for any reason to constitute at least a majority of the Outside Directors, unless the election of each Outside Director, who was not an Outside Director at the beginning of such period, was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period; or, (iii) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's common stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or, (iv) the stockholders of the Company approve a plan or proposal for the liquidation or dissolution of the Company. (b) "Constructive Termination", as used herein, shall mean any one or more of the following occurrences within three (3) years following the Effective Date of a -2- Change of Control: (i) the Employee is assigned any duties inconsistent in any material adverse respect with the Employee's position, authority, duties or responsibilities immediately prior to the Effective Date of the Change of Control referred to above, or any other action by the Company which results in a diminution in any material adverse respect of the Employee's position, authority, duties or responsibilities as the same existed immediately prior to the Effective Date of the Change of Control referred to above, (ii) the Employee's total compensation (when taken as a whole including fringe benefits and the manner of determining incentive compensation) is changed in a material adverse way or the Company fails to obtain the assumption of the obligation to perform this Agreement by any successor as contemplated in Section 8 hereof, or (iii) the Company requires the Employee to be based outside of a radius of thirty (30) miles from the location of the Company's present corporate offices (except for required travel on Company business to an extent substantially consistent with the Employee's business travel obligations immediately prior to such change in control); PROVIDED, HOWEVER, that none of the foregoing shall be a Constructive Termination if any of the foregoing actions are taken by the Company for Cause (as defined in subsection 1(d) hereof). (c) "Effective Date", as used herein, shall mean the first date on which a Change of Control (as defined in Section 1(a)) occurs. (d) "Cause" For purposes of this Agreement, the Company shall have "Cause" to terminate the Employee's employment upon (i) the willful failure by the Employee to substantially perform her duties, other than such failure resulting from the Employee's incapacity due to physical or mental illness, (ii) the willful engaging by the Employee in gross misconduct materially and demonstrably injurious to the Company or its subsidiaries or (iii) the commission by the Employee of a crime which is a felony. For the purpose of this subsection (d), no act, or the failure to act, on the Employee's part shall be considered "willful" unless done, or omitted to -3- be done, by him not in good faith and without reasonable belief that her action or omission was in the best interest of the Company or subsidiaries. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause under subsections (i), (ii) or (iii) of the first sentence of this subsection (d), unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire membership of the Company's Board of Directors at a meeting of the Board called and held for that purpose (after reasonable notice to the Employee and an opportunity for him, together with her counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Employee was guilty of conduct set forth above in clause (i), (ii) or (iii) of the first sentence of this subsection (d) and specifying the particulars thereto in detail. (e) "Disability" For purposes of this Agreement, an Employee's "Disability" shall occur if the Employee is absent from her duties as an employee of the Company on a full-time basis for six (6) consecutive months following a Change of Control of the Company and if she qualifies for long-term disability under the Company's long-term disability insurance plan. 2. TERMINATION. If the Employee is terminated for a reason other than death, Disability, Cause or voluntary resignation not constituting a Constructive Termination, or is subject to a Constructive Termination (a Constructive Termination or termination for a reason other than death, Disability, Cause or voluntary resignation not constituting a Constructive Termination referred to herein as a "Termination"), within three (3) years following the Effective Date of a Change of Control, the Employee will be entitled to receive the benefits set forth below: (a) ACCELERATED VESTING. If a Termination of the Employee occurs -4- within three (3) years following the Effective Date of a Change of Control, the vesting of all rights listed on EXHIBIT A ("Rights") shall be accelerated to the date on which the Employee is terminated or is subject to a Constructive Termination. (b) SALARY CONTINUATION. If a Termination of the Employee occurs within three (3) years following the Effective Date of a Change of Control: (i) The Employee shall have a right to receive her full base salary through the date of Termination at the rate in effect at the time Termination occurs, and in lieu of any further salary payment to the Employee for periods subsequent to the date of Termination, the Company shall pay to the Employee in cash an amount equal to three (3) times the sum of (A) the higher of the Employee's base salary at the date of Termination or on the date when a Change of Control of the Company occurs plus (B) the average of the bonus payment plus other incentive compensation made to the Employee for the two (2) full fiscal years preceding the fiscal year in which a Change of Control of the Company occurs. At the option of the Employee, such payment shall be made in a lump sum not later than 5 days after the date of Termination or in substantially equal semimonthly installments, commencing no later than the fifth day following the date of Termination and continuing for a period of thirty-six (36) months following the date of Termination. In the event (A) the Company shall fail to make any payment to the Employee which is required under this subsection within ten (10) days of the date that such payment is due and (B) such failure to pay continues, following written notification by the Employee to the Company of such failure to make payment, for more than seven (7) additional days thereafter, all remaining installments or payments payable to the Employee shall be accelerated -5- and shall become immediately due and payable by the Company, without any discounting to present value, with interest accruing on any unpaid portion thereof at the rate of twelve percent (12%) per annum. (ii) The Company shall provide to Employee all benefits she was entitled to immediately prior to the date of Termination during the Salary Continuation Period, as defined below, including but not limited to all group insurance plans in which the Employee was entitled to participate immediately prior to the date of the Termination, provided that the Employee's continued participation is possible under the terms of such plans (as, for example, it may not possible if the Employee elects the lump sum payment option described in subsection 2(b)(i) above), failing which the Company shall arrange to provide the Employee with alternative benefits and/or insurance substantially similar to those provided under the then current benefit and insurance plans unless it is not commercially feasible to do so. If the cost of providing such benefits is more than 150% of the cost of providing such benefits for the Employee prior to the date of Termination, then the parties agree that it shall be deemed not commercially feasible to do so. (iii) The Salary Continuation Period as used in this Section 2(b) shall mean three (3) years from the date of a Termination of the Employee. (c) MITIGATION. The Employee shall not be required to mitigate the amount of any payment provided for in subsection 2(b) by seeking other employment or otherwise, nor shall the amount of any payment provided for in subsection 2(b) be reduced by any compensation earned by the Employee as a result of employment by another employer after -6- the date of Termination, or otherwise. 3. RIGHTS APPLY ONLY ON CHANGE OF CONTROL. The rights granted under this Change of Control Agreement only apply upon a Change of Control and subsequent Termination and supersede the severance or other similar rights accruing upon a Change of Control and subsequent Termination under any other agreement, including without limitation the Key Employee Severance Agreement, dated as of January 10, 1997 by and between the Company and the Employee (the "Key Employee Severance Agreement"). 4. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois applicable to agreements made and to be performed in Illinois, without giving effect to conflicts of law principles. 5. HEADINGS. The section headings of this Agreement are for reference only and are to be given no effect in the construction or interpretation of this Agreement. 6. SEVERABILITY. If any part or provision of this Agreement shall be declared invalid or unenforceable by a court of competent jurisdiction, said provision or part shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining parts or provisions of this Agreement. 7. WAIVER. Any party may waive compliance by another party with any of the provisions of this Agreement. No waiver of any provision shall be construed as a waiver of any other provision. Any waiver must be in writing. 8. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding on and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity (including any employee or person engaged by the Company in any capacity) not a party to this Agreement. The Company will require any successor (whether direct or indirect, -7- by merger, purchase, consolidation or otherwise) of the Company to make an express assumption of the obligations hereunder and cause any successor (whether direct or indirect, by merger, purchase, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to agree to perform all parts and provisions under this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he is subject to a Construction Termination, except for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to the business and/or assets of the Company which executes and delivers the agreement provided for in this section 8, or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. This Agreement and all rights of the Employee hereunder shall inure to the benefit of, and be enforceable by the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die after any amounts shall become payable to him hereunder, all such amounts, unless otherwise provided for herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or, if there be no such devisee or other designee, to the Employee's estate. 9. LEGAL FEES. The Company shall pay, or reimburse the Employee for, all legal fees and expenses incurred by the Employee as a result of any Termination of her employment hereunder after a Change of Control of the Company, including all such fees and -8- expenses, if any, incurred contesting or disputing in good faith any such Termination or in seeking to obtain or enforce any right or benefit provided by this Agreement. 10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; PROVIDED, HOWEVER, that the Employee shall be entitled to seek specific performance of her right to be paid until the date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 11. COUNTERPARTS. This Agreement may be signed in any number of counterparts and all such counterparts shall be read together and construed as but one and the same document. 12. NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally, or sent by facsimile transmission, receipt confirmed, one day after sent by recognized overnight courier, or five (5) days after deposit in the United States mail, postage prepaid, registered or certified mail, return receipt requested, to the parties at the following addresses (or to such other address as a party may have specified by notice duly given to the other party in accordance with this provision): If to the Employee: At the Employee's then current business or residence address as shown on the records of the Company, with a copy to such other person as the Employee may have specified by notice duly given to the Company in accordance with this provision. -9- If to the Company: Quixote Corporation One East Wacker Drive Chicago, IL 60601 Attention: President IN WITNESS WHEREOF the parties have executed this Agreement, in triplicate, on the date first written above. Quixote Corporation Employee /s/ Philip E. Rollhaus, Jr. /s/ Joan R. Riley ________________________________ ________________________________ By: Chief Executive Officer Joan R. Riley -10- EXHIBIT A All rights granted to Employee under the Company's plans including, but not limited to the following: 1993 Long-Term Stock Ownership Incentive Plan Incentive Savings Plan -11- EX-10.(G) 8 EXHIBIT 10(G) EXHIBIT 10(g) THE QUIXOTE CORPORATION INCENTIVE SAVINGS PLAN HIGHLIGHTS AND GENERAL INFORMATION PLAN NAME: The Quixote Corporation Incentive Savings Plan. EFFECTIVE DATE: The Quixote Corporation Incentive Savings Plan was originally effective on July 1, 1984. This booklet describes it in operation on July 1, 1997. TYPE OF PLAN: 401(k) PLAN PLAN YEAR: The PLAN YEAR is the 12-month period beginning on January 1 each year and ending on December 31. Records for the PLAN are kept on a PLAN YEAR basis. YOUR EMPLOYER: Quixote Corporation One East Wacker Drive Chicago, IL 60601 Employer Identification Number: 36-2675371 Plan Number: 001 PLAN ADMINISTRATOR: Quixote Corporation will serve as PLAN ADMINISTRATOR. You may contact your PLAN ADMINISTRATOR at: Quixote Corporation One East Wacker Drive Chicago, IL 60601 (312) 467-6755 ELIGIBILITY REQUIREMENTS: - Hourly or salaried employee - Labor Union members are NOT allowed to participate in this PLAN - 21 years of age - Not classified as a leased employee YOUR CONTRIBUTIONS: - PRE-TAX CONTRIBUTIONS -- 2% to 18% of your ELIGIBLE EARNINGS - ROLLOVER CONTRIBUTIONS -- funds transferred to your ACCOUNT directly from a QUALIFIED retirement savings PLAN EMPLOYER CONTRIBUTIONS: - MATCHING CONTRIBUTIONS -- $.50 for every $1 of PRE-TAX CONTRIBUTIONS up to a maximum of 7% of your ELIGIBLE EARNINGS - DISCRETIONARY CONTRIBUTIONS VESTING: - 100% immediate VESTING in all contributions made to your ACCOUNT TO MAKE CHANGES - Call AnswerLine at 1-800-253-2287 TO YOUR ACCOUNT: - Contact your PLAN ADMINISTRATOR TAKING MONEY OUT OF YOUR ACCOUNT: - LOANS permitted quarterly from your PRE-TAX CONTRIBUTIONS and ROLLOVER CONTRIBUTIONS - DISTRIBUTIONS: -- Termination -- Retirement -- DISABILITY -- Death (payment made to your beneficiary(ies)) Note: There may be limits and tax liabilities on PLAN payments; please see your PLAN ADMINISTRATOR for details. PAYMENT OPTION: One-time lump sum cash payment TRUSTEE: CG Trust Company, an Illinois Company 525 West Monroe Street, Suite 1800 Chicago, IL 60661-3629 AGENT FOR LEGAL PROCESS: Your PLAN ADMINISTRATOR is designated to receive any summons or legal notice informing the PLAN of a legal action in which it may be involved. PLAN FIDUCIARY: The PLAN'S fiduciary is the PLAN ADMINISTRATOR. USING THIS "SUMMARY PLAN DESCRIPTION" If you make this PLAN your primary method of retirement saving, you may be able to reach your goals more quickly. Whether you've already begun to save for your future or are just thinking about it, the information contained in this booklet is very important to you. Please read it very carefully. We recognize that some aspects of the PLAN are difficult to understand. For this reason, we have included examples throughout this booklet, which will always appear in shaded boxes like the following example. EXAMPLE: All of the examples in this booklet will be based on the following fictional employees: 1. BOB SMITH, Age 21 Years of service: 2 Annual Salary: $15,000 2. SALLY KEE, Age 45 Years of service: 10 Annual Salary: $20,000 Definitions of words or phrases that appear bolded and italicized (e.g., PLAN) can be found in the Glossary at the end of the booklet. Following the Glossary, you will find an Index containing IRS terms and acronyms that you may have encountered. These terms are also bolded and italicized throughout the text. Remember that the information in this booklet is only an overview of the important provisions of your PLAN. Every effort has been made to accurately describe the PLAN provisions which are contained in the PLAN document. If there is a difference between this booklet and the PLAN document, the PLAN document will govern. You can review the PLAN in the PLAN ADMINISTRATOR'S office during regular business hours if you have any questions this booklet doesn't answer. If you want your own copy of the PLAN, please write your PLAN ADMINISTRATOR. There may be a small charge. TABLE OF CONTENTS 1. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Why You Should Be a Part of the Plan. . . . . . . . . . . . . .1 How the Quixote Corporation Incentive Savings Plan Works. . . .1 2. ELIGIBILITY AND ENROLLMENT. . . . . . . . . . . . . . . . . . . . . . . .1 3. PLAN CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Pre-Tax Contributions . . . . . . . . . . . . . . . . . . . . .2 Matching Contributions. . . . . . . . . . . . . . . . . . . . .2 Discretionary Contributions . . . . . . . . . . . . . . . . . .2 Qualified Contributions . . . . . . . . . . . . . . . . . . . .3 Rollover Contributions. . . . . . . . . . . . . . . . . . . . .3 The Limit on Total Contributions. . . . . . . . . . . . . . . .3 4. VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 5. OBTAINING INFORMATION ABOUT YOUR ACCOUNT. . . . . . . . . . . . . . . . .3 Your Participant Financial Statement. . . . . . . . . . . . . .3 6. YOUR INVESTMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .3 7. MAKING CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Changing the Amount of Your Future Contributions. . . . . . . .4 Suspending or Resuming Your Contributions . . . . . . . . . . .4 Transferring Funds and/or Changing Your Investment Choices. . .4 8. TAKING MONEY OUT OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . .4 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Distributions . . . . . . . . . . . . . . . . . . . . . . . . .6 Rollover Distributions. . . . . . . . . . . . . . . . . . . . .7 Choosing Your Payment Options . . . . . . . . . . . . . . . . .7 9. TERMINATION OF EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . .8 10. TAX RULES AFFECTING PLAN PAYMENTS . . . . . . . . . . . . . . . . . . . .8 Mandatory 20% Withholding . . . . . . . . . . . . . . . . . . .8 10% Additional Penalty Tax. . . . . . . . . . . . . . . . . . .8 11. SURVIVOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Choosing a Beneficiary. . . . . . . . . . . . . . . . . . . . .9 Payment of Survivor Benefits to Your Spouse . . . . . . . . . .9 Payment of Survivor Benefits to a Nonspouse Beneficiary . . . .10 12. EVENTS THAT MAY AFFECT YOUR ACCOUNT . . . . . . . . . . . . . . . . . . .10 If the Plan Is Terminated . . . . . . . . . . . . . . . . . . .10 If Circumstances Require the Delay of a Withdrawal. . . . . . .10 Transfers from the Guaranteed Income Fund May Be Limited. . . .10 If a Court Issues a Domestic Relations Order. . . . . . . . . .10 If You Are a Highly Compensated Employee. . . . . . . . . . . .11 If the Plan Is Determined to be Top Heavy . . . . . . . . . . .11 13. YOUR ERISA RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 If Your Request for Retirement Income is Denied . . . . . . . .12 Requesting a Review of the Denial . . . . . . . . . . . . . . .12 Time Extensions . . . . . . . . . . . . . . . . . . . . . . . .13 Other Rights You May Have . . . . . . . . . . . . . . . . . . .13 14. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .13 Approval by the IRS . . . . . . . . . . . . . . . . . . . . . .13 Description of Entity That Maintains the Plan . . . . . . . . .14 Pension Benefit Guaranty Corporation . . . . . . . . . . . . .14 15. GLOSSARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 16. INDEX OF ACRONYMS AND IRS TERMS . . . . . . . . . . . . . . . . . . . . .19 1. INTRODUCTION WHY YOU SHOULD BE A PART OF THE PLAN In the following pages, you will read about one of your most important company benefits, the Quixote Corporation Incentive Savings Plan. If you become a PARTICIPANT, you can: - Reduce the amount of taxes you owe now; - Postpone paying taxes on money you save and the investment income it earns; - Take advantage of EMPLOYER contributions and postpone paying taxes on the investment income they earn; and - Build retirement equity for your future. HOW THE QUIXOTE CORPORATION INCENTIVE SAVINGS PLAN WORKS When you enroll in the PLAN, you decide what percentage of your pay you want to save through the PLAN and how you would like your savings invested. You may contribute from your gross (pre-tax) salary. The money you put into the PLAN is automatically deducted from your paycheck, deposited into your individual ACCOUNT, and invested according to your instructions. We may also contribute money to your ACCOUNT. This money will be invested according to our instructions. There are some limits to these contributions which you will find explained in detail in Chapter 3, Plan Contributions, on page 2. You control the amount of contributions to your ACCOUNT. You may change the amount you choose to contribute or stop contributing altogether. 2. ELIGIBILITY AND ENROLLMENT You can enroll in the Quixote Corporation Incentive Savings Plan if you meet the following requirements: - You are 21 years old - You are an hourly or salaried employee - You are not a member of a Labor Union, UNLESS your COLLECTIVE BARGAINING AGREEMENT (or contract) provides for coverage under this PLAN - You are not classified as a leased employee Once you are eligible to participate, your PLAN ADMINISTRATOR will provide you with enrollment information. Your participation will be effective on the next January 1 or July 1 following the date you enroll. 1 If you are a FORMER EMPLOYEE who has been rehired, please consult your PLAN ADMINISTRATOR for details about your participation in the Quixote Corporation Incentive Savings Plan. 3. PLAN CONTRIBUTIONS PRE-TAX CONTRIBUTIONS PRE-TAX CONTRIBUTIONS are subtracted from the amount you report to the IRS as taxable income. You will pay no income taxes on PRE-TAX CONTRIBUTIONS or investment earnings on these contributions until you take them out of the PLAN. You may contribute an amount from 2% to 18% of your ELIGIBLE EARNINGS. PRE-TAX CONTRIBUTIONS will automatically be deducted from your paycheck each pay period. ANNUAL % PRE-TAX TOTAL ANNUAL EMPLOYEE PAY CONTRIBUTION CONTRIBUTION Bob Smith $15,000.00 3% $450.00 Sally Kee $20,000.00 6% $1,200.00 LIMITS ON PRE-TAX CONTRIBUTIONS The IRS limits the total amount of your PRE-TAX CONTRIBUTIONS each year. This amount is adjusted for inflation every year. For 1998, the limit is $10,000. This limit applies to amounts you contribute to 401(k) PLANS and may affect the amounts you contribute to SECTION 403(b) PLANS and SIMPLIFIED EMPLOYEE PENSION PLANS. Any amount that you contribute in excess of this limit will be returned to you and treated as taxable income. MATCHING CONTRIBUTIONS For every PRE-TAX dollar you contribute, the company will contribute $.50. The pre-tax dollars upon which the MATCHING CONTRIBUTIONS are based shall not exceed 7% of your ELIGIBLE EARNINGS. PRE-TAX MATCHING TOTAL EMPLOYEE CONTRIBUTIONS CONTRIBUTIONS CONTRIBUTIONS Bob Smith $450.00 $225.00 $675.00 Sally Kee $1,200.00 $600.00 $1,800.00 DISCRETIONARY CONTRIBUTIONS We may choose to make a DISCRETIONARY CONTRIBUTION. The amount of this contribution may vary from year to year. It will be allocated to you in the same proportion that your ELIGIBLE EARNINGS bear to the total ELIGIBLE EARNINGS paid to all PLAN PARTICIPANTS. 2 QUALIFIED CONTRIBUTIONS At times, to maintain a QUALIFIED PLAN, we may need to make a "qualified" contribution. Qualified contributions will not be made to HIGHLY COMPENSATED EMPLOYEES. The qualified contributions may be made as QUALIFIED MATCHING or QUALIFIED NONELECTIVE CONTRIBUTIONS. ROLLOVER CONTRIBUTIONS Money from your former EMPLOYER'S qualified retirement PLAN may be "rolled over" to your PLAN. There are special rules for ROLLOVER CONTRIBUTIONS. Please contact your PLAN ADMINISTRATOR for more details. THE LIMIT ON TOTAL CONTRIBUTIONS In addition to the annual limit on PRE-TAX CONTRIBUTIONS, there is also a limit on the TOTAL amount of ALL types of contributions (excluding ROLLOVER CONTRIBUTIONS) you receive each year. This limit is the SMALLER of two amounts: - $30,000 (to be adjusted for inflation each year); or - 25% of your salary. The IRS also places special limitations on the contributions of HIGHLY COMPENSATED EMPLOYEES. If you need more information on these limits, please see your PLAN ADMINISTRATOR. 4. VESTING Vesting means that you have a right to all or a portion of the money in your ACCOUNT -- rights that cannot be FORFEITED or otherwise taken away. This PLAN provides for 100% immediate vesting of all contributions made to your ACCOUNT. 5. OBTAINING INFORMATION ABOUT YOUR ACCOUNT YOUR PARTICIPANT FINANCIAL STATEMENT Periodically you will receive a statement which summarizes all the activity in your ACCOUNT, including new contributions or LOANS, as well as earnings/losses on your investments. 6. YOUR INVESTMENT OPTIONS You can choose to invest your PRE-TAX CONTRIBUTIONS and ROLLOVER CONTRIBUTIONS in the wide variety of funds offered under your PLAN. Each of these funds is designed with a specific investment objective. You should become familiar with each fund's investment goals and level of risk before making your investment decision. 3 Information on the funds was included with your enrollment materials and is available through AnswerLine. Please contact your PLAN ADMINISTRATOR if you would like further information on the funds your PLAN offers. Our PLAN is intended to meet the requirements of ERISA section 404(c) and its regulations. Under these rules, the PLAN'S fiduciaries may be relieved of liability for losses that are a direct and necessary result of your investment instructions. Please contact your PLAN ADMINISTRATOR for details. 7. MAKING CHANGES As your personal situation changes, you may decide to change the amount you elect to contribute and/or your investment choices. Your PLAN allows you to make the changes you need by following these simple guidelines: CHANGING THE AMOUNT OF YOUR FUTURE CONTRIBUTIONS You can change the amount of your PRE-TAX CONTRIBUTIONS on January 1, April 1, July 1 and October 1. SUSPENDING OR RESUMING YOUR CONTRIBUTIONS You may suspend your contributions by notifying your PLAN ADMINISTRATOR. Once you suspend your contributions, you may resume at either July 1 or January 1. TRANSFERRING FUNDS AND/OR CHANGING YOUR INVESTMENT CHOICES You may change the way your FUTURE PRE-TAX CONTRIBUTIONS are invested among your PLAN'S various investment funds. You may also transfer PRE-TAX CONTRIBUTIONS already in your ACCOUNT between the funds. To perform these transactions you may call AnswerLine or contact your PLAN ADMINISTRATOR. Transfers do not change the way your FUTURE PRE-TAX CONTRIBUTIONS are allocated; if you want to change the way your future PRE-TAX CONTRIBUTIONS will be invested, you must specifically request such a change. You will receive written confirmation of your transaction by mail. 8. TAKING MONEY OUT OF THE PLAN Please read this section very carefully before deciding to take money out of your ACCOUNT. You should also review Chapter 10, Tax Rules Affecting Plan Payments, on page 8. You may receive money from your ACCOUNT in two ways: - LOANS - DISTRIBUTIONS 4 LOANS Your PLAN lets you borrow from your PRE-TAX CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS. To apply for a LOAN, you must be an ACTIVE EMPLOYEE and you may not already have a LOAN outstanding. LOANS are only available on a quarterly basis. TYPES OF LOANS: - General purpose LOAN - LOAN used to purchase your primary residence LIMITS ON THE AMOUNT YOU MAY BORROW The minimum amount you can borrow is $1,000. The maximum is 50% of your entire ACCOUNT BALANCE. You may never borrow more than $50,000 minus the highest outstanding balance on any individual PLAN LOAN during the last 12 months. APPLYING FOR A LOAN To request a LOAN: - Call AnswerLine; - Experiment with different loan amounts and repayment terms; - Confirm your loan request. (IF YOU CHANGE YOUR MIND ABOUT TAKING A LOAN, DO NOT CONFIRM YOUR REQUEST.) ONCE A LOAN HAS BEEN APPROVED, IT CANNOT BE CANCELED. Since LOANS are only available on a quarterly basis, you will need to call AnswerLine to apply for your LOAN during December, March, June or September to receive your LOAN packet for processing on the respective quarter-end. You will be required to sign a note promising to repay the amount of the LOAN, plus interest. This promissory note verifies that your ACCOUNT BALANCE will be used as security, guaranteeing that your LOAN will be paid back to your ACCOUNT. Your PLAN ADMINISTRATOR has the authority to set interest rates based on regulatory guidelines. Since interest rates are constantly changing, you should check with your PLAN ADMINISTRATOR or AnswerLine for the current rate at the time of your LOAN application. Once your LOAN is approved, the rate will remain in effect until you repay the LOAN. LOAN REPAYMENT Generally, you may take up to five years to repay a general purpose LOAN, in equal installments. If you are using the LOAN to purchase your primary residence, your PLAN ADMINISTRATOR may allow you a longer repayment period. You must repay the LOAN through payroll deductions. Your PLAN may allow you to prepay your LOAN, at any time, without penalty. When you repay the LOAN, both the principal and the interest will be reinvested in your ACCOUNT. 5 DEFAULTING ON A LOAN If you do not make any payment due within any 90-day period, your PLAN ADMINISTRATOR may determine that your LOAN is in default. If this happens: - The full amount will be due and payable immediately. - The outstanding balance of the LOAN will be reported to the IRS as ordinary income and you will have to pay federal and state income tax on this amount. - Future applications you make for a LOAN may be denied. If you think you are in danger of defaulting on a LOAN, contact your PLAN ADMINISTRATOR immediately. DISTRIBUTIONS You are automatically eligible to receive a DISTRIBUTION of your ACCOUNT BALANCE when you: - Retire - Terminate - Become DISABLED - Die (in which case payment will be made to your BENEFICIARY(IES)) NORMAL RETIREMENT NORMAL RETIREMENT under this PLAN occurs when you reach age 65 or older. AFTER AGE 70-1/2 If you're still employed on or after age 70-1/2, and you are considered a 5% owner, you must begin to receive a DISTRIBUTION of your ACCOUNT not later than April 1 following the calendar year in which you reach the age of 70-1/2. If you are not a 5% owner, the rules vary depending on when you turn age 70-1/2. See your Plan Administrator for detail on how these rules apply to you. TERMINATION If you leave employment before you retire, you will be entitled to a lump sum payment equal to your ACCOUNT BALANCE which you may take as a personal cash payment or roll over into either your own INDIVIDUAL RETIREMENT ACCOUNT (IRA) or another QUALIFIED PLAN. For information on your potential tax liabilities, see Chapter 10, Tax Rules Affecting Plan Payments, on page 8, and the section on Rollover Distributions on page 7 of this chapter. PERMANENT DISABILITY If you terminate your employment because of disability, you will receive a full cash DISTRIBUTION. 6 DEATH If you die while employed, your BENEFICIARY(IES) will receive the full value of your ACCOUNT. If you are married, your spouse will be the BENEFICIARY unless he or she has willingly given up that right. This is discussed in more detail in Chapter 11, Survivor Benefits, on page 9. ROLLOVER DISTRIBUTIONS You may defer paying tax on some taxable payments by electing a rollover DISTRIBUTION, for payments of $200 or more, instead of a personal payment. There are two different types of rollover DISTRIBUTIONS: DIRECT ROLLOVER In a direct rollover, all funds due to you are sent to either an INDIVIDUAL RETIREMENT ACCOUNT (IRA) or another QUALIFIED PLAN. No funds are paid to you. By directly rolling over the taxable portion of your funds, you avoid the mandatory 20% withholding. See Chapter 10, Tax Rules Affecting Plan Payments, on page 8. If you have an outstanding LOAN and you want to roll over your entire ACCOUNT balance, you must repay your LOAN before taking a DISTRIBUTION. Your payment will not be taxed until you take it out of the IRA or QUALIFIED PLAN. Therefore, you will pay no tax on it in the current year and no income tax will be withheld from the payment. INDIRECT ROLLOVER In an indirect rollover, all funds are first paid to you. Your PLAN ADMINISTRATOR is required by law to withhold 20% of the taxable portion of your funds for income taxes. The 20% withheld is credited to your taxes due when you file your income tax return. You may roll over the remaining 80% of the funds to an INDIVIDUAL RETIREMENT ACCOUNT (IRA) or another QUALIFIED PLAN within 60 days of the time you receive the DISTRIBUTION. You will not be taxed on the amount rolled over until you take the money out of the IRA or QUALIFIED PLAN. If you wish to roll over the full 100% of the taxable portion of your payment, you will have to make up 20% of the payment from another source. If you only roll over the 80% that you actually received, you will be taxed on the 20% that was withheld but not rolled over. See Chapter 10, Tax Rules Affecting Plan Payments, on page 8. CHOOSING YOUR PAYMENT OPTIONS There are several choices you may need to make. You may choose to: - Consent to a single lump sum payment; or - Postpone payment to a later date. If you do not elect to take full payment, or roll over your account when you terminate employment, you may defer your ACCOUNT. You must pay all fees and expenses to maintain your interest in the PLAN. These expenses will be withdrawn directly from your account. 7 During the time that your interest remains in the PLAN, you may continue to make investment transfers subject to the requirements of the PLAN. You may, at any time, take a full distribution of your account by writing the PLAN ADMINISTRATOR. Notwithstanding the above, if your interest never exceeded $3,500, the DISTRIBUTION will be made as soon as possible and will be made in the form of a single lump sum cash payment. 9. TERMINATION OF EMPLOYMENT If you leave the company, you are entitled to the value of your entire ACCOUNT balance. 10. TAX RULES AFFECTING PLAN PAYMENTS MANDATORY 20% WITHHOLDING Whenever you receive a DISTRIBUTION from the PLAN, and there is no direct rollover to an IRA or another QUALIFIED PLAN, the IRS requires your PLAN ADMINISTRATOR to withhold 20% of the DISTRIBUTION. This 20% withholding is not a tax; it is credited to any future federal income tax that you may owe. This amount will automatically be deducted from the amount paid to you. Example: Sally Kee, age 45, decides to leave the company. She initially elects a personal payment of her account balance. A month later, she starts a new job and wishes to roll over her distribution into her new employer's qualified plan. Her account balance is: $10,000 Less 20% withholding: - 2,000 ------- Total cash received $8 ,000 ------- ------- 10% ADDITIONAL PENALTY TAX Any payment of TAXABLE money from your ACCOUNT is generally subject to an additional 10% federal tax penalty if you take it out "early," which is defined as: - Before you reach the age of 59-1/2. - For reasons other than permanent DISABILITY or death. This penalty tax does NOT APPLY to the following types of payments: - Any full DISTRIBUTION made when you terminate employment at or after age 55. 8 - Any DISTRIBUTION made under the terms of a QUALIFIED DOMESTIC RELATIONS ORDER, which is a court order creating or recognizing an alternate payee's (e.g., spouse, former spouse, child) right to part or all of your PLAN benefits. See Chapter 12, Events That May Impact Your Account, on page 10 for more information about DOMESTIC RELATIONS ORDERS. - Any corrective DISTRIBUTIONS necessary to comply with IRS contribution limits. If you have questions about tax rules affecting PLAN payments, please contact your tax advisor. 11. SURVIVOR BENEFITS Survivor benefits are an important part of the financial security and peace of mind this PLAN provides. In this section, we discuss these benefits in more detail as well as the decisions you'll need to make about them before you retire. CHOOSING A BENEFICIARY When you enroll in the PLAN, you'll receive a BENEFICIARY designation form that you can use to name your BENEFICIARY. Generally, this PLAN requires that 100% of your ACCOUNT BALANCE be used to provide benefits for your spouse. You may name someone other than your spouse as BENEFICIARY at any time, provided that your spouse consents to this change in writing and the consent is notarized. If your spouse consents to waive his or her right to a survivor benefit, you may cancel this waiver at any time before your death. If you do so, your spouse again becomes your BENEFICIARY. If you wish, you may also make a new choice, subject to the same consent provisions discussed above. You and your spouse need to understand your respective rights and obligations concerning the benefits payable at your death, particularly the financial impact a waiver will have on your spouse. Your PLAN ADMINISTRATOR will provide you with information on this. If you are married and you die without complying with these BENEFICIARY requirements, 100% of your ACCOUNT BALANCE will be payable to your spouse. Of course, it is very important that you keep the PLAN ADMINISTRATOR informed of any changes in your marital status and of the proper name and address of your BENEFICIARY. PAYMENT OF SURVIVOR BENEFITS TO YOUR SPOUSE If you die BEFORE you receive the DISTRIBUTION of your ACCOUNT BALANCE, your spouse is entitled to a lump sum payment of your ACCOUNT. Your spouse's choice of payment options may be limited by certain IRS tax rules, in which case your PLAN ADMINISTRATOR will provide your spouse with any necessary information. 9 The DISTRIBUTION must be made no later than five years after your death. PAYMENT OF SURVIVOR BENEFITS TO A NONSPOUSE BENEFICIARY If you die BEFORE you've started to receive payment of your ACCOUNT: Your BENEFICIARY will receive payment of your ACCOUNT BALANCE within a reasonable period after the PLAN ADMINISTRATOR has been notified of your death. Your BENEFICIARY may also specifically choose to postpone a cash payment for up to five years after your death. 12. EVENTS THAT MAY AFFECT YOUR ACCOUNT Here are some of the events that could have an impact on your ACCOUNT. Please note how your contributions and/or benefits would be affected in each case. IF THE PLAN IS TERMINATED You may expect the PLAN to continue indefinitely; however, unforeseen circumstances may occur. If this PLAN is terminated and a successor qualified salary deferral retirement PLAN is not established, you will be entitled to receive payment of your ACCOUNT BALANCE. IF CIRCUMSTANCES REQUIRE THE DELAY OF A WITHDRAWAL There will be no delay in payment in cases of death, retirement, termination of employment, or total and permanent DISABILITY. TRANSFERS FROM THE GUARANTEED INCOME FUND MAY BE LIMITED Under certain circumstances the amount transferred from the guaranteed income fund to other investment funds may be limited by Connecticut General Life Insurance Company. Please see your PLAN ADMINISTRATOR for further information on transferring funds from the guaranteed income fund. IF A COURT ISSUES A DOMESTIC RELATIONS ORDER If you become divorced or separated, the court may assign part or all of your benefit to an alternate payee (such as your spouse, former spouse, child or other dependent) through a DOMESTIC RELATIONS ORDER. This is a court order that recognizes the alternate payee's right to part or all of your benefit. While ERISA (the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974) generally protects PLAN benefits against creditors, DOMESTIC RELATIONS ORDERS that are deemed qualified by the PLAN ADMINISTRATOR are an exception. A QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) can force payment of benefits to an alternate payee even though the PLAN prohibits DISTRIBUTIONS earlier than retirement, termination, death, or DISABILITY. The law requires that your PLAN ADMINISTRATOR determine, within a reasonable amount of time, whether the DOMESTIC RELATIONS ORDER is qualified. Your PLAN ADMINISTRATOR must follow specific procedures to ensure that your benefits are properly distributed. This can sometimes be a time-consuming process. You and each alternate payee will be notified of the PLAN ADMINISTRATOR'S decision. 10 IF YOU ARE A HIGHLY COMPENSATED EMPLOYEE To ensure that the PLAN does not offer unfair advantages to some employees over others, the Internal Revenue Code places some restrictions on the participation in the PLAN by HIGHLY COMPENSATED EMPLOYEES. To make sure these restrictions are followed, certain tests are performed each year and any necessary corrective actions must be taken. Most employees are permitted to save up to 25% of their ELIGIBLE EARNINGS on a tax-deferred basis. However, HIGHLY COMPENSATED EMPLOYEES may be limited in the amounts they may contribute to the PLAN. The Internal Revenue Code has also placed limits on the amounts of EMPLOYER contributions made to the ACCOUNTS of HIGHLY COMPENSATED EMPLOYEES. If you are a HIGHLY COMPENSATED EMPLOYEE, you should contact your PLAN ADMINISTRATOR to see how your ACCOUNT may be affected by these restrictions. IF THE PLAN IS DETERMINED TO BE TOP HEAVY A PLAN is termed TOP HEAVY if the value of the ACCOUNTS held by KEY EMPLOYEES is 60% or more of the total current value of all ACCOUNTS under the PLAN. KEY EMPLOYEES are generally defined as certain officers and shareholders of the company. Should this PLAN become TOP HEAVY, you will be notified. In such a case, certain provisions will change in order to compensate NON-KEY EMPLOYEES. If the PLAN is TOP HEAVY, we may be required to make a minimum contribution on behalf of all NON-KEY EMPLOYEES who: - Were employed on the last day of the PLAN YEAR during which the PLAN was TOP HEAVY; and - Were eligible to participate in the PLAN during that PLAN YEAR. 13. YOUR ERISA RIGHTS PARTICIPANTS in the PLAN have certain rights and protection under the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, commonly known as ERISA. ERISA states that, as a PLAN PARTICIPANT, you are entitled to: - Examine, without charge, all PLAN documents at the PLAN ADMINISTRATOR'S office and other specified locations. These documents include insurance contracts and copies of all documents, such as annual reports and PLAN descriptions, filed by the PLAN with the U.S. Department of Labor; - Obtain copies of all PLAN documents and other PLAN information upon a written request directed to the PLAN ADMINISTRATOR. The PLAN ADMINISTRATOR may charge a reasonable amount for the copies; 11 - Receive a summary of the PLAN'S annual financial report. The PLAN ADMINISTRATOR is legally required to give PARTICIPANTS a copy of this summary annual report. Further, you may not be fired or discriminated against in any way as a means of preventing you from obtaining your RETIREMENT BENEFITS or exercising your rights under ERISA. IF YOUR REQUEST FOR RETIREMENT INCOME IS DENIED ERISA regulations describe steps that must be taken in the rare cases when a claim for payment is denied, either in whole or in part. A claim might be denied if: - The PLAN ADMINISTRATOR does not believe that you are entitled to payment; or - The PLAN ADMINISTRATOR disagrees with the payment amount to which you believe you are entitled. If your claim is denied, the PLAN ADMINISTRATOR has to notify you in writing within 90 days after receiving your claim. The notice must contain the following information: - The specific reason(s) your claim was denied. - The PLAN provisions that support the denial. - If your application was incomplete, the additional information needed to complete your claim request and an explanation of why it is needed. - Information on what you need to do in order to have the claim denial reviewed. If you do not receive notice on the status of your claim from the PLAN ADMINISTRATOR within 90 days, or within 180 days if it is a special case (see Time Extensions on page 13 in this chapter), you can assume your claim has been denied and you may request a review of your denial. REQUESTING A REVIEW OF THE DENIAL Once the PLAN ADMINISTRATOR has reviewed your claim and notified you in writing of the denial within the required 90-day period, you may contest the denial. You must submit a written request for a review of that denial within 60 days of the date of the PLAN ADMINISTRATOR'S written notification. In case the PLAN ADMINISTRATOR does not notify you of the denial within the required 90-day period, your request for review should be submitted immediately after the 90-day period expires. If you wish, you (or your representative) may review the appropriate PLAN documents and submit written information supporting your claim to the appropriate FIDUCIARY. Within 60 days of your request, the PLAN FIDUCIARIES should notify you in writing of the final decision. This notification must: - Be written in clear, easily understood language; and 12 - Inform you of the decision, the reasons why that decision was made, and the specific PLAN provisions that support it. If you do not receive a decision on your request for review within 60 days, you can assume your request has been denied. If you disagree with the results of the review, you may file suit in federal or state court. If your suit is successful, the court may award you legal costs, including attorneys' fees. TIME EXTENSIONS Under special circumstances, the 90-day and 60-day notification periods just discussed may be extended by up to 90 days. You will be informed in writing of any extensions before the end of these notification periods. The extension notice will state the special circumstances necessitating the delay and the revised date by which you may expect a decision. OTHER RIGHTS YOU MAY HAVE Under ERISA, there are steps you can take to enforce your rights. For instance, if you request materials from the PLAN and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the PLAN ADMINISTRATOR to provide the documents and pay you up to $110 a day until you receive them -- unless you did not receive the materials for reasons beyond the PLAN ADMINISTRATOR'S control. In addition to defining the rights of PLAN PARTICIPANTS, ERISA imposes obligations on the people responsible for operating the PLAN. These persons are legally referred to as FIDUCIARIES and must act prudently and in the sole interest of the PLAN'S PARTICIPANTS and BENEFICIARIES. If the FIDUCIARIES misuse the PLAN'S money or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, however, or if the court finds your claim to be frivolous, the court may order you to pay these costs and fees. If you have any questions about your PLAN, you should contact the PLAN ADMINISTRATOR. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest Area Office of the U.S. Labor-Management Services Administration, Department of Labor. 14. ADDITIONAL INFORMATION APPROVAL BY THE IRS This PLAN is intended to be a "qualified" PLAN under Internal Revenue Code section 401(a). Therefore, certain contributions made to the PLAN are not taxable to you until distributed. In the unlikely event that the IRS determines that the PLAN does not meet its qualification requirements, all contributions will cease. At such time, some or all of your contributions may be returned. Any contributions that are returned to you are taxable to you in the year that the DISTRIBUTION is made from the disqualified PLAN. 13 DESCRIPTION OF ENTITY THAT MAINTAINS THE PLAN Connecticut General Life Insurance Company, a CIGNA Company, has been retained to assist us with the operation of our PLAN. This PLAN operates under a contract administration. This means that PLAN contributions accumulate and benefit payments are payable under a group annuity contract. Our contract is with Connecticut General Life Insurance Company. PENSION BENEFIT GUARANTY CORPORATION The Pension Benefit Guaranty Corporation (PBGC) is operated under the Department of Labor to insure plan benefits. Because our PLAN maintains individual participant accounts, it is not covered by PBGC insurance. 14 15. GLOSSARY ACCOUNT An individual account is maintained for you under the plan. An account contains all contributions made on your behalf and includes earnings or losses on those contributions. ACTIVE EMPLOYEE An active employee is someone who is currently employed by the employer. BENEFICIARY The person to whom the funds in your account will be distributed in the event of your death. CONTRIBUTION PERIOD For employee contributions, the regular period (monthly) for which participants make these contributions. For employer contributions, the regular period (monthly for matching contributions and annually for discretionary contributions) in which the employer intends to make contributions. DISABLED If you should become unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment which can be expected to continue indefinitely, your Plan Administrator may deem you to be disabled. DISCRETIONARY CONTRIBUTION Your employer may make a discretionary contribution on your behalf. This contribution will not be based on the amount of your pre-tax contributions. DISTRIBUTION Any payments made from your account. DOMESTIC RELATIONS ORDER (SEE QUALIFIED DOMESTIC RELATIONS ORDER) ELIGIBLE EARNINGS Eligible earnings are your wages for the plan year. Eligible earnings may also include amounts your employer contributes on your behalf to any salary deferral arrangements, even though these amounts are excluded from your gross income for tax purposes. The plan does NOT recognize compensation amounts that exceed an inflation-adjusted annual limit, which is $160,000 for 1998. In some cases, this limit may apply to an entire family working for the same employer. In addition, if you join the plan within the plan year, your limit will be adjusted accordingly. EMPLOYER The entity (usually a company or partnership) whose employees are covered under the retirement plan. In the case of a group of employers which constitutes a controlled group of corporations or an affiliated service group, all such employers shall be considered as a single employer for purposes of the plan. 15 FIDUCIARY A person who has discretionary control over or responsibility for a plan's administration and/or its assets. FOREIGN NATIONAL Someone who is a non-United States citizen. Plan sponsors usually allow foreign nationals working and residing in the United States to participate. FORMER EMPLOYEE A former employee is an employee who is no longer employed by the employer. HIGHLY COMPENSATED EMPLOYEES Under the Internal Revenue Code, an employee is regarded as "highly compensated" if he or she meets any of the criteria listed below. The dollar amounts shown below are 1997 figures and are adjusted annually based on cost-of-living factors determined by the government. - Owns at least 5% of the company for the current or preceding year; or - Earns more than $80,000 in the preceding year and, if elected for the plan year, was in the top 20% of the employees for the preceding year. HOUR OF SERVICE You will be credited with one hour of service for every hour that you work for the employer. INDIVIDUAL RETIREMENT ACCOUNT (IRA) An IRA is an individual retirement account established to save money for retirement. With an IRA, taxes are deferred on the interest your investment earns, and, if you meet certain criteria, taxes on the contributions are also deferred. KEY AND NON-KEY EMPLOYEES Key employees are generally certain officers, managers and shareholders of the employer. If a plan becomes top-heavy in any plan year, the benefits earned by that year's non-key employees may be increased. LOAN A portion of your account balance which you borrow and agree to repay with interest. MATCHING CONTRIBUTIONS A contribution your employer may make on your behalf that is based upon the amount of your pre-tax or post-tax contributions. NORMAL RETIREMENT DATE The first day of the month following the date you attain the normal retirement age specified in the Plan. PARTICIPANT For pre-tax contributions, a participant is an employee who is eligible to participate under the terms of a qualified plan or who has a right to a benefit from the plan. 16 PLAN The plan that your employer is maintaining to help you save for your retirement years. PLAN ADMINISTRATOR Your Plan Administrator is Quixote Corporation which is responsible for the operation of your plan. PLAN YEAR The period of 12 consecutive months for which records are kept and assets are valued. PRE-TAX CONTRIBUTIONS An arrangement between you and your employer in which you consent to "defer" a certain amount of salary each pay period. Your employer then deposits this money into your account. QUALIFIED CONTRIBUTIONS - - Qualified Matching Contributions A matching contribution made to nonhighly compensated employees in order to ensure that highly compensated employees are not receiving an unfair proportion of the plan's contributions. - - Qualified Nonelective Contributions A discretionary contribution made to nonhighly compensated employees in order to ensure that highly compensated employees are not receiving an unfair proportion of the plan's contributions. QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) A domestic relations order deemed qualified by a Plan Administrator. A qualified domestic relations order can force payment of plan benefits to an alternate payee (e.g., spouse, former spouse, child), even though the plan normally prohibits distributions earlier than retirement, termination, death, or disability. RETIREMENT BENEFIT The funds paid to you or your designated beneficiary once you separate from service after reaching the earliest retirement date described under the terms of the plan. ROLLOVER CONTRIBUTIONS Contributions from a retirement plan established by a former employer which are "rolled over" to the current plan either directly or through an Individual Retirement Account (IRA). If the money is rolled directly from one qualified plan to another, the money is not actually distributed to you and is not subject to income tax withholding. SALARY DEFERRAL ARRANGEMENT (See PRE-TAX CONTRIBUTIONS) TOP HEAVY A plan is regarded as top heavy when the current value of accounts attributable to key employees is 60% or more of the total current value of all accounts in the plan. 17 TRUSTEE An individual or entity appointed by the employer's board of directors who holds title to plan assets and may be responsible for managing the assets. 18 16. INDEX OF ACRONYMS AND IRS TERMS 401(k) PLAN A plan which allows participants to defer taxable income by making pre-tax contributions to the plan. Federal income tax is deferred until a distribution is made. ACTUAL CONTRIBUTION PERCENTAGE (ACP) TEST A test that is performed each plan year for all plans that allow employee post-tax and/or employer matching contributions. The test ensures that such contributions do not discriminate in favor of highly compensated employees. ACTUAL DEFERRAL PERCENTAGE (ADP) TEST A test that is performed each plan year for all 401(k) plans to ensure that employee pre-tax contributions do not discriminate in favor of highly compensated employees. ANNUAL ADDITIONS/415 LIMITATIONS A limit on all employer and employee contributions (pre-tax and post-tax) and forfeitures allocated to a participant's account. The annual additions limitation is the lesser of $30,000 (as indexed) or 25% of eligible earnings for each year. DEPARTMENT OF LABOR (DOL) A U.S. Government agency that, among other responsibilities, administers the labor, regulatory, and administrative provisions of ERISA. EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) OF 1974 ERISA is the law designed to protect the rights of participants and beneficiaries of employee benefit plans. ERISA imposes various plan qualification standards and fiduciary responsibilities. INTERNAL REVENUE CODE (IRC) The Internal Revenue Code of 1986 is the body of law governing the federal taxation of individuals and business entities. INTERNAL REVENUE SERVICE (IRS) The agency of the Federal Treasury Department charged with administering, interpreting, and enforcing the tax code. The IRS also determines whether a plan complies with federal tax regulations for qualified plans. QUALIFIED PLAN A pension or profit sharing plan that meets the requirements of Internal Revenue Code section 401(a) and qualifies for special tax considerations. 19 EX-21 9 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 QUIXOTE CORPORATION & SUBSIDIARIES SUBSIDIARIES OF THE COMPANY as of June 30, 1998
Jurisdiction Under Which QUIXOTE CORPORATION (PARENT) Organized - ---------------------------- ------------- Energy Absorption Systems, Inc. Delaware Composite Components, Inc. Delaware E-Tech Testing Services, Inc. Delaware Safe-Hit Corporation Nevada Spin-Cast Plastics, Inc. Indiana TranSafe Corporation Delaware Roadway Safety Service, Inc. Delaware Highway Information Systems, Inc. Delaware LaserVideo Acquisition Corporation Delaware Legal Technologies, Inc. Delaware Litigation Communications, Inc. Delaware Quixote Steno Corporation Delaware Quixote DPI Corporation Delaware Court Technologies, Inc. Delaware Quixote IIS Corporation Delaware Quixote Limited United Kingdom Quixote LSI Corporation Delaware QualAir Corporation Delaware Quixote Foreign Sales Corporation U.S. Virgin Islands Quixote Laser Corporation Delaware Quixote Research Corporation Delaware
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., E-Tech Testing Services, Inc., Safe-Hit Corporation and Spin-Cast Plastics, Inc. TranSafe Corporation is the sole shareholder of Roadway Safety Service, Inc. and Highway Information Systems, Inc. Legal Technologies, Inc. is the sole shareholder of Litigation Communications, Inc. and Quixote Steno Corporation. Quixote Steno Corporation is the sole shareholder of Quixote DPI Corporation, Quixote IIS Corporation, Quixote Limited and Quixote LSI Corporation. Quixote DPI Corporation 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. EX-23 10 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS 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, 33-74488 and 333-62933) and the registration statements on Form S-3 (Files Nos. 2-96502 and 33-14873 Amendment No. 1) of our reports, dated August 7, 1998, accompanying the consolidated financial statements and financial statement schedules of Quixote Corporation and Subsidiaries as of June 30, 1998 and 1997, and for each of the years ended June 30, 1998, 1997 and 1996, which report is included in this Annual Report on Form 10-K of Quixote Corporation. /s/ PricewaterhouseCoopers LLP Chicago, Illinois September 28, 1998 EX-27 11 EXHIBIT 27
5 YEAR JUN-30-1998 JUL-01-1997 JUN-30-1998 3,927,000 0 14,541,000 565,000 5,826,000 26,853,000 23,236,000 9,754,000 59,065,000 11,707,000 7,677,000 0 0 148,000 38,738,000 59,065,000 55,988,000 55,988,000 30,445,000 30,445,000 16,990,000 0 357,000 8,752,000 2,605,000 6,147,000 (6,138,000) 0 0 9,000 .00 .00
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