-----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, Q+Jh3iGWK2SfD2mWXBpsq7PFllV8T/x8dac5oZWpVLJW4o0N4M/LuGcMaP1gHLPj 86pwxPhxqyVj3andXRITug== 0001047469-99-036886.txt : 19990928 0001047469-99-036886.hdr.sgml : 19990928 ACCESSION NUMBER: 0001047469-99-036886 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990927 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: 99717554 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-K405 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, 1999 ---------------------------- 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. $112,046,505 as of August 27, 1999 ------------------------------------------------ -1- TABLE OF CONTENTS
PART I PAGE ------- Item 1. Business...................................................... 3-6 Item 2. Properties.................................................... 7 Item 3. Legal Proceedings............................................. 8 Item 4. Submission of Matters to a Vote of Security Holders........... 8 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 9 Item 6. Selected Financial Data....................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 10-14 Item 8. Financial Statements and Supplementary Data................... 15-28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 29 PART III Item 10. Directors and Executive Officers of the Registrant............ 29 Item 11. Executive Compensation........................................ 29 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................................. 30 Item 13. Certain Relationships and Related Transactions................ 30 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................. 30-33 SIGNATURES................................................................ 34
-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, 1999, Quixote Corporation and its subsidiaries employed approximately 560 people. 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 by directing or providing information. The Company's products are sold primarily by a single sales force to similar customers in the highway construction and safety business. 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. 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 or slow moving vehicles. The product lines utilize the principles of momentum transfer and kinetic energy to safely decelerate errant vehicles. Energy absorption or energy dissipation is accomplished by using different combinations of water, aluminum, steel, urethane foam systems, cardboard, plastic structures, elastometric cylinders and sand. The Company also manufactures and sells products that prevent crashes and help control the flow of traffic by directing, guiding or providing information. The Company manufactures and markets a line of flexible sign and guide post systems (delineators) and a glare screen system. 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. Highway Information Systems, Inc. (HIS), acquired in April 1998, manufactures and markets 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 and allows the transmission of information without an external power -3- source. Both systems use AM radio frequencies to communicate messages to motorists about traffic, road conditions and weather. The messages may be pre-recorded or updated real-time through a phone line with reception up to six miles from the unit. To complement its business of providing information to prevent crashes from occurring, the Company acquired Nu-Metrics, Inc. in December of 1998. Since it was founded in 1970, Nu-Metrics has developed innovative products that employ technology to gather and use information to relieve traffic congestion. It was the first company to market a self-contained, wireless, magnetic traffic counter/classifier. Today, its key products include the Groundhog-Registered Trademark- line of permanent traffic monitors, which gather information on the volume, speed and class of vehicles as well as road surface conditions and transmits this data via spread spectrum wireless (RF) to a receiver unit. The data is then relayed real-time to a base computer or control center for monitoring. The Speed Sign-Registered Trademark- measures and displays the speed of passing vehicles. The Hi-Star-Registered Trademark- is a portable traffic counter/classifier. The Nitestar-Registered Trademark- is a vehicle-installed device that can accurately measure the distance between any two fixed points on the highway. Nu-Metrics also manufactures and markets remote traffic and weather information networks (RTWIN). Using a tower equipped with weather instruments and special detectors mounted in the road, RTWIN products can detect freezing conditions and provide valuable data to dispatch salt trucks or automatically activate anti-icing systems. Products can be further broken down into permanent and construction zone applications and, as such, are sold to those markets. 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 provides product education, selection and application assistance. The Company, in some cases, performs site preparation and installation for its products. These services are generally performed by the Company's 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). For certain products, the Company sells using catalogs and inside sales personnel. Many international governments are now beginning to recognize the need for crash cushions and the Company's other highway safety products as a method of reducing traffic fatalities. The Company's products are sold internationally through a network of 47 distributors who make sales to municipal and national governments and contractors who are responding to bids from their respective governments. International sales for 1999 were $6.3 million. The Company does experience competition in specific crash cushion product lines, particularly in the sand barrel, QuadGuard, REACT 350 and TMA lines. The Company competes in the U.S. market for crash cushions with Syro, Inc., a subsidiary of Trinity Industries, Inc., (NYSE TRN) and with other smaller regional companies. 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. Nu-Metric's traffic counters and sensors compete with many different technologies including inductive loop detectors, microwave and infra red sensors and machine vision (video) that each offer certain advantages. The Company believes it competes effectively through advanced product development and patent protection, strong distribution, product quality and price. -4- Government Policies - ------------------- The market for highway safety products 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 safety 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, 1999, 1998 and 1997, the Company had a backlog of unfilled orders for highway safety devices of $11,069,000, $12,204,000, and $8,999,000 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 - --------------------------------- Many of the Company's products have patented features and 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 $1,544,000, $1,570,000, and $2,209,000, in the years 1999, 1998 and 1997, 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, wood and electronic 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. Major Customers - --------------- No single customer of the Company represents a significant portion of total revenues. Seasonality - ----------- The Company's sales are seasonal. The domestic highway maintenance and construction season tends to reach its peak in the second and third calendar quarters. As a result, the Company's sales and earnings in these quarters are the strongest with weaker quarters occurring in the first and fourth calendar quarters. -5- Other - ----- Investment in Transportation Management Technologies, LLC Joint Venture - ------------------------------------------------------------------------ During fiscal 1999, the Company entered into a joint venture agreement to market pavement inspection and management systems and other high technology products and services in the United States. The joint venture is composed of the Company, G.I.E. Technologies Ltd., based in Montreal, Canada, and eight independent distributors of the Company's highway products. The Company is required to invest $1,000,000 in $250,000 quarterly installments for an 18% interest in the joint venture. Legal fees of $14,000 were incurred by the Company with respect to this joint venture. At June 30, 1999, $250,000 remained payable under the agreement. This investment is being accounted for under the equity method of accounting which resulted in charges of $54,000 for the year ended June 30, 1999. 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 1998, the Company recorded additional losses from discontinued operations of $6,138,000, or $0.76 per diluted 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. In March 1999, DMI assigned all of its rights to certain real property and a building located in Huntsville, Alabama to Cinram, Ltd. upon Cinram's exercise of its option to purchase for the pre-agreed purchase price of $6,947,000, less certain adjustments of approximately $238,000. Also in March 1999, the Company recorded a gain of $240,000, or $.03 per diluted share, due to the reversal of certain accruals resulting from the favorable outcome of some legal proceedings and other contingencies. -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 4915 Prospectus Drive 5,100 sq. ft. Storage facility for Leased Durham, North Carolina highway advisory radio equipment Route 119 University Drive 26,000 sq. ft. Sale and manufacture of Owned Uniontown, Pennsylvania traffic sensing and distance measuring devices 200 Corporate Pointe 19,800 sq. ft. Sublet Leased Culver City, California
Note: Present facilities are believed to be adequate to support the Company's current and anticipated requirements. -7- Item 3. Legal Proceedings - -------------------------- A. 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. After a trial in July 1996, the jury found that the Thomson patents were invalid and Thomson appealed. The U.S. Court of Appeals for the Federal Circuit affirmed the trial court's decision to sustain the jury verdict. Thomson subsequently filed a petition for a Writ of Certiorari which was denied by the Supreme Court. B. 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. C. 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. 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 1999. -8- PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - -------------------------------------------------------------------------- The Company's common stock is quoted on The Nasdaq Stock Market-Registered Trademark- 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 Nasdaq. Three Months Ending
9/30 12/31 3/31 6/30 ---- ----- ---- ---- FISCAL 1999: High......... $15-1/2 $13-3/4 $13-1/4 $13-7/8 Low.......... 12-3/8 11-3/8 11-5/16 11-7/16 FISCAL 1998: High........ $ 9-1/2 $ 9-3/8 $ 10 $ 13 Low......... 7-5/8 7-5/8 8 10-1/4
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 9, 1999, there were 1,464 shareholders of record. During 1999, the Company declared semiannual cash dividends of $.14 per share each. Dividend Policy - --------------- During 1999, the Company declared semiannual cash dividends of fourteen cents per share. During 1998, the Company declared semiannual cash dividends of thirteen cents per share. Item 6. Selected Financial Data - -------------------------------- SELECTED FINANCIAL DATA
Dollar amounts in thousands, except per share data 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Operating Results: Net sales................................. $71,987 $55,988 $45,037 $46,750 $46,522 Gross profit.............................. 33,633 25,543 22,249 24,291 23,382 Selling and administrative expenses....... 19,606 15,420 14,264 15,059 13,662 Research and development expenses......... 1,544 1,570 2,209 1,536 1,545 Other income (expense).................... (665) 199 (2,112) (488) (1,887) Earnings from continuing operations....... 7,562 6,147 2,907 4,390 4,470 Net earnings (loss)....................... 7,802 9 (3,831) (9,892) 5,950 Cash dividends per common share........... .28 .26 .25 .24 .22 Per Share Data: Basic EPS: Earnings from continuing operations....... $ .95 $ .77 $ .36 $ .56 $ .57 Net earnings (loss)....................... .98 .00 (.48) (1.26) .76 Weighted average common and common equivalent shares outstanding..................... 7,986,094 7,943,653 7,966,700 7,875,585 7,819,537 Diluted EPS: Earnings from continuing operations....... $ .92 $ .76 $ .36 $ .52 $ .54 Net earnings (loss)....................... .95 .00 (.48) (1.26) .76 Weighted average common and common equivalent shares outstanding..................... 8,227,775 8,088,354 8,008,893 8,951,562 9,151,701 Financial Position: Total assets.............................. $71,744 $59,065 $55,220 $118,888 $135,662 Working capital........................... 18,579 15,146 20,639 4,055 5,541 Property, plant and equipment, net........ 15,599 13,482 12,903 13,113 10,645 Long-term debt, net....................... 11,901 7,677 0 58,000 68,000 Shareholders' equity...................... 45,982 38,886 41,655 47,619 58,915 Book value per common share............... 5.70 4.94 5.24 5.99 7.49
NOTE: OPERATING RESULTS AND FINANCIAL POSITION FOR ALL PERIODS PRESENTED REFLECT THE LEGAL TECHNOLOGIES, INC. AND DISC MANUFACTURING, INC. SEGMENTS AS DISCONTINUED OPERATIONS. -9- Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ----------------------------------------------------------- 1999 Compared to 1998 - ---------------------------------------------- The Company's sales for 1999 increased 29% to $71,987,000 from $55,988,000 in 1998, due to both internal sales growth as well as growth from three acquisitions the Company completed during fiscal 1998 and 1999. Internal sales increased 16% resulting from demand for Energy Absorption Systems' newer crash cushion products. Energy Absorption's permanent line of crash cushion products increased 33% due to strong unit sales of the QuadGuard-Registered Tradmark- family of crash cushions, including the newer wide and low maintenance versions of this product line. The Company also experienced sales increases in its truck-mounted attenuator (TMA) product line, including the Alpha 100k TMA. Parts sales and sales of Safe-Hit Corporation's highway delineators also increased during the year. Roadway Safety Service, Inc., acquired in October 1997, increased sales $2,606,000 to $7,160,000 for the year. Highway Information Systems, Inc. (HIS), acquired in April 1998, had increased sales of $1,832,000 to $2,473,000 for 1999. Nu-Metrics, Inc., acquired in December 1998, contributed sales of $3,677,000 for the seven month period as part of the Company. Nu-Metrics is a leading manufacturer of electronic measuring and sensing devices for highway safety and traffic monitoring. These sales increases were offset somewhat by declining sales of the Energite-Registered Tradmark- barrel and Triton Barrier-Registered Tradmark- product lines during the year. Spin-Cast Plastics' custom molded product sales also declined during the year. The gross profit margin increased to 46.7% in 1999 from 45.6% in 1998. This was due principally to the acquisition of Nu-Metrics as its gross margin is higher than the Company's average gross margin. Roadway Safety Service also had an increase in gross margin due to both lower vendor costs as well as its increased sales volume. Energy Absorption and its subsidiaries had a slight increase in gross margin due to a favorable change in product mix along with a price increase in Energy Absorption's products effective the last half of the current fiscal year. The gross margin at HIS declined slightly due to a change in product mix. Selling and administrative expenses in 1999 increased 27% to $19,606,000 from $15,420,000 in 1998. This was due principally to the acquisitions of HIS and Nu-Metrics which added a combined net increase of $2,144,000 in selling and administrative expenses. Energy Absorption and its subsidiaries, along with Roadway Safety Service, had $1,233,000 in increased selling and administrative expenses which was due to the increased level of their sales. Corporate level administrative expenses increased $809,000 as a result of increased salaries, consulting and shareholder expenses. Research and development expenses in 1999 decreased slightly to $1,544,000 compared to $1,570,000 in 1998. During the current year, the Company incurred costs in the development of the QuadGuard Elite, a restorable crash cushion and the Safe-Stop-TM- truck-mounted attenuator, projects which are complete and are currently in production. The Company also continued with its testing of a wider version of the Company's REACT 350-Registered Trademark- crash cushion as well as the testing of several reflective pavement markers, and other developmental projects. Interest income in 1999 decreased to $91,000 compared to $540,000 in 1998. Interest income declined as a result of a decline in the Company's invested cash in the current year. Interest expense in 1999 was $1,029,000 compared to $357,000 in 1998. Current period interest expense relates both to seller financed debt in connection with the acquisition of Roadway Safety Service as well as bank debt incurred in connection with the acquisitions of HIS and Nu-Metrics. The Company's effective income tax rate for 1999 was 36% compared to an effective income tax rate of 30% in 1998 due to last year's greater realization of certain tax attributes along with the settlement of certain tax contingencies. The Company believes its effective income tax rate for its fiscal year 2000 will be approximately 40% which reflects the normalized effective rate for the Company. In March 1999, DMI, a discontinued operation, assigned all of its rights to certain real property and a building located in Huntsville, Alabama to Cinram, Ltd. upon Cinram's -10- exercise of its option to purchase for the pre-agreed purchase price of $6,947,000, less certain adjustments of approximately $238,000. Also in March 1999, the Company recorded a gain of $240,000, or $.03 per diluted share, due to the reversal of certain accruals resulting from the favorable outcome of some legal proceedings and other contingencies. In December 1998, the Company and its wholly-owned subsidiary, TranSafe Corporation, acquired Nu-Metrics, Inc., a Uniontown, Pennsylvania-based developer and manufacturer of traffic sensing and distance measuring devices. This transaction was accounted for as a purchase and was effective as of December 1, 1998. The purchase price was $13,701,000 which was paid in cash. When acquired, Nu-Metrics had long-term debt of approximately $981,000. Goodwill recorded in the transaction of approximately $12,733,000 will be amortized over a twenty year life. In October 1998, the Company and its wholly-owned subsidiary, TranSafe Corporation, entered into a joint venture agreement to market pavement inspection and management systems and other high technology products and services in the United States. The joint venture, known as Transportation Management Technologies, LLC (TMT), is composed of the Company, G.I.E. Technologies, Inc., based in Montreal, Canada, and eight independent distributors of the Company's highway products. TranSafe is required to invest $1,000,000 in $250,000 quarterly installments for an 18% interest in the joint venture. Legal fees of $14,000 were incurred by TranSafe with respect to this joint venture. At June 30, 1999, $250,000 remained payable under the agreement. This investment is being accounted for under the equity method of accounting. During 1999, the Company adopted FAS No. 131, Disclosures about Segments of an Enterprise and Related Information about Capital Structure. This accounting pronouncement 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 same basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. 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, 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 new products. The Company also experienced sales increases in its TMA product line. 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 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 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. Highway Information Systems' gross margin, although higher than the Company's average gross margin, had no material effect on gross margin 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 Highway Information Systems added a combined $1,032,000 in selling and administrative -11- 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 compared to $2,209,000 in 1997. This was due to a reduction in the number of tests performed in 1998 related to the upgrade of the Company's product line to a higher set of safety guidelines known as NCHRP 350 in 1997. These guidelines increase safety standards to accommodate heavier and higher center of gravity vehicles such as sport utility vehicles and pick-up trucks. During 1998, 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 products. 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. Interest expense in 1998 relates both to seller financed debt 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 $1,954,000 in 1997. The expense in 1997 relates principally to the write-off of the Company's investment in the FIP joint venture. The Company's effective income tax rate for 1998 was 30% due to the realization of certain tax benefits during 1998 along with the settlement of certain tax contingencies. During 1998, the Company recorded additional losses from its discontinued operations of $6,138,000, or $0.76 per diluted 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 Disc Manufacturing, Inc. In October 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 was $5,436,000 and 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. In April 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. In 1998, the Financial Accounting Standards Board (FASB) issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 1999, FASB issued FAS No. 137, which deferred the effective date of FAS No. 133. Accordingly, FAS No.133 is effective for all fiscal quarters beginning after June 15, 2000 (July 1, 2000 for the Company). FAS No. 133 requires that all changes in derivatives be 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. The Company anticipates that due to its limited use of derivative instruments, the adoption of FAS No.133 will not have a significant effect on the Company's results of operations or its financial position. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company had cash and cash equivalents of $2,153,000 and access to additional funds of $32,000,000 under its bank arrangements as of June 30, 1999. Continuing operating activities were a source of cash for the Company for 1999 providing $9,613,000. Discontinued operations also provided cash of $3,384,000, due principally to the sale of a building related to the Company's former disc manufacturing segment for $6,709,000, offset somewhat by a legal settlement related to the Company's dispute with the Recording Industry Association of America, other legal settlements and lease commitments. This -12- resulted in net cash provided by operating activities of $12,997,000. Investing activities used cash of $16,847,000 during 1999 of which $13,701,000 was used for the purchase of Nu-Metrics. The Company used cash of $2,335,000 for the purchase of equipment principally for Energy Absorption's manufacturing facility located in Alabama. The Company also invested cash of $764,000 in TMT. The Company is required to invest an additional $250,000 in TMT in the first quarter of fiscal 2000. Financing activities provided cash of $2,076,000 during 1999. The Company received net cash of $4,500,000 from borrowings under its revolving credit facility that was used to partially fund the purchase of Nu-Metrics. The payment of the Company's semiannual cash dividend used cash of $2,135,000. The Company also used cash of $1,032,000 for payment of notes payable in connection with the acquisition of Roadway Safety Service and Nu-Metrics. Cash of $743,000 was received from the exercise of common stock options. For fiscal 2000, the Company anticipates needing less than $3,000,000 in cash for capital expenditures. The Company may also need additional cash as it considers acquiring businesses that complement its existing operations. 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 - --------------------- During the current year, the Company made an assessment of its Year 2000 (Y2K) issues relative to its own information technology and non-information technology as well as the state of Y2K readiness of its vendors and customers. The Company's Y2K task force, consisting of certain members of senior management, assessed the Company's state of readiness and implemented an action plan to correct Y2K deficiencies. The Company determined that its principal software programs for financial, order entry and manufacturing planning were not Y2K compliant and has upgraded those programs to more advanced versions that are Y2K compliant. In addition, the Company evaluated the impact of the Y2K issue on its non-information technology systems, such as manufacturing machinery, equipment, computer-aided design and test equipment as well as products with date sensitive software and embedded microprocessors. The Company completed the assessment phase of its non-information technology systems during 1999 and began taking remedial action where needed. The Company has initiated communications with significant suppliers, customers and other relevant third parties to identify and minimize disruptions to the Company's operations related to Y2K issues. However, there can be no certainty that the systems and products of other companies on which the Company relies will not have a material adverse effect on the Company's operations. In addition, much of the Company's revenues are derived from various federal and state agencies which may not be Y2K compliant. In the event the Company falls short of its milestones, additional internal resources will be focused on completing these projects and on developing contingency plans. The estimated cost to correct the Company's Y2K deficiencies will be approximately $275,000. This estimate includes $200,000 in costs to upgrade its information technology systems with the balance of the estimate for any changes or modifications needed for non-information technology systems. The Company has incurred $250,000 in costs to date. While the Company believes that its non-information technology and vendor and customer issues are of a lower risk, there can be no assurance that these issues will not have a material effect on the Company's operations. 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. -13- FORWARD LOOKING STATEMENTS - -------------------------- Various statements made within the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report constitute "forward looking statements" for purposes of the 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, uncertainties related to the year 2000 issue, and competitive and general economic conditions. -14- 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 operations, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Quixote Corporation and its subsidiaries at June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999 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, presents 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 6, 1999 -15- QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the three years ended June 30, Dollar amounts in thousands, except share data 1999 1998 1997 ----------- ----------- ----------- Net sales ...................................................... $ 71,987 $ 55,988 $ 45,037 Cost of sales .................................................. 38,354 30,445 22,788 ----------- ----------- ----------- Gross profit ................................................... 33,633 25,543 22,249 Operating expenses: Selling and administrative ................................... 19,606 15,420 14,264 Research and development ..................................... 1,544 1,570 2,209 ----------- ----------- ----------- 21,150 16,990 16,473 ----------- ----------- ----------- Operating profit ............................................... 12,483 8,553 5,776 Other income (expense): Interest income .............................................. 91 540 339 Interest expense ............................................. (1,029) (357) (497) Other ........................................................ 273 16 (1,954) ----------- ----------- ----------- (665) 199 (2,112) ----------- ----------- ----------- Earnings from continuing operations before provision for income taxes ............................ 11,818 8,752 3,664 Provision for income taxes ..................................... 4,256 2,605 757 ----------- ----------- ----------- Earnings from continuing operations ............................ 7,562 6,147 2,907 Discontinued operations: Loss from operations, net of income taxes.................... (2,231) Gain (loss) on disposal, net of income taxes ................ 240 (6,138) (4,507) ----------- ----------- ----------- Gain (loss) from discontinued operations, net of income taxes .............................................. 240 (6,138) (6,738) ----------- ----------- ----------- Net earnings (loss) ............................................ $ 7,802 $ 9 $ (3,831) ----------- ----------- ----------- Basic earnings per share: Earnings from continuing operations ........................ $ .95 $ .77 $ .36 ----------- ----------- ----------- Net earnings (loss) ........................................ $ .98 $ .00 $ (.48) ----------- ----------- ----------- Weighted average common and common equivalent shares outstanding ............................................. 7,986,094 7,943,653 7,966,700 ----------- ----------- ----------- Diluted earnings per share: Earnings from continuing operations ........................ $ .92 $ .76 $ .36 ----------- ----------- ----------- Net earnings (loss) ........................................ $ .95 $ .00 $ (.48) ----------- ----------- ----------- Weighted average common and common equivalent shares outstanding ............................................. 8,227,775 8,088,354 8,008,893 ----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -16- QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
As of June 30, Dollar amounts in thousands, except share data 1999 1998 -------- -------- ASSETS Current assets: Cash and cash equivalents ................................................................. $ 2,153 $ 3,927 Accounts receivable, net of allowance for doubtful accounts of $480 in 1999 and $565 in 1998 ............................................... 17,078 13,976 Refundable income taxes ................................................................... 1,132 Inventories ............................................................................... 8,537 5,826 Deferred income tax assets ................................................................ 2,491 1,642 Other current assets ...................................................................... 538 350 -------- -------- Total current assets .................................................................... 30,797 26,853 Property, plant and equipment at cost: Land ...................................................................................... 1,369 1,215 Buildings and improvements ................................................................ 10,710 9,132 Machinery and equipment ................................................................... 10,748 9,290 Furniture and fixtures .................................................................... 3,414 3,066 Leasehold improvements .................................................................... 553 533 -------- -------- 26,794 23,236 Less: accumulated depreciation and amortization ........................................ (11,195) (9,754) -------- -------- 15,599 13,482 Intangible assets ........................................................................... 24,038 12,553 Other assets ................................................................................ 1,340 987 Assets of discontinued operations ........................................................... 5,190 -------- -------- $ 71,774 $ 59,065 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ......................................................... $ 722 $ 497 Accounts payable .......................................................................... 3,300 1,681 Dividends payable ......................................................................... 1,128 1,021 Income taxes payable ...................................................................... 691 Accrued expenses: Payroll and commissions ................................................................. 1,923 1,679 Other ................................................................................... 2,770 2,215 Liabilities of discontinued operations .................................................... 1,684 4,614 -------- -------- Total current liabilities ............................................................... 12,218 11,707 Long-term debt, net of current portion ...................................................... 11,901 7,677 Deferred income tax liabilities ............................................................. 1,449 795 Liabilities of discontinued operations ...................................................... 224 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 9,104,166 shares - 1999 and 8,908,940 shares - 1998 .............................. 151 148 Capital in excess of par value of stock ................................................... 32,929 31,396 Retained earnings ......................................................................... 20,884 15,324 Treasury stock, at cost, 1,032,420 shares - 1999 and 1998 ................................. (7,982) (7,982) -------- -------- Total shareholders' equity .............................................................. 45,982 38,886 -------- -------- $ 71,774 $ 59,065 -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS -17- QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three years ended June 30, 1999 Capital in Common Stock Excess of Treasury Stock ------------ Par Value Retained -------------- Dollar amounts in thousands, except share data Shares Dollars of Stock Earnings Shares Dollars ------ ------- --------- -------- ------ ------- BALANCES, JUNE 30, 1996.......................... 8,671,101 $145 $29,751 $23,196 718,921 $(5,473) Exercise of options.............................. 39,847 188 Net loss - 1997.................................. (3,831) Declaration of semi-annual cash dividends ($.12 per share and $.13 per share)............ (1,997) Issuance of shares pursuant to the stock retirement plan................................ 42,385 1 330 Purchase of shares at $7.25 to $8.00 per share... 88,514 (655) --------- ------ ------- --------- --------- -------- BALANCES, JUNE 30, 1997.......................... 8,753,333 146 30,269 17,368 807,435 (6,128) Exercise of options and grant of awards.......... 137,783 2 904 Net earnings - 1998.............................. 9 Declaration of semi-annual cash dividends ($.13 per share)................................ (2,053) Issuance of shares pursuant to the stock retirement plan................................ 17,824 223 Purchase of shares at $7.75 to $9.25 per share... 224,985 (1,854) --------- ------ ------- --------- --------- -------- BALANCES, JUNE 30, 1998.......................... 8,908,940 148 31,396 15,324 1,032,420 (7,982) Exercise of options and grant of awards.......... 184,432 3 1,400 Net earnings - 1999.............................. 7,802 Declaration of semi-annual cash dividends ($.14 per share)............................... (2,242) Issuance of shares pursuant to the stock retirement plan.................................. 10,794 133 --------- ------ ------- --------- --------- -------- BALANCES, JUNE 30, 1999.......................... 9,104,166 $ 151 $32,929 $ 20,884 1,032,420 $(7,982) --------- ------ ------- --------- --------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -18- QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three years ended June 30, Dollar amounts in thousands 1999 1998 1997 -------- -------- -------- OPERATING ACTIVITIES: Earnings from continuing operations ..................................... $ 7,562 $ 6,147 $ 2,907 Discontinued operations Loss from operations, net of income taxes ............................. (2,231) Earnings (loss) on disposal, net of income taxes ...................... 240 (6,138) (4,507) -------- -------- -------- Net earnings (loss) ..................................................... 7,802 9 (3,831) ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY CONTINUING OPERATIONS: Discontinued operations ............................................... (240) 6,138 6,738 Depreciation .......................................................... 1,773 1,302 1,531 Amortization .......................................................... 1,652 1,034 351 Deferred income taxes ................................................. 89 429 (404) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ................................................. (2,445) (4,737) 548 Inventories ......................................................... (1,909) (1,216) (868) Refundable income taxes ............................................. 1,132 197 1,687 Other current assets ................................................ (188) (84) 249 Accounts payable and accrued expenses ............................... 1,202 (718) 744 Income taxes payable ................................................ 691 Loss on investment in TMT joint venture ............................. 54 Loss on investment in FIP joint venture ............................. 1,402 -------- -------- -------- Net cash provided by operating activities of continuing operations ...... 9,613 2,354 8,147 Net cash provided by (used in) discontinued operations .................. 3,384 (6,849) (8,754) -------- -------- -------- Net cash provided by (used in) operating activities ..................... 12,997 (4,495) (607) -------- -------- -------- INVESTING ACTIVITIES: Purchase of property, plant and equipment ............................. (2,335) (1,436) (1,321) Cash paid for acquired businesses ..................................... (13,701) (7,622) Investment in TMT joint venture ....................................... (764) Proceeds from the sale of discontinued operations ..................... 80,283 Other ................................................................. (47) (502) (859) -------- -------- -------- Net cash provided by (used in) investing activities ................... (16,847) (9,560) 78,103 -------- -------- -------- FINANCING ACTIVITIES: Payments on notes payable ............................................. (1,032) (962) Payments on revolving credit agreement ................................ (20,000) (2,300) (52,050) Proceeds from revolving credit agreement .............................. 24,500 5,800 12,050 Payment of semi-annual cash dividend .................................. (2,135) (2,071) (1,903) Proceeds from exercise of common stock options ........................ 743 906 188 Repurchase of common stock for treasury ............................... (1,854) (655) Payments on convertible debentures .................................... (18,000) -------- -------- -------- Net cash provided by (used in) financing activities ................... 2,076 (481) (60,370) -------- -------- -------- Net change in cash and cash equivalents ................................. (1,774) (14,536) 17,126 Cash and cash equivalents at beginning of year .......................... 3,927 18,463 1,337 -------- -------- -------- Cash and cash equivalents at end of year ................................ $ 2,153 $ 3,927 $ 18,463 -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -19- QUIXOTE CORPORATION AND SUBSIDIARIES 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 CASH AND CASH EQUIVALENTS Cash in excess of operating requirements is invested in income-producing investments generally having initial maturities of three months or less. These investments are stated at cost, which approximates market value. The Company considers these short-term instruments to be cash equivalents. CONSOLIDATION The consolidated financial statements include the accounts of Quixote Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. 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 pronouncement also changed the measure previously reported as "fully diluted" EPS to "diluted" EPS. All prior periods have been restated in conformity with FAS No. 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 exercising of all stock options that are profitable to the recipients. Under this assumption, the weighted average number of shares is increased accordingly. 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 basis 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. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. LONG-LIVED ASSETS In accordance with FAS No. 121, long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the Company assesses the possibility of obsolescence, demand, new technology, competition, and other pertinent economic factors and trends that may have an impact on the value or remaining lives of these assets. Long-lived assets include such items as goodwill, patents, product rights and equity method investments. Goodwill and patents are amortized on a straight-line basis over lives of 7 to 20 years. Product rights are amortized over the life of the agreement. 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. -20- 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During 1999, the Company adopted FAS No. 131, Disclosures about Segments of an Enterprise and Related Information about Capital Structure. This accounting pronouncement 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 same basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. In 1998, the Financial Accounting Standards Board (FASB) issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 1999, FASB issued FAS No. 137, which deferred the effective date of FAS No. 133. Accordingly, FAS No. 133 is effective for all fiscal quarters beginning after June 15, 2000 (July 1, 2000 for the Company). FAS No. 133 requires that all changes in derivatives be 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. The Company anticipates that due to its limited use of derivative instruments, the adoption of FAS No. 133 will not have a significant effect on the Company's results of operations or its financial position. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to current year presentations. REVENUE RECOGNITION Substantially all revenues are recognized when finished products are shipped to unaffiliated customers or services have been rendered, with appropriate provision for uncollectible accounts. STOCK-BASED COMPENSATION The Company follows the provisions of 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 No. 25), for all arrangements under which employees receive shares of stock or other equity instruments of the employer. As allowed by FAS No. 123, the Company will continue to apply the provisions of APB No.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 No. 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. -21- 3. ACQUISITIONS In December 1998, the Company and its wholly-owned subsidiary, TranSafe Corporation, acquired Nu-Metrics, Inc., a Uniontown, Pennsylvania-based developer and manufacturer of traffic sensing and distance measuring devices. This transaction was accounted for as a purchase and was effective as of December 1, 1998. The purchase price was $13,701,000 which was paid in cash. When acquired, Nu-Metrics had long-term debt of approximately $981,000. Goodwill recorded in the transaction of approximately $12,733,000 will be amortized over a twenty year life. The following unaudited pro forma summary presents the consolidated results of operations as if the acquisition of Nu-Metrics had occurred at the beginning of 1998: Dollar amounts in thousands, except per share data
Unaudited 1999 1998 ------- ------- Net sales.......... $ 74,284 $ 62,972 -------- -------- Net earnings....... $ 7,899 $ 544 -------- -------- Net earnings per diluted share..... $ .96 $ .07 -------- --------
The unaudited consolidated pro forma information is not necessarily indicative of the combined results that would have occurred had the acquisition occurred on that date, nor is it indicative of the results that may occur in the future. In October 1998, the Company and its wholly-owned subsidiary, TranSafe Corporation, entered into a joint venture agreement to market pavement inspection and management systems and other high technology products and services in the United States. The joint venture, known as Transportation Management Technologies, LLC (TMT), is composed of the Company, G.I.E. Technologies, Inc., based in Montreal, Canada, and eight independent distributors of the Company's highway products. TranSafe is required to invest $1,000,000 in $250,000 quarterly installments for an 18% interest in the joint venture. Legal fees of $14,000 were incurred by TranSafe with respect to this joint venture. At June 30, 1999, $250,000 remained payable under the agreement. This investment is being accounted for under the equity method of accounting. In April 1998, the Company and its wholly-owned subsidiary, TranSafe Corporation, acquired the assets and assumed certain liabilities of Highway Information Systems, Inc., 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. In October 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 was $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 twenty year life. 4. DISPOSITIONS AND 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 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. The 1997 loss from operations of $2,231,000 was net of income tax benefits of $957,000. During 1998, the Company recorded additional losses from discontinued operations of $6,138,000, or $0.76 per diluted 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. In March 1999, DMI assigned all of its rights to certain real property and a building -22- located in Huntsville, Alabama to Cinram, Ltd. upon Cinram's exercise of its option to purchase for the pre-agreed purchase price of $6,947,000, less certain adjustments of approximately $238,000. Also in March 1999, the Company recorded a gain of $240,000, or $.03 per diluted share, due to the reversal of certain accruals resulting from the favorable outcome of some legal proceedings and other contingencies. 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 for 1997 was allocated between continuing and discontinued operations based upon the relative net assets of each. Sales and earnings (loss) information related to discontinued operations are as follows:
Dollar amounts in thousands, except per share data 1999 1998 1997 ----- ----- ----- Net sales......................................... $ 0 $ 0 $66,206 ----- ------- ------- Earnings (loss) from discontinued operations...... $ 240 $(6,138) $(6,738) ----- ------- ------- Basic earnings (loss) per share................... $ .03 $ (.77) $ (.84) ----- ------- ------- Diluted earnings (loss) per share................. $ .03 $ (.76) $ (.84) ----- ------- -------
The income tax provisions (benefits) for the results of discontinued operations for the years ended 1999, 1998 and 1997 are $160,000, ($3,162,000) and ($3,961,000), respectively. The following assets and (liabilities) relate to discontinued operations:
Dollar amounts in thousands 1999 1998 ------- ------- Land and building (net) ............ $ 300 $ 7,501 Deferred income taxes .............. 1,603 3,867 Accrued legal and accounting ....... (500) (6,539) Lease obligations .................. (1,700) (1,974) Severance .......................... (60) (130) Other accruals ..................... (1,551) (2,149) ------- ------- Net assets (liabilities) of discontinued operations .......... $(1,908) $ 576 ------- -------
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. 5. INVENTORIES Inventories consist of the following at June 30:
Dollar amounts in thousands 1999 1998 ------- ------- Finished goods.............. $ 3,941 $ 2,084 Work-in-process............. 1,527 696 Raw materials............... 3,069 3,046 ------- ------- $ 8,537 $ 5,826 ------- -------
6. INTANGIBLE ASSETS Intangible assets consist of the following at June 30:
Dollar amounts in thousands 1999 1998 ------- -------- Goodwill.................... $26,013 $13,264 Patents..................... 1,178 1,178 Accumulated amortization.... (3,153) (1,889) ------- ------- $24,038 $12,553
-23- 7. LONG-TERM DEBT Long-term debt consists of the following at June 30:
Dollar amounts in thousands 1999 1998 ------ ------ Revolving credit note due October 31, 2001, interest at variable rates..... $ 8,000 $ 3,500 Notes payable, interest imputed at 8.5% payable quarterly through 2007....... 4,085 4,674 Other.................................. 538 ------- ------ Total long-term debt................... 12,623 8,174 less current portion................. 722 497 ------- ------ Long-term debt, net.................... $11,901 $7,677 ------- ------
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 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 2000 assuming renewal of the revolving credit note is as follows: $631,000 in 2001, $678,000 in 2002, $460,000 in 2003 and $403,000 in 2004. 8. 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 option plans. Information with respect to stock options under the Company's plans is as follows:
Number of Option Price Weighted Average Common Shares per Share Exercise Price ------------- --------- -------------- Shares under option: July 1, 1997............ 872,274 $ 5.38 to $21.00 $ 9.19 Granted................. 308,445 8.00 to 12.15 8.44 Exercised............... (78,000) 5.88 to 6.88 6.27 Cancelled or expired.... (115,424) 10.50 to 12.88 11.98 ------- June 30, 1998........... 987,295 5.38 to 21.00 9.88 Granted................. 270,000 12.19 to 12.27 12.20 Exercised............... (207,351) 5.38 to 10.50 7.65 Cancelled or expired.... (29,666) 8.00 to 8.95 8.36 --------- June 30, 1999........... 1,020,278 $ 6.88 to $21.00 $ 10.99 ---------
Options outstanding at June 30, 1999 are exercisable as follows: 612,820 in 1999, 205,155 in 2000 and 202,303 thereafter. As of June 30, 1999, the Company has 1,424,121 common shares reserved for its option and award plans. -24- The following is the composition of the June 30, 1999 stock option balance:
Weighted Weighted average average exercise Options having a per- remaining price per Number of share exercise price of: life share shares - ------------------------ ---------- --------- --------- $ 6.88 to $ 9.00........ 3.78 years $ 8.30 465,278 10.00 to 13.38........ 4.48 years 12.30 495,000 21.00.................. 5.15 years 21.00 60,000 --------- $ 6.88 to $21.00......... 4.20 years $ 10.99 1,020,278 ---------
Had compensation cost for the Company's stock option plans been determined based on the fair value method for awards in 1999, 1998 and 1997 consistent with the provisions of FAS No. 123, the Company's net earnings (loss) and net earnings (loss) per diluted share would have been changed to the pro forma amounts indicated below:
Dollar amounts in thousands, except per share data 1999 1998 1997 ------- ------- ------- Net earnings (loss), as reported............ $ 7,802 $ 9 $(3,831) ------- ------- ------- Net earnings (loss), pro forma.............. $ 7,048 $ (598) $(4,872) ------- ------- ------- Net earnings (loss) per diluted share, as reported................................ $ .95 $ .00 $ (.48) ------- ------- ------- Net earnings (loss) per diluted share, pro forma.................................. $ .86 $ (.08) $ (.61) ------- ------- -------
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 1999: dividend yield of 2.51%; expected volatility of 47%; risk-free interest rate of 4.8% to 5.1%; and expected life of 5.1 years. 9. SHAREHOLDER RIGHTS PLAN The Company has a Shareholder Rights Plan (the Plan) which was established to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. The Plan calls for stockholders of record on July 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% 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% 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. 10. 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 $306,000 in 1999, $403,000 in 1998 and $561,000 in 1997. -25- 11. INCOME TAXES The income tax provisions (benefits) for continuing and discontinued operations are comprised of the following:
Dollar amounts in thousands 1999 1998 1997 ------- ------ ------ Current: Federal............................ $ 1,674 $ 1,786 $ 496 State.............................. 389 390 665 ------- ------ ------ 2,063 2,176 1,161 ------- ------ ------ Deferred: Federal............................ 1,403 360 (26) State.............................. 790 69 (378) ------- ------ ------ 2,193 429 (404) ------- ------ ------ Income tax provisions for continuing operations...................... 4,256 2,605 757 Income tax expense (benefit) from discontinued operations.......... 160 (3,162) (3,961) ------- ------ ------- Total income tax expense (benefit)........................ $ 4,416 $ (557) $(3,204) ------- ------ -------
The components of the net deferred tax asset (liability) are as follows:
Dollar amounts in thousands 1999 1998 ------ ------ Deferred tax assets: Accounts receivable allowance...... $ 192 $ 226 Inventory valuation................ 317 198 Compensated absences and medical claims........................... 100 90 Tax over book basis in affiliates.. 1,394 1,854 Other liabilities and reserves..... 892 763 Net operating loss carryforwards... 230 1,818 Various tax credit carryforwards... 802 12 Contribution carryforwards......... 9 Provisions for discontinued operations....................... 1,603 3,928 Valuation allowance................ (1,253) (2,742) ------- ------ Total.............................. 4,277 6,156 ------- ------- Deferred tax liabilities: Book over tax basis of capital assets (1,632) (1,442) ------- ------ Net deferred tax asset............. $ 2,645 $ 4,714 ------- -------
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 (NOL) carryforwards, capital loss carryforwards, and tax credit carryforwards. The decrease in the valuation allowance is due principally to the utilization of net operating loss carryforwards primarily related to changes in the tax regulations. Based on management's assessment, it is more likely than not that the net deferred tax assets will be realized through future taxable earnings or implementation of tax planning strategies. At June 30, 1999, certain subsidiaries of the Company have approximately $3,317,000 of state net operating loss carryforwards for tax purposes substantially all of which arose in periods prior to acquisition by the Company. Certain limitations on utilization are present and realization of a significant portion of the carryforwards is uncertain. These carryforwards expire in years from 2001 through 2014. The net deferred tax asset (liability) is presented on the balance sheet as follows:
Dollar amounts in thousands 1999 1998 -------- -------- Continuing operations: Current deferred tax asset............. $ 2,491 $ 1,642 Noncurrent deferred tax liability...... (1,449) (795) -------- ------- Total............................. 1,042 847 -------- ------- - Discontinued operations: Current deferred tax asset............. 1,016 3,520 Noncurrent deferred tax asset.......... 587 347 -------- ------- - Total............................. 1,603 3,867 -------- ------- - Total net deferred tax asset................ $ 2,645 $ 4,714 -------- -------
-26- Income tax provisions differed from the taxes calculated at the statutory federal tax rate as follows:
Dollar amounts in thousands 1999 1998 1997 ------ ------ ------- Taxes at statutory rate.............. $ 4,036 $ 2,975 $ 1,246 State income taxes................... 778 303 189 Utilization of capital loss carryforwards...................... (822) Utilization of NOL carryforwards (1,260) Other................................ 702 (673) 144 ------ ------ ------ Income tax provision for continuing operations: $ 4,256 $ 2,605 $ 757 ------ ------ -------
12. EARNINGS PER SHARE The computation of basic and diluted earnings per share, as prescribed by FAS No. 128, is as follows:
Dollar amounts in thousands, except per share data 1999 1998 1997 --------- --------- -------- Net earnings (loss) per share of common stock: Basic......................... $ .98 $ .00 $ (.48) --------- --------- -------- Diluted...................... $ .95 $ .00 $ (.48) --------- --------- -------- Numerator: - ---------- Net earnings (loss) available to common shareholders............. $7,802 $ 9 $(3,831) --------- --------- -------- Denominator: - ------------ Weighted average shares outstanding-basic............... 7,986,094 7,943,653 7,966,700 Effect of dilutive securities: Stock options................... 241,681 144,701 42,193 --------- --------- --------- Weighted average shares outstanding-diluted............. 8,227,775 8,088,354 8,008,893 --------- --------- ---------
There were outstanding options to purchase common stock at prices that exceeded the average market price for the income statement period. These options have been excluded from the computation of diluted earnings per share and are as follows:
1999 1998 1997 -------- -------- ------- Average exercise price per share.. $ 16.55 $ 14.04 $ 9.63 Number of shares.................. 135,000 288,850 572,274
The weighted average price of options currently exercisable is $11.17. 13. COMMITMENTS AND CONTINGENT LIABILITIES Aggregate rental expense under operating leases, principally for office and manufacturing facilities used in continuing operations, was $528,000 in 1999, $477,000 in 1998 and $450,000 in 1997. These operating leases include options for renewal. Annual minimum future rentals for lease commitments related to continuing operations range from approximately $476,000 in 2000 to $234,000 in 2004, an aggregate of $1,731,000 through 2004. 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. In 1999, the Company successfully resolved contingent liabilities 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 case, the Company agreed to a settlement with the plaintiff which involved a payment previously accrued for by the Company, resulting in no additional charge to earnings. In the other case, a favorable trial verdict for DMI was affirmed on appeal and the Supreme Court denied plaintiff's petition for a writ of certiorari, thereby concluding the litigation. -27- In the early 1990's, Stenograph Corporation, a discontinued operation, and a number of manufacturers of keyboards and related equipment were sued by individuals for repetitive stress injuries. Of the 30 cases filed to date against Stenograph and in some cases the Company, six were dismissed in April 1997 after a jury verdict in favor of Stenograph. The remaining cases have been dismissed or are expected to be dismissed or have been settled for nominal amounts. 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 Financial Accounting Standards 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. 14. SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES Cash paid for interest was $974,000 in 1999, $300,000 in 1998 and $3,825,000 in 1997. Cash paid for income taxes was $143,000 in 1999. The Company received refunds from income taxes of $1,388,000 in 1998 and $3,954,000 in 1997. The Company declared dividends that were payable at year end of $1,128,000 in 1999, $1,021,000 in 1998 and $1,039,000 in 1997. In connection with the purchase of Nu-Metrics, Inc., the Company assumed long-term debt of $981,000. 15. 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 products are to distributors and contractors which then provide product and services to federal, state and local governmental units. 16. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for years 1999 and 1998 follows:
Dollar amounts in thousands, except per share data Three months ended 1999 9/30 12/31 3/31 6/30 -------- -------- -------- -------- Net sales $ 16,063 $ 14,802 $ 18,347 $ 22,775 Gross profit 7,236 6,327 8,249 11,821 Earnings from continuing operations................ 1,642 918 1,133 3,869 Earnings from discontinued operations.............. 240 -------- -------- -------- -------- Net earnings....................................... $ 1,642 $ 918 $ 1,373 $ 3,869 -------- -------- -------- -------- Basic earnings per share: Continuing operations............................. $ .21 $ .11 $ .14 $ .48 -------- -------- -------- -------- Net earnings...................................... $ .21 $ .11 $ .17 $ .48 -------- -------- -------- -------- Diluted earnings per share: Continuing operations............................ $ .20 $ .11 $ .14 $ .47 -------- -------- -------- -------- Net earnings..................................... $ .20 $ .11 $ .17 $ .47 -------- -------- -------- -------- Dollar amounts in thousands, except per share data Three months ended 1998 9/30 12/31 3/31 6/30 -------- -------- -------- -------- 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) --------- --------- --------- --------
-28- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures - ------------------------------------------------------------------------ None. 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 23, 1999 to be filed with the Commission on or about October 8, 1999 and is incorporated herein by reference. The executive officers of the Company, their ages and offices held by each during fiscal 1999 are as follows: Philip E. Rollhaus, Jr. 64 Chairman, Chief Executive Officer & Director - Quixote Corporation Chairman, Energy Absorption Systems, Inc. Leslie J. Jezuit 53 President, Chief Operating Officer & Director - Quixote Corporation, Vice Chairman - Energy Absorption Systems, Inc. Daniel P. Gorey 48 Chief Financial Officer, Vice President & Treasurer- Quixote Corporation Joan R. Riley 46 General Counsel & Secretary - Quixote Corporation
Mr. Rollhaus has been the Chairman and Chief Executive Officer and a Director of the Company since its formation in July 1969. In September 1999, Mr. Rollhaus announced his retirement as Chief Executive Officer effective October 1, 1999. In connection therewith, the Company entered into an employment agreement with Mr. Rollhaus extending his employment until June 30, 2000. Mr. Jezuit joined the Company as President and Chief Operating Officer of Quixote Corporation in 1996. Prior to that time, Mr. Jezuit served as President and Chief Operating Officer of Robert Shaw Controls Company. Effective October 1, 1999 Mr. Jezuit will assume the position of Chief Executive Officer. 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. 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 23, 1999 to be filed with the Commission on or about October 8, 1999 and is incorporated herein by reference. -29- Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ The information required in response to this item is set forth under the caption "Stock Ownership of Certain Beneficial Owners" of the Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 23, 1999 to be filed with the Commission on or about October 28, 1999 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 23, 1999 to be filed with the Commission on or about October 28, 1999 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 15 Consolidated Statements of Operations for the years ended June 30, 1999, 1998 and 1997 16 Consolidated Balance Sheets as of June 30, 1999 and 1998 17 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1999, 1998 and 1997 18 Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997 19 Notes to Consolidated Financial Statements 20-29 (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. (b). Reports on Form 8-K ------------------- None. -30- (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 as Exhibit 3(b) to the Company's Form 10-K Report for the fiscal year ended June 30, 1998, File No. 0-7903, and incorporated herein by reference. 4.(a) Rights Agreement dated as of July 24, 1998, between the Company and BankBoston, N.A, as Rights Agent, filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated July 23, 1998, File No. 001-08123, and incorporated herein by reference. 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 as Exhibit 10(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 1999, File No. 0-7903, and incorporated herein by reference; Second Amendment and Waiver to Loan Agreement and Restated Revolving Credit Notes dated as of March 15, 1999, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended March 31, 1999, File No. 0-7903, and incorporated herein by reference. (b)* 1991 Director Stock Option Plan, as amended through September 10, 1999, filed herewith. (c)* 1993 Long-Term Stock Ownership Incentive Plan, as amended through September 10, 1999, 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 10-Q Report for the quarter ended March 31, 1998 and incorporated herein by reference; Retirement Award Agreement dated as of February 19, 1998 between the Company and Joan R. Riley, filed as Exhibit 10(d) to the Company's Form 10-K Report for the fiscal year ended June 30, 1998, File No. 0-7903, and incorporated herein by reference. (d) 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 -31- 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; Lease Agreement between TBC Place Partners, LLC and Highway Information Systems, Inc. dated August 9, 1999, filed herewith. (e)* Executive employment agreement ("Employment Agreement") effective as of October 1, 1999 between the Company and Philip E. Rollhaus, Jr., filed herewith; 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 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 as Exhibit 10(f) to the Company's 10-K Report for the fiscal year ended June 30, 1998, File No. 0-7903, and incorporated herein by reference. (f) Summary Plan Description for the Incentive Savings Plan of the Company Amended to Reflect Provisions Effective July 1, 1997, filed as Exhibit 10(f) to the Company's Form 10-K Report for the fiscal year ended June 30, 1998, File No. 0-7903, and incorporated herein by reference. (g) 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. (h) 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. (i) 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. (j) 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. -32- (k) Partial Assignment of Lease and Equity in Project dated March 26, 1999 by and between Disc Manufacturing Inc. (n/k/a Quixote Laser Corporation), Cinram, Inc. and the Industrial Development Board of the City of Huntsville, and Termination of Sublease dated March 26, 1999 by and between Disc Manufacturing, Inc. (n/k/a Quixote Laser Corporation) and Cinram, Inc., filed as Exhibit 10(b) to the Company's Form 10-Q Report for the quarter ended March 31, 1999, File No. 0-7903, 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 -33- SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunder duly authorized QUIXOTE CORPORATION (Registrant) Dated: September 27, 1999 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 27, 1999 Philip E. Rollhaus, Jr. (Chief Executive Officer) /s/ Leslie J. Jezuit - --------------------------- President and Director September 27, 1999 Leslie J. Jezuit (Chief Operating Officer) /s/ Daniel P. Gorey - --------------------------- Chief Financial Officer, Vice September 27, 1999 Daniel P. Gorey President and Treasurer (Chief Accounting and Financial Officer) /s/ Joan R. Riley Secretary and General Counsel September 27, 1999 - --------------------------- Joan R. Riley /s/ James H. DeVries - --------------------------- Director September 27, 1999 James H. DeVries /s/ William G. Fowler - --------------------------- Director September 27, 1999 William G. Fowler /s/ Lawrence C. McQuade - --------------------------- Director September 27, 1999 Lawrence C. McQuade /s/ Robert D. van Roijen, Jr. - --------------------------- Director September 27, 1999 Robert D. van Roijen, Jr.
-34- QUIXOTE CORPORATION & SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the years ended June 30, 1999, 1998 and 1997
Column A Column B Column C(b) Column D(a) Column E - -------- -------- ----------- ----------- --------- Additions Balance at Charged to Balance at Beginning of Costs and End of Description Period Expenses Deductions Period - ----------- ------------ ---------- ----------- --------- Allowance for Doubtful Accounts: Year ended June 30, 1999 $ 565,000 $ (70,000) $ 15,000 $ 480,000 ========== ========== ========== ========== 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 ========== ========== ========== ==========
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. -35- EXHIBIT INDEX
EXHIBIT NUMBER EXHIBITS ---------------------- ----------------------------------------------- 10(b) QUIXOTE CORPORATION 1991 DIRECTOR STOCK OPTION PLAN AMENDED SEPTEMBER 10, 1999. 10(c) QUIXOTE CORPORATION 1993 LONG-TERM STOCK OWNERSHIP INCENTIVE PLAN AS AMENDED SEPTEMBER 10, 1999. 10(d) LEASE AGREEMENT ENTERED INTO AS OF AUGUST 9, 1999 BETWEEN TBC PLACE PARTNERS, LLC. AND HIGHWAY INFORMATION SYSTEMS, INC. 10(e) EXECUTIVE EMPLOYMENT AGREEMENT DATED SEPTEMBER 1,1999 BETWEEN QUIXOTE CORPORATION AND PHILIP E. ROLLHAUS, JR. 21 SUBSIDIARIES OF THE COMPANY. 23 CONSENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. 27 FINANCIAL DATA SCHEDULE
-36- EX-10.B 2 EX. 10(B) Exhibit 10(b) QUIXOTE CORPORATION 1991 DIRECTOR STOCK OPTION PLAN Amended September 10, 1999 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. 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 659,445 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 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 2 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 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. 3 (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 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 4 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. (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) 5 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. 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. 6 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. 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: November 18, 1998 Date Plan was amended by Board of Directors : September 10, 1999 Date amended Plan was approved by Stockholders: ________________. 7 EX-10.C 3 EX. 10(C) Exhibit 10(c) QUIXOTE CORPORATION 1993 LONG-TERM STOCK OWNERSHIP INCENTIVE PLAN As Amended September 10, 1999 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 Five Hundred and Forty-Five Thousand (1,545,000) shares of Stock are hereby made available and reserved for delivery on account of Awards and the exercise of Awards, with One Million One Hundred and Ninety-Five Thousand (1,195,000) 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 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; (viii) subject to Section 6(c), to extend the time during which any Award or group of Awards may be exercised; (ix) 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 (x) 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. 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 5 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 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. 6 (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)(vii) 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. (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 7 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 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. 8 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 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 9 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 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. 10 (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-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 11 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 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 12 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) 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 13 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. 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. 14 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. 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 15 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 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. 16 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:November 18, 1998 Date Plan was amended by Board of Directors : September 10, 1999 Date amended Plan was approved by stockholders: _________________. 17 EX-10.D 4 EX.10(D) EXHIBIT 10(d) LEASE AGREEMENT THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the 9th day of August, 1999 ("Date of this Lease") by and between TBC PLACE PARTNERS, LLC, a Georgia limited liability company ("Landlord"), and HIGHWAY INFORMATION SYSTEMS, INC. ("Tenant"), upon all the terms and conditions set forth in this Lease and in all exhibits and riders hereto, to each and all of which terms Landlord and Tenant hereby mutually agree, and in consideration of One Dollar ($1.00) and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and of the rents, agreements and benefits flowing between the parties hereto, as follows: 1. BASIC LEASE INFORMATION AND CERTAIN DEFINITIONS. Each reference in this Lease to information and definitions contained in the Basic Lease Information and Certain Definitions and each use of the terms capitalized and defined in this Section shall be deemed to refer to, and shall have the respective meaning set forth in this Section. A. Premises: That portion of the Building containing approximately 12,472 rentable square feet, as identified on the Floor Plan attached hereto as Exhibit A. B. Building: The building known as TBC Place in the City of Durham, North Carolina. C. Land: That certain parcel of land upon which the Building is located and which is more particularly described in Exhibit E attached hereto. D. Project: The land and all improvements thereon, including the Building, the parking facilities, and all common areas. E. Commencement Date: Defined in the Leasehold Improvements Work Letter attached hereto as Exhibit B. F. Term: Commencing on the Commencement Date and ending on the last day of the 60th full month thereafter. H. Net Rentable Area of the Building: Approximately 82,350 square feet. I. Tenant's Proportionate Share: Approximately fifteen and fifteen one hundredths percent (15.15%), representing the ratio between the Net Rentable Area of the Premises and the Net Rentable Area of the Building, subject to adjustment pursuant to the express terms hereof. J. Rent: The Base Rent and the Additional Rent. K. Base Rent:, Initial Base Rent for the Net Rentable Area of the Premises: Nine and 66/100 Dollars ($9.66) per net rentable square foot or $120,479.52 (12,472 x $9.66). L. Base Rent Escalation:, The Base Rent rate per square foot of Net Rentable Area of the Premises shall be increased at the expiration of each twelve (12) month period of the Term by three percent (3%) of the Base Rent rate applicable during the then expiring twelve (12) month period. M. Additional Rent: The Additional Rent shall be all other sums due and payable by Tenant under the Lease, including, but not limited to, Tenant's Proportionate Share of Operating Expenses. N. Base Year: The Base Year for purposes of calculating Tenant's Proportionate Share of Operating Expenses is 1999. O. Tenant's Permitted Uses: Tenant may use the Premises only for the purposes set forth in Section 13.1 of the Lease. P. Security Deposit: An amount equal to the first month's rent paid simultaneously with the execution of this Lease which shall be held by Landlord as security until the expiration of the Term as set forth in Section 5 of the Lease. Q. Leasehold Improvement Allowance: Twenty-Three and 85/100 Dollars ($23.85) per rentable square foot as set forth in the Leasehold Improvements Work Letter attached hereto as Exhibit B. R. Broker(s):, Landlord's Broker: Commercial Carolina Corporation Tenant's Broker: Allentown Commercial 2. GRANTING CLAUSE. Subject to the terms and conditions hereof, Landlord hereby leases the Premises to Tenant, and Tenant hereby rents and hires the Premises from Landlord, for the Term of this Lease. 3. TERM. The Term of this Lease shall be for the period set forth in Section 1(F) of this Lease. Tenant shall accept the Premises in its condition as of the Commencement Date subject to all applicable laws, ordinances, regulations, covenants and restrictions and subject to Landlord's completion of the Leasehold Improvements as required in the Leasehold Improvements Work Letter attached to this Lease as Exhibit B. Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant's business, and Tenant waives any implied warranty that the Premises are suitable for Tenant's intended purposes. Except as set forth in Sections 10, 11 and Exhibit B of this Lease, in no event shall Landlord have any obligation for any defects in the Premises or any limitation on its use. The taking of possession of the Premises shall be conclusive evidence that the Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken except for items that are Landlord's responsibility under Sections 10, 11 and Exhibit B of this Lease. 4. RENT. 4.1. Tenant shall pay to Landlord, without notice, demand, or deduction in lawful money of the United States of America, at Landlord's Address for Notices in Section 33.9, or at such other place as Landlord shall designate in writing from time to time: (a) the Base Rent in equal monthly installments, in advance, on or before the first day of each calendar month during the Term; and (b) the Additional Rent, at the respective times required hereunder. The first monthly installment of Base Rent shall be paid in advance on the date Tenant executes this Lease and applied to the first installment of Base Rent coming due under this Lease. Payment of Rent shall begin on the Commencement Date; provided; however, that if either the Commencement Date or the expiration of the Term falls on a date other than the first day of a calendar month, the Rent due for such fractional month shall be prorated on a per diem basis between Landlord and Tenant so as to charge Tenant only for the portion of such fractional month falling within the Term. Tenant's covenant to pay Rent hereunder is independent of any other covenant, condition, provision or agreement herein contained. All past due installments of Rent shall be subject to a late charge of five percent (5%) simple of the past due amounts. 4.2. The Base Rent shall be escalated as specified in Section 1(L) of this Lease commencing on the first day of the first full month following the first anniversary of the Commencement Date (or on the first anniversary date of the Commencement Date, if the Commencement Date is the first day of the month), and on each and every anniversary of such escalation date thereafter during the Term of this Lease. 4.3 As used in this Lease, the term "Lease Year" shall mean a calendar year during the Term, except that the first Lease Year shall be the period commencing on the Commencement Date and expiring upon the expiration of the calendar year in which the Commencement Date occurs and the final Lease Year shall expire upon the expiration of the Term. If the first or final Lease Year is less than twelve (12) months, all prorations shall be based upon a 365 day year. 5. SECURITY DEPOSIT. The Security Deposit shall be due on the date Tenant executes this Lease and shall be held by Landlord as security for the performance of Tenant's obligations under this Lease. This Security Deposit is not an advance rental deposit or measure of Landlord's damages in case of Tenant's default. Upon each occurrence of an Event of Default (defined in Section 22), Landlord may use all or part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Event of Default, without prejudice to any other remedy provided herein or provided at law or in equity. Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to its original amount. Landlord's obligation regarding the Security Deposit is that of a debtor, not a trustee, and no interest shall accrue thereon. The Security Deposit shall be the property of Landlord, but shall be paid to Tenant when Tenant's obligations under this Lease have been completely fulfilled. Landlord shall be released from any obligation with respect to the Security Deposit upon transfer of this Lease and the Premises to a person or entity which assumes Landlord's obligations under this Section. 6. OPERATING EXPENSES. 6.1. During each month of the Lease Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the annual cost, as estimated by Landlord from time to time, of Tenant's Proportionate Share (as defined in Section 1(I)) of Operating Expenses for the Project. Payment thereof for any fractional calendar month shall be prorated. The term "Operating Expenses" means all costs and expenses incurred by Landlord with respect to the ownership, maintenance, repair, replacement and operation of the Project including, but not limited to, costs of: Taxes (defined in Section 8 of this Lease) and fees payable to tax consultants and attorneys for consultation and contesting Taxes; insurance; utilities; maintenance, repair and replacement of all portions of the Project, including, without limitation, paving and parking areas, roads, roofs, alleys and driveways, mowing, landscaping, exterior painting, utility lines, heating, ventilation and air conditioning systems, lighting, electrical systems, and other mechanical and building systems; amounts paid to contractors and subcontractors for work or services performed in connection with any of the foregoing; charges or assessments of any association to which the Project is subject; property management fees payable to a property manager, including any affiliate of Landlord, or if there is no property manager, an administrative fee of 15% of the Operating Expenses payable to Landlord; security services, if any; trash collection, sweeping and removal; and additions or alterations made by Landlord to the Project or the Building in order to comply with the requirements of applicable laws, statutes, ordinances, rules and regulations (other than those expressly required herein to be made by Tenant) or that are appropriate to the continued operation of the Project or the Building as a bulk warehouse facility in the Durham, North Carolina market area, provided that the cost of additions or alterations that are required to be capitalized for federal income tax purposes shall be amortized on a straight line basis over a period equal to the lesser of the useful life thereof for federal income tax purposes or 10 years. Operating Expenses do not include costs, expenses, depreciation or amortization for capital repairs and capital replacements required to be made by Landlord under Section 10 of this Lease, debt service under mortgages or ground rent under ground leases, costs of restoration to the extent of net insurance proceeds received by Landlord with respect thereto, leasing commissions, the costs of renovating space for tenants or any cost associated with any building other than the Building. There shall be no duplication of costs or reimbursements. 6.2. If Tenant's total payments of Operating Expenses for any year are less than Tenant's Proportionate Share of actual Operating Expenses for such year, then Tenant shall pay the difference to Landlord within 30 days after demand, and if more, then Landlord shall retain such excess and credit against Tenant's next payments. For purposes of calculating Tenant's Proportionate Share of Operating Expenses, a year shall mean a calendar year except the first year, which shall begin on the Commencement Date, and the last year, which shall end on the expiration of this Lease. With respect to Operating Expenses, any expenses which Landlord allocates to the entire Project, Tenant's Proportionate Share shall be the percentage set forth in Section 1(I) of this Lease as Tenant's Proportionate Share of the Project, as reasonably adjusted by Landlord in the future for changes in the physical size of the Premises, the Building or the Project. Landlord may equitably increase Tenant's Proportionate Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement or service that benefits only the Premises or only a portion of the Project or Building that includes the Premises or that varies with occupancy or use. No estimate of Operating Expenses for the Premises by Landlord shall be a guaranty or warranty that such estimates shall be accurate. 6.3. Landlord shall make available to the Premises all water, gas, electrical power, telephone, sewer and sprinkler services. Landlord shall provide heating and air-conditioning systems sufficient to serve the Premises 24 hours per day, 7 days per week, at such temperatures and in such amounts as is customary in buildings of comparable size and quality and in the Durham, North Carolina market area, with such adjustments as Landlord reasonably deems necessary for the comfortable occupancy of the Premises, subject to any governmental requirements, ordinances, rules, regulations, guidelines or standards relating to, among other matters, energy conservation. 7. UTILITIES. Tenant shall pay for all water, gas, electrical power, telephone, sewer, sprinkler services, refuse and trash collection and other utilities and services used on the Premises, all maintenance charges for utilities and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes, penalties, surcharges or the like pertaining to Tenant's use of the Premises. Notwithstanding anything contained in Section 6.1 or otherwise in this Lease to the contrary, Landlord may cause, at Tenant's expense, any utilities to be separately metered or charged directly to Tenant by the provider. Tenant shall pay its share of all charges for jointly metered utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of utilities shall result in the termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer for normal restroom use. Notwithstanding anything contained in this Lease to the contrary, if an interruption or cessation of utilities results from a cause within Landlord's reasonable control which renders the Premises unusable by Tenant for the conduct of Tenant's business, Rent and applicable Operating Expenses not actually incurred by Tenant shall be abated for the period which commences five (5) business days after the date Tenant gives to Landlord written notice of such interruption and shall continue until such utilities are restored. 8. TAXES. Landlord shall pay all taxes, assessments and governmental charges (collectively, "Taxes") that accrue against the Project during the Lease Term, which shall be included as part of the Operating Expenses charged to Tenant. Landlord may contest by appropriate legal proceedings the amount, validity or application of any Taxes or liens thereof. All levies or other taxes assessed or imposed upon Landlord on the rents payable to Landlord under this Lease and any franchise tax, any excise, transaction, sales or privilege tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents from the Premises and/or the Project or any portion thereof, shall be paid by Tenant to Landlord monthly in estimated installments or upon demand, at the option of Landlord as additional rent; provided, however, in no event shall Tenant be liable for any net income taxes imposed upon Landlord unless such net income taxes are in substitution for any Taxes payable under this Lease. If any such tax or excise is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authorities shall require. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises, whether levied or assessed against Landlord or Tenant. 9. INSURANCE. 9.1 Tenant covenants and agrees that from and after the date of delivery of the Premises by Landlord to Tenant, Tenant will carry and maintain, at its sole cost and expense, the following insurance coverages: A. Public Liability Insurance. General comprehensive public liability insurance covering the Premises and Tenant's use thereof against claims for personal or bodily injury or death or property damage occurring upon in or about the Premises (including contractual, indemnity and liability coverage to cover Tenant's indemnities set forth herein), such insurance to insure both Tenant and, as additional insureds, Landlord and its members, employees and agents and the property manager, and to afford protection to the limit of not less than $3,000,000.00 combined single limit or such higher limits as Landlord may require from time to time during the Term, on an occurrence basis, in respect to injury or death to any number of persons and broad form property damage arising out of any one (1) occurrence, operations hazard, with a deductible acceptable to Landlord. This insurance coverage shall extend to any liability of Tenant arising out of the indemnities provided for in this Lease. B. Property Insurance. Property insurance on all-risk extended coverage basis (including coverage against fire, wind, tornado, vandalism, malicious mischief, water damage and sprinkler leakage) covering all fixtures, equipment and personalty located in the Premises, in an amount not less than one hundred percent (100%) of full replacement cost thereof. Such policy will be written in the name of Tenant. The property insurance may, with the consent of the Landlord, provide for a reasonable deductible. C. Workers Compensation Insurance. Worker's compensation insurance insuring against and satisfying Tenant's obligations and liabilities under the worker's compensation laws of the State of North Carolina. D. Employer's Liability Insurance. Employer's liability insurance in an amount not less than $1,000,000.00. E. Builder's Risk Insurance. In the event Tenant performs any repairs or alterations in the Premises, and builder's risk insurance on an "all risk" basis (including collapse) on a completed value (non-reporting) form for full replacement value covering all work incorporated in the Building and all materials and equipment in or about the Premises. F. Other Insurance. Any other form or forms of insurance or any changes or endorsements to the insurance required herein as Landlord, or any mortgagee or lessor of Landlord may reasonably require from time to time in form or in amount. 9.2. All such insurance will be issued and underwritten by companies reasonably acceptable to Landlord and will contain endorsements that (a) such insurance may not lapse with respect to Landlord or property manager or be canceled or amended with respect to Landlord or property manager without the insurance company endeavoring to give Landlord and property manager at least thirty (30) days prior written notice of such lapse, cancellation or amendment, (b) Tenant will be solely responsible for payment of premiums, (c) such insurance will include a loss payee endorsement protecting the Landlord and Landlord's designees and (d) Tenant's insurance is contributing in the event of overlapping coverage which may be carried by Landlord. Tenant shall deliver to Landlord duplicate originals of all policies of insurance required by Section 9.1 of this Lease or duly executed originals of the certificates of such insurance evidencing in-force coverage on or before the Commencement Date. Further, Tenant shall deliver to Landlord renewals thereof at least ten (10) days prior to the expiration of the respective policy terms. 9.3. Tenant shall not knowingly conduct or permit to be conducted in the Premises any activity, or place any equipment in or about the Premises or the Building, which will invalidate the insurance coverage in effect or increase the rate of casualty insurance or other insurance on the Premises or the Building, and Tenant shall comply with all customary requirements and regulations of Landlord's casualty and liability insurer. If any invalidation of coverage or increase in the rate of casualty insurance or other insurance occurs or is threatened by any insurance company due to any act or omission by Tenant, or its agents, employees, contractors, or invitees, such statement or threat shall be conclusive evidence that the increase in such rate is due to the act of Tenant or the contents or equipment in or about the Premises, and, as a result thereof, Tenant shall be liable for such increase and such amount shall be considered Additional Rent payable with the next monthly installment of Base Rent due under this Lease. In no event shall Tenant introduce or permit to be kept on the Premises or brought into the Building any dangerous, noxious, radioactive or explosive substance. 9.4. Landlord covenants and agrees that from and after the date of delivery of the Premises from Landlord to Tenant, Landlord will carry and maintain the following insurance, the cost of which shall be included in Operating Costs: A. Public Liability Insurance. General comprehensive public liability insurance covering the common areas of the Project and the Building against claims for personal or bodily injury or death or property damage occurring upon, in or about the common areas (including contractual, indemnity and liability coverage to cover Landlord's indemnities set forth herein), such insurance to afford protection to the limit of not less than $3,000,000 combined single limit or such higher limits as Landlord may elect, at its option, to carry from time to time, on an occurrence basis, in respect to injury or death to any number of persons and broad form property damage arising out of any one (1) occurrence, operations hazard, owner's protective coverage, contractual liability, with a cross liability clause and a severability of interests clause to cover Landlord's indemnities set forth herein, with a commercially reasonable deductible. This insurance coverage shall extend to any liability of Landlord arising out of the indemnities provided for in this Lease. B. Property Insurance. Property insurance on all-risk extended coverage basis (including coverage against fire, wind, tornado, vandalism, malicious mischief, water damage and sprinkler leakage) covering the Project and the Building in an amount not less than one hundred percent (100%) of full replacement cost thereof, subject to a commercially reasonable deductible. C. Other Insurance. Such other insurance as Landlord may elect, at its option, to carry and maintain from time to time. 9.5. Landlord and Tenant each hereby waive any right of subrogation and right of recovery or cause of action for injury or loss to the extent that such injury or loss is covered by fire, extended coverage, "all risk" or similar policies covering real property or personal property required to be obtained and maintained hereunder (or which would have been covered if the party claiming such right of subrogation or recovery or cause of action had carried the insurance required by this Lease) or covered by any other insurance maintained by the waiving party. Written notice of the terms of the above mutual waivers shall be given to the insurance carriers of Landlord and Tenant and the parties' insurance policies shall be properly endorsed, if necessary, to prevent the invalidation of said policies by reason of such waivers. 10. LANDLORD'S REPAIRS. A. Landlord shall maintain and repair, at Tenant's cost and expense (billed to and paid by Tenant as Tenant's Proportionate Share of the Operating Expenses), all portions of the Project and the Building except for items which are Landlord's responsibility as set forth in Section 10B which shall be maintained and repaired at Landlord's expense, and except for the items which are Tenant's responsibility as set forth in Section 11 which shall be maintained and repaired at Tenant's expense. B. Landlord shall maintain and repair, at Landlord's expense, the structural soundness of the roof, foundation and exterior walls of the Building in good condition, reasonable wear and tear and uninsured losses and damages caused by Tenant, its employees, agents, contractors and invitees excluded. The term "walls" as used in this Section shall not include windows, glass or plate-glass, doors or overhead doors, special store fronts, dock bumpers, dock plates or levelers, or office entries. C. Landlord shall maintain and repair, at Tenant's cost and expense (directly billed to and paid by Tenant and not prorated as part of the Operating Expenses), the following components (i) of the Building which exclusively serve the Premises and (ii) of the Premises: dock and loading areas, dock bumpers, dock plates and levelers, truck and overhead doors, fire sprinklers and fire protection systems and electrical, plumbing and mechanical (including heating and air conditioning) systems and equipment. D. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall diligently make all necessary repairs within a reasonable period of time after receipt of such written notice from Tenant. 11. TENANT'S REPAIRS. Tenant, at Tenant's expense, shall repair, replace and maintain in good condition the interior of the Premises, including entries, doors, windows, glass and plate glass, ceilings, and roof membrane penetrations caused by Tenant, its employees, agents, contractors and/or invitees, interior walls and the interior side of demising walls. If Tenant fails to perform any maintenance, repair or replacement for which it is responsible, Landlord may, but shall not be required to, perform such work and be reimbursed by Tenant within ten (10) days after demand therefore. Subject to Sections 9 and 14 of this Lease, Tenant shall bear the full cost of any repair or replacement to any part of the Building or the Project that results from damage caused by Tenant, its employees, agents, contractors or invitees, as well as any repair that benefits only the Premises. 12. ALTERATIONS. 12.1. Tenant shall not make any alterations to the Premises without first obtaining Landlord's written consent thereto, which consent may not be unreasonably withheld. Notwithstanding the foregoing, in the event any such proposed alteration would, in the reasonable judgment of Landlord, affect any structural components of the Building or any of its equipment or systems, Landlord may withhold its consent to any such alteration in its sole discretion. Without in any way limiting Landlord's consent rights, Landlord shall not be required to give its consent until (a) Landlord is satisfied that the contractor or person proposed by Tenant to make such alterations (the "Contractor"), and the insurance coverage to be provided by Contractor in connection with the work, are reasonably acceptable to Landlord, (b) Landlord approves final and complete plans and specifications for the work and (c) all appropriate governmental agencies have approved the plans and specifications for such work. Upon Tenant's receipt of written approval from Landlord and any required approval of any mortgagee or lessor of Landlord and any such governmental agencies, and upon Tenant's payment to Landlord of any fees charged by any mortgagee or lessor of Landlord for such review and approval, Tenant shall have the right to proceed with the construction of all approved alterations, but only so long as such alterations are made by the Contractor reasonably acceptable to Landlord in strict compliance with the plans and specifications so approved by Landlord and with the provisions of this Section 12. All alterations shall be made at Tenant's sole cost and expense. Tenant shall keep the Project, the Building, and the Premises and Landlord's interest therein free from any liens arising from any work performed, materials furnished, or obligations incurred by, or on behalf of, Tenant (other than by Landlord pursuant to this Lease). Notice is hereby given that neither Landlord, nor any mortgagee or lessor of Landlord, shall be liable for any labor or materials furnished to Tenant except as furnished to Tenant by Landlord pursuant to this Lease. If any lien is filed for such work or materials, such lien shall encumber only Tenant's interest in leasehold improvements on the Premises. Within ten (10) days after Tenant learns of the filing of any such lien, Tenant shall notify Landlord of such lien and shall either discharge and cancel such lien of record or post a bond sufficient under the laws of the State of North Carolina to cover the amount of the lien claim plus any penalties, interest, attorney's fees, court costs, and other legal expenses in connection with such lien. If Tenant fails to so discharge or bond over such lien within twenty (20) days after the earlier of Tenant becoming aware of such lien or written demand from Landlord, Landlord shall have the right, at Landlord's option, to pay the full amount of such lien without inquiry into the validity thereof, and Landlord shall be promptly reimbursed by Tenant, as Additional Rent, for all amounts so paid by Landlord, including expenses, interest, and reasonable attorney's fees actually incurred. 12.2. All construction, alterations and repair work done by or for Tenant shall: (a) be performed in such a manner as to maintain harmonious labor relations; (b) not adversely affect any structural component of the Building or any of the Building's systems or equipment or the safety of the Project, the Building or the Premises; (c) comply with all building, safety, fire, plumbing, electrical, and other codes and governmental and insurance requirements, including, without limitation, requirements of the American With Disabilities Act ("ADA"); (d) not result in any usage in excess of building standard of water, electricity, gas, or other utilities or of heating, ventilating or air-conditioning (either during or after such work) unless prior written arrangements satisfactory to Landlord are made with respect thereto; (e) be completed promptly and in a good and workmanlike manner; and (f) not unreasonably disturb Landlord or other tenants in the Building. After completion of any alterations to the Premises, Tenant will deliver to Landlord a copy of "as-built" plans and specifications depicting and describing such alterations. 12.3. Landlord hereby reserves the right and at all times shall have the right to repair, change, redecorate, alter, improve, modify, renovate, enclose or make additions to any part of the Project (including structural elements and load bearing elements within the Premises) and to enclose and/or change the arrangement and/or location of driveways or parking areas or landscaping or other common areas of the Project all without being held guilty of an actual or constructive eviction of Tenant or breach of the implied warranty of suitability or of any term of this Lease and without an abatement of Rent. Without in any way limiting the generality of the foregoing Landlord's rights shall include, but not limited to, the right to perform, or cause the performance of the following: (i) construct scaffolding and other structures and perform all work and other activities associated with such changes, alterations, improvements, modifications, renovations, and/or additions; (ii) repair, change, renovate, remodel, alter, improve, modify or make additions to the arrangement, appearance, location and/or size of entrances or passageways, doors, and doorways, corridors, elevators, elevator lobbies, stairs, toilets or other common areas; (iii) temporarily close any Common Area and/or temporarily suspend Building services and facilities in connection with any repairs, changes, alterations, modifications, renovations or additions to any part of the Building; (iv) repair, change, alter or improve plumbing, pipes and conduits located in the Building, including without limitation, those located within the Premises, and (v) repair, change, modify, alter, improve, renovate or make additions to the structural components of the Building or any portion thereof. When exercising the rights herein, Landlord will use good faith efforts not to interfere with Tenant's use and occupancy of the Premises. 13. USE AND COMPLIANCE WITH LAW. 13.1. The Premises shall be used only for the purpose of receiving, storing, shipping and selling (but limited to wholesale sales) products, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto, including, but not limited to, general office activities. Tenant shall not conduct or give notice of any auction, liquidation or going out of business sale on the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit waste, overload the floor or structure of the Premises or the Building in which the Premises is located or subject the Premises to use that would damage the Premises or the Building in which the Premises located. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, or take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Landlord or any other tenants of the Project. Outside storage, including without limitation, storage of trucks and other vehicles, is prohibited without Landlord's prior written consent. Notwithstanding the foregoing, Tenant may store Tenant's operational mobile highway radio advisory systems and service vehicles outside in the courtyard area cross-hatched on the Site Plan for the Project attached hereto as Exhibit D and made a part hereof by this reference. Tenant, at Tenant's sole expense, shall use and occupy the Premises in compliance with all laws (including, without limitation, the Americans with Disabilities Act), orders, judgments, ordinances, regulations, codes, directives, permits, licensees, covenants, and restrictions now or hereafter applicable to the Premises (collectively "Legal Requirements"). The Premises shall not be used as a place of public accommodation under the Americans with Disabilities Act or similar state statutes or local ordinances or any regulations promulgated thereunder, as any or all of them may be amended from time to time. Tenant shall, at Tenant's expense, make all alterations or modifications, within or without the Premises, that are required by the Legal Requirements related to Tenant's use or occupation of the Premises. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant's or Landlord's insurance, increase the insurance risk or cause the disallowance of any sprinkler credits. If any increase in the cost of any insurance on the Premises, the Building or the Project is caused, in whole or in part, by Tenant's use or occupancy of the Premises, or because Tenant vacates the Premises, then Tenant shall pay the amount of such increase to Landlord. Any occupancy of the Premises by Tenant prior to the Commencement Date shall be subject to all obligations of Tenant under this Lease. Any statements set forth in this Section 13.1 or elsewhere in this Lease regarding the particular nature of the business to be conducted by Tenant in the Premises or the uses to be made thereof by Tenant shall not constitute a representation or warranty by Landlord that such business or uses are lawful or permissible under any certificate of occupancy for the Premises or the Building or are otherwise permitted by applicable law. Tenant shall indemnify and hold Landlord harmless from any loss, cost, or claim or expenses which Landlord incurs or suffers by reason of Tenant's failure to comply with its obligations under this Section 13. If Tenant receives notice of any such directive, order, citation or of any violation of any law, order ordinance, regulation or any insurance requirement, Tenant shall promptly notify Landlord in writing of such alleged violation and furnish Landlord with a copy of such notice. 13.2. Tenant shall not use or permit the use of the Premises or any portion of the Project for the storage, treatment, use, production or disposal of any hazardous substances or hazardous waste (as those terms are defined under CERCLA or RCRA or any other applicable federal, state or local environmental protection laws, ordinances, codes, rules or regulations) other than those which are stored or used in accordance with all applicable laws, rules and regulations and those which (i) are incidental to and commonly used in general executive administrative offices or (ii) are wet and gel cell batteries used or stored by Tenant on the Premises. Tenant does hereby indemnify and hold Landlord harmless from and against any and all damage to any property, or injury to or death of any person, as a result of Tenant's violation of Section 13 of this Lease. Tenant's indemnity shall include the obligation to reimburse Landlord for any and all costs and expenses (including reasonable attorney's fees) incurred by Landlord, its agents or employees as a result of Tenant's violation of of Section 13 of this Lease. 14. DAMAGE OR DESTRUCTION. 14.1. If at any time during the Term of this Lease, the Premises are damaged by fire or other casualty, Landlord shall notify Tenant within sixty (60) days after such damage or destruction as to the amount of time Landlord reasonably estimates it will take to restore the Premises. If the restoration time is estimated to exceed one hundred fifty (150) days from the date of such damage or destruction, either Landlord or Tenant may elect to terminate this Lease upon written notice to the other party given no later than thirty (30) days after Landlord's notice. If neither party elects to terminate this Lease and if Landlord estimates that restoration will take one hundred fifty (150) days or less, then, subject to receipt of sufficient insurance proceeds, Landlord shall promptly restore the Premises excluding the improvements installed by Tenant or by Landlord and paid for by Tenant, subject to delays arising from the collection of insurance proceeds or from Force Majeure events. Tenant, at Tenant's expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds or from Force Majeure events, all repairs or restorations not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, either party may terminate this Lease if the Premises are damaged during the last twelve (12) months of the Lease Term and Landlord reasonably estimates that it will take more than one (1) month to repair such damage. Tenant shall pay to Landlord with respect to any damage to the Premises caused by Tenant or any employee, agent, contractor or invitee of Tenant, the amount of the commercially reasonable deductible (which shall not exceed $10,000.00) under Landlord's insurance policy within ten (10) days after presentment of Landlord's invoice. If the damage caused by Tenant, or Tenant's employees, agents, contractors or invitees, involves the premises of other tenants, Tenant shall pay the portion of the deductible that the cost of the restoration of the Premises bears to the total cost of restoration, as determined by Landlord. Base Rent and Operating Expenses shall be abated for the period of repair and restoration proportionately based upon the area of the Premises which is not usable by Tenant. Notwithstanding the foregoing, in no event shall Base Rent or Operating Expenses abate or shall any termination occur if damage to or destruction of the Premises is the result of the negligence or willful act or omission of Tenant, or Tenant's employees, agents, contractors or invitees. To the extent Tenant is entitled to such abatement, such abatement shall be the sole remedy of Tenant, and except as provided herein, Tenant waives any right to terminate the Lease based upon such damage or destruction. 14.2. Landlord shall have no liability to Tenant for inconvenience, loss of business or annoyance arising from any repair of any portion of the Premises or the Building under this Section 14. In the event that Tenant collects any insurance proceeds (or would have the right to collect such proceeds if Tenant had been carrying the insurance policies required by this Lease) on account of damage or destruction to the Leasehold Improvements, and such Leasehold Improvements are not restored or repaired, either in whole or in part, then Tenant shall pay to Landlord an equitable portion of such insurance proceeds (or those that would have been payable to Tenant had it been carrying the insurance policies required by this Lease) based on the ratio between the amount that Tenant expended in connection with such Leasehold Improvements and the amount contributed by Landlord thereto pursuant to the other terms hereof. The terms of the foregoing sentence shall survive the termination or expiration of the Term of this Lease. 14.3. In the event of termination of this Lease pursuant to Section 14 of this Lease, then all Rent shall be apportioned and paid to the date on which possession is relinquished or the date of such damage, whichever last occurs, and Tenant shall immediately vacate the Premises according to such notice of termination; provided, however, that those provisions of this Lease which are designated to cover matters of termination and the period thereafter shall survive the termination hereof. 15. CONDEMNATION. 15.1. In the event the whole or substantially the whole of the Building or the Premises are taken or condemned by eminent domain or by any conveyance in lieu thereof (such taking, condemnation or conveyance in lieu thereof being hereinafter referred to as "condemnation"), the Term shall cease and this Lease shall terminate on the earlier of the date the condemning authority takes possession or the date title vests in the condemning authority. In the event that all or substantially all of the Premises is temporarily taken by eminent domain and such taking causes all or a substantial portion of the Premises to be unusable by Tenant for a period of one hundred fifty (150) consecutive days for the uses permitted hereunder in which Tenant was engaged at the Premises immediately prior to such temporary taking, and Tenant or Landlord, as the case may be, shows such fact to the other party to a degree of certainty reasonably acceptable to such other party, either Landlord or Tenant may terminate this Lease by delivering written notice thereof to the other within ten (10) business days after the taking, condemnation or sale in lieu thereof. 15.2. In the event any portion of the Building shall be taken by condemnation (whether or not such taking includes any portion of the Premises), which taking, in Landlord's reasonable and good faith judgment, is such that the Building cannot be restored in an economically feasible manner for use substantially as originally designed, then Landlord shall have the right, at Landlord's option, to terminate this Lease, effective as of the date specified by Landlord in a written notice of termination from Landlord to Tenant. 15.3. In the event of termination of this Lease pursuant to the provisions of Section 15.1 or 15.2 of this Lease, the Rent shall be apportioned as of such date of termination; provided, however, that those provisions of this Lease which are designated to cover matters of termination and the period thereafter shall survive the termination hereof. 15.4. All compensation awarded or paid upon a condemnation of any portion of the Project shall belong to and be the property of Landlord without participation by Tenant. Nothing herein shall be construed, however, to preclude Tenant from prosecuting any claim directly against the condemning authority for loss of business, loss of good will, moving expenses, damage to, and cost of removal of, trade fixtures, furniture and other personal property belonging to Tenant; provided, however, that Tenant shall make no claim which shall diminish or adversely affect any award claimed or received by Landlord. 16. ACCESS AND INSPECTION. Landlord shall retain duplicate keys to all doors of the Premises. Tenant shall provide Landlord with new keys should Tenant receive Landlord's consent to change the locks. Landlord shall have the right to re-enter the Premises at reasonable hours and upon reasonable prior notice (or, in the event of an emergency or at any time that an event of default on the part of Tenant is outstanding, at any hour and without any notice) for any reasonable purpose, including, without limitation, the following purposes: (a) to exhibit the same to present or prospective mortgagees, lessors or purchasers during the Term of this Lease and to prospective tenants during the last year of the Term; (b) to inspect the Premises; (c) to confirm that Tenant is complying with all of Tenant's covenants and obligations under this Lease; (d) to clean or make repairs required of Landlord under the terms of this Lease; (e) to make repairs to areas adjoining the Premises; and (f) to repair and service utility lines or other components of the Building. Landlord shall not be liable to Tenant for the exercise of Landlord's rights under this Section and Tenant hereby waives any claims for damages for any injury, inconvenience or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. 17. INDEMNIFICATION. Subject to the provisions of this Section, Tenant shall, and hereby agrees to, indemnify and hold Landlord harmless from any damage to any property, or injury to or death of any person, that occurs in the Premises or on the Project which arises out of or relates to the acts or omissions of Tenant, its agents, employees, contractors or invitees prior to the termination or expiration of the Lease or to Tenant vacating possession of the Premises, whichever last occurs. Without limiting the generality of the foregoing, Landlord shall not be liable for any injury to persons or property resulting from the condition or design of, or any defect in the Project, the Building or the Premises, nor shall Landlord be liable for any damage or loss caused by other tenants, occupants or persons in the Building or the Project. Tenant, for itself and its agents, employees, contractors and invitees, expressly assumes all risks of injury or damage to person or property, whether proximate or remote, resulting from the condition of the Project, the Building or the Premises. 18. ASSIGNMENT AND SUBLETTING. 18.1 Without Landlord's prior written consent, which shall not be unreasonably withheld, Tenant shall not assign this Lease or sublease all or part of the Premises or mortgage, pledge or hypothecate Tenant's leasehold interest or grant any concession or license within the Premises. Any attempt to do any of the foregoing shall be void AB INITIO and of no force or effect. For purposes of this Section, a transfer of a controlling ownership interest in Tenant shall be deemed an assignment of this Lease unless such ownership interests are publically traded on a nationally recognized stock exchange. No acceptance by Landlord of any Rent, or any other sum of money, from any assignee, subtenant or other transferee shall be deemed to constitute Landlord's consent to any assignment, sublease, mortgage, pledge, encumbrance or other transfer. Tenant acknowledges and agrees that any consent by Landlord pursuant to this Section shall not be deemed to be a consent to any subsequent assignment, sublease, mortgage, pledge, encumbrance or any other agreement or other action to which Landlord's consent is required. 18.2 Notwithstanding the foregoing, the Tenant may assign this Lease or sublet the Premises, in whole or in part, to any entity which controls Tenant, is controlled by Tenant or is under common control with Tenant (a "Tenant Affiliate") without the prior written consent of Landlord but with prior written notice to Landlord of such assignment or sublease. Tenant, upon written request by Landlord, shall provide Landlord with such information and documentation evidencing that the entity to which the Lease is being or was assigned or to which the Premises is being or were sublet qualifies as a Tenant Affiliate. Tenant shall reimburse Landlord for all of Landlord's reasonable out-of-pocket costs and expenses, including legal costs and expenses, incurred in connection with any assignment of this Lease or sublease of the Premises, in whole or in part. Upon Landlord's receipt of Tenant's written notice of Tenant's desire to assign this Lease or sublet the Premises, in whole or in part (other than to a Tenant Affiliate), Landlord may, but shall not be required to, terminate this Lease with respect to the space described in Tenant's Notice by giving written notice to Tenant within thirty (30) days after receipt of Tenant's notice. Any such termination shall be effective as of the date specified in Tenant's notice for the commencement of the proposed assignment or sublease. 18.3 Notwithstanding any such assignment of this Lease or subletting of the Premises, Tenant, and any guarantor or surety of Tenant's obligations under this Lease, shall at all times remain fully and primarily responsible and liable for the payment of Rent and for performance in accordance with the terms of this Lease (regardless of whether Landlord's approval has been obtained for any such assignment or subletting). In the event that the Rent due and payable by a sublessee or assignee (or a combination of the Rent payable under such sublease or assignment plus any bonus or other consideration therefore or incident thereto) exceeds the Rent payable under this Lease, Tenant shall be bound and obligated to pay Landlord as additional Rent under this Lease fifty percent (50%) of all such excess rental and other excess consideration within ten (10) calendar days following the receipt thereof by, or on behalf of, Tenant. 18.4 If this Lease is assigned or if the Premises is subleased (whether in whole or in part) or in the event of the mortgage, pledge or hypothecation of Tenant's leasehold interest or the grant of any concession or license within the Premises or if the Premises be occupied, in whole or in part, by anyone other than Tenant, then upon a default by Tenant under this Lease, Landlord may collect Rent and any other sum of money otherwise due, from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionee or licensee or other occupant and, except to the extent of any excess rentals to which Landlord is entitled as hereinabove set forth, apply the amount collected to the next Rent payable under this Lease. All Rent, collected by Tenant shall be held in trust for Landlord and shall immediately be forwarded to Landlord. No such transaction or collection of Rent or application thereof by Landlord, however, shall be deemed a waiver of the terms of this Lease or a release of Tenant from the further performance by Tenant of its covenants, duties or obligations under this Lease. 19. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and agreements set forth in this Lease which are required to be performed by Tenant, Tenant shall, subject to the terms and conditions of this Lease, at all times during the Lease Term have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord. 20. SURRENDER. Upon termination of the Lease Term or earlier termination of Tenant's right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 14 and 15 of this Lease excepted. Any alterations, improvements and fixtures installed upon the Premises by or for the benefit of Tenant and all of Tenant's personal property not removed by Tenant as permitted or required by this Lease, shall be deemed abandoned and may be stored, removed and disposed of by Landlord, at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention and disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Lease Term shall survive the termination of the Lease Term, including, without limitation, indemnity obligations, payment obligations with respect to Operating Expenses and obligations concerning the condition and repair of the Premises. 21. HOLDING OVER. If Tenant retains possession of the Premises after the termination of the Lease Term or the earlier termination of Tenant's right of possession, unless otherwise agreed in writing, such possession shall be subject to immediate termination by Landlord at any time, and all of the other terms and conditions of this Lease (excluding any expansion or renewal option or other similar right or option) shall be applicable during such holdover period, except that Tenant shall pay Landlord from time to time, upon demand, as Base Rent for the holdover period, an amount equal to 150% of the Base Rent in effect on the termination date, computed on a monthly basis for each month, or part thereof, during such holding over. All other payments shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided in this Lease, and this Section shall not be construed as consent by Landlord for Tenant to retain possession of the Premises. 22. EVENTS OF DEFAULT. The occurrence of any of the events described below shall constitute a default by Tenant under this Lease: 22.1. Tenant shall fail to pay any installment of Base Rent or any other payment required under this Lease when due, and such failure shall continue for a period of ten (10) days from the date such payment was due. 22.2. Tenant or any guarantor or surety of Tenant's obligations hereunder shall (i) make a general assignment for the benefit of creditors; (ii) commence any case, proceeding or other action seeking to have any order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property (collectively a "proceeding for relief"); (iii) become the subject of any proceeding for relief which is not dismissed within sixty (60) days of its filing or entry; or (iv) die or suffer a legal disability (if Tenant, guarantor or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership, limited liability company or other entity). 22.3. Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, except, in each case, as permitted in this Lease. 22.4. Tenant shall not occupy or shall vacate the Premises or shall fail to continuously operate its business at the Premises for the permitted uses set forth in Section 1(O) of this Lease, whether or not Tenant is in monetary or other default under this Lease. 22.5. Tenant shall attempt, or there shall occur any assignment, subleasing or other transfer of Tenant's interest in or with respect to this Lease, except as otherwise permitted in this Lease. 22.6. Tenant shall fail to discharge any lien placed upon the Premises in violation of this Lease within thirty (30) days after any such lien or encumbrance is filed against the Premises. 22.7. Tenant shall fail to comply with any term or condition of this Lease other than those specifically referred to in this Section 22, and except as otherwise expressly provided herein, such default shall continue for more than thirty (30) days after Landlord has given Tenant written notice of such default. 23. LANDLORD'S REMEDIES. Upon the occurrence of any default by Tenant specified in Section 22 of this Lease, Landlord, at its option, may in addition to all other rights and remedies provided herein or at law or in equity, exercise one or more of the remedies set forth below: 23.1. Termination. Landlord may terminate this Lease by written notice to Tenant in which event Tenant shall immediately surrender the Premises to Landlord and if Tenant fails to do so, Landlord may without prejudice to any other remedy which it may have for possession or arrearages in Rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises, or any part thereof, without being liable for prosecution or any claim of damages therefor. Upon any such termination, Tenant shall be and remain liable for all obligations of Tenant arising or accruing under this Lease prior to the time of termination and, in addition thereto, for the damages provided for in Section 23(4) hereof. 23.2. Terminate Possession. Landlord may terminate Tenant's right of possession (but not this Lease), by written notice to Tenant specifying the date of termination in such notice, and, on or after such date, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises, or any part thereof, by entry, dispossessory suit or otherwise, without thereby releasing Tenant from any liability hereunder, without terminating this Lease, and without being liable for prosecution of any claim of damages therefor, and, if Landlord so elects, make such alterations, redecorations and repairs as, in Landlord's reasonable judgment, may be necessary to relet the Premises. Landlord may, but shall be under no obligation to do so, relet the Premises or any portion thereof in Landlord's or Tenant's name, but for the account of Tenant, for such term or terms (which may be for a term extending beyond the Lease Term under this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with or without advertisement, or by private negotiations, and receive the rent therefor. Upon each such reletting, all rentals and other sums received by Landlord from such reletting shall be applied, first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord, second, to the payment of any costs and expenses of such reletting actually incurred by Landlord, including lease assumptions, reasonable brokerage fees and attorneys' fees and the costs of any alterations, repairs, redecorations and restorations; third, to the payment of Rent and other charges due and unpaid hereunder; and the residue, if any shall be held by Landlord and applied in payment of future Rent as the same may become due and payable hereunder or shall be paid to Tenant to the extent (and only to the extent) provided in the third following sentence. If such rentals and other sums received from such reletting during any month are less than the amount of Rent to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. If such rentals and the sums received from such reletting during any month shall be more than the amount of Rent to be paid during that month by Tenant hereunder, Tenant shall have no right to, and shall receive no credit for, the excess; provided, however, if any such excess shall exist at such time as this Lease shall terminate, after application of such rentals and sums received from reletting in the manner hereinabove set forth, such excess shall be paid to Tenant. No such reentry or taking possession of the Premises by Landlord (whether through entry, dispossessory suit or otherwise) shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such termination be given to Tenant. Notwithstanding any such reletting without termination, Landlord may at any time elect by written notice to Tenant to terminate this Lease for such previous Event of Default. 23.3. Entry. Landlord may enter upon the Premises, without being liable for prosecution or any claim of damages therefor, and do whatever Tenant is obligated to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on demand for any expenses including, without limitation, reasonable attorneys' fees, which Landlord may actually incur in thus effecting compliance with Tenant's obligations under this Lease. Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action. 23.4. Acceleration. If this Lease is terminated by Landlord as a result of the occurrence of an Event of Default, Landlord may declare to be due and payable immediately the excess of (i) the entire amount of Rent and other charges and assessments which in Landlord's reasonable determination would become due and payable during the remainder of the Lease Term (determined as though the Lease has not been terminated) discounted to present value by using a discount factor of eight percent (8%) over (ii) the then fair market rental value of the Premises for the remainder of the Lease term discounted to present value by using a discount factor of eight percent (8%) per annum. Upon the acceleration of such amounts, Tenant agrees to pay the same at once, in addition to all Rent and other charges, costs and assessments due as provided in Section 23.2 hereof, at Landlord's address as provided herein. If Landlord exercises its rights under this Section 23.4, Landlord and Tenant agree that the payment of the aforesaid accelerated amount shall not constitute a penalty or forfeiture but shall constitute liquidated damages for Tenant's failure to comply with the terms and provisions of this Lease (Landlord and Tenant agreeing that Landlord's actual damages in such event are impossible to ascertain and that the amount set forth above is a reasonable estimate thereof). 23.5. Self-Help. Landlord may, at its option, without waiving or releasing Tenant from obligations of Tenant, make any such payment or perform any such other act on behalf of Tenant. All sums so paid by Landlord, or incurred by Landlord in effecting such performance or other act, and all necessary incidental costs, together with interest thereon at the legal rate of interest, from the date of such payment by Landlord, shall be payable to Landlord on demand. Tenant covenants to pay any such sums, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the non-payment thereof by Tenant as in the case of default by Tenant in the payment of Rent. 23.6. Cumulative Remedies. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute. In addition to the other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable law, to injunctive relief in the case of the violation, or attempted or threatened violation, of any of the covenants, agreements, conditions or provisions of this Lease, or to a decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to Landlord at law or in equity. 24. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Anything contained in this Lease to the contrary notwithstanding, Tenant agrees that Tenant shall look solely to the estate and property of Landlord in the Building (and the actual rents received by Landlord from the Building from and after the date of any money judgment against Landlord) for the collection of any judgment or other judicial process requiring the payment of money by Landlord. In no event shall either Landlord or any partners, shareholders, members or other principals of Landlord, or any managers or employees of Landlord be personally responsible or liable for the payment of any such judgment or process, and, subject to the preceding sentence, the assets of any such party or person shall not be subject to levy, execution or other judicial process for the satisfaction thereof. The term "Landlord", as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time in question, of the fee title to, or a lessee's interest in a ground lease of, the Land or the Building. In the event of any assignment, conveyance or other transfer of any such title or interest (each of which may be effected without Tenant's consent), Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed. 25. SUBORDINATION AND ATTORNMENT. This Lease and Tenant's interests and rights hereunder are and shall be subject and subordinate at all times to the lien of any mortgage, now existing or hereafter created, on or against the Project, the Building or the Premises by Landlord, and all amendments, restatements, renewals, modifications, consolidations, refinancings, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of any such mortgage, to attorn to any such holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments and other documents confirming such subordination and such instruments and other documents of attornment as shall be requested by any such holder. Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact (such power of attorney being coupled with an interest) to execute, acknowledge and deliver any such instrument and instruments for and in the name of Tenant and to cause any such instrument or other documents to be recorded. Notwithstanding the foregoing, any such holder may at any time subordinate its mortgage to this Lease, without Tenant's consent, by written notice to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution, delivery or recording, and in that event, such holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such mortgage and had been assigned to such holder. The term "mortgage" whenever used in this Lease shall be deemed to include deeds of trust, mortgages, security deeds, security assignments and any other instrument which creates a lien. Any reference to the "holder" of such a mortgage shall be deemed to include the beneficiary under a deed of trust. 26. ESTOPPEL CERTIFICATES. Tenant agrees, from time to time, within ten (10) days after request of Landlord, to execute and deliver to Landlord, or Landlord's designee, any estoppel certificate requested by Landlord, stating that (i) this Lease is in full force and effect; (ii) the date to which rent has been paid; (iii) Landlord is not in default under this Lease (or specifying in detail the nature of Landlord's default); (iv) the termination date of this Lease; and (v) such other matters relating to this Lease as may be requested by Landlord. Tenant's obligation to furnish each estoppel certificate in a timely fashion is a material inducement for Landlord's execution of this Lease. No cure or grace period provided in this Lease shall apply to Tenant's obligations to timely deliver an estoppel certificate. Tenant hereby irrevocably appoints Landlord as its attorney-in-fact to execute on its behalf, and in its name, any such estoppel certificate if Tenant fails to execute and deliver the estoppel certificate within ten (10) days after Landlord's written request thereof. 27. SECURITY SERVICES. Tenant acknowledges and agrees that, while Landlord may patrol the Project, Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage or injury suffered or incurred by Tenant in connection with any unauthorized entry into the Project, the Building or the Premises, or any other breach of security with respect to the Project, the Building or the Premises. 28. FORCE MAJEURE. Whenever a period of time is herein prescribed for action to be taken by Landlord or Tenant, Landlord or Tenant shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to force majeure, which term shall include strikes, riots, acts of God, shortages of labor or materials, war, governmental approvals, laws, regulations, or restrictions, or any other cause of any kind whatsoever which is beyond the reasonable control of Landlord or Tenant, as the case may be. Force Majeure shall not excuse or delay Tenant's obligation to pay Rent or any other amount due under this Lease. 29. BROKERS AND COMMISSIONS. Tenant and Landlord each represent and warrant to the other that it has not entered into any agreement with, or otherwise had any dealings with, any broker or agent in connection with the negotiation or execution of this Lease which could form the basis of any claim by any such broker or agent for a brokerage fee or commission, finder's fee, or any other compensation of any kind or nature in connection herewith, other than with Brokers, and each party shall, and hereby agrees to, indemnify and hold the other harmless from all costs (including court costs, investigation costs, and attorneys' fees), expenses, or liability for commissions or other compensation claimed by any broker or agent with respect to this Lease which arise out of any agreement or dealings, or alleged agreement or dealings, between the indemnifying party and any such agent or broker, other than with Brokers. This provision shall survive the expiration or earlier termination of this Lease. Landlord shall pay a commission to Commercial Carolina Corporation ("Landlord's Broker") in accordance with a separate written agreement with Landlord's Broker and shall pay a commission to Allentown Commercial ("Tenant's Broker") in accordance with the terms thereof or of a separate written agreement between Landlord and Tenant's Broker. All brokers, including Brokers, shall be required to execute and deliver lien waivers as a condition of payment. The parties hereto acknowledge that Landlord's Broker is acting as agent for Landlord in this transaction and that Tenant's Broker is acting as agent for Tenant in this transaction. 30. BANKRUPTCY. Tenant acknowledges that this Lease is a lease of nonresidential real property and therefore agrees that Tenant, as the debtor in possession, or the trustee for Tenant (collectively the "Trustee") in any proceeding under Title 11 of the United States Bankruptcy Code relating to Bankruptcy, as amended (the "Bankruptcy Code"), shall not seek or request any extension of time to assume or reject this Lease or to perform any obligations of this Lease which arise from or after the entry of an order for relief. 30.1. If the Trustee proposes to assume or to assign this Lease or sublet the Premises (or any portion thereof) to any person which shall have made a bona fide offer to accept an assignment of this Lease or a subletting on terms acceptable to the Trustee, the Trustee shall give Landlord, and lessors and mortgagees of Landlord of which Tenant has notice, written notice setting forth the name and address of such person and the terms and conditions of such offer, no later than twenty (20) days after receipt of such offer, but in any event no later then ten (10) days prior to the date on which the Trustee makes application to the Bankruptcy Court for authority and approval to enter into such assumption and assignment or subletting. Landlord shall have the prior right and option, to be exercised by written notice to the Trustee given at any time prior to the effective date of such proposed assignment or subletting, to accept an assignment of this Lease or subletting of the Premises upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which may be payable out of the consideration to be paid by such person for the assignment or subletting of this Lease. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed, without further act or deed, to have assumed all of the obligations arising under this Lease and each of the conditions and provisions hereof on and after the date of such assignment. Any such assignee shall, upon the request of Landlord, forthwith execute and deliver to Landlord an instrument, in form and substance acceptable to Landlord, confirming such assumption. 30.2. The Trustee shall have the right to assume Tenant's rights and obligations under this Lease only if the Trustee: (a) promptly cures or provides adequate assurance that the Trustee will promptly cure any default under the Lease; (b) compensates or provides adequate assurance that the Trustee will promptly compensate Landlord for any actual pecuniary loss incurred by Landlord as a result of Tenant's default under this Lease; and (c) provides adequate assurance of future performance under the Lease. Adequate assurance of future performance by the proposed assignee shall include, as a minimum, that: (i) the Trustee or any proposed assignee of the Lease shall deliver to Landlord a security deposit in an amount equal to at least three (3) months Rent accruing under the Lease; (ii) any proposed assignee of the Lease shall provide to Landlord an audited financial statement, dated no earlier than six (6) months prior to the effective date of such proposed assignment or sublease with no material change therein as of the effective date, which financial statement shall show the proposed assignee to have a net worth equal to at least twelve (12) months Rent accruing under the Lease, or, in the alternative, the proposed assignee shall provide a guarantor of such proposed assignee's obligations under the Lease, which guarantor shall provide an audited financial statement meeting the requirements of (ii) above and shall execute and deliver to Landlord a guaranty agreement in form and substance acceptable to Landlord; and (iii) any proposed assignee shall grant to Landlord a security interest in favor of Landlord in all furniture, fixtures, and other personal property to be used by such proposed assignee in the Premises. All payments required of Tenant under this Lease, whether or not expressly denominated as such in this Lease, shall constitute rent for the purposes of Title 11 of the Bankruptcy Code. 30.3. The parties agree that for the purposes of the Bankruptcy Code relating to (i) the obligation of the Trustee to provide adequate assurance that the Trustee will "promptly" cure defaults and compensate Landlord for actual pecuniary loss, the word "promptly" shall mean that cure of defaults and compensation will occur no later than sixty (60) days following the filing of any motion or application to assume this Lease; and (ii) the obligation of the Trustee to compensate or to provide adequate assurance that the Trustee will promptly compensate Landlord for "actual pecuniary loss", the term "actual pecuniary loss" shall mean, in addition to any other provisions contained herein relating to Landlord's damages upon default, payments of Rent, including interest at the Interest Rate on all unpaid Rent, all attorney's fees and all related costs of Landlord incurred in connection with any default of Tenant in connection with Tenant's bankruptcy proceedings. 31. RULES AND REGULATIONS. Tenant shall, at all times during the Lease Term and any extension thereof, comply with all reasonable rules and regulations ("Rules and Regulations") at any time or from time to time established by Landlord covering use of the Premises, the Building and the Project. The current Rules and Regulations are attached hereto as Exhibit C. In the event of any conflict between the Rules and Regulations and other provisions of this Lease, the other terms and conditions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any Rules and Regulations by any other tenants in the Project or the Building. 32. PARKING. The parking area available to Tenant, its employees, agents, contractors and invitees shall be free and designated on a non-exclusive, unreserved basis for all Project tenants (including Tenant) and their respective employees, customers, invitees and visitors. Landlord shall designate certain parking spaces as being available for visitor parking. Parking and delivery areas for all vehicles shall be in accordance with parking regulations established from time to time by Landlord, with which Tenant agrees to conform. Notwithstanding the foregoing, Landlord reserves the right to designate certain portions of the parking areas on a reserved, exclusive basis, including, without limitation, for handicapped, vans, visitors, cycles, other reserved, courier and loading purposes. 33. MISCELLANEOUS. 33.1. Entire Agreement; Amendments. This Lease and the exhibits and riders attached hereto set forth the entire agreement between the parties and cancel all prior negotiations, arrangements, brochures, agreements, and understandings, if any, between Landlord and Tenant regarding the subject matter of this Lease, it being acknowledged that any such negotiations, arrangements, brochures, agreements, and understandings have been fully incorporated herein and this Lease is a full and final integration of the agreement of the parties hereto, including without limitation, all such prior negotiations, arrangements, brochures, agreements, and understandings. Neither Landlord nor Landlord's agents or brokers have made any representations or promises with respect to the Premises, the Building or any other portions of the Project except as herein expressly set forth and all reliance with respect to any representations or promises is based solely on those contained herein. No rights, easements, or licenses are acquired by Tenant under this Lease by implication or otherwise except as, and unless, expressly set forth in this Lease. No amendment or modification of this Lease shall be binding or valid unless expressed in writing executed by both parties hereto. 33.2. Severability; Headings. Every agreement contained in this Lease is, and shall be construed as, a separate and independent agreement. If any term or condition of this Lease or the application thereof to any person or circumstances shall be invalid or unenforceable, the remaining terms and conditions contained in this Lease shall not be affected. The article headings contained in this Lease are for convenience only and shall not enlarge or limit the scope or meaning of the various and several articles hereof. Words in the singular number shall be held to include the plural, unless the context otherwise requires. 33.3. Successors and Assigns. All agreements and covenants herein contained shall be binding upon the respective heirs, personal representatives, successors and assigns of the parties hereto. If there be more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. If there is a guarantor of Tenant's obligations hereunder, Tenant's obligations shall be joint and several obligations of Tenant and such guarantor, and Landlord need not first proceed against Tenant hereunder before proceeding against such guarantor, and any such guarantor shall not be released from its guarantee for any reason, including any amendment of this Lease, any forbearance by Landlord or waiver of any of Landlord's rights, the failure to give Tenant or such guarantor any notices, or the release of any party liable for the payment or performance of Tenant's obligations hereunder. Notwithstanding the foregoing, nothing contained in this Section 33.3 shall be deemed to override the terms and conditions of Section 18 (Assignment and Subletting ) of this Lease. 33.4. Tenant's Authority. If Tenant signs as a corporation, execution hereof shall constitute a representation and warranty by Tenant that Tenant is a duly organized and existing corporation, that Tenant has been and is qualified to do business in the State of North Carolina and in good standing with the State of North Carolina, that the corporation has full right and authority to enter into this Lease, and that all persons signing on behalf of the corporation were authorized to do so by appropriate corporate action. If Tenant signs as a partnership, trust, or other legal entity, execution hereof shall constitute a representation and warranty by Tenant that Tenant has complied with all applicable laws, rules, and governmental regulations relative to Tenant's right to do business in the State of North Carolina, that such entity has the full right and authority to enter into this Lease, and that all persons signing on behalf of Tenant were authorized to do so by any and all necessary or appropriate partnership, trust, or other legal entity. 33.5. Governing Law. This Lease shall be governed by and construed under the laws of the State of North Carolina. 33.6. Time of Essence. Time is of the essence of this Lease. 33.7. No Estate. The Lease shall create the relationship of landlord and tenant only between Landlord and Tenant and no estate shall pass out of Landlord. Tenant shall have only an usufruct, not subject to levy and sale and not assignable in whole or in part by Tenant (except as expressly provided herein). 33.8. Exhibits. Each of the exhibits attached hereto, and each of the terms and conditions set forth therein, are hereby incorporated herein, and shall be deemed to a part of this Lease as if fully set forth herein. 33.9. Notices. All notices, requests, demands or other communications required or permitted to be given hereunder shall be in writing and shall be addressed and delivered by hand or by certified mail, return receipt requested, or by commercial overnight courier, by hand delivery by reputable courier, to each party at the addresses set forth below. Any such notice, request, demand or other communication shall be considered given or delivered, as the case may be, on the date of receipt. Rejection or other refusal to accept or inability to deliver because of changed address of which proper notice was not given shall be deemed to be receipt of the notice, request, demand or other communication. By giving prior written notice thereof, any party may from time to time and at any time change its address for notices hereunder. Legal counsel for the respective parties may send to the other party any notices, requests, demands or other communications required or permitted to be given hereunder by such party. Landlord: TBC Place Partners, LLC c/o OA Development, Inc. 2801 Buford Highway, NE Suite 500 Atlanta, GA 30329 Attn: Steve Berman With a copy to: Frank L. Wilson, III, Esq. Wilson Brock & Irby, LLC Overlook I, Suite 700 2849 Paces Ferry Road Atlanta, Georgia 30339 Tenant: Before Commencement Date: Highway Information Systems, Inc. 4900 Prospectus Drive Suite 250 Durham, North Carolina 27713 Attention: Andrew Turner After Commencement Date: Highway Information Systems, Inc. 4021 Stirrup Creek Drive Suite 100 Durham, North Carolina 27713 Attention: Andrew Turner With a copy to: Joan Riley, Esq. Quixote Corp. One East Wacker Drive Suite 3000 Chicago, IL 60601 33.10. Landlord Consent. Except as otherwise expressly provided in this Lease or as otherwise required by law, Landlord retains the absolute right to withhold any consent or approval in Landlord's sole discretion. 33.11. Tenant's Financials. At Landlord's request, from time to time, Tenant shall furnish Landlord with true and complete copies of Tenant's most recent annual and quarterly financial statements prepared by Tenant or Tenant's accountants and any other financial information or summaries that Tenant typically provides to its lenders or principals. 33.12. No Recording. Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease. 33.13. Rules of Construction. The normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. 33.14. Lease Submission Not Option. The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties. 33.15. No Merger. There shall be no merger of this Lease with any ground leasehold interest or the fee estate in the Project or any part thereof by reason of the fact that the same person may acquire or hold, directly or indirectly, this Lease or any interest in this Lease as well as any ground leasehold interest or fee estate. 33.16. Waiver of Jury Trial. Tenant and Landlord waive any right to trial by jury or to have a jury participate in resolving any dispute, whether sounding in contract, tort or otherwise, between Landlord and Tenant arising out of this Lease, or any other instrument, document or agreement executed or delivered in connection with this Lease or the transactions related hereto. 33.17. Signs. Tenant shall not make any changes to the exterior of the Premises, install any exterior lights, decorations, balloons, flags, pennants, banners or paintings or erect or install any signs, windows or door lettering, placards, decorations or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord's prior written consent which shall not unreasonably withheld or delayed. Upon surrender or vacation of the Premises, Tenant shall promptly remove, at Tenant's expense, all signs and repair, paint and/or replace the Building facia surface to which its signs, if any, are attached. Tenant shall obtain all applicable governmental permits and approvals for sign and exterior treatments, if any. All signs, decorations, advertising media, blinds, draperies and other window treatments or bars or other security installations visible from outside the Premises shall be subject to Landlord's approval, which approval shall not be unreasonably withheld or delayed, and shall conform in all respects to Landlord's requirements. IN WITNESS WHEREOF, Landlord and Tenant have set their hands and seals hereunto and have caused this Lease to be executed by duly authorized officials thereof, as of the Date of this Lease. LANDLORD: TBC PLACE PARTNERS, LLC, a Georgia limited liability company BY: Steber, Inc., a Georgia corporation, Manager By: /s/ Steven Berman, President Steven Berman, President [CORPORATE SEAL] TENANT: HIGHWAY INFORMATION SYSTEMS, INC. By: /s/ Leslie J. Jezuit Name: Leslie J. Jezuit Title: President and Chief Operating Officer [CORPORATE SEAL] EXHIBIT A FLOOR PLAN OF THE PREMISES EXHIBIT B LEASEHOLD IMPROVEMENTS WORK LETTER (LEASEHOLD IMPROVEMENT ALLOWANCE) 1. Leasehold Improvements. Landlord shall cause the leasehold improvements to the Premises ("Leasehold Improvements") to be constructed and installed in a good and workmanlike manner and in substantial accordance with final plans and specifications ("Working Drawings and Specifications") to be prepared by Landlord's architect and engineers and approved by Tenant, such approval not to be unreasonably withheld or delayed. Such plans and specifications shall be in accordance with the preliminary plans and specifications furnished by Landlord as of the date hereof , based upon input by Tenant. In connection with, and in order to expedite, preparation of the Working Drawings and Specifications, Tenant shall provide comments to, and shall cooperate with, Landlord and Landlord's architects, engineers and other consultants promptly following request for such comments. Landlord my commence construction prior to finalization of the Working Drawings and Specifications, and Tenant agrees that it shall cooperate with Landlord to review and approve portions of the Working Drawings and Specifications for different stages or elements of the work so that construction may proceed on a "fast track" basis. Unless otherwise agreed to in writing by Landlord and Tenant, all work involved in the construction and installation of the Leasehold Improvements shall be carried out under the sole direction of Landlord. Tenant shall cooperate with Landlord and Landlord's architect, contractors, employees, agents and other persons in order to promote the efficient and expeditious completion of such work. 2. Tenant Change Orders. The Working Drawings and Specifications define the entire scope of Landlord's obligation to construct or provide the Leasehold Improvements. Subject to this Paragraph, Landlord shall make additions or changes to the Working Drawings and Specifications requested by Tenant ("Tenant Change Orders"). Tenant shall advise Landlord regarding any Tenant Change Orders in writing. All reasonable costs of reviewing any Tenant Change Orders, and any and all costs of making any such change shall be at Tenant's sole cost and expense, and shall be paid pursuant to Paragraph 5 of this Leasehold Improvement Work Letter. Such costs shall include, without limitation, costs of architects, engineers and consultants in reviewing and designing any such changes and the costs of contractors implementing such changes. When Landlord requests Tenant to provide specific information regarding any Tenant Change Orders, Tenant shall respond promptly so as not to delay Substantial Completion of the Leasehold Improvements on or before the Target Completion Date. 3. Target Completion Date. Landlord shall use its reasonable efforts to cause the Leasehold Improvements to be substantially completed on or before ninety (90) days following the Date of this Lease ("Target Completion Date"). Landlord shall not be liable to Tenant for any damages, losses, costs or expenses incurred by Tenant because of a failure to substantially complete the Leasehold Improvements on or before the Target Completion Date. 4. Leasehold Improvement Allowance. Landlord shall contribute an amount equal to Twenty-Three and 85/100 Dollars ($23.85) per rentable square foot, inclusive of all design fees and moving allowance ("Leasehold Improvement Allowance"). The ceiling grid will be in place with ceiling tiles and lights stacked on the floor. The Leasehold Improvement Allowance shall be used for the actual costs of designing and constructing the Leasehold Improvements as such costs are incurred. Landlord shall pay actual costs, up to a maximum amount equal to the Leasehold Improvement Allowance, directly to the contractor promptly following receipt of billing and reasonably satisfactory documentation, including appropriate contractor affidavits and waivers from the contractor and all subcontractors engaged in installing or constructing the Leasehold Improvements. Landlord and Tenant shall use their respective best efforts to value engineer the design and construction of the Leasehold Improvements so that the total costs and expenses for the Leasehold Improvements together with all design, engineering and other fees and expenses, will not exceed the Leasehold Improvement Allowance. In the event that notwithstanding such best efforts, such costs and expenses exceed the Leasehold Improvement Allowance, Landlord and Tenant shall share equally, and be responsible for paying for one-half (1/2) of, all such costs and expenses in excess of the Leasehold Improvement Allowance. Tenant shall pay Tenant's share of such excess costs and expenses as set forth below in Paragraph 5 of this Leasehold Improvements Work Letter. 5. Tenant Responsibility for Leasehold Improvement Costs. Subject to Landlord's payment of the Leasehold Improvement Allowance, Tenant shall be responsible for payment of one-half (1/2) of the following: (i) all costs, including professional fees, of Landlord's architect, space planner, and other professionals for the review and preparation of the Working Drawings and Specifications or any Tenant Change Orders or other necessary change orders thereto; and (ii) all costs to complete the construction and installation of the Leasehold Improvements, including , but not limited to, the cost of all labor and materials supplied to construct, install and complete the Leasehold Improvements, including the contractor's profit and overhead expenses. Tenant shall pay to Landlord, upon substantial completion of the Leasehold Improvements or at such earlier date as shall be requested by Landlord, one-half (1/2) of the amount by which the costs paid or incurred in connection with the Leasehold Improvements or otherwise required to be paid hereunder by Tenant exceed the Leasehold Improvement Allowance, such amount to be indicated on a statement delivered by Landlord to Tenant. Tenant agrees that in the event it fails to make any required payment required in this Leasehold Improvements Work Letter in a timely manner, Landlord, in addition to any and all other remedies to which Landlord is entitled at law or in equity, shall have the same rights and remedies against Tenant as Landlord would upon the occurrence of an Event of Default in the payment of Rent under this Lease. 6. Substantial Completion of Leasehold Improvements. The Leasehold Improvements shall be deemed substantially completed ("Substantial Completion") when, (i) Landlord obtains a temporary certificate of occupancy, or equivalent, from the local governmental authority having jurisdiction thereof for the Premises, and (ii) Landlord obtains a written statement signed by the construction manager (whether an employee or agent of Landlord or a third party construction manager) ("Construction Manager"), that, in the opinion of the Construction Manager, the Leasehold Improvements have been substantially completed in accordance with the Working Drawings and Specifications, as modified by any Tenant Change Orders or other change orders, except for punch list items which do not prevent in any material manner the utilization of the Premises for the purposes for which they were intended. As soon as Substantial Completion of the Leasehold Improvements has been achieved, Landlord shall notify Tenant in writing of the date on which Substantial Completion occurred, and such date, unless Landlord and Tenant agree to another date in writing, shall be the "Commencement Date" of this Lease. In the event Tenant, or Tenant's employees, agents or contractors, cause construction of such improvements to be delayed, the date of Substantial Completion shall be deemed to be the date that, in the opinion of the Construction Manager, Substantial Completion would have occurred if such delays had not taken place. Without limiting the foregoing, Tenant shall be solely responsible for delays caused by Tenant's request for any changes in the Working Drawings and Specifications, Tenant's request for long lead time items or Tenant's interference with the installation and construction of the Leasehold Improvements, and such delays shall not cause a deferral of the Commencement Date beyond what it otherwise would have been. 7. Punch List Work. Tenant shall be entitled to prepare and deliver to Landlord a list of punch list items ("Punch List") which need to be performed to finally complete installation and construction of the Leasehold Improvements in accordance with the Working Drawings and Specifications ("Punch List Work"). The Punch List must be delivered to Landlord within thirty (30) days of the date of Substantial Completion. Landlord shall cooperate with Tenant in good faith and shall endeavor to complete, or cause to be completed, the Punch List Work as soon as reasonably practicable following delivery of the Punch List as required hereby. EXHIBIT C RULES AND REGULATIONS 1. The sidewalk, entries and driveways of the Project shall not be obstructed by Tenant, or its employees, agents, contractors or invitees or used by them for any purpose other than ingress and egress to and from the Premises. 2. Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscape areas or other areas outside of its Premises or on the roof of the Project, except that Tenant shall be permitted to install an antenna and radio in a location which is in reasonable proximity to the Premises, subject to approval of such location by Landlord, such approval not to be unreasonably withheld. 3. Except for seeing-eye dogs, no animals shall be allowed in the offices, halls or corridors of the Building or the Premises. 4. Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises. 5. If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant's expense. 6. Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except an air compressor and otherwise as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project. 7. Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle or any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall no "For Sale" or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord. 8. Tenant shall maintain the Building and the Premises free from rodents, insects and other pests. 9. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project. 10. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property located on the Project, the Building or the Premises, however occurring, or for any damage to the personal property of Tenant, or Tenant's employees, agents, contractors or invitees, by the janitors or any other employee or person. 11. Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises after Tenant becomes aware of any such defects. 12. Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of water or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Project, the Building or the Premises. Notwithstanding the foregoing, Tenant may store up to but not exceeding a total of fifteen (15) trailers and service vehicles as provided in Section 13.1 of the Lease. 13. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose. 14. No auction, public or private, will be permitted on the Premises, the Building or the Project. 15. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord. 16. The Premises shall not be used of lodging, sleeping or cooking or for any immoral or illegal purposes or for any purposes other than those specified in the Lease. No gaming devises shall be operated in the Premises. 17. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity for the electrical wiring in the Project and the Premises and the needs of other tenants and shall not use more than safe capacity. Landlord's consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity. 18. Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage. 19. Tenant shall not install or operate on the Premises any machinery or mechanical devise of a nature not directly related to Tenant's ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises. EXHIBIT D SITE PLAN OF THE PROJECT EXHIBIT E LEGAL DESCRIPTION OF THE LAND (TBC Place Partners, LLC) All that tract or parcel of land lying and being in the City of Durham, Durham County, North Carolina and being more particularly described as follows: Beginning at a new iron pipe located in the northern right of way line of Stirrup Creek Drive, said iron pipe being located south 82 degrees 17 minutes 57 seconds west, 622.43 feet from a PK nail located at the intersection of the centerlines of Stirrup Creek Drive (60' right of way) and Twin Creeks Drive (60' right of way), thence running with the northern right of way line of Stirrup Creek Drive, the following courses, north 88 degrees 26 minutes 40 seconds west, 130.73 feet to a new iron pipe, thence along a curve to the right having a radius of 770.00 feet and a length of 280.69 feet, a chord bearing and distance of north 77 degrees 42 minutes 05 seconds west, 279.14 feet to a new iron pipe, thence north 67 degrees 15 minutes 30 seconds west, 287.77 feet to a new iron pipe, thence leaving the northern right of way line of Stirrup Creek Drive, north 16 degrees 01 minutes 45 seconds east, 519.84 feet to a new iron pipe, thence south 82 degrees 24 minutes 24 seconds east, 632.35 feet to a new iron pipe, thence south 09 degrees 45 minutes 33 seconds west, 598.99 feet to the point and place of beginning, containing 8.92 acres, more or less (388,555.20 square feet), as shown on that plat of survey dated April 6, 1998, last revised August 24, 1998, for TBC Place Partners, LLC, Steven Berman, Wachovia Bank, N.A., Triangle Park (Raleigh) PIP, Limited Partnership and Chicago Title Insurance Company by DS Atlantic, Timothy E. Bowes, North Carolina Registered Land Surveyor L-3455, and as shown as Lot 101 on that plat recorded at Plat Book 141, Pages 135 and 136 Durham County Register of Deeds. EX-10.E 5 EX.10(E) EXHIBIT 10(e) EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT effective as of October 1, 1999 is made between QUIXOTE CORPORATION, a Delaware corporation (hereinafter referred to as "the Company"), and PHILIP E. ROLLHAUS, JR., of Chicago, Illinois (hereinafter referred to as "the Executive"). RECITALS: WHEREAS, the Executive has been the Chairman and Chief Executive Officer of the Company pursuant to an Executive Employment Agreement dated June 24, 1991, as amended from time to time, which expired on September 30, 1999; and WHEREAS, the Executive is 65 years of age and wishes to reduce the extent of his duties to the Company; WHEREAS, the Company wishes to continue to benefit from the Executive's knowledge, experience and expertise; and NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT; TERM OF AGREEMENT. (a) The Company hereby agrees to employ the Executive, and the Executive hereby agrees to continue to serve the Company, on the terms and conditions set forth herein until the expiration of the term of this Agreement unless terminated sooner by the Board of Directors of the Company (the "Board") or by the Executive, in accordance with the provisions of Sections 1(b) and 5 below. (b) The term of this Agreement shall commence on the effective date hereof and shall continue through June 30, 2000, except the Company may terminate this Agreement by written notice to the Executive for cause or for Executive's disability (as defined by the Company's long term disability policy.) 2. POSITION AND DUTIES. The Executive shall perform such services as the Chief Executive Officer may from time to time designate. During the term of this Agreement, the Executive will devote his entire time during reasonable business hours to the performance of his duties under this Agreement and shall not, without the consent of the Board, engage directly or indirectly in any other business for compensation or profit; PROVIDED, HOWEVER, the Executive may accept outside directorship positions and serve in such positions with or without compensation, and may engage in activities in connection with his personal investments, as long as such positions and activities do not interfere with the performance of the Executive's duties hereunder. 1 3. COMPENSATION. (a) The Executive shall receive a salary at the annual rate of $275,000, payable in substantially equal semi-monthly installments. (b) The Executive shall continue to participate in or receive benefits under all of the Company's benefits plans for its senior executive employees in effect as of the date hereof, including but not limited to its profit sharing plan, stock option plan, life insurance, health and disability programs, the Exec-U-Care program, and the medical reimbursement plan. (c) The Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive employees, but not less than thirty (30) days in any calendar year (prorated in any calendar year during which the Executive is employed hereunder for less than the entire such year in accordance with the number of days in such calendar year during which he is so employed). The Executive shall also be entitled to all paid holidays given by the Company to its senior executive employees. (d) The Company shall provide the Executive with an automobile and other fringe benefits generally appertaining to senior executive employees in accordance with present practice. (e) The Company shall promptly reimburse the Executive during the period of his employment hereunder for all reasonable expenses incurred by him in connection with his duties, in an amount not to exceed $6,000 per month without the prior consent of the Chief Executive Officer and subject to periodic review by the Audit/Compensation Committee of the Board; provided that the Executive properly accounts therefor in accordance with Company policy. 4. UNAUTHORIZED DISCLOSURE; INVENTIONS; COMPETITION. (a) During the period of his employment hereunder, the Executive shall not, without the written consent of the Board, disclose to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company, any material confidential information obtained by him while in the employ of the Company with respect to any of the Company's (and its subsidiaries') plans, strategies, financings, products, improvements, formulas, designs or styles, processes, suppliers, customers, methods of distribution or methods of manufacture, the disclosure of which he knows will be materially damaging to the Company; PROVIDED, HOWEVER, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that 2 conducted by the Company. For the period ending htree years following the termination date of his employment hereunder, the Executive shall not disclose any confidential information of the type described above. (b) (i) Any and all inventions made, developed or created by the Executive (whether at the request or suggestion of the Company or otherwise, whether alone or in conjunction with others, and whether during regular hours of work or otherwise) during the period of his employment by the Company, which may be directly or indirectly useful in, or relate to, the business of, or tests being carried out by, the Company or any of its subsidiaries or affiliates will be promptly and fully disclosed by the Executive to an appropriate executive officer of the Company and shall be the Company's exclusive property as against the Executive, and the Executive will promptly deliver to an appropriate officer of the Company all papers, drawings, models, data and other material relating to any invention made, developed or created by him aforesaid. The Executive will, upon the Company's request and without any payment therefor, execute any documents necessary or advisable in the opinion of the Company's counsel to direct issuance of patents to the Company with respect to such inventions as are to be the Company's exclusive property as against the Executive under this Section 4(b) or to vest in the Company title to such inventions as against the Executive, the expense of securing any patent, however, to be borne by the Company. At the discretion of the Board, this provision can be waived or modified under such terms and conditions as are established by the Board. (ii) The provisions of subparagraph (i) above do not apply to any work product for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on the Executive's own time, unless: (A) the work product relates to the business of the Company or its subsidiaries; or (B) the work product relates to the actual or demonstrable anticipated research or development of the Company or its subsidiaries; or (C) the work product results from any work performed by the Executive for the Company or its subsidiaries. (c) The provisions of Section 4(a) and (b) shall be binding upon the Executive's heirs, successors and legal representatives. (d) During the period of his employment hereunder and for three years thereafter, without the consent of the Board, the Executive shall refrain: 3 (i) from participating, directly or indirectly, in any business (whether as an owner, investor, lender, employee, consultant or otherwise) which manufactures or sells products that compete, directly or indirectly, with the products manufactured or sold by the Company and its subsidiaries, in a geographic area where the Company and its subsidiaries manufacture or sell such products, PROVIDED, HOWEVER, this provision shall not prevent the Executive from owning less than 1% of the outstanding stock of a publicly traded company which competes with the Company and its subsidiaries; and (ii) from soliciting the engagement or employment, or from engaging or employing, any employee of the Company and its subsidiaries, if such employee has had access to the confidential information described in paragraph 4(a) above as part of his or her duties to the Company and its subsidiaries. 5. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be given by personal delivery, a national overnight courier, or by United States registered mail, return receipt requested, postage pre-paid, addressed as follows: If, to the Executive: Philip E. Rollhaus, Jr. Quixote Corporation 1 East Wacker Drive Suite 3000 Chicago, Illinois 60601 If, to the Company: Quixote Corporation 1 East Wacker Drive Suite 3000 Chicago, Illinois 60601 Attention: President or to such other address as either party may have furnished to the other in writing at the address provided above, except that notices of change of address shall be effective only upon receipt. 6. MISCELLANEOUS. This Agreement constitutes the entire Executive Employment Agreement between the Executive and the Company, and supercedes all other employment agreements between the parties. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Board or a representative of the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be 4 performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same, or at any prior or subsequent, time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the substantive laws of the State of Illinois. 7. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. This Executive Employment Agreement is executed this 1st day of September, 1999. QUIXOTE CORPORATION By: /s/ Leslie J. Jezuit /s/ Philip E. Rollhaus, Jr. -------------------- Philip E. Rollhaus, Jr. Its: President and COO ----------------- 5 EX-21 6 EXHIBIT 21 EXHIBIT 21 QUIXOTE CORPORATION & SUBSIDIARIES SUBSIDIARIES OF THE COMPANY as of June 30, 1999
Jurisdiction Under Which QUIXOTE CORPORATION (PARENT) Organized - ---------------------------- ------------- Energy Absorption Systems, Inc. Delaware E-Tech Testing Services, Inc. Delaware Safe-Hit Corporation Nevada Spin-Cast Plastics, Inc. Indiana LaserVideo Acquisition Corporation Delaware Quixote Foreign Sales Corporation U.S. Virgin Islands Quixote Laser Corporation Delaware Quixote Laser, LLC Delaware Quixote Limited United Kingdom Quixote Research Corporation Delaware TranSafe Corporation Delaware Highway Information Systems, Inc. Delaware Nu-Metrics, Inc. Delaware Roadway Safety Service, Inc. Delaware
All of the subsidiaries listed above are wholly-owned by Quixote except as follows: Energy Absorption Systems, Inc. is the sole shareholder of E-Tech Testing Services, Inc., Safe-Hit Corporation and Spin-Cast Plastics, Inc. TranSafe Corporation is the sole shareholder of Highway Information Systems, Inc., Nu-Metrics, Inc. and Roadway Safety Service, 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 7 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby 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, 333-62933 and 333-81955) and the Registration Statements on Form S-3 (Files Nos. 2-96502 and 33-14873 Amendment No. 1) of our report dated August 6, 1999, accompanying the consolidated financial statements and financial statement schedule of Quixote Corporation and Subsidiaries as of June 30, 1999 and 1998, and for each of the years ended June 30, 1999, 1998 and 1997, which report is included in this Annual Report on Form 10-K of Quixote Corporation. /s/ PricewaterhouseCoopers LLP Chicago, Illinois September 27, 1999 EX-27 8 EXHIBIT 27
5 12-MOS JUN-30-1999 JUL-01-1998 JUN-30-1999 2,153,000 0 17,558,000 480,000 8,537,000 30,797,000 26,794,000 11,195,000 71,774,000 12,218,000 11,901,000 0 0 151,000 45,831,000 71,774,000 71,987,000 71,987,000 38,354,000 38,354,000 21,150,000 0 1,029,000 11,818,000 4,256,000 7,562,000 240,000 0 0 7,802,000 .98 .95
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