QUIXOTE CORP, 10-K405, 1999-09-27

QUIXOTE CORP
10-K405, 1999-09-27
PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS

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<PAGE>

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
------------------------------------------------

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I PAGE
-------
<S> <C>
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
</TABLE>

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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

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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.

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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.

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<PAGE>

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.

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<PAGE>

Item 2. Properties
- -------------------

<TABLE>
<CAPTION>
Owned or
Location Available Space Purpose Leased
- --------------------- --------------- ----------------- --------
<S> <C> <C> <C>
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
</TABLE>

Note: Present facilities are believed to be adequate to support the Company's
current and anticipated requirements.

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<PAGE>

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.

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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

<TABLE>
<CAPTION>
9/30 12/31 3/31 6/30
---- ----- ---- ----
<S> <C> <C> <C> <C>
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
</TABLE>

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

<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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

</TABLE>

NOTE: OPERATING RESULTS AND FINANCIAL POSITION FOR ALL PERIODS PRESENTED REFLECT
THE LEGAL TECHNOLOGIES, INC. AND DISC MANUFACTURING, INC. SEGMENTS AS
DISCONTINUED OPERATIONS.

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<PAGE>

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

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<PAGE>

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-
<PAGE>

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-
<PAGE>

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-
<PAGE>

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-
<PAGE>

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-
<PAGE>

QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For each of the three years ended June 30,

Dollar amounts in thousands, except share data 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
</TABLE>

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

-16-
<PAGE>

QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
As of June 30,

Dollar amounts in thousands, except share data 1999 1998
-------- --------
<S> <C> <C>
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
-------- --------
</TABLE>

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

-17-
<PAGE>

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
------ ------- --------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
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)
--------- ------ ------- --------- --------- --------
</TABLE>

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

-18-
<PAGE>

QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For each of the three years ended June 30,

Dollar amounts in thousands 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
</TABLE>

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

-19-
<PAGE>

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-
<PAGE>

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:

<TABLE>
<S> <C>
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
</TABLE>

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-
<PAGE>

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

<TABLE>
<CAPTION>
Unaudited
1999 1998
------- -------
<S> <C> <C>
Net sales.......... $ 74,284 $ 62,972
-------- --------
Net earnings....... $ 7,899 $ 544
-------- --------
Net earnings per
diluted share..... $ .96 $ .07
-------- --------
</TABLE>

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 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.

In March 1999, DMI assigned all of its rights to certain real property and a
building

-22-
<PAGE>

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:

<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data 1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
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)
----- ------- -------
</TABLE>

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:

<TABLE>
<CAPTION>
Dollar amounts in thousands 1999 1998
------- -------
<S> <C> <C>
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
------- -------
</TABLE>

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:

<TABLE>
<CAPTION>
Dollar amounts in thousands 1999 1998
------- -------
<S> <C> <C>
Finished goods.............. $ 3,941 $ 2,084
Work-in-process............. 1,527 696
Raw materials............... 3,069 3,046
------- -------
$ 8,537 $ 5,826
------- -------
</TABLE>

6. INTANGIBLE ASSETS
Intangible assets consist of the following at June 30:

<TABLE>
<CAPTION>
Dollar amounts in thousands 1999 1998
------- --------
<S> <C> <C>
Goodwill.................... $26,013 $13,264
Patents..................... 1,178 1,178
Accumulated amortization.... (3,153) (1,889)
------- -------
$24,038 $12,553
</TABLE>

-23-
<PAGE>

7. LONG-TERM DEBT
Long-term debt consists of the following at June 30:

<TABLE>
<CAPTION>
Dollar amounts in thousands 1999 1998
------ ------
<S> <C> <C>
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
------- ------
</TABLE>

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:

<TABLE>
<CAPTION>
Number of Option Price Weighted Average
Common Shares per Share Exercise Price
------------- --------- --------------
<S> <C> <C> <C>
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
---------
</TABLE>

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-
<PAGE>

The following is the composition of the June 30, 1999 stock option balance:

<TABLE>
<CAPTION>
Weighted
Weighted average
average exercise
Options having a per- remaining price per Number of
share exercise price of: life share shares
- ------------------------ ---------- --------- ---------
<S> <C> <C> <C>
$ 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
---------
</TABLE>

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:

<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
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)
------- ------- -------
</TABLE>

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-
<PAGE>

11. INCOME TAXES
The income tax provisions (benefits) for continuing and discontinued operations
are comprised of the following:

<TABLE>
<CAPTION>
Dollar amounts in thousands 1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
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)
------- ------ -------
</TABLE>

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

<TABLE>
<CAPTION>
Dollar amounts in thousands 1999 1998
------ ------
<S> <C> <C>
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
------- -------
</TABLE>

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:

<TABLE>
<CAPTION>
Dollar amounts in thousands 1999 1998
-------- --------
<S> <C> <C>
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
-------- -------
</TABLE>

-26-
<PAGE>

Income tax provisions differed from the taxes calculated at the statutory
federal tax rate as follows:

Dollar amounts in thousands 1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
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
------ ------ -------
</TABLE>

12. EARNINGS PER SHARE
The computation of basic and diluted earnings per share, as prescribed by FAS
No. 128, is as follows:

<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
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
--------- --------- ---------
</TABLE>

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:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Average exercise price per share.. $ 16.55 $ 14.04 $ 9.63
Number of shares.................. 135,000 288,850 572,274
</TABLE>

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-
<PAGE>

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:

<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data Three months ended 1999
9/30 12/31 3/31 6/30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
-------- -------- -------- --------
<CAPTION>
Dollar amounts in thousands, except per share data Three months ended 1998
9/30 12/31 3/31 6/30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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)
--------- --------- --------- --------
</TABLE>

-28-
<PAGE>

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:

<TABLE>
<S> <C> <C>
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
</TABLE>

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-
<PAGE>

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
- ------ --------------
<S> <C> <C>
(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
-----------------------------
</TABLE>
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-
<PAGE>

(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-
<PAGE>

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-
<PAGE>

(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-
<PAGE>

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)

<TABLE>
<S> <C>
Dated: September 27, 1999 By: /s/ Philip E. Rollhaus, Jr.
-------------------------- --------------------------------
Philip E. Rollhaus, Jr., Chairman
</TABLE>

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/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.
</TABLE>

-34-
<PAGE>

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
- -------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========

</TABLE>

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-
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBITS
---------------------- -----------------------------------------------
<S> <C>
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

</TABLE>

-36-

<PAGE>

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.

<PAGE>

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.

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

<PAGE>

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.

<PAGE>

(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

<PAGE>

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)

<PAGE>

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
<PAGE>

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: ________________.

<PAGE>

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.

<PAGE>

(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.

<PAGE>

(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.

<PAGE>

(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;

<PAGE>

(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

<PAGE>

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.

(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.

<PAGE>

(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

<PAGE>

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.

<PAGE>

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

<PAGE>

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.

<PAGE>

(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

<PAGE>

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

<PAGE>

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

<PAGE>

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.

<PAGE>

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

<PAGE>

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.

<PAGE>

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: _________________.

<PAGE>

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

<PAGE>

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

<PAGE>

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

<PAGE>

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,

<PAGE>

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

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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

<PAGE>

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

<PAGE>

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

<PAGE>

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

<PAGE>

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

<PAGE>

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

<PAGE>

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

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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

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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

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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.

<PAGE>

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.

<PAGE>

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

<PAGE>

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

<PAGE>

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:

<PAGE>

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

<PAGE>

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]

<PAGE>

EXHIBIT A

FLOOR PLAN OF THE PREMISES

<PAGE>

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

<PAGE>

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.

<PAGE>

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

<PAGE>

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.

<PAGE>

EXHIBIT D

SITE PLAN OF THE PROJECT

<PAGE>

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.

<PAGE>

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.

<PAGE>

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

<PAGE>

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 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:

<PAGE>

(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

<PAGE>

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
-----------------

<PAGE>

EXHIBIT 21

QUIXOTE CORPORATION & SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
as of June 30, 1999

<TABLE>
<CAPTION>
Jurisdiction
Under Which
QUIXOTE CORPORATION (PARENT) Organized
- ---------------------------- -------------
<S> <C>
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

</TABLE>

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.

<PAGE>

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

<PAGE>
<ARTICLE> 5

<S> <C>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,153,000
<SECURITIES> 0
<RECEIVABLES> 17,558,000
<ALLOWANCES> 480,000
<INVENTORY> 8,537,000
<CURRENT-ASSETS> 30,797,000
<PP&E> 26,794,000
<DEPRECIATION> 11,195,000
<TOTAL-ASSETS> 71,774,000
<CURRENT-LIABILITIES> 12,218,000
<BONDS> 11,901,000
0
0
<COMMON> 151,000
<OTHER-SE> 45,831,000
<TOTAL-LIABILITY-AND-EQUITY> 71,774,000
<SALES> 71,987,000
<TOTAL-REVENUES> 71,987,000
<CGS> 38,354,000
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<OTHER-EXPENSES> 21,150,000
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<INCOME-TAX> 4,256,000
<INCOME-CONTINUING> 7,562,000
<DISCONTINUED> 240,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,802,000
<EPS-BASIC> .98
<EPS-DILUTED> .95

</TABLE>