10-K

QuickLinks -- Click here to rapidly navigate through this document

FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

For the fiscal year ended June 30, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period                              to                             

Commission file number 0-7903

QUIXOTE CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE	36-2675371
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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 ($.01²/3 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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ý.

        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.

$131,353,776 as of September 16, 2002

        Indicate the number of share outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 7,773,168 shares of the Company's Common Stock ($.01²/3 par value) were outstanding as of September 16, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

        The Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 15, 2002 which will be filed with the Commission on or about October 3, 2002 is incorporated by reference at Part III.

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business	3-7
	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	8-9
	Item 6.	Selected Financial Data	9
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10-13
	Item 7.A.	Quantitative and Qualitative Disclosures about Market Risk	14
	Item 8.	Financial Statements and Supplementary Data	15-33
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	34
PART III
	Item 10.	Directors and Executive Officers of the Registrant	34
	Item 11.	Executive Compensation	35
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	35
	Item 13.	Certain Relationships and Related Transactions	35
PART IV
	Item 14.	Controls and Procedures	35
	Item 15.	Exhibits, Financial Statement Schedule and Reports on Form 8-K	35-38
SIGNATURES			39
CERTIFICATIONS			40

2

PART I
THE COMPANY

        Quixote Corporation was originally incorporated under the laws of the State of Delaware in 1969 as Energy Absorption Systems, Inc. In June, 1980, Energy Absorption Systems, Inc. changed its name to Quixote Corporation. Unless otherwise indicated herein, the terms "Quixote" and the "Company" refer to Quixote Corporation and its subsidiaries.

Item 1. Business

        Quixote Corporation and its subsidiaries develop, manufacture and market energy-absorbing highway crash cushions, sensing devices, weather information systems and services, variable message signs, highway advisory radios and other highway and transportation safety products to protect, direct and inform motorists and highway workers in both domestic and international markets.

        As of June 30, 2002, Quixote Corporation and its subsidiaries employed approximately 752 people.

Description of Business

        The Company's operations are comprised of two reportable segments within the highway and transportation safety industry, concentrating on safety problems and designing products to provide solutions for the highways. The Company's two reportable segments are—the manufacture and sale of highway and transportation safety products which "Protect and Direct", and the manufacture and sale of products and services which "Inform" that are often referred to as Intelligent Transportation Systems (ITS) products. The Company's Protect and Direct segment provides solutions for improving safety on the roads either by minimizing the severity of crashes that occur or by preventing crashes from occurring by directing or guiding traffic. The Company's Inform segment provides solutions for improving traffic flow and safety on the roads by providing information. The Company's products are sold primarily by a single sales force and distribution network to customers in the highway construction and safety business, state departments of transportation, or other governmental transportation agencies.

Protect and Direct Segment

        In the category of products which reduce the severity of crashes within the Protect and Direct segment, the Company's patented highway crash cushions 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 lines 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 or guiding. These products that direct consist of a line of flexible sign and guide post system (delineators) and a glare screen system. The guide posts are extruded from polyethylene 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.

3

The glare screen system, also made from polyethylene, 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.

Inform Segment

        To expand the Company's business within the highway and transportation safety industry, in fiscal 1998 the Company began acquiring companies that manufacture ITS products which provide information to improve traffic conditions and prevent crashes from occurring. These products comprise the Company's Inform segment. 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. In December 1998, the Company acquired Nu-Metrics, Inc., a leading innovator and manufacturer of electronic wireless measuring and sensing devices which gather and use information to relieve traffic congestion. In January 2001, the Company acquired National Signal, Inc. (NSI). NSI is engaged in the business of designing, manufacturing and distributing variable, electronic message signs, directional displays and warning lights for the transportation industry. Effective August 31, 2001, the Company acquired Surface Systems, Inc. (SSI). SSI is a manufacturer of patented pavement sensing equipment and specialized road weather stations and also provides both road condition and weather forecasting services.

        The Company's expanded highway and transportation safety products within the Inform segment include devices which can be used to measure distance and perform repetitive spacing to within one-tenth of an inch per mile and include portable or permanent sensors that record volume, speed, and length classification of vehicles. These sensors also collect, analyze and store traffic and road surface condition and freezing point data which can be relayed on a real-time basis for monitoring at a transportation department's base computer or control center via telephone, cellular link, fiber optic connection or a wireless link. The Company also manufactures and markets road/runway traffic and weather information systems. Using a tower equipped with weather instruments and special detectors, these systems can detect freezing conditions and provide valuable weather and traffic data to transportation departments or airports in order to dispatch salt trucks or automatically activate anti-icing systems. The Company is also a leading manufacturer of highway advisory radio (HAR) systems that broadcast traffic information using an AM radio frequency. HAR systems, in conjunction with flashing lights and message signs, advise drivers to tune into a particular AM station to communicate messages about traffic, road conditions and weather with reception up to six miles from the unit. The messages may be pre-recorded or updated on a real-time basis through a cellular or touch-tone phone or Local Area Network. The Company's products within the Inform segment also include variable message signs and directional displays which provide advance warning and directional information to oncoming drivers to assist in diverting and controlling traffic around areas of potential hazard. These LED signs and displays can be electronic, solar or diesel powered.

        Products within both segments 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 which 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.

        Financial information relating to industry segments appears in Note 16 of the notes to Company's consolidated financial statements included herein.

4

Competition and Marketing

        The Company's products are sold in all 50 U.S. states and internationally. Domestically, regional managers supervise 48 domestic distributors and make direct sales in areas not covered by distributors. Although the federal government may provide matching funds for the purchase of highway safety products made by state and local governmental agencies, the federal government is not a direct purchaser of the Company's domestic products. The Company sells its products principally to distributors, contractors (on behalf of state and local governments), state departments of transportation, state agencies, local governments, municipalities, and airports located in the U.S., Canada and Europe. 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 to ease traffic congestion and reduce traffic fatalities. The Company's products are sold internationally through a network of 65 distributors who make sales to municipal and national governments and contractors who are responding to bids from their respective governments.

        The Company believes it is the leading U.S. manufacturer of highway crash cushions but does experience competition in specific crash cushion product lines within the Protect and Direct segment, 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), with TrafFix Devices, Inc. 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. The Company'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.

        Many competitors offer similar products to those sold by the Company, and a few are better capitalized than the Company. Such competition may have an adverse effect on the selling prices and profit margins of certain product lines, and depending on the product mix sold, can adversely affect the Company's financial results. The Company believes it competes effectively through its own advanced product development and patent protection, quality and price, and the effectiveness of its strong distribution network. The awarding of large contract orders by state departments of transportation and the timing of those awards also has an effect on the Company's sales and may affect the Company's results in any one particular fiscal period.

Government Policies and Funding

        The domestic market for highway and transportation 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 21^st 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. The current federal legislation also includes a guaranteed amount of funding for highway safety programs. These federal funds are currently based on gasoline tax revenues. 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. The Company is obligated to seek such approval for improvements or upgrades to such devices and for any new devices.

5

        TEA-21 expires on September 30, 2003 and it is currently uncertain as to what the future governmental spending levels will be in the next highway funding bill. Current estimates project that federal spending on highways for the year ended September 30, 2003 could be reduced by approximately $4 billion from approximately $32 billion. Currently the majority of states are operating at budget deficits. Any change in the availability of federal funds and the timing of the release of those funds to the state and local governments can have an adverse impact on the Company's financial results.

        Internationally, funding and government policies vary by country in regard to highway and transportation safety. In many cases, additional testing of the Company's products may be required in order to obtain certification.

Backlog

        As of June 30, 2002, 2001, and 2000, the Company had a backlog of unfilled orders for highway safety devices of $12,667,000, $7,986,000 and $10,568,000, respectively. The Company can usually fill an order within 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 $2,468,000, $1,752,000 and $1,614,000 for the years 2002, 2001 and 2000, 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 products. It actively seeks patent and trademark protection for new inventions and product improvements.

Raw Materials

        The principal raw materials used in the production of highway safety devices are plastic and plastic resins, steel, aluminum and electronic components. These raw materials are purchased from various suppliers and have been readily available throughout the last year. 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. However, approximately 13% of the Company's consolidated revenues resulted from sales to customers in the State of Texas in fiscal 2002. Customers may consist of distributors, contractors, departments of transportation, state agencies, local governments or municipalities. A change in policy in state spending could materially affect the Company's sales in that state.

Seasonality

        The Company's sales are seasonal. The domestic highway maintenance and construction season tends to reach its peak

6

in the Company's fourth and first fiscal quarters. As a result, the Company's sales and earnings in these quarters are the strongest with weaker sales and earnings occurring in the second and third fiscal quarters.

Foreign and Domestic Operations and Revenues

        The Company's operations consist of two industry segments engaged in the manufacture and sale of highway and transportation safety products. The Company's business is conducted principally in the United States, with sales outside of the United States as follows: $8,596,000, $9,489,000 and $9,820,000 in 2002, 2001 and 2000 respectively.

Other

        Discontinued Operations: In fiscal years 1996 and 1997, the Company sold substantially all of the assets and transferred significant operating liabilities of Disc Manufacturing, Inc. and its legal technologies businesses. During the year ended June 30, 2002, the Company recorded a gain from discontinued operations of $927,000, or $0.11 per diluted share, which was net of income tax provisions of $521,000, due to the reversal of certain accruals related to contingencies which the Company no longer believes are probable and from the favorable outcome of a legal settlement.

Item 2. Properties

        Information relating to the Company's principal facilities is as follows:

Location	Available Space	Purpose	Owned or Leased
One East Wacker Drive Chicago, Illinois	19,000 sq. ft.	Executive Offices	Leased
250 Bamberg Drive Pell City, Alabama	300,000 sq. ft.	Manufacture of Protect and Direct highway safety devices	Owned
3617 Cincinnati Avenue Rocklin, California	22,000 sq. ft.	Warehouse and research and development facility for Protect and Direct highway safety devices	Owned
3300 N. Kenmore Street South Bend, Indiana	81,000 sq. ft.	Manufacture of Protect highway safety devices	Owned
4021 Stirrup Creek Drive Durham, North Carolina	13,000 sq. ft.	Sale and manufacture of highway advisory radio equipment	Leased
Route 119 University Drive Uniontown, Pennsylvania	26,000 sq. ft.	Sale and manufacture of traffic sensing and distance measuring devices	Owned
14657 Industry Circle La Mirada, California	46,000 sq. ft.	Sale and manufacture of variable message signs	Leased
11612 Lilburn Park Road St. Louis, Missouri	17,000 sq. ft.	Sale and manufacture of sensing and weather forecasting products	Leased
200 Corporate Pointe Culver City, California	19,800 sq. ft.	Sublet to a third party	Leased

        The Company believes that its principal plants are suitable and adequate for the manufacturing and other activities performed at those plants. In addition to the principal facilities listed above, the Company has international locations used primarily for sales activities.

7

Item 3. Legal Proceedings

        The Company is subject to various legal proceedings and claims arising out of the conduct of its business. The Company believes, after consultation with counsel, that the outcome of such proceedings and claims will not have a material, adverse effect on the Company's consolidated financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

        There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2002.

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®, under the symbol QUIX. Set forth are the daily high and low sales prices for the Company's common stock for the periods indicated, as reported by the Nasdaq.

	Three Months Ended
	9/30		12/31		3/31		6/30
FISCAL 2002
High	$	28.52	$	25.05	$	19.41	$	22.25
Low		20.70		15.40		16.90		15.82
FISCAL 2001
High	$	17.38	$	20.06	$	24.13	$	31.25
Low		12.59		13.78		17.50		20.94

        The current quoted price of the stock is listed daily in The Wall Street Journal in the Nasdaq National Market System section. As of September 16, 2002, there were 1,202 shareholders of record.

Dividend Policy

        During 2002, the Company declared semi-annual cash dividends of sixteen cents per share each declaration. During 2001, the Company declared semi-annual cash dividends of fifteen cents per share each declaration.

Equity Compensation Plan Information

        As of June 30, 2002, the Company has two outstanding stock option plans which were approved by the shareholders of the Company in November 2001. Additional information relating to the Company's stock option plans appears in Note 8 to the Company's consolidated financial statements included herein.

8

        The following table details information regarding the Company's equity compensation plans as of June 30, 2002:

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted-average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining for future issuance under equity plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	1,248,174	$	15.28	553,500
Equity compensation plans not approved by security holders
	1,248,174	$	15.28	553,500

Item 6. Selected Financial Data

	For the years ended June 30,
	2002			2001			2000			1999			1998
	Dollar amounts in thousands, except share data
Operating Results:
Net sales	$	89,694		$	93,554		$	83,770		$	71,987		$	55,988
Gross profit		35,932			43,938			41,111			33,633			25,543
Selling and administrative expenses		23,975			23,299			24,208			19,606			15,420
Research and development expenses		2,468			1,752			1,614			1,544			1,570
Other income (expense)		(276	)		(1,399	)		(904	)		(665	)		199
Earnings from continuing operations		5,897			10,843			8,919			7,562			6,147
Net earnings		6,824			10,843			8,919			7,802			9
Cash dividends per common share		.32			.30			.29			.28			.26
Per Share Data:
Basic EPS:
Earnings from continuing operations	$	.77		$	1.47		$	1.13		$	.95		$	.77
Net earnings	$	.89		$	1.47		$	1.13		$	.98		$	.00
Weighted average common and common equivalent shares outstanding		7,682,706			7,377,443			7,868,554			7,986,094			7,943,653
Diluted EPS:
Earnings from continuing operations	$	.73		$	1.35		$	1.10		$	.92		$	.76
Net earnings	$	.84		$	1.35		$	1.10		$	.95		$	.00
Weighted average common and common equivalent shares outstanding		8,121,621			8,049,513			8,124,623			8,227,775			8,088,354
Financial Position:
Total assets	$	100,044		$	88,096		$	73,264		$	71,774		$	59,065
Working capital		30,923			31,036			22,127			18,579			15,146
Property, plant and equipment, net		21,959			17,343			15,001			15,599			13,482
Long-term debt, net		24,772			21,526			15,596			11,901			7,677
Shareholders' equity		59,226			50,606			43,116			45,982			38,886
Book value per common share		7.62			6.73			5.84			5.70			4.94

9

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

2002 Compared to 2001

        The Company's sales decreased 4% to $89,694,000 in 2002 from $93,554,000 for 2001 primarily due to the delay of highway safety construction spending for the Company's products by many states as a result of their revenue collection shortfalls and budget deficits. International sales declined 9% to $8,596,000 in 2002 compared to $9,489,000 for 2001 due to lower sales of the Company's lines of permanent crash cushions and truck-mounted attenuator (TMA) products. Sales in the Protect and Direct segment decreased 14% to $67,225,000 from $78,499,000 for 2001. Sales declined across the Company's Protect and Direct product lines with the exception of sales of parts, the Triton Barrier® product and the FreezeFree™ anti-icing system. Sales of the water-filled Triton Barrier product outpaced last year as interest grew in the product's functionality as a portable security barrier. The Company began to see interest in one of its newer products, the FreezeFree™ anti-icing system, with $768,000 in sales for fiscal 2002. The Company believes this product should continue to generate interest with greater sales potential in fiscal 2003 aided by the opportunities for add-on FreezeFree systems to the more than 600 bridges currently using the Company's weather systems acquired through Surface Systems, Inc. (SSI). Sales of the Company's Inform segment increased 49% to $22,469,000 from $15,055,000 for fiscal 2001, primarily due to the acquisitions of SSI in August 2001 and National Signal, Inc. (NSI) in January 2001. These two acquisitions added $11,033,000 of sales in fiscal 2002 not comparable to the prior year. Organic sales for this segment decreased 24% as a result of decreased sales of advanced sensing products and highway advisory radios principally due to the more discretionary demand for these products.

        The gross profit margin for 2002 was 40.1% compared to 47.0% for 2001. This decline in gross margin was principally due to volume inefficiencies associated with the lower level of organic sales for the Protect and Direct and for the Inform segments. The gross profit margin for the Protect and Direct segment declined to a lesser extent as a result of an adverse change in product sales mix with lower sales of the higher margin permanent crash cushions. Contributing to the decline in gross profit margin for the Inform segment was the impact of the acquisitions of SSI and NSI as those gross profit margins are lower than the segment's historical gross profit margin.

        Selling and administrative expenses for 2002 increased 3% or $676,000 to $23,975,000 from $23,299,000 for 2001. Selling and administrative expenses increased as a percentage of sales to 27% of sales for 2002 from 25% of sales for 2001. The increase in the percentage of sales was due to the fixed component of many of the Company's expenses. The increase in dollars was due to the inclusion of selling and administrative expenses from SSI and NSI which added approximately $3,329,000 in costs for the year. Organic selling and administrative expenses for the year decreased $2,653,000, or 11%, due to both the decline in sales as well as cost containment initiatives.

        Research and development expenditures were $2,468,000 for 2002 compared to $1,752,000 for 2001. The increase was due to greater expenditures for upgrades and modifications to existing products like the recently introduced Safe-Stop® 180^o TMA with an innovative, more compact design including a tilt feature for easy storage and the QuadGuard® HS crash cushion for impacts up to 70 mph. The Company also worked on developing other new products including wider models of the REACT 350® crash cushion and on advanced pavement sensors and software to provide an integrated system solution for collecting and providing traffic information.

        Operating profit decreased to $9,489,000 in 2002 from $18,887,000 for 2001.

        Interest expense was $1,184,000 for 2002 compared to $1,479,000 for 2001. Interest expense decreased due to the lower interest rates for the current year, offset partially by the higher level of average long-term debt outstanding due to the acquisition of SSI.

10

        Other income was $830,000 for 2002 related to the gain on the sale of the Company's non-highway plastic product line.

        The Company's effective income tax rate for 2002 was 36% compared to an effective income tax rate of 38% for 2001. The decrease in the effective rate was due in part to the expected utilization of certain tax planning strategies. The Company believes its effective income tax rate for fiscal year 2003 will decrease to approximately 35% due to the Company's effective use of certain state tax planning strategies.

        Earnings from continuing operations for 2002 were $5,897,000 compared to $10,843,000 for 2001. Net earnings were $6,824,000, or $0.84 per diluted share, for the year compared to $10,843,000, or $1.35 per diluted share, for 2001. Net earnings for 2002 included a gain from discontinued operations of $927,000, or $0.11 per diluted share, which was net of income tax provisions of $521,000, due to the reversal of certain accruals related to contingencies which the Company no longer believes are probable of occurring and from the favorable outcome of a legal settlement.

2001 Compared to 2000

        The Company's sales increased 12% to $93,554,000 in 2001 from $83,770,000 for 2000 due to organic sales growth as well as growth from the acquisition of NSI. Organic sales increased 7% primarily due to demand for the Company's line of permanent crash cushion products and highway advisory radio systems. International sales declined 3% to $9,489,000 in 2001 against a difficult comparison of $9,820,000 for 2000 when international sales increased 56% over 1999. Sales for the Protect and Direct segment increased 6% in 2001 to $78,499,000 due to strong sales of the QuadGuard® family of crash cushion products, the REACT 350® crash cushion and part sales. These increases in sales were offset somewhat by declining sales of TMA products, sand-filled barrels, highway delineators and Triton Barrier® products. Sales for the Inform segment increased 50% in 2001 to $15,055,000 from $10,013,000 for 2000. NSI, acquired in January 2001, contributed $3,670,000 for the six months as part of the Company. Sales of highway advisory radio systems increased 81% in 2001 due to increased demand resulting in several large shipments during the year. These increases in sales for the Inform segment were offset somewhat by decreased sales of advanced sensing products.

        The gross profit margin for 2001 decreased to 47.0% from 49.1% for 2000. The gross profit margin for 2001 for the Protect and Direct segment remained consistent with 2000 as changes in product sales mix during 2001 had a minimal impact on the gross margin. The gross profit margin for the Inform segment declined in part as NSI's gross profit margin is below the Company's historical Inform segment gross margin and also due in part to decreased sales of higher margin large system contract work in 2001.

        Selling and administrative expenses for 2001 decreased 4% to $23,299,000 from $24,208,000 for 2000. Selling and administrative expenses declined as a percentage of sales to 25% of sales for 2001 from 29% of sales for 2000. The decline in the percentage of sales was due to the fixed component of many of the Company's expenses. The level of selling and administrative expenses in dollars decreased for 2001 compared to 2000 due principally to decreased legal, bad debt and sales commission expenses in 2001. The acquisition of NSI added $897,000 of selling and administrative expenses for the six months that NSI was a part of the Company. In addition, the equity loss on the investment in the joint venture, Transportation Management Technologies, L.L.C. (TMT), was $870,000 for 2001 compared to $316,000 for 2000. Effective April 2001, the Company liquidated its interest in the TMT joint venture.

        Research and development expenses for 2001 increased 9% to $1,752,000 from $1,614,000 for 2000. During 2001, the Company made expenditures for the development and testing related to new crash cushion technology, additional sensing technology for the recently developed FreezeFree™ system and software projects. The Company made other expenditures for development projects for new applications as well as upgrades and modifications for existing products.

11

        Operating profit increased 24% to $18,887,000 for 2001 from $15,289,000 for 2000.

        Interest expense increased to $1,479,000 in 2001 from $932,000 for 2000. The increase in interest expense was related to the higher level of average long-term debt outstanding during 2001 in connection with the acquisition of NSI and the Company's stock repurchase program, offset partially by the effect of a decline in interest rates during the year.

        The Company's effective income tax rate for 2001 was 38%, the same effective income tax rate for 2000.

        Net earnings increased 22% in 2001 to $10,843,000, or $1.35 per diluted share, from $8,919,000, or $1.10 per diluted share, for 2000.

Liquidity and Capital Resources

        The Company had cash and cash equivalents of $1,798,000 and access to additional funds of $17,500,000 under its bank arrangements as of June 30, 2002. Operating activities were a source of cash for the Company for fiscal 2002 providing $12,670,000.

        Investing activities used cash of $18,230,000 during fiscal 2002 including $11,300,000 for the purchase of SSI. Capital expenditures in 2002 were $7,004,000 including amounts in connection with the expansion of the Company's primary manufacturing facility in Pell City, Alabama doubling its size to 300,000 square feet as well as for the upgrade of the Company's information technology systems. The Company also paid $691,000 related to patent expenditures. Offsetting these expenditures somewhat, the Company received $581,000 in cash proceeds and payments on a note receivable in the amount of $184,000 related to the sale of the Company's non-highway plastic product line.

        Financing activities provided cash of $3,196,000 during 2002. The Company borrowed a net $4,500,000 against its outstanding revolving credit facility primarily due to the acquisition of SSI. The payments of the Company's semi-annual cash dividend used cash of $2,351,000. In addition, the Company used cash of $1,502,000 for the payment of notes payable due in connection with the acquisitions of Roadway Safety Service, Inc., Nu-Metrics, Inc. and NSI. The Company also received cash of $2,549,000 from the exercise of common stock options.

        For fiscal 2003, the Company anticipates needing approximately $3,000,000 in cash for capital expenditures. The Company may also need additional cash as it considers acquiring businesses that complement its existing operations. Also, the Company will require additional investments in working capital to maintain growth. The Company may also need additional funds to repurchase its own common stock from time to time. These expenditures will be financed either through the Company's 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.

Critical Accounting Policies

        Financial Reporting Release No. 60, which was issued by the Securities and Exchange Commission (SEC), requires all registrants to discuss critical accounting policies or methods used in the preparation of financial statements. Note 2 to the Company's consolidated financial statements included herein includes a summary of the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements. In the opinion of management, the Company does not have any individual accounting policy which is critical to the preparation of its consolidated financial statements. In most instances, the Company must use an accounting policy or method because it is the only policy or method

12

permitted under accounting principles generally accepted in the United States of America (U.S. GAAP). The following is a summary of the more significant accounting policies and methods used by the Company:

        Revenue Recognition: Revenues are recognized when either title and risk of loss of products has been transferred to unaffiliated customers or services have been rendered, with appropriate provision for uncollectible accounts.

        Long-Lived Assets: Long-lived assets include such items as goodwill, patents, product rights and equity method investments. 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. Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually using the discounted cash flow method. Patents and product rights are amortized on a straight-line basis over the life of the patent or agreement.

        Amortization expense of $398,000 and $1,835,000 was recognized for the years ended June 30, 2002 and 2001, respectively. Effective July 1, 2001, with the adoption of Statement of Financial Accounting Standard (FAS) No. 142, the Company is no longer required to amortize a substantial portion of its goodwill and other indefinite-lived intangible assets. As a result, the Company estimates that amortization expense will be approximately $424,000 for the fiscal year ending June 30, 2003.

Recently Issued Accounting Pronouncements

        The Financial Accounting Standards Board (FASB) issued FAS No. 143, "Accounting for the Obligations Associated with the Retirement of Long-Lived Assets," in June 2001 which is effective for fiscal years beginning after December 15, 2001. The statement establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. The FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in August 2001 which is effective for fiscal years beginning after December 15, 2001. FAS No. 144 establishes a single accounting method for the impairment or disposal of long-lived assets such as property, plant and equipment, amortized intangibles and other long-lived assets, including discontinued operations. In May 2002, the FASB issued FAS No. 145, "Rescission of FASB Statements No. 4, 44, and 84 and Amendment of FASB Statement No. 13 and Technical Corrections as of April 2002," which is effective for fiscal years beginning after May 15, 2002. This statement modifies reporting for the adjustment of debt and accounting for leases. The Company does not expect the adoption of these standards will have a significant impact on fiscal 2003 financial results.

Future Outlook

        The Company's operating results continue to reflect the general slowdown in U.S. highway safety construction spending for the Company's products. The Company believes this is due principally to revenue shortfalls and budget deficits at the state level where the majority of states are currently operating at a deficit. Currently, the Company is encouraged by recent improvements in order flow and backlog. However, given the current uncertain economic conditions, the Company remains cautious about its near-term outlook.

        Looking ahead to fiscal 2003, current estimates project that federal spending on highways could be reduced by approximately $4 billion from approximately $32 billion, which could have an impact on the Company's prospects for 2003. The Company's earnings for fiscal year 2003 also will be dependent on the budgetary positions of the states. In addition, the current six- year federal highway bill (TEA-21) expires on September 30, 2003. It is currently uncertain as to what the future governmental spending levels will be in the next highway funding bill. In addition, the Company believes that competition may have an adverse effect on selling prices and gross profit margins for certain product lines.

13

Item 7.A. Quantitative and Qualitative Disclosures about Market Risk

        The Company's market risk is primarily the potential loss arising from adverse changes in interest rates. The Company's long-term debt obligations are primarily at variable LIBOR-associated rates and fixed prime-associated interest rates and are denominated in U.S. dollars. In order to minimize the long-term costs of borrowing, the Company manages its interest rate risk by monitoring trends in rates as a basis for determining whether to enter into fixed rate or variable rate agreements. The Company does not have any derivative instruments associated with interest rates and is not a party to any transactions involving leveraged derivatives. As described in Note 7 to the consolidated financial statements, the amount of long-term debt outstanding as of June 30, 2002 and 2001 was $24,772,000 and $21,526,000, respectively. A hypothetical 1% immediate increase in interest rates would adversely affect the Company's 2002 and 2001 net earnings and cash flows by approximately $160,000 and $100,000, respectively.

        The majority of the Company's business is transacted in U.S. dollars and the U.S. dollar is considered the primary currency for the majority of the Company's operations. Although the Company continues to evaluate derivative financial instruments to manage foreign currency exchange rate changes, the Company did not hold derivatives for trading purposes during 2002 or 2001. Assets, liabilities and commitments that are to be settled in cash and are denominated in foreign currencies for transaction purposes are sensitive to changes in currency exchange rates. However, there were no significant transaction gains or losses during 2002 or 2001 and the Company does not believe it is currently exposed to any material risk of loss from currency exchange fluctuations.

Forward Looking Statements

        Various statements made within the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report constitute "forward-looking statements" for purposes of the SEC's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended. Any statement that addresses expectations or projections about the future, including statements about the Company's strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements.

        Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the Company's public filings with the SEC, news releases and other communications, which speak only as of the dates of those filings or communications. There can be no assurance that actual results will not differ materially from the Company's expectations. Factors which could cause materially different results include, among others, uncertainties related to the introduction and acceptance of the Company's products and services; the successful completion and integration of acquisitions; continued federal and state funding for highways and risks related to reductions in government expenditures; an unfavorable change in product sales mix; seasonality along with the extent and timing of the award of large contracts; the cyclical nature of the Company's governmental markets; pricing pressures; increasing raw material costs; excess manufacturing capacity; weather conditions; acts of war and terrorist activities; the possible impairment of intangible assets; and competitive and general economic conditions.

14

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT ACCOUNTANTS

To the board of directors and shareholders of Quixote Corporation:

        In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 35 present fairly, in all material respects, the financial position of Quixote Corporation and its subsidiaries at June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) on page 35 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. 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 auditing standards generally accepted in the United States of America, 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 our opinion.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
August 2, 2002

15

QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

		For each of the three years ended June 30,
		2002			2001			2000
		Dollar amounts in thousands, except share data
Net sales		$	89,694		$	93,554		$	83,770
Cost of sales			53,762			49,616			42,659
Gross profit			35,932			43,938			41,111
Operating expenses:
	Selling and administrative		23,975			23,299			24,208
	Research and development		2,468			1,752			1,614
			26,443			25,051			25,822
Operating profit			9,489			18,887			15,289
Other income (expense):
	Interest income		78			68			31
	Interest expense		(1,184	)		(1,479	)		(932	)
	Other		830			12			(3	)
			(276	)		(1,399	)		(904	)
Earnings from continuing operations
before provision for income taxes			9,213			17,488			14,385
Provision for income taxes			3,316			6,645			5,466
Earnings from continuing operations			5,897			10,843			8,919
Discontinued operations:
	Gain on disposal, net of income taxes		927
Net earnings		$	6,824		$	10,843		$	8,919
Basic earnings per share:
	Earnings from continuing operations	$	.77		$	1.47		$	1.13
	Net earnings	$	.89		$	1.47		$	1.13
	Weighted average common and common equivalent shares outstanding		7,682,706			7,377,443			7,868,554
Diluted earnings per share:
	Earnings from continuing operations	$	.73		$	1.35		$	1.10
	Net earnings	$	.84		$	1.35		$	1.10
	Weighted average common and common equivalent shares outstanding		8,121,621			8,049,513			8,124,623

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

16

QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

				As of June 30,
				2002			2001
				Dollar amounts in thousands, except share data
ASSETS
Current assets:
	Cash and cash equivalents			$	1,798		$	4,118
	Accounts receivable, net of allowance for doubtful accounts of $1,546 in 2002 and $777 in 2001				24,448			21,207
	Refundable income taxes				732
	Inventories, net				11,890			16,871
	Deferred income tax assets				3,098			2,593
	Notes receivable				233
	Other current assets				895			283
			Total current assets		43,094			45,072
Property, plant and equipment at cost:
	Land				1,434			1,444
	Buildings and improvements				15,064			11,119
	Machinery and equipment				12,572			12,950
	Furniture and fixtures				1,880			1,650
	Computer equipment and software				5,521			2,446
	Leasehold improvements				684			693
	Construction in progress				173			1,791
					37,328			32,093
		Less: accumulated depreciation			(15,369	)		(14,750	)
					21,959			17,343
Goodwill					29,594			24,889
Intangible assets, net					4,967			453
Other assets					430			339
				$	100,044		$	88,096
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Current portion of long-term debt			$	998		$	1,179
	Accounts payable				4,511			3,622
	Dividends payable				1,240			1,123
	Income taxes payable							1,869
	Accrued expenses:
		Payroll and commissions			2,418			3,017
		Other			3,004			3,226
			Total current liabilities		12,171			14,036
Long-term debt, net of current portion					24,772			21,526
Deferred income tax liabilities					3,010			973
Other long-term liabilities					865			955
Commitments and contingent liabilities
Shareholders' equity:
	Preferred stock, no par value; authorized 100,000 shares; none issued
	Common stock, par value $.012/3; authorized 15,000,000 shares; issued 9,744,033 shares—2002 and issued 9,485,585 shares—2001				162			158
	Capital in excess of par value of stock				40,033			35,738
	Retained earnings				40,547			36,192
	Currency translation adjustment				(424	)		(390	)
	Treasury stock, at cost, 1,967,963 shares—2002 and 2001				(21,092	)		(21,092	)
			Total shareholders' equity		59,226			50,606
				$	100,044		$	88,096

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

17

QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	For the three years ended June 30, 2002
	Common Stock			Capital in Excess of Par Value of Stock								Treasury Stock
						Currency Translation Adjustment			Retained Earnings
	Shares	Dollars										Shares	Dollars
	Dollar amounts in thousands, except share data
BALANCES, JUNE 30, 1999	9,104,166	$	151	$	32,929				$	20,884		1,032,420	$	(7,982	)
Exercise of options	84,234		2		744
Net earnings—2000										8,919
Declaration of semi-annual cash dividends ($0.14 and $0.15 per share)										(2,238	)
Issuance of shares pursuant to the stock retirement plan	10,794				157
Purchase of shares at $12.00 to $15.50 per share												778,000		(10,450	)
BALANCES, JUNE 30, 2000	9,199,194		153	$	33,830					27,565		1,810,420		(18,432	)
Exercise of options	275,597		5		1,614
Net earnings—2001										10,843
Currency translation adjustment						$	(390	)
Declaration of semi-annual cash dividends ($0.15 per share)										(2,216	)
Issuance of shares pursuant to the stock retirement plan	10,794				294
Purchase of shares at $14.58 to $18.25 per share												157,543		(2,660	)
BALANCES, JUNE 30, 2001	9,485,585		158		35,738		(390	)		36,192		1,967,963		(21,092	)
Exercise of options	247,654		4		4,092
Net earnings—2002										6,824
Currency translation adjustment							(34	)
Declaration of semi-annual cash dividends ($0.16 per share)										(2,469	)
Issuance of shares pursuant to the stock retirement plan	10,794				203
BALANCES, JUNE 30, 2002	9,744,033	$	162	$	40,033	$	(424	)	$	40,547		1,967,963	$	(21,092	)

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

18

QUIXOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

			For each of the three years ended June 30,
			2002			2001			2000
			Dollar amounts in thousands
OPERATING ACTIVITIES:
	Earnings from continuing operations		$	5,897		$	10,843		$	8,919
	Discontinued operations:
		Gain on disposal, net of income taxes		927
	Net earnings			6,824			10,843			8,919
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY CONTINUING OPERATIONS:
	Depreciation			3,141			2,081			1,966
	Amortization			398			1,835			1,868
	Discontinued operations			(927	)
	Gain on sale of assets			(830	)
	Deferred income taxes			1,982			(30	)		521
	Provisions for losses on accounts receivable			351			(100	)		530
	Income tax benefit from employee stock options			1,547			5			166
	Issuance of stock retirement plan shares			203			294			157
	Loss on investment in TMT joint venture						870			316
	Changes in operating assets and liabilities, net of acquisitions:
		Accounts receivable		(1,411	)		1,262			(3,662	)
		Inventories		6,595			(5,876	)		(1,565	)
		Refundable income taxes		(821	)
		Other assets		(218	)		(20	)		279
		Accounts payable and accrued expenses		(2,753	)		(832	)		(656	)
		Income taxes payable		(1,539	)		1,142			36
Net cash provided by operating activities of continuing operations				12,542			11,474			8,875
Net cash provided by (used in) discontinued operations				128			(349	)		(149	)
Net cash provided by operating activities				12,670			11,125			8,726
INVESTING ACTIVITIES:
	Cash paid for acquired businesses			(11,300	)		(2,950	)
	Capital expenditures			(7,004	)		(3,689	)		(1,368	)
	Proceeds from sale of assets			581
	Investment in TMT joint venture						(615	)		(361	)
	Patent expenditures			(691	)		(269	)
	Payments on notes receivable			184
	Other									(116	)
Net cash used in investing activities				(18,230	)		(7,523	)		(1,845	)
FINANCING ACTIVITIES:
	Payments on notes payable			(1,502	)		(2,313	)		(697	)
	Payments on revolving credit agreement			(23,200	)		(21,350	)		(7,300	)
	Proceeds from revolving credit agreement			27,700			27,050			11,600
	Payment of semi-annual cash dividends			(2,351	)		(2,211	)		(2,249	)
	Proceeds from exercise of common stock options			2,549			1,614			580
	Change in bank overdrafts						(1,006	)		1,006
	Repurchase of common stock for treasury						(2,660	)		(10,450	)
Net cash provided by (used in) financing activities				3,196			(876	)		(7,510	)
Effect of exchange rate changes on cash				44			(132	)
Net change in cash and cash equivalents				(2,320	)		2,594			(629	)
Cash and cash equivalents at beginning of year				4,118			1,524			2,153
Cash and cash equivalents at end of year			$	1,798		$	4,118		$	1,524

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

19

QUIXOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    NATURE OF BUSINESS

        Quixote Corporation and its subsidiaries (the Company) develop, manufacture and market, to both domestic and international markets, energy-absorbing highway crash cushions, sensing devices, variable message signs, highway advisory radios and other highway and transportation safety products to protect, direct and inform 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

        Basic earnings per share (EPS) is computed by dividing net earnings available to holders of common stock by the weighted average number of shares of common stock outstanding. Diluted EPS is computed assuming the exercise of all stock options that are profitable to the recipients. Under this assumption, the weighted average number of shares is increased accordingly.

FINANCIAL INSTRUMENTS

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

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.

20

LONG-LIVED ASSETS

        Long-lived assets include such items as goodwill, patents, product rights and equity method investments. 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. Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually using the discounted cash flow method. Patents and product rights are amortized on a straight-line basis over the life of the patent or 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.

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 have been computed on a straight-line or systematic method based on the expected useful lives of the assets as indicated below:

Buildings and improvements	10 to 40 years
Machinery and equipment	3 to 12 years
Furniture and fixtures	3 to 10 years
Computer equipment and software	3 to  7 years
Leasehold improvements	5 to 10 years

        The cost and accumulated depreciation relating to assets retired or otherwise disposed of are eliminated from the respective accounts at the time of retirement or other disposition with the gain or loss credited or charged to earnings.

COMPUTER SOFTWARE

        The Company capitalizes certain costs incurred in connection with developing, obtaining or implementing internal use computer software. During 2002 and 2001, approximately $1,910,000 and $1,191,000, respectively, of computer software was capitalized relating to a new manufacturing and accounting system.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        Effective July 1, 2001, the Company adopted Statement of Financial Accounting Standard (FAS) No. 141, "Business Combinations," and FAS No. 142, "Goodwill and Other Intangible Assets." FAS No. 141 requires, among other things, that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. FAS No. 142 addresses the accounting for goodwill and other intangible assets subsequent to their acquisition. FAS No. 142 requires, among other things, that goodwill and other indefinite-lived intangible assets are no longer amortized and that such assets be tested for impairment at least annually.

21

        The Financial Accounting Standards Board (FASB) issued FAS No. 143, "Accounting for the Obligations Associated with the Retirement of Long-Lived Assets," in June 2001 which is effective for fiscal years beginning after December 15, 2001. The statement establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. The FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in August 2001 which is effective for fiscal years beginning after December 15, 2001. FAS No. 144 establishes a single accounting method for the impairment or disposal of long-lived assets such as property, plant and equipment, amortized intangibles and other long-lived assets, including discontinued operations. In May 2002, the FASB issued FAS No. 145, "Rescission of FASB Statements No. 4, 44 and 84 and Amendment of FASB Statement No. 13 and Technical Corrections as of April 2002," which is effective for fiscal years beginning after May 15, 2002. This statement modifies reporting for the adjustment of debt and accounting for leases. The Company does not expect the adoption of these standards will have a significant impact on fiscal 2003 financial results.

RECLASSIFICATIONS

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

REVENUE RECOGNITION

        Revenues are recognized when either title and risk of loss of products has been transferred 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 (APB) No. 25, "Accounting for Stock Issued to Employees," 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 applies the provisions of APB No. 25 in accounting for its stock-based employee compensation arrangements, and discloses 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 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.

3.    ACQUISITIONS

        Effective August 31, 2001, the Company acquired all of the outstanding stock of Surface Systems, Inc. (SSI). The acquisition has been accounted for in accordance with FAS No. 141, and the operating results have been included in the consolidated results since the date of acquisition. SSI has been included in the Company's Inform segment. SSI is a leading manufacturer and seller of patented pavement sensing equipment and specialized weather stations and also provides weather forecasting services. The Company believes that SSI will play an important part in the Inform segment by providing weather information to improve safety on the roads. SSI had revenues for its fiscal year ended June 30, 2001 of approximately $9,000,000. The Company paid a purchase price of approximately $11,300,000 in cash, net of cash acquired. No SSI bank debt was assumed. The Company's source of funds for this acquisition was its existing bank credit facility.

22

        The following unaudited summary presents the estimated fair values of the assets acquired and liabilities assumed as of August 31, 2001, the date of acquisition.

		(Dollar amounts in thousands)
Current assets		$	4,880
Property, plant and equipment			1,005
Intangible assets			4,040
Goodwill			4,755
Other long-term assets			210
	Total assets		14,890
Current liabilities			3,262
Long-term liabilities			152
	Total liabilities		3,414
Net assets		$	11,476

        The allocation of purchase price above reflects adjustments made during fiscal year 2002 based on finalization of valuations of certain assets and liabilities. As a result of these adjustments, goodwill was increased by $1,454,000 during fiscal year 2002. The intangible assets acquired were assigned as follows:

		Gross Carrying Amount		Weighted-average Useful Life
		(Dollar amounts in thousands)
Amortized intangible assets:
	Technology and installed base	$	2,610	14 years
	Customer relationships		200	5 years
	Other		130	9 years
			2,940	13 years
Indefinite-lived intangible assets:
	Trade names		1,100
Total		$	4,040

        Effective January 1, 2001, the Company acquired all of the stock of National Signal, Inc. (NSI). The acquisition has been accounted for under the purchase method, and accordingly, the operating results have been included in the consolidated results since the date of acquisition. NSI is engaged in designing, manufacturing and distributing variable message signs, directional displays and warning lights for the transportation industry. NSI is based in La Mirada, California and had revenues for calendar 2000 of approximately $8,000,000. The purchase price was $4,450,000, of which $2,950,000 was paid in cash. The remaining $1,500,000 was paid in a three-year, 5% promissory note, payable in equal annual installments. In addition, the selling shareholders have an opportunity to earn up to $2,500,000, as additional purchase price consideration, by attaining certain sales and earnings targets over the three calendar years following the acquisition date. As of June 30, 2002, no additional purchase price has been recorded. The excess of purchase price over the estimated fair value of the assets acquired approximated $4,100,000. NSI has been included in the Company's Inform segment.

23

        The following unaudited pro forma summary presents the consolidated results of operations for each of the years ended June 30 as if the acquisitions had occurred at the beginning of fiscal 2001:

	(Unaudited)
	2002		2001
	(Dollar amounts in thousands, except per share data)
Net sales	$	90,481	$	107,006
Net earnings		5,765		8,726
Net earnings per diluted share		.71		1 .08

        The unaudited consolidated pro forma information is not necessarily indicative of the combined results that would have occurred had the acquisitions occurred on that date, nor is it indicative of the results that may occur in the future.

        In October 1998, the Company entered into a joint venture, known as Transportation Management Technologies, L.L.C. (TMT), to market pavement inspection and other high technology products and services to highway departments in the United States. The Company invested $1,740,000 in TMT, of which $764,000 was paid in 1999, $361,000 in 2000 and $615,000 in 2001, for a 19% interest in the joint venture. This investment was being accounted for under the equity method of accounting. Effective April 2001, the Company liquidated its remaining $500,000 interest in the TMT joint venture in exchange for one of the venture's pavement inspection vehicles.

4.    DISPOSITIONS AND DISCONTINUED OPERATIONS

        In fiscal years 1996 and 1997, the Company sold substantially all of the assets and transferred significant operating liabilities of Disc Manufacturing, Inc. and its legal technologies businesses. During the year ended June 30, 2002, the Company recorded a gain from discontinued operations of $927,000, or $0.11 per diluted share, which was net of income tax provisions of $521,000, of which $735,000 was due to the reversal of certain accruals in the fourth quarter related to contingencies which the Company no longer believes are probable of occurring and $192,000 from the favorable outcome of a legal settlement. As of June 30, 2002, ongoing lease obligations relating to a facility formerly used by a legal technologies business total $1,028,000, of which $261,000 are classified in other accrued expenses and $767,000 in other long-term liabilities. The amounts relating to discontinued operations included in the balance sheet as of June 30, 2001 have been reclassified to conform to the current year presentation, and accordingly $1,423,000 is classified in other accrued expenses, $955,000 is classified in other long-term liabilities, $494,000 is classified in deferred income tax assets and $474,000 of noncurrent deferred income tax assets are classified in deferred income tax liabilities.

        During the year ended June 30, 2002, the Company recorded other income of $830,000 related to the gain on sale of certain assets of its non-highway plastic product line for $581,000 in cash and $700,000 in a three-year promissory note with interest imputed at 8%.

5.    INVENTORIES

        Inventories consist of the following at June 30:

	2002		2001
	(Dollar amounts in thousands)
Finished goods	$	6,497	$	11,362
Work-in-process		2,453		2,230
Raw materials		2,940		3,279
	$	11,890	$	16,871

24

6.    INTANGIBLE ASSETS AND GOODWILL

        Intangible assets consist of the following as of June 30:

		2002				2001
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
		(Dollar amounts in thousands)
Amortized intangible assets:
	Patents and licenses	$	2,334	$	1,195	$	1,462	$	1,009
	Technology and installed base		2,610		162
	Customer relationships		200		33
	Other		130		17
			5,274		1,407		1,462		1,009
Indefinite-lived intangible assets:
	Trade names		1,100
Total		$	6,374	$	1,407	$	1,462	$	1,009

        Amortization expense was $398,000 and $1,835,000 for the years ended June 30, 2002 and 2001, respectively. The estimated amortization expense for the five fiscal years subsequent to 2002 is as follows: $424,000, $388,000, $352,000, $343,000 and $271,000.

        The carrying amount of goodwill consists of the following at June 30:

2002				2001
Protect and Direct Segment		Inform Segment		Protect and Direct Segment		Inform Segment
(Dollar amounts in thousands)
$	8,139	$	21,455	$	8,139	$	16,750

        During the fiscal year ended June 30, 2002, goodwill in the amount of $4,755,000 was acquired in connection with the acquisition of SSI, and is included in the Inform segment.

        The reconciliation of net income, basic earnings per share and diluted earnings per share as reported, to that adjusted on a pro forma basis to exclude goodwill amortization, including related tax effects, is as follows:

	2002		2001
	(Dollar amounts in thousands, except per share data)
Reported net income	$	6,824	$	10,843
Add: Goodwill amortization				967
Adjusted net income	$	6,824	$	11,810
Basic earnings per share as reported	$	.89	$	1.47
Add: Goodwill amortization				.13
Adjusted basic earnings per share	$	.89	$	1.60
Basic earnings per share as reported	$	.84	$	1.35
Add: Goodwill amortization				.12
Adjusted basic earnings per share	$	.84	$	1.47

25

7.    LONG-TERM DEBT

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

		2002		2001
		(Dollar amounts in thousands)
Revolving credit note due October 31, 2004, interest at variable rates		$	22,500	$	18,000
Notes payable, net of discounts of $579—2002 and $834—2001			3,136		4,241
Other			134		464
Total long-term debt			25,770		22,705
	Less current portion		998		1,179
Long-term debt, net		$	24,772	$	21,526

        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 renewed 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 acquisitions of Roadway Safety Service, Inc. (Roadway) and NSI and are payable to several former owners and employees. The Roadway notes are payable quarterly over five and ten year periods through 2007 with interest imputed at 8.5%. The NSI note is a three-year, 5% promissory note, payable in equal annual installments.

        The aggregate amount of maturities of long-term debt for the four years subsequent to 2003 assuming renewal of the revolving credit note is as follows: $865,000 in 2004, $393,000 in 2005, $427,000 in 2006 and $465,000 in 2007.

8.    STOCK OPTIONS AND STOCK TRANSACTIONS

        The Company has stock option plans providing for grants of options for directors based upon a fixed calculation and for employees as may be determined by the Compensation Committee of the Board of Directors. Options under the plans are to be granted at no less than 100% of the current market price at the date of the grant. The Company's Long-Term Stock Ownership Incentive Plan and the Director Stock Option Plan expired in November 2001. In November 2001, the shareholders of the Company approved the 2001 Employee Stock Incentive Plan (Incentive Plan) and the 2001 Non-Employee Directors Stock Option Plan. Options vest over not less than a six-month period and have a term of not more than ten years. No charges are made to earnings in connection with the option plans.

26

        Information with respect to stock option activity under the Company's plans is as follows:

	Number of Common Shares		Option Price per Share		Weighted Average Exercise Price
June 30, 1999	1,020,278		$	6.88 to $21.00	$	10.99
Granted	475,000			13.32 to  14.91		13.47
Exercised	(116,733	)		8.00 to  12.63		9.32
Cancelled or expired	(12,333	)		12.15 to  12.19		12.18
June 30, 2000	1,366,212			6.88 to  21.00		11.98
Granted	390,700			13.75 to  16.00		15.10
Exercised	(364,905	)		6.88 to  21.00		10.54
Cancelled or expired	(12,633	)		12.15 to  16.00		14.48
June 30, 2001	1,379,374			6.88 to  21.00		13.23
Granted	189,300			23.77 to  24.95		24.84
Exercised	(283,834	)		6.88 to  16.00		11.42
Cancelled or expired	(36,666	)		13.32 to  24.95		17.15
June 30, 2002	1,248,174		$	6.88 to $24.95	$	15.28

        Options outstanding at June 30, 2002 are exercisable as follows: 714,628 currently, 308,557 in 2003, 170,217 in 2004 and 54,772 thereafter. The weighted average fair value of options granted during 2002, 2001 and 2000 was $6.20, $5.13 and $4.80, respectively. As of June 30, 2002, the Company has 553,500 common shares reserved for its option and award plans.

        The following is the composition of the June 30, 2002 stock option balance:

	Outstanding				Currently Exercisable
Options having a per share exercise price of:	Weighted average remaining life	Weighted average exercise price per share		Number of shares	Weighted average exercise price		Number of shares
$  6.88 to $  9.00	4.0 years	$	8.28	98,445	$	8.28	98,445
10.00 to  14.91	3.8 years		13.21	708,229		13.03	479,783
16.00 to  20.00	4.1 years		16.00	211,200		16.00	70,400
21.00 to  24.95	3.9 years		24.00	230,300		21.91	66,000
$  6.88 to $24.95	3.9 years	$	15.28	1,248,174	$	13.49	714,628

        Had compensation cost for the Company's stock option plans been determined based on the fair value method for awards in 2002, 2001 and 2000 consistent with the provisions of FAS No. 123, the Company's net earnings and net earnings per diluted share would have been changed to the pro forma amounts indicated below:

	2002		2001		2000
	(Dollar amounts in thousands, except per share data)
Net earnings	$	5,858	$	9,766	$	8,202
Net earnings per diluted share		.72		1.21		1.01

27

        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	2002	2001	2000
Risk free interest rate	3.3%-4.5%	5.8%-6.1%	5.9%-6.6%
Expected dividend yield	1.89%	1.94%	2.08%
Weighted average expected volatility	29%	37%	38%
Weighted-average expected life	4.2 years	4.9 years	5.2 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 as of 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.

        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. The Company may redeem the rights, for $.01 per right, under certain circumstances.

10.    RETIREMENT PLANS

        The 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 Incentive Plan resulted in a charge to earnings of $368,000 in 2002, $533,000 in 2001 and $284,000 in 2000.

        The Company has an incentive savings plan covering substantially all employees of the Company. The plan allows qualified employees to make tax deferred contributions pursuant to Internal Revenue Code Section 401(k). The Company contributes a matching contribution based upon a percentage of the participants' contributions which is invested directly in the common stock of the Company. Additional discretionary company contributions may be made at the option of the Company's Board of Directors. The expense for the plan was $701,000 in 2002, $613,000 in 2001 and $500,000 in 2000.

28

11.    INCOME TAXES

        The income tax provision for continuing and discontinued operations consist of the following:

	2002		2001			2000
	(Dollar amounts in thousands)
Current:
Federal and international	$	734	$	6,339		$	3,834
State		465		183			631
		1,199		6,522			4,465
Deferred:
Federal and international		2,046		(38	)		1,094
State		71		161			(93	)
		2,117		123			1,001
Income tax provision for continuing operations		3,316		6,645			5,466
Income tax provision for discontinued operations		521
Total income tax provision	$	3,837	$	6,645		$	5,466

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

	2002			2001
	(Dollar amounts in thousands)
Deferred tax assets:
Accounts receivable allowance	$	610		$	296
Inventory valuation		741			530
Compensated absences and medical claims		302			120
Tax over book basis in affiliates		461			544
Other liabilities and reserves		1,880			2,012
Net operating and capital loss carryforwards		1,584			740
Valuation allowance		(786	)		(748	)
		4,792			3,494
Deferred tax liabilities:
Book over tax basis of fixed assets		(1,397	)		(1,199	)
Book over tax basis of intangible assets		(3,307	)		(675	)
		(4,704	)		(1,874	)
Net deferred tax asset	$	88		$	1,620

        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, and net operating and capital loss carryforwards. 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, 2002, certain subsidiaries of the Company have approximately $9,423,000 of state and $2,718,000 of federal net operating loss carryforwards for tax purposes. Certain limitations on utilization are present and realization of a significant portion of the carryforwards is uncertain. These carryforwards expire in years from 2013 through 2021.

29

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

			2002			2001
			(Dollar amounts in thousands)
Continuing operations:
	Current deferred tax asset		$	3,098		$	2,593
	Noncurrent deferred tax liability			(3,010	)		(973	)
		Total net deferred tax asset	$	88		$	1,620

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

	2002			2001		2000
	(Dollar amounts in thousands)
Taxes at statutory rate	$	3,133		$	6,073	$	4,914
State income taxes		378			224		354
Other		(195	)		348		198
Income tax provision for continuing operations	$	3,316		$	6,645	$	5,466

12.    COMPREHENSIVE INCOME

        Comprehensive income consists of the following:

	2002			2001			2000
	(Dollar amounts in thousands)
Net earnings	$	6,824		$	10,843		$	8,919
Currency translation adjustment		(34	)		(390	)
Comprehensive income	$	6,790		$	10,453		$	8,919

13.    EARNINGS PER SHARE

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

		2002		2001		2000
		(Dollar amounts in thousands, except per share data)
Numerator:
Net earnings available to common shareholders		$	6,824	$	10,843	$	8,919
Denominator:
Weighted average shares outstanding-basic			7,682,706		7,377,443		7,868,554
Effect of dilutive securities-common stock options			438,915		672,070		256,069
Weighted average shares outstanding-diluted			8,121,621		8,049,513		8,124,623
Net earnings per share of common stock:
	Basic	$	.89	$	1.47	$	1.13
	Diluted	$	.84	$	1.35	$	1.10

        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:

	2002		2001		2000
Average exercise price per share	$	24.83	$	21.00	$	19.21
Number of shares		180,300		50,000		85,000

30

14.    COMMITMENTS AND CONTINGENT LIABILITIES

        Aggregate rental expense under operating leases, principally for office and manufacturing facilities used in continuing operations, was $1,023,000 in 2002, $829,000 in 2001 and $531,000 in 2000. These operating leases include options for renewal. Annual minimum future rentals for lease commitments are approximately $1,493,000 in 2003, $1,244,000 in 2004, $846,000 in 2005, $399,000 in 2006 and $179,000 in 2007, for an aggregate of $4,161,000 through 2007.

        The Company has agreements with certain executives which are designed to retain the services of key employees and to provide for continuity of management in the event of an actual or threatened change in control of the Company. Upon occurrence of a triggering event after a change in control, as defined, the Company would be liable for payment of benefits under these agreements.

        The Company is subject to legal actions of a routine manner and common to its businesses. The Company records loss contingencies where appropriate within the guidelines established by Statement of FAS No. 5, "Accounting for Contingencies." In the opinion of management, based on the advice of legal counsel, the amount of liability, if any, arising from legal actions should not have a material effect on the Company's results of operations or financial condition.

15.    SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES

        Cash paid for interest was $1,218,000 in 2002, $1,478,000 in 2001 and $929,000 in 2000. Cash paid for income taxes was $2,014,000 in 2002, $5,363,000 in 2001 and $4,250,000 in 2000. The Company declared dividends that were payable at year end of $1,240,000 in 2002, $1,123,000 in 2001 and $1,117,000 in 2000. In connection with the purchase of NSI in January 2001, approximately $1,700,000 of NSI's bank debt was assumed and was simultaneously paid off on the date of closing. In addition, the purchase price of NSI included $1,500,000 in a three-year, 5% promissory note.

16.    INDUSTRY SEGMENT INFORMATION

        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.

        The Company's operations are comprised of two principal reportable segments within the highway and transportation safety industry. The segment financial data for fiscal 2000 has been restated to present the Company's two reportable segments—the manufacture and sale of highway and transportation safety products which Protect and Direct, and the manufacture and sale of products which Inform that are often referred to as Intelligent Transportation Systems (ITS) products. The primary product lines within the Protect and Direct segment include energy-absorbing products such as crash cushions, truck-mounted attenuators, barrels and barriers as well as highway delineators. The products within this segment absorb and dissipate the force of impact in collisions between vehicles and fixed roadside objects as well as products that prevent collisions and help to control the flow of traffic by directing or guiding. The primary product lines within the Inform segment include highway advisory radio systems, variable message signs and advanced sensing products which measure distance, count and classify vehicles, and sense weather conditions. The products within this segment provide information to prevent collisions from occurring. The majority of the Company's sales of its highway and transportation safety products are to distributors and contractors who then provide product and services to federal, state and local governmental units. The Company's business is conducted principally in the United States, its country of domicile, with sales outside the United States as follows: $8,596,000 in 2002, $9,489,000 in 2001 and $9,820,000 in 2000. Inter-company sales between segments represented less than one percent of consolidated net sales in fiscal 2002, 2001 and 2000.

31

        The Company's reportable segments are based on similarities in products and represent the aggregation of operating units for which financial information is regularly evaluated in determining resource allocation and assessing performance. The Company evaluates the performance of its segments and allocates resources to them based on operating income as well as other factors. Operating income is determined by deducting operating expenses from all revenues. In computing operating income, none of the following has been added or deducted: unallocated corporate expenses, interest income or expense, other income or loss or income tax provisions or benefits. Corporate assets consist primarily of cash and cash equivalents, depreciable assets and income tax assets. Accounting policies for the segments are the same as those for the Company.

        The following table presents financial information about reported segments as of and for the years ended June 30, 2002, 2001 and 2000 comprising the totals reported in the consolidated financial statements.

		2002			2001			2000
		(Dollar amounts in thousands)
Revenues:
	Protect and Direct	$	67,225		$	78,499		$	73,757
	Inform		22,469			15,055			10,013
	Total	$	89,694		$	93,554		$	83,770
Depreciation and amortization:
	Protect and Direct	$	2,309		$	2,831		$	2,867
	Inform		767			1,030			927
	Unallocated corporate		463			55			40
	Total	$	3,539		$	3,916		$	3,834
Operating profit:
	Protect and Direct	$	14,755		$	22,842		$	19,407
	Inform		367			2,491			2,377
	Unallocated corporate		(5,633	)		(6,446	)		(6,495	)
	Total	$	9,489		$	18,887		$	15,289
Identifiable assets:
	Protect and Direct	$	54,636		$	54,818		$	49,907
	Inform		39,682			26,061			18,521
	Unallocated corporate		5,726			7,217			4,836
	Total	$	100,044		$	88,096		$	73,264
Capital expenditures:
	Protect and Direct	$	6,800		$	3,488		$	1,237
	Inform		177			196			112
	Unallocated corporate		27			5			19
	Total	$	7,004		$	3,689		$	1,368

32

17.    QUARTERLY FINANCIAL DATA (UNAUDITED)

        Summarized unaudited quarterly financial data for years 2002 and 2001 follows:

		Three months ended
		9/30		12/31		3/31		6/30
		(Dollar amounts in thousands, except per share data)
FISCAL 2002
Net sales		$	20,814	$	19,958	$	21,507	$	27,415
Gross profit			7,864		6,788		7,608		13,672
Earnings from continuing operations			1,266		418		569		3,644
Earnings from discontinued operations			192						735
Net earnings			1,458		418		569		4,379
Basic earnings per share:
	Continuing operations		.17		.05		.07		.47
	Net earnings		.19		.05		.07		.57
Diluted earnings per share:
	Continuing operations		.16		.05		.07		.45
	Net earnings		.18		.05		.07		.54

	Three months ended
	9/30		12/31		3/31		6/30
	(Dollar amounts in thousands, except per share data)
FISCAL 2001
Net sales	$	21,321	$	20,279	$	22,688	$	29,266
Gross profit		10,065		8,365		9,825		15,683
Net earnings		2,234		1,319		1,850		5,440
Basic earnings per share		.30		.18		.25		.73
Diluted earnings per share		.29		.17		.23		.66

33

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 on pages 2 through 4 and page 17 of the Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 15, 2002 to be filed with the Commission on or about October 3, 2002 and is incorporated herein by reference.

        The executive officers of the Company, their ages and offices held by each during fiscal 2002 are as follows:

Leslie J. Jezuit	56	Chairman, Chief Executive Officer & Director—Quixote Corporation and Energy Absorption Systems, Inc.; Vice Chairman—Energy Absorption Systems, Inc.
Daniel P. Gorey	51	Chief Financial Officer, Vice President & Treasurer—Quixote Corporation; Vice President & Treasurer—Energy Absorption Systems, Inc.
Joan R. Riley	49	Vice President, General Counsel & Secretary—Quixote Corporation; Secretary—Energy Absorption Systems, Inc.

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

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

        Ms. Riley joined the Company as Assistant General Counsel and Assistant Secretary in 1991, was elected General Counsel and Secretary in 1997 and a Vice President in 1999.

        There is no family relationship between any of the officers described above.

        None of the officers described above are party or otherwise involved in any legal proceedings adverse to the Company or its subsidiaries.

34

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 15, 2002 to be filed with the Commission on or about October 3, 2002 and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information required in response to this item is set forth under the caption "Stock Ownership of Certain Beneficial Owners" of the Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 15, 2002 to be filed with the Commission on or about October 3, 2002 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 15, 2002 to be filed with the Commission on or about October 3, 2002 and is incorporated herein by reference.

PART IV

Item 14. Controls and Procedures

        Not applicable.

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

Item Number		Page Number in This Report
(a).1.	Financial Statements
	Report of Independent Accountants	15
	Consolidated Statements of Operations for the years ended June 30, 2002, 2001 and 2000	16
	Consolidated Balance Sheets as of June 30, 2002 and 2001	17
	Consolidated Statements of Shareholders' Equity for the years ended June 30, 2002, 2001 and 2000	18
	Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000	19
	Notes to Consolidated Financial Statements	20-33

(a).2.	Financial Statement Schedule
	The financial statement schedule listed under Item 15(d) is filed as part of this annual report. All other schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they are not applicable or not required.
(a).3.	The exhibits listed under Item 15(c) are filed as part of this annual report.

35

(b).	Reports on Form 8-K
	None.
(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 February 24, 2000, filed as Exhibit 3(b) to the Company's Form 10-Q Report for the quarter ended March 31, 2000, 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; Amendment to Rights Agreement dated as of October 15, 2001, filed as Exhibit 4(a) to the Company's Form 10-Q for the quarter ended December 31, 2001, File No. 0-7903, 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; Third Amendment and Waiver to Amended and Restated Loan Agreement and Amended and Restated Revolving Credit Notes all dated as of May 17, 2000, filed as Exhibit 10(a) to the Company's Form 10-K Report for the fiscal year ended June 30, 2000, File No. 0-7903, and incorporated herein by reference; Fourth Amendment and Waiver to Amended and Restated Loan Agreement and Amended and Restated Revolving Credit Notes dated as of January 31, 2001, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended March 31, 2001, File No. 0-7903, and imcorporated herein by reference; Fifth Amendment to Amended and Restated Loan Agreement and Amended and Restated Revolving Credit Notes dated as of December 31, 2001, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended December 31, 2001, File No. 0-7903, and incorporated herein by reference.
(b)*	1991 Director Stock Option Plan, as amended through August 16, 2000, filed as Exhibit 10(b) to the Company's Form 10-K Report for the fiscal year ended June 30, 2000, File No. 0-7903, and incorporated herein by reference.

36

(c)*	1993 Long-Term Stock Ownership Incentive Plan, as amended through August 16, 2000, filed as Exhibit 10(c) to the Company's Form 10-K Report for the fiscal year ended June 30, 2000, File No. 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)*	2001 Employee Stock Incentive Plan, filed as Exhibit 10(c) to the Company's Form 10-Q Report for the quarter ended December 31, 2001, File No. 0-7903, and incorporated herein by reference.
(e)*	2001 Non-Employee Directors Stock Option Plan, filed as Exhibit 10(b) to the Company's Form 10-Q Report for the quarter ended December 31, 2001, File No. 0-7903, and incorporated herein by reference.
(f)	Lease Agreement between the Company and United Insurance Company of America ("Company Lease") dated July 2, 1993, filed as Exhibit 10(j) to the Company's Form 10-K Report for the fiscal year ended June 30, 1993, File No. 0-7903, and incorporated herein by reference; Lease Amendment to Company Lease dated as of May 17, 1994, filed as Exhibit 10(h) to the Company's Form 10-K Report for the fiscal year ended June 30, 1994, File No. 0-7903, and incorporated herein by reference; Second Amendment to Company Lease dated January 30, 1995 and Third Amendment to Company Lease dated December 15, 1995, filed as Exhibits 10(b) and 10(c) to the Company's Form 10-Q Report for the quarter ended December 31, 1995, File No. 0-7903, and incorporated herein by reference; Fourth Amendment to Company Lease dated as of September 18, 1996 filed as Exhibit 10(b) to the Company's Form 10-Q Report for the quarter ended December 31, 1996 and incorporated herein by reference; Office Lease between Amberjack, Ltd. and Litigation Sciences, Inc. dated July 2, 1990, filed as Exhibit 10(a) to the Company's Form 10-Q Report for the quarter ended December 31, 1993, File No. 0-7903 and incorporated herein by reference; First Amendment to Office Lease between Amberjack Ltd. and Stenograph Corporation dated as of June 23, 1994, filed as Exhibit 10(h) to the Company's Form 10-K Report for the fiscal year ended June 30, 1994, File No. 0-7903, and incorporated herein by reference; Lease Agreement between TBC Place Partners, LLC and Highway Information Systems, Inc. dated August 9, 1999, filed as Exhibit 10(d) to the Company's Form 10-K Report for the fiscal year ended June 30, 1999, File No. 0-7903, and incorporated herein by reference; Office/Warehouse Lease dated August, 2002 between Teduke Investment Company c/o Bakewell Corporation and Surface Systems, Inc., filed herewith.
(g)*	Letter Agreement dated December 15, 1995 between the Company and Leslie J. Jezuit, filed as Exhibit 10(d) to the Company's Form 10-Q Report for the quarter ended December 31, 1995, File No. 0-7903, and incorporated herein by reference; Change of Control Agreements dated December 1,1997 by and between the Company and each of Leslie J. Jezuit and Daniel P. Gorey, filed as Exhibit 10(f) to the Company's Form 10-Q Report for the quarter ended December 31, 1997, File No. 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.

37

(h)	Asset Purchase Agreement made October 10, 1997, and effective October 1, 1997, by and between Quixote Corporation, TranSafe Corporation, Roadway Safety Service, Inc., Momentum Management, Inc., and Fitch Barrier Corporation; Exclusive License Agreement made October 10, 1997, and effective October 1, 1997, by and between Robert A. Mileti, Roadway Safety Systems, Inc., Quixote Corporation and TranSafe Corporation; Consulting Agreement made October 10, 1997, and effective October 1, 1997, by and between TranSafe Corporation and E. Scott Walter; 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.
(i)	Stock Purchase Agreement dated as of January 16, 2001 by and between Quixote Transportation Safety, Inc., Mark Fernandez and Guadalupe Martinez, Form of Promissory Note of Quixote Transportation Safety, Inc. and Form of Guaranty of Quixote Corporation filed as Exhibit C to Company's Form 8-K Current Report dated and filed January 30, 2001, File No. 0-7903, and incorporated herein by reference.
(j)	Stock Purchase Agreement dated August 30, 2001 between Quixote Transportation Safety Inc. and the Shareholders of Surface Systems, Inc., filed as Exhibit 7(c) to the Company's Form 8-K Current Report dated August 30, 2001 and filed on September 13, 2001, File No. 0-7903, and incorporated herein by reference.
21.	Subsidiaries of the Company
23.	Consent of PricewaterhouseCoopers LLP as Independent Certified Public Accountants
99.	Certifications of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
(d)	Schedules:
	II—Valuation and Qualifying Accounts and Reserves

38

SIGNATURES

        Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunder duly authorized.

	QUIXOTE CORPORATION (Registrant)
Dated: September 25, 2002	By:	/s/  LESLIE J. JEZUIT Leslie J. Jezuit, Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE
/s/  LESLIE J. JEZUIT Leslie J. Jezuit	Chairman and Director (President, Chief Executive Officer)	September 25, 2002
/s/  DANIEL P. GOREY Daniel P. Gorey	Vice President, Chief Financial Officer, Treasurer and Director	September 25, 2002
/s/  JOAN R. RILEY Joan R. Riley	Vice President, General Counsel and Secretary	September 25, 2002
/s/  JAMES H. DEVRIES James H. DeVries	Director	September 25, 2002
/s/  WILLIAM G. FOWLER William G. Fowler	Director	September 25, 2002
/s/  LAWRENCE C. MCQUADE Lawrence C. McQuade	Director	September 25, 2002
/s/  ROBERT D. VAN ROIJEN, JR. Robert D. van Roijen, Jr.	Director	September 25, 2002

39

CERTIFICATIONS

I, Leslie J. Jezuit, certify that:

1.

I have reviewed this annual report on Form 10-K of Quixote Corporation;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date:	September 25, 2002	/s/  LESLIE J. JEZUIT
		Leslie J. Jezuit President and Chief Executive Officer

I, Daniel P. Gorey, certify that:

1.

I have reviewed this annual report on Form 10-K of Quixote Corporation;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date:	September 25, 2002	/s/  DANIEL P. GOREY
		Daniel P. Gorey Vice President, Chief Financial Officer and Treasurer

40

QUIXOTE CORPORATION & SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended June 30, 2002, 2001 and 2000

Column A	Column B		Column C(a)			Column D(b)			Column E
Description	Balance at Beginning of Period		Additions Charged to Costs and Expenses			Deductions			Balance at End of Period
Allowance for Doubtful Accounts:
Year ended June 30, 2002	$	777,000	$	792,000		$	(23,000	)	$	1,546,000
Year ended June 30, 2001	$	955,000	$	(71,000	)	$	(107,000	)	$	777,000
Year ended June 30, 2000	$	480,000	$	530,000		$	(55,000	)	$	955,000

NOTES:

(a)

Column C for 2002 includes $362,000 related to the acquisition of Surface Systems, Inc. and for 2001 includes additions of $29,000 related to the acquisition of National Signal, Inc.

(b)

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

41

EXHIBIT INDEX

EXHIBIT NUMBER	EXHIBITS
10(f)	Office/Warehouse Lease dated August, 2002 between Teduke Investment Company c/o Bakewell Corporation and Surface Systems, Inc.
21	Subsidiaries of the Company
23	Consent of Independent Accountants
99	Certifications of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

42

QuickLinks

TABLE OF CONTENTS
PART I

Item 1. Business
Item 2. Properties

Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data

QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
QUIXOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

PART III

Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions

PART IV

Item 14. Controls and Procedures
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

SIGNATURES
CERTIFICATIONS
QUIXOTE CORPORATION & SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the years ended June 30, 2002, 2001 and 2000
EXHIBIT INDEX

EX-10.F

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10(f)

BAKEWELL CORPORATION
ST. LOUIS, MISSOURI
OFFICE/WAREHOUSE LEASE
LEASE COVER PAGE

	LESSOR		LESSEE
Parties	Teduke Investment Company		Surface Systems, Inc.
Date	August 9, 2002
1.1	ADDRESS OF BUILDING: 11612 Lilburn Park Road		*Diagram of leased space attached as Exhibit A
Premises	Maryland Heights, Missouri 63146
	APPROXIMATE SQUARE FEET IN LEASED PREMISES:		16,454    LEASABLE SQUARE FEET
	APPROXIMATE TOTAL SQUARE FEET IN BUILDING:		48,038    LEASABLE SQUARE FEET
	LESSEE'S PRO RATA SHARE:		34.25    PERCENT
2.1 Term	COMMENCEMENT DATE:	August 1, 2002*	TERM:    Five (5) years
	TERMINATION DATE:	July 31, 2007*	*Subject to adjustment per Section 2.1

			Annual Base Rent	Per Square Foot	Monthly Installments
3.1	Lease Years 1 to 2		$168,982.58	$10.27	$14,081.88
Rent	Lease Year 3		$175,399.64	$10.66	$14,616.64
	Lease Years 4 to 5		$179,348.60	$10.90	$14,945.72
	MAKE CHECK PAYABLE TO LESSOR AND MAIL TO:	Grubb & Ellis Management Services 12825 Flushing Meadow Drive St. Louis, Missouri 63131
3.2 Security Deposit	SECURITY DEPOSIT:	Lessee's existing security deposit corresponding to its original lease dated May 12, 1993, shall be applicable to this Lease and no additional security shall be required.
3.3 Late Charge	LATE CHARGE:	10% of delinquent payment plus accrued interest if not paid within 10 days of when due.
4.1 Operating Expenses	OPERATING EXPENSES:	Lessee to pay its pro rata share of operating expenses
5.1 Taxes	REAL ESTATE TAXES:	Lessee to pay its pro rata share of increases over base year taxes incurred during calendar year 2002.
5.2 Insurance	INSURANCE CHARGES:	Lessee to pay its pro rata share of increases over base year insurance costs incurred during calendar year 2002.
5.4 HVAC	HVAC MAINTENANCE:	Lessee to pay for maintenance and replacement costs for HVAC equipment as more particularly described in Section 5.3
6.1 Use	PERMITTED USE OF PREMISES:	Office/Warehouse
6.2 Parking	PARKING SPACES ALLOCATED TO LESSEE:	55 parking spaces, non-exclusive/unassigned
8.1 Lessee Improvements	TENANT IMPROVEMENT ALLOWANCE:	$55,000.00

	LESSOR	LESSEE
20.1 Notices	ADDRESSES FOR NOTICES	ADDRESSES FOR NOTICES
	Teduke Investment Company c/o Bakewell Corporation 7800 Forsyth Blvd., 8th Floor St. Louis, Missouri 63105	Surface Systems, Inc. 11612 Lilburn Park Road Maryland Heights, Missouri 63146
With copy to:
	Teduke Investment Company c/o Grubb & Ellis Management Services 12825 Flushing Meadow Drive St. Louis, Missouri 63131
22.4	LESSOR'S REPRESENTATIVE	Cushman & Wakefield of Missouri, Inc.
Brokers	LESSEE'S REPRESENTATIVE	Grubb & Ellis/Krombach Partners, Inc.
Exhibit A—Diagram of Leased Premises
Exhibit B—Agency Disclosure Form

OFFICE/WAREHOUSE LEASE

        THIS LEASE is made and entered into as of the day and year set forth on the Lease Cover Page by and between the Lessor and Lessee described on the Lease Cover Page.

W I T N E S S E T H:

        For and in consideration of the rents and covenants hereinafter set forth, Lessor hereby leases to Lessee and Lessee hereby rents from Lessor the following-described Premises upon the following terms and conditions:

ARTICLE 1
PREMISES

        1.1    Premises.    Lessor, for and in consideration of the rents, covenants and agreements hereinafter set forth and hereby agreed to be paid, kept and performed by Lessee, does hereby lease to Lessee, and Lessee hereby leases from Lessor, that portion of Lessor's building (the "Building"), which is more particularly described in Paragraph 1.1 of the Lease Cover Page and which is more particularly delineated on the diagram attached hereto as Exhibit A and incorporated herein by this reference (hereinafter referred to as the "Premises").

        1.2    Lessee's Pro Rata Share.    Except as provided below, the term "Lessee's pro rata share" shall mean that percentage set forth in Paragraph 1.1 of the Lease Cover Page. Notwithstanding the foregoing, however, in the event that Lessee is responsible for reimbursing Lessor for Lessee's share of an expense which was incurred by Lessor on behalf of less than all of the tenants in the Building, then "Lessee's pro rata share" of said expense shall equal the fraction, the numerator of which equals the number of rentable square feet in the Premises, and the denominator of which equals the number of rentable square feet in the tenant spaces leased by those tenants on whose behalf such expense was incurred. For example, with respect to an expenditure for HVAC equipment which serves only the Premises, Lessee's pro rata share of such expense shall be one hundred percent (100%). Similarly, in the event that Lessee requires any services in excess of the building standard, Lessee's pro rata share of such excess service shall be one hundred percent (100%).

ARTICLE 2
TERM

        2.1    Term.    The Lease Term, Lease Commencement Date and Lease Termination Date of this Lease are set forth in Paragraph 2.1 of the Lease Cover Page.

ARTICLE 3
BASE RENT

        3.1    Base Rent.    Lessee shall pay to Lessor without demand, deduction, or offset as rent for the Premises, the amounts set forth in Paragraph 3.1 of the Lease Cover Page. The first monthly installment shall be payable on the Commencement Date of this Lease, and subsequent installments shall be payable in advance on the first day of each calendar month thereafter during the term of this Lease. In the event the term of this Lease commences or ends on a day other than the first day of the calendar month, then the rental for such partial month shall be pro rated in the proportion that the number of days that this Lease is in effect during such partial month bears to the total number of days in such month, and such rental shall be paid upon the commencement of such period.

        3.2    Security Deposit.    Lessor acknowledges that Lessee has previously deposited with Lessor the sum set forth in Paragraph 3.2 of the Lease Cover Page, with said sum to be held by Lessor as security for the faithful performance and observance by Lessee of all the terms, covenants and conditions of this Lease. Lessor shall retain said funds, as its own, (without being liable for interest thereon) and may use, apply or retain the whole or any part of the funds so deposited to the extent required for the

payment of any rent, additional rent or other sums as to which Lessee is in default, or for the payment of any amount which Lessor may be required to expend by reason of Lessee's default in respect of any of the terms of this Lease. Should Lessee comply with all of the terms of this Lease, so much of said security deposit not spent or applied pursuant to the provisions of this paragraph shall be returned to Lessee within thirty (30) days after the end of the Lease term. If any portion of said deposit is so used or applied, Lessee shall, within ten (10) days after the demand therefor, deposit cash with Lessor in an amount sufficient to restore the security deposit to its original amount and Lessee's failure to do so shall be a material breach of this Lease. Should Lessor sell its interest in the Premises during the term hereof and if Lessor delivers to the purchaser thereof the then unappropriated funds deposited by Lessee as aforesaid, thereupon Lessor shall be discharged from any and all liability with respect to said security deposit. The security deposit may not be used to pay the last month's rent.

        3.3    Late Charge.    A late charge equal to ten percent (10%) of the delinquent payment may be assessed, at Lessor's option, as additional rent in the event that any rental or other sum due hereunder is not paid within ten (10) days after the same shall be due and payable. In addition, any and all delinquent payments of rent, additional rent and all other sums payable hereunder shall bear interest at the rate of twelve percent (12%) per annum from the date of delinquency until paid. Further, in the event any check or payment made by Lessee is not honored or is otherwise returned by Lessor's bank, Lessee shall pay Lessor an additional charge of Fifty and No/100 Dollars ($50.00) for each such returned item. All interest, late fees and additional charges payable pursuant to this Section shall be paid to Lessor as Additional Rent hereunder. This provision shall in no way affect the right of Lessor to declare Lessee in default of this Lease for the failure to pay rent on the day that it is due.

ARTICLE 4
OPERATING EXPENSES

        4.1    Lessee's Share of Operating Expenses.    Lessee shall pay, its pro rata share (as defined in Section 1.2 above) of Lessor's operating expenses for the Building during the term of this Lease. For purposes of this Article IV "Building" shall also include the tract of ground, parking lot, curbs, sidewalks and landscaping adjoining the Building itself. Operating expenses for the Building for these purposes shall include all costs of administration, operation, repair, maintenance and replacement, but shall not include real estate taxes, assessments, subdivision fees, levee district charges, insurance costs and federal and state income taxes, which are provided for in Article V below. In addition, operating expenses shall not include tenant alterations, interest expense, debt service, leasing commissions and advertising and promotional expenditures. The calculation of operating expenses for purposes of this paragraph shall be made annually on a calendar year basis. Lessee's obligation to pay Lessee's pro rata share of operating expenses incurred by Lessor shall be pro rated, if necessary, to correspond with that portion of the year during which this Lease is in effect during the first and last years of the term of this Lease. Notwithstanding the foregoing, Lessees' pro rata share of Lessor's controllable operating expenses, as defined herein, shall not exceed 104% of the operating expenses for the previous calendar year.

        4.2    Operating Expenses Defined.    By way of illustration and not limitation, the term "operating expenses" shall include, but shall not be limited to, the following expenses of the Building:

        (1)  Costs and expenses incurred for the hiring and employment of all persons engaged in the operation and maintenance of the Building;

        (2)  Cost of Building administration and management, which cost may be payable to personnel or entities affiliated with Lessor, not to exceed four percent (4%) of gross rents for the Building;

        (3)  Cost of electric, water, sewer and other utilities to the common areas of the Building;

2

        (4)  Cost of repairs, general maintenance and replacements to the Premises, the Building and its common areas which are not the exclusive responsibility of Lessor or Lessee as set forth in Section 9.1A or Section 9.2 below, and under generally accepted accounting principles are not considered a capital improvement or which may reasonably be considered to be a capital improvement based upon the nature, scope and cost of such repair and/or replacement. Notwithstanding the foregoing, Lessor shall be entitled to amortize and include as operating expenses an allocable portion of the cost of any capital improvement items including (i) items which are reasonably calculated to reduce operating expenses, (ii) fire sprinklers, suppression systems and other existing systems, equipment and machinery and (iii) other capital expenses which are required under any applicable governmental laws, regulations or ordinances; all such costs shall be amortized over the estimated useful life of such improvements in accordance with generally accepted accounting principles, with interest on the unamortized amount at eight percent (8%) per annum.; said operating expenses shall include (by way of illustration and not limitation:

        (A)  Cost of maintenance, upkeep and replacement of the and exterior of the Building, and the planting, landscaping and grounds surrounding the Building;

        (B)  Removal of all snow, ice, paper and debris from the parking areas, sidewalks and common areas serving the Building;

        (C)  Maintaining parking lot lighting fixtures and relamping and reballasting as needed;

        (D)  Maintaining, repairing, inspecting, servicing and replacing all common area systems, utilities, facilities, equipment and fixtures which are not otherwise the responsibility of Lessee hereunder (such as any electrical systems, water systems, storm drainage systems and sanitary sewer systems and equipment used jointly by Lessee and other occupants of the Building);

        (E)  Cost of maintaining, sealing, striping, resurfacing and replacing the parking areas, sidewalks and other common areas;

        (F)  All costs associated with Lessor's fire alarm system and sprinkler system (if any) in the Building; and

        (5)  All other costs incurred by Lessor in connection with the ownership and operation of the Building other than expenses which relate exclusively to another tenant's space in the Building, it being the intention of the parties that Lessee pay as additional rent, in addition to the Base Rent, all expenses of Lessor hereunder with the exception of these expenses which are the exclusive responsibility of Lessor as provided in Section 9.1A below.

        4.3    Annual Statements.    Within thirty (30) days after Lessee receives Lessor's statement of actual operating expenses for the preceding calendar year, Lessee or its authorized agent shall have the right during normal business hours to review the invoices and supporting data which relate to said Lessor's statement of expenses at Lessor's office for the purpose of verifying the information in such statement. Unless Lessee asserts specific errors within thirty (30) days after delivery of such statement, the statement shall be deemed to be correct. Lessor's failure to assess such increase for any one year shall not bar its claim to such increase in future Lease years.

        4.4    Estimated Payments.    In order to provide for the current payment by Lessee, on account, of Lessee's pro rata share of operating expense, Lessor shall, prior to January 1 of each calendar year during the term of this Lease, estimate the operating expenses for the following year. Lessee shall pay as additional rent hereunder during the ensuing twelve (12) months, on the first day of each month, one-twelfth (¹/12) of Lessee's pro rata share of said operating expenses for that year. Should Lessor fail to provide Lessee with an estimate of the operating expenses anticipated for the following year by January 1 of any calendar year, Lessee shall continue to pay rental on the basis of the prior years' estimate until the first day of the month after such notice is given, on which date, Lessor or Lessee, as

3

appropriate, will pay to the other the amount required to adjust Lessor's estimate of Lessee's pro rata share of operating expenses allocable to the part of the calendar year which shall then have lapsed. If, as finally determined, Lessee's pro rata share of such operating expenses shall be greater or less than the aggregate of all installments so paid by Lessee to Lessor during such twelve (12) month period, then Lessee shall pay to Lessor the amount of such underpayment within ten (10) days of Lessee's receipt of a statement therefrom by Lessor, or Lessor shall credit Lessee for the amount of such overpayment, as the case may be. It is the intention hereunder to estimate the amount of operating expenses for each calendar year and then adjust such estimate after the end of each year based on the actual operating expenses incurred during such year. If at any time it appears to Lessor that the amount payable hereunder for the current calendar year will vary from Lessor's estimate by more than five percent (5%), Lessor may, by written notice to Lessee, revise Lessor's estimate for the year, in which case, subsequent payments by Lessee for the year shall be based upon the revised estimate. The obligations of Lessor and Lessee with respect to adjustments of additional rent shall survive the termination of this Lease. Lessee does hereby acknowledge that its obligation to participate in operating expenses shall be deemed additional rent and, in the event of non-payment thereof, Lessor shall have all the rights and remedies herein provided for in case of nonpayment of rent.

        4.5    Vacancy Adjustment.    In determining the amount of operating expenses for any calendar year if less than 100% of the Building shall have been occupied by tenants and fully used by them at any time during the year, Operating Expenses shall be increased to an amount equal to the like operating expenses which would normally be expected to have been be incurred had such occupancy been 100% and had such full utilization been made during the entire period.

ARTICLE 5
TAXES, INSURANCE AND ADDITIONAL CHARGES

        5.1    Real Estate Taxes.    Lessee agrees to pay, as additional rent, Lessee's pro rata share of any and all increases in real estate taxes, assessments (including subdivision assessments), levee district charges and other levies of every kind, whether general or special, ordinary or extraordinary, which may be levied or assessed on the land and Building in which the Premises are located (hereinafter called "Taxes"), over the amount of such Taxes due and payable for the calendar year set forth in Paragraph 5.1 of the Lease Cover Page. It is understood and agreed that only Lessor may protest or contest the validity, amount and enforceability of any Taxes levied or assessed on the land and Building in which the Premises are located. In the event the amount of such Taxes during any subsequent year shall be less than the amount of such Taxes due and payable for the calendar year set forth in Paragraph 5.1 of the Lease Cover Page, Lessee shall not be entitled to any amount or refund of prior fixed rent paid by Lessee pursuant to the terms of this Lease as a result of such decrease.

        5.2    Insurance.    In the event Lessor's cost of insurance for the Premises and the Building shall be increased for any reason during the term of this Lease over the amount of such insurance due and payable for the calendar year set forth in Paragraph 5.2 of the Lease Cover Page, Lessee agrees to pay, as additional rent, Lessee's pro rata share of any such increase in Lessor's insurance costs. Should Lessor's insurance rates be increased solely by reason of the particular use of the Premises being made by Lessee, all such increases in insurance costs over the existing rate prior to such use or the rate which would be charged but for such use by Lessee, shall be paid by Lessee to Lessor. In the event the amount of such insurance costs during any subsequent year shall be less than the amount of such insurance costs due and payable for the calendar year set forth in Paragraph 5.2 of the Lease Cover Page, Lessee shall not be entitled to any amount or refund of prior fixed rent paid by Lessee pursuant to the terms of this Lease as a result of such decrease.

        5.3    HVAC Maintenance.    Subject to the provisions set forth below, Lessee shall be responsible, at its sole expense, for maintaining, repairing and replacing the air conditioning, ventilation and heating

4

equipment servicing the Premises ("Tenant's HVAC Equipment"). Lessee also agrees to reimburse Lessor, for Lessor's cost to maintain a service contract on the Tenant's HVAC Equipment (the "Premises Service Contract") which Lessor shall maintain during the term of this Lease. In addition, Lessee agrees to reimburse Lessor for the cost of any repairs recommended by the HVAC contractor under Premises Service Contract. Lessee hereby authorizes said HVAC contractor to make any repairs and replacements to Tenant's HVAC Equipment which the HVAC contractor deems necessary or appropriate. Lessee's maximum liability towards all items of repair and replacement recommended by the HVAC contractor under the Premises Service Contract shall be limited to Two Thousand Five Hundred and no/100 Dollars ($2,500.00) in each lease year unless caused by the willful or negligent acts of Lessee, it officers, agents, employees or invitees. Notwithstanding the foregoing, however, Lessor hereby agrees to pay for the cost of any and all complete unit replacements necessary to Tenant's HVAC Equipment which are required during the term of this Lease.

        5.4    Miscellaneous Charges.    In the event that Lessee requests that Lessor perform any services on behalf of Lessee which would not otherwise be the responsibility of Lessor hereunder (such as carpet cleaning or window washing), Lessor shall inform Lessee of the cost which Lessor will charge for such additional service which Lessor is willing to perform; such cost for such services shall include an administrative charge payable to Lessor in the amount of twenty percent (20%) of the cost of the underlying service to be performed. Lessor shall be permitted, in its sole discretion, to decline to furnish any or all such additional services requested pursuant to this Section. Any costs payable by Lessor to Lessee pursuant to this Section shall constitute additional rent due hereunder.

        5.5    Payment of Additional Rent.    Lessee shall pay Lessor all additional rent due pursuant to the provisions of Sections 5.1, 5.2, 5.3 and 5.4 above, within thirty (30) days of Lessee's receipt of an invoice for same. Lessee's obligation to pay such additional rent shall be pro rated, as and if appropriate, during the first and last years of the term of this Lease.

ARTICLE 6
PURPOSE

        6.1    Possession and Use.    The Premises shall be occupied and used solely for office/warehouse purposes and Lessee shall not use or permit the Premises to be used for any other purpose or purposes without the prior written consent of Lessor. Lessee shall not allow any noise, smoke or odor to escape from the Premises in a manner which will disturb other occupants of the Building, or occupy the Premises in such manner as to disturb the peaceful and quiet occupancy of the other occupants of the Building. In no event, however, shall the Premises be used or occupied by Lessee in any manner contrary to law, zoning regulations or recorded restrictions, if any.

        6.2    Parking and Common Areas.    Lessee shall have the right to use the number of parking spaces set forth in Paragraph 6.2 of the Lease Cover Page in the parking lot which is adjacent to the Building for itself, its employees and invitees, on an unassigned, non-exclusive basis. Notwithstanding the foregoing, however, Lessor shall have the right to assign parking spaces to particular tenants in the Building and its employees and invitees, and to clearly mark said parking spaces as such, whereupon, said parking spaces shall thereafter be for the exclusive use of that particular tenant. Lessor shall retain exclusive control and management over the common areas serving the Premises and the Building, including but not limited to, all driveways, entrances, exits, roadways, parking areas, sidewalks and other features or facilities provided for the general use of all the tenants in the Building. Lessor shall have the right to establish, modify, change and enforce rules and regulations with respect to the use of said common areas and Lessee agrees to abide by and conform with such rules and regulations. Nothing contained in this Lease shall be construed so as to prohibit Lessor from reconfiguring the parking lot or from constructing any structures on the parking lot or in the common areas. Lessor reserves the right (but not the obligation) to remove abandoned or unlicensed vehicles and vehicles

5

that are unreasonably interfering with the use of the parking lot by others and to charge the responsible party for Lessor's expense of removing said vehicle. Lessee shall be deemed responsible for any such vehicle belonging to or parked by any of Lessee's officers, directors, shareholders, employees, agents, contractors, licensees, invitees and concessionaires. Upon Lessor's request, Lessee shall furnish to Lessor within seven (7) days after the date of such request, the automobile license numbers of the vehicles used by Lessee and Lessee's employees, agents, contractors, licensees, invitees and concessionaires. Lessor shall have the right to cause any automobiles used by such parties to be towed at Lessee's cost for failure to park in the portion of the parking area where Lessee is authorized to park. Any amounts payable by Lessee hereunder shall be immediately due and payable upon demand by Lessor as additional rent hereunder.

ARTICLE 7
UTILITIES AND PERSONAL PROPERTY TAXES

        7.1    Utilities.    Lessee shall pay or cause to be paid when due, all charges for gas, electricity, water and sewer used in or upon the Premises during the term of this Lease, which electric and gas shall be separately metered for such utilities consumed in or from the Premises. In the event Lessee shall consume more than its pro rata share of water which is not separately metered to the Premises, Lessor shall have the right to install a submeter, at Lessee's sole cost and expense, to monitor such excess water (and related sewer bills) consumption, whereupon Lessee shall reimburse Lessor for all water (and related sewer bills) consumed upon the Premises, as the same may be measured by said separate meter. Lessee shall at all times during the term of this Lease maintain sufficient heat in the Premises so as to keep the water lines and sprinkler system in and serving the Premises from freezing during the winter months. Lessee shall be responsible for all damages incurred by Lessor for Lessee's failure to comply with the foregoing provisions and Lessor shall have the right, but not the obligation, to cause the Premises to be adequately heated during the winter months at Lessee's sole cost and expense in the event Lessee shall fail to do so.

        7.2    Personal Property and Business Taxes.    Lessee shall pay before delinquent, all taxes, assessments, license fees and public charges levied, assessed or imposed upon its business operation, as well as upon its trade fixtures, merchandise and other personal property in or upon the Premises.

        7.3    Trash.    Lessee agrees to remove, at Lessee's sole cost and expense, all trash and rubbish of Lessee, which trash and rubbish shall be placed in Lessee's receptacles which shall be located on the common area of the Building.

ARTICLE 8
LESSEE IMPROVEMENTS AND ALTERATIONS

        8.1    Lessee Improvements.    Lessee acknowledges that Lessor is delivering the Premises to Lessee in an "as is, where is" condition, with all faults. Lessee shall be responsible for making all alternations and improvements to the Premises which may be required in connection with Lessee's utilization of the Premises ("Lessee Improvements"). All Lessee Improvements shall be made in full accordance with the provisions of Section 8.2 below. All costs and expenses of the Lessee Improvements shall be borne by Lessee. Notwithstanding the foregoing, Lessor will provide a construction allowance not to exceed the amount set forth in Paragraph 8.1 of the Lease Cover Page ("Lessee Improvement Allowance") to be applied towards the total cost of the Lessee's tenant finish improvements. Upon completion of the Lessee Improvements, the Lessee Improvement Allowance shall be distributed to Lessee in one cash lump sum payment, payable upon written request by Lessee, which shall include true and complete copies of the invoices supporting Lessee's total construction costs as well as lien waivers from all contractors and agents employed by Lessee in the completion of said Lessee Improvements. The

6

Lessee Improvement Allowance must be used within six (6) months following the execution date of this Lease or shall be deemed forfeited with no further obligation by Lessor with respect thereto.

        8.2    Lessee's Alterations.    Lessee shall not make any alteration, addition, modification or improvement of a permanent nature to the Premises (an "Alteration") without first obtaining the prior written consent of Lessor. Any such Alteration made by Lessee after such consent shall have been obtained shall be made strictly in accordance with all applicable building codes, governmental regulations, and all such Alterations shall become the property of Lessor upon the expiration or sooner termination of this Lease. Lessor may, at its sole discretion, require Lessee to remove any or all such Alterations immediately prior to the termination of this Lease, if Lessor so directs in writing to Lessee. Such removal may, at Lessor's election, include the removal of any or all wiring or cables back to the point of origination and the removal of any improvements above the ceiling and elsewhere in the Premises or the Building. Lessee shall also be required to restore condition of Premises to the same condition (normal wear and tear excepted) immediately prior to the commencement of such Alterations, if Lessor so directs in writing to Lessee. In either case, the cost of such removal or restoration will be solely at the cost of Lessee, and done in accordance with applicable codes and good building practices, by contractors approved in writing by Lessor.

        Lessee shall not permit any mechanics' lien to be filed against the fee of the Premises or against the Lessee's leasehold interest in the Premises by reason of work, labor, services or materials supplied or claimed to have been supplied to the Lessee or anyone holding the Premises through or under the Lessee, whether prior or subsequent to the commencement of the term hereof. If any such mechanics' lien shall at any time be filed against the Premises and Lessee shall fail to remove same within thirty (30) days thereafter, it shall constitute a default under the provisions of this Lease.

        8.3    Satellite Dish.    Notwithstanding anything to the contrary previously set forth in this Lease, Lessee shall be permitted at its sole cost and expense to erect, install and maintain one satellite dish on the top of the Building, subject to the conditions set forth in this Section. Prior to installation of the satellite dish, Lessee shall submit to Lessor for Lessor's review and prior approval, detailed plans and specifications for such dish. Such plans shall include a description of the size and specifications of such dish, the manufacturer of such dish, the proposed location of the dish, the specific means by which the dish is to be connected to the roof and specific means by which any roof penetrations are to be made. All aspects of the satellite dish, including the manner and location of attachment and the contractor which shall be permitted to install such dish shall be subject to the reasonable approval of Lessor. Lessee shall be prohibited from taking any action or utilizing any contractor which could void any roof warranty which runs in favor of Lessor with respect to the Building. Lessee shall be responsible for obtaining all necessary permits and approvals which may be required from all lawful authorities to erect and install such dish. The satellite dish shall be maintained at all times by Lessee in good condition and repair at the sole cost and expense of Lessee. Lessee shall bear all risk of loss or damage to the satellite dish. Lessee shall be the sole entity which shall be permitted to utilize the satellite dish. Any rights granted to Lessee pursuant to this Section to install a satellite dish shall be non-exclusive and Lessor expressly reserves the right to grant to any other person or entity the right to install other satellite dishes or other equipment on the roof of the Building. Lessee's right to maintain and utilize the dish on the Building shall expire on the expiration or sooner termination of this Lease, at which time Lessee shall remove the dish and shall repair all damage caused by such removal at Lessee's sole expense to the satisfaction of Lessor. The installation, maintenance and removal of the satellite dish shall all be done in a good and workmanlike manner and in strict accordance with all applicable laws and regulations of any kind. Lessor agrees that it will exercise reasonable efforts and fully cooperate, at Lessee's sole cost and expense, in connection with Lessee's efforts to obtain any permits that may be required to install or maintain the dish, including obtaining any licenses from the FCC, if required.

7

ARTICLE 9
REPAIRS AND MAINTENANCE

        9.1    Lessor's Obligation to Repair.

        A.    Lessor shall, at its sole cost and expense, keep in good structural repair, the foundation and exterior walls forming a part of the Building. Lessor shall also be responsible, at its sole expense, for the replacement (but not repair) of the roof of the Building. However, any repairs to any such portions of the Building which are made necessary by the negligence of Lessee or its officers, agents, employee or invitees, shall at Lessor's option, be made either by Lessee or by Lessor at Lessee's sole cost and expense.

        B.    Lessor shall repair and maintain the roof and exterior walls of the Building exclusive of structural repairs and replacements which shall be the exclusive responsibility of Lessor under Section 9.1.A above. In addition, Lessor shall repair, maintain and replace the portions of any Building system located outside of the Premises and/or not exclusively serving the Premises (such as the plumbing, sewer, mechanical, electrical, sprinkler and security systems). In addition, Lessor shall maintain the driveways, parking areas and other facilities owned by Lessor for the general use of all the tenants and their invitees in the Building in which the Premises are located, including any and all necessary landscaping of the common areas. Lessor shall also be responsible for the removal of snow and ice from the parking areas, sidewalks and driveways serving the Building in which the Premises are located. Lessor's maintenance responsibilities pursuant to Section 9.1 shall not apply to any damage or repairs required due to the activities or actions of Lessee in or upon the Premises. All costs incurred by Lessor in performing its obligations under Section 9.1.B shall be deemed to be operating expenses for purposes of Article IV of this Lease, unless under generally accepted accounting principles such costs are considered a capital improvement.

        9.2    Lessee's Obligation to Repair.    Except to the extent Lessor is responsible to maintain the same pursuant to Section 9.1 above, Lessee shall, at its sole cost and expense, when and if needed during the term of this Lease, maintain the Premises in good condition and shall make all needed repairs and replacements to the Premises and every part thereof, including both ordinary and extraordinary items, with materials and workmanship of the same character, kind and quality as the original. Such repair obligations of Lessee shall include, but shall not be limited to, all interior items; all plumbing, electrical, mechanical and other equipment and systems serving only the Premises; all floors; ceilings; windows; plate and other glass; lights; exterior and interior doors; interior walls and finish work, floors (including subfloors) and floor coverings, water heaters and all plumbing work, electrical systems and fixtures, the dock board, dock bumpers, dock doors, the heating and air conditioning systems and other fixtures located in and serving the Premises, all of which shall be kept and maintained by Lessee in good condition and repair, subject only to ordinary wear and tear; HVAC (subject to the provisions of Section 5.3 hereof) and sprinkler systems serving the Premises; pipes; drains; sewers; ducts; conduits; wiring; keys; locks; bolts; pest extermination; alarm systems and all other equipment of any nature whatsoever to the extent such items serve only the Premises. Lessee shall keep the Premises and areas adjacent thereto in good order, condition and repair in accordance with the standards of a first class office/warehouse building in the St. Louis, Missouri area. If the Building's sprinkler system or any of its appliances or systems shall be damaged or injured or not in proper working order by reason of any act or omission of Lessee or Lessee's employees, agents, contractors, licensees or invitees or if the Board of Fire Underwriters or Fire Insurance Exchange or any bureau or department or official of the state, county or city government require or recommend that any changes, modifications, alterations or additional sprinkler heads or other equipment be made or supplied by reason of the nature and/or conduct of Lessee's business or the location of partitions, trade fixtures or other contents in the Building or for any other reason not caused by Lessor or if any such changes, modifications, alterations, additional sprinkler heads or other equipment become necessary to

8

prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate as fixed by said Exchange or by any fire insurance company, Lessor shall have the right to perform any and all such work at Lessee's sole cost and expense and Lessee shall promptly reimburse Lessor as additional rent hereunder for the full cost of same upon receipt of an invoice from Lessor for such cost serving the Premises.

        9.3    Lessor's Right Upon Lessee's Refusal to Repair.    If Lessee refuses or neglects to make repairs and/or maintain the Premises, or any part thereof, in a manner reasonably satisfactory to Lessor, Lessor shall have the right, upon giving Lessee five (5) days prior written notice of its election to do so, to make such repairs or perform such maintenance on behalf of and for the account of Lessee. In such event, the cost of such work (which shall include an administrative charge payable to Lessor in the amount of twenty percent (20%) of the underlying cost of such work) shall be paid for by Lessee within fifteen (15) days of its receipt of a bill therefor. Nothing herein contained shall impose any duty on the part of Lessor to do any such work under any provision of this Lease which Lessee may be required to perform, nor shall it constitute a waiver of Lessee's default in failing to do the same. Lessor shall not be required to provide Lessee with any written notice of its election to perform work on Lessee's behalf pursuant to the provisions of this Section 9.3 in the event that the condition being remedied by Lessor on Lessee's behalf constitutes an emergency situation posing an imminent threat of harm or damage to Lessor's or some other tenant's property, or which poses an imminent threat of personal injury to any person.

        9.4    Lessor's Entry Upon the Premises.    Lessee agrees to permit Lessor and its authorized representatives to enter the Premises at all times during normal business hours for the purpose of inspecting same, making any necessary repairs to the Premises or any adjoining space and performing any work therein necessary to comply with any laws, ordinances, rules or regulations of any public authority, fire rating bureau, or Lessor's insurer or that Lessor may deem necessary to prevent waste or deterioration to the Premises. Any such entry shall be so as to cause minimal inconvenience to Lessee. If Lessee fails to make any needed repairs required to be made by it pursuant to the terms of this Lease, Lessor may, but shall not be required to, perform such work at Lessee's expense, the cost of which shall be payable to Lessor within ten (10) days of Lessee's receipt of an invoice for same, as additional rent. In addition, Lessor may, upon twenty-four (24) hours notice to Lessee, enter upon the Premises during normal business hours to show the Premises to prospective purchasers, mortgagees and insurance representatives and may at any time during the last six (6) months of the term of this Lease, show the Premises to prospective lessees.

ARTICLE 10
INSURANCE

        10.1    Lessee's Public Liability and Property Insurance.    During the term of this Lease, Lessee shall, at Lessee's sole cost and expense, maintain comprehensive general liability insurance including contractual liability coverage against claims for injury, wrongful death or property damage occurring upon, in or about the Premises, with companies and in form acceptable to Lessor, with single limit coverage of not less than One Million and No/100 Dollars ($1,000,000.00) and a deductible of not more than Five Thousand and No/100 Dollars ($5,000.00). In such policy or policies, Lessor and Lessor's management company shall be named as an additional insured, as its interest may appear and said policies shall contain a waiver of subrogation clause. Lessee shall be solely responsible for obtaining any fire or extended coverage insurance for personal property and improvements of Lessee which may be located within the Premises and for all goods, commodities and material stored by Lessee in or about the Premises. Lessee shall provide Lessor with evidence of such insurance, satisfactory to Lessor, upon Lessee's receipt of a request for same from Lessor.

9

        10.2    Mutual Waiver of Subrogation.    Lessor and Lessee hereby waive the rights each may have against the other on account of any loss or damage occasioned to Lessor or Lessee, as the case may be, their respective property, the Premises or its contents arising from any risk insured against by Lessor or Lessee; and the parties each, on behalf of their respective insurance companies insuring the property of either Lessor or Lessee against any such loss, waive any right of subrogation that it may have against Lessor or Lessee, as the case may be. The release set forth in this Section shall apply only to the extent that such loss or damage is covered by insurance and only so long as the applicable insurance policies contain a clause or otherwise provide that this release shall not affect the right of the insured to recover under such policies.

        10.3    Liability.    Lessee and all those claiming by, through or under Lessee shall store their property in and shall occupy and use the Premises and any improvements therein and appurtenances thereto and any other applicable portions of Building and common areas solely at their own risk and Lessee and all those claiming by, through or under Lessee hereby release Lessor, to the full extent permitted by law, from any and all claims of every kind, including loss of life, personal or bodily injury, damage to merchandise, equipment, fixtures or other property, or damage to business or from business interruption, arising, directly or indirectly, out of or from or on account of such occupancy and use or resulting from any present or future condition or state of repair thereof, except those claims arising out of the negligence of Lessor or its agents, directors, officers, employees or contractors. Lessee shall defend and indemnify Lessor and save it harmless from and against any and all claims against Lessor arising from (a) Lessee's use of the Premises or the conduct of its business or from any activity, work or thing done, permitted or suffered by Lessee in or about the Building, (b) the nonperformance of any covenant or agreement on Lessee's part to be performed pursuant to the terms of this Lease, (c) any act or negligence of Lessee or of any of its agents, contractors, employees, invitees or licensees, and from and against all costs, fines, judgements, reasonable counsel fees, expenses and liabilities incurred in any such claim or in any action or proceeding brought thereon, or (d) Lessee's failure to comply with any and all governmental laws, ordinances and regulations applicable to the condition or use of the Premises or its occupancy. In case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor, covenants to resist or defend at Lessee's expense such action or proceeding by counsel reasonably satisfactory to Lessor. However, the foregoing provisions shall not be construed to make Lessee responsible for loss, damage, liability or defense resulting from injuries to third parties caused by the negligence of Lessor or its agents, directors, officers, contractors or employees. Further, Lessee shall give prompt notice to Lessor in case of fire or other casualty or accidents in the Premises or of any defects therein or in any of Lessor's machinery or equipment serving the Premises. The provisions of this Article shall survive the termination of this Lease with respect to any claims or liabilities accruing prior to such termination.

ARTICLE 11
CASUALTY

        11.1    Damage or Destruction.    If the Premises shall be partially damaged by fire or other casualty insured under Lessor's insurance policies, then upon Lessor's receipt of the insurance proceeds, Lessor shall, except as otherwise provided herein, repair and restore the same (exclusive of Lessee's trade fixtures, decorations, signs and contents) substantially to the condition thereof immediately prior to such damage or destruction; limited, however, to the extent of the insurance proceeds received by Lessor. If by reason of such occurrence, (a) the Premises is damaged in whole or in part as a result of a risk which is not covered by Lessor's insurance; or (b) the Premises is damaged in whole or in part during the last twelve (12) months of the term of this Lease; or (c) the Premises is damaged or the Building is damaged (whether or not the Premises is damaged) to an extent of 50% of more of the then replacement value thereof; or (d) the Building is damaged (whether or not the Premises is damaged) to such an extent that the Building cannot, in the judgment of Lessor, be operated as an

10

integral unit during the repair or restoration of said damaged areas, then, upon the occurrence of any of such events, Lessor may elect either to repair the damage as aforesaid, or cancel this Lease by written notice of cancellation given to Lessee within thirty (30) days after the date of such occurrence, and thereupon this Lease shall cease and terminate as though the date of Lessor's notice were the date herein fixed for the expiration of the term hereof. In addition to the foregoing, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then Lessor shall have the right to terminate this Lease by delivering a written notice of termination to Lessee within fifteen (15) days after such requirement is made by such holder. Upon the termination of this Lease as aforesaid, Lessee's liability for the rents reserved hereunder shall cease as of the effective date of the termination of this Lease. Unless this Lease is terminated by Lessor as aforesaid, this Lease shall remain in full force and effect. If the casualty renders the Premises untenantable in whole or in part, a proportionate abatement of the minimum base rent shall be allowed from the date when the damage occurred until the date when the Premises are made tenantable or until the effective date of termination as herein provided, said abatement to be computed on the basis of the relation which the square foot area of the space rendered untenantable bears to the aggregate square foot area of the Premises.

        11.2    Major Destruction.    Notwithstanding anything contained herein to the contrary, in the event the Premises are damaged by fire or other casualty so as to render said Premises unquestionably untenantable for one hundred and twenty (120) days or longer, then, in such event, Lessor and Lessee shall each have the option to terminate this Lease by delivering a written notice to the other within thirty (30) days of the occurrence of such damage or destruction. If Lessor and Lessee cannot agree as to whether said Premises are unquestionably untenantable for the aforedescribed period of time, the fact shall by determined by an architect selected by Lessor.

ARTICLE 12
CONDEMNATION

        12.1    Condemnation.    In the event the Premises or any part thereof be taken in an eminent domain proceeding the following provisions shall be controlling:

        A.    If the whole of the Premises shall be acquired or condemned by eminent domain for any public or quasi-public use or purpose (hereinafter "Condemned"), then and in that event the term of this Lease shall cease and terminate from the date of title vesting in such condemning authority and Lessee shall have no claim against Lessor for the value of any unexpired term of said Lease.

        B.    If any part of the Premises shall be condemned and such partial condemnation shall render the Premises unsuitable for the business of Lessee, then and in such event Lessee shall have the right to terminate this Lease by delivering a written notice of cancellation to Lessor, whereupon this Lease shall cease and terminate as of that date which is thirty (30) days after the date Lessor shall have received said notice of cancellation, and Lessee shall have no claim against Lessor for the value of the unexpired term of this Lease.

        C.    In the event (a) any part of the Premises shall be condemned during the last year of the term of this Lease; or (b) a part of the Premises is condemned and the cost of restoring the Premises will exceed the proceeds of any condemnation award received by Lessor; or (c) any portion of the Common Areas or any portion of the Building is condemned (whether or not any portion of the Premises is condemned) to such an extent that the project cannot, in the judgement of Lessor, be operated as an integral unit during or following the repair or restoration work to the Building or common areas; or (d) the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the condemnation proceeds be applied toward such indebtedness, then, in any of such events, Lessor may elect to cancel this Lease by written notice of cancellation given to Lessee, whereupon this Lease shall cease and terminate as of that date

11

which is thirty (30) days following the date upon which Lessee shall receive said notice of cancellation.

        D.    In the event of a partial taking or conveyance which does not give rise to a termination of the Lease pursuant to this Section, then Lessor shall promptly restore the Premises, to the extent of condemnation proceeds available for such purpose and to the extent practicable, to a condition comparable to the condition at the time of such condemnation, less the portion lost in the taking and this Lease shall continue in full force and effect. In such event, the monthly rent shall be reduced in the same proportion that the floor area of the Premises so taken or conveyed bears to the floor area of the Premises immediately prior to such taking or conveyance, such reduction commencing as of the date Lessee is required to surrender possession of such portion. For purposes of determining the amount of funds available for restoration of the Premises from the condemnation award, said amount shall be deemed to be that part of the award which remains after payment of all reasonable expenses incurred in recovering same and any amounts due to any mortgagee.

        E.    In the event of any condemnation or taking as hereinbefore provided, either whole or partial, Lessee shall not be entitled to any part of the award as damages or otherwise for such condemnation and Lessor is to receive the full amount of such award, the Lessee hereby expressly waiving any right or claim to any part thereof; except that Lessee shall be entitled to receive and retain any amounts which may be specifically awarded to it in such condemnation proceedings because of the taking of its trade fixtures and for relocation expenses. It is understood that in the event of the termination of this Lease as aforesaid, neither Lessor nor Lessee shall have any claim against the other for the value of any unexpired term of this Lease and Lessee shall have no right or claim to any part of the award on account thereof.

ARTICLE 13
LIENS

        13.1    Liens.    If the Premises or Lessee's leasehold interest therein shall at any time during the term of the Lease become subject to any mechanic's, laborer's or materialmen's lien based upon the furnishing of material or labor to Lessee on the Premises, Lessee shall cause the same, at Lessee's expense, to be discharged within thirty (30) days after notice thereof, unless the lien is then being litigated in good faith by Lessee, in which event Lessee shall indemnify and hold Lessor harmless from and against any such lien and shall secure Lessor to Lessor's satisfaction. Lessee shall have no authority or power, express or implied, to create or cause any lien, charge or encumbrance of any kind against the Premises or Lessor's ownership interest in the Premises.

ARTICLE 14
ASSIGNMENT

        14.1    Assignment.    Lessee shall not transfer, assign, sublet, enter into license or concession agreements, change ownership or hypothecate this Lease or Lessee's interest in and to the Premises without first procuring the prior written consent of Lessor. Any attempted transfer, assignment, subletting, license or concession agreement, change of ownership or hypothecation without Lessor's written consent, shall be void and confer no rights upon any third party. If this Lease or any interest of Lessee herein shall be assigned, or if the whole or any part of the Premises shall be sublet, after having obtained Lessor's prior written consent thereto, Lessee shall nevertheless remain fully liable for the full performance of all obligations under this Lease to be performed by Lessee, and Lessee shall not thereby be released in any manner. Lessor's interest in this Lease may be assigned by Lessor in connection with the sale or other conveyance of the Building and, upon such assignment, the

12

obligations of Lessor hereunder (including, but not limited to, refund of any security deposit held under Section 3.2 above) shall become obligations solely of such assignee.

        14.2    Termination Option.    In the event Lessee shall desire to sublet all or any portion of the Premises, Lessee shall give Lessor written notice, at least ninety (90) days before the commencement date of such proposed sublease, of Lessee's desire to sublet all or any portion of the Premises. Such notice shall include the commencement date of the proposed sublease, the area to be sublet, the rental to be paid by the subtenant, and all other terms and conditions of the sublease. From and after Lessor's receipt of Lessee's notice of its desire to sublease, Lessor shall have the option of terminating this Lease with respect to all or any portion of the area proposed to be sublet; such termination to be effective upon the date specified in the notice Lessor shall give to Lessee within fifteen (15) days after receiving notice of Lessee's desire to so sublease the Premises. If Lessor elects to terminate this Lease with respect to some portions of the Premises, said Lessee will retain other portions of the Premises, the base rent and all adjustments thereto specified in this Lease shall be adjusted proportionally on the basis of the useable square footage of the Premises retained by Lessee and this Lease shall remain in full force and effect in all other respects.

        14.3    Change in Ownership.    If Lessee is a corporation, limited liability company or partnership and if at any time during the term of this Lease the person or persons which, on the date of this Lease, own or owns a majority of such corporation's voting shares of stock or a majority of the membership or managing interests in such limited liability company or the general partner's interest in such partnership, as the case may be, cease or ceases to own a majority of said shares of stock or interests or general partner's interest, as the case may be (except as the result of transfers by inheritance), such change in ownership shall require the prior written consent of Lessor; the failure by Lessee to obtain such consent shall be deemed a default hereunder and in addition to all of the other rights and remedies of Lessor as set forth herein, Lessor shall, at its option, have the right to terminate this Lease by delivering a written notice of termination to Lessee.

        14.4    General.    In the event that Lessee shall sublet the Premises for a rental in excess of the fixed rent due hereunder from Lessee to Lessor, then, notwithstanding any other provision contained in this Lease to the contrary, the fixed rent provided for in this Lease shall automatically be increased during the term of such sublease to a sum equal to fifty percent (50%) of the amount of excess rent payable under such sublease. In the event that Lessee shall receive any valuable consideration for an assignment of the Lessee's interest in this Lease, then, notwithstanding any other provision contained in this Lease to the contrary, Lessee shall pay to Lessor as additional rent hereunder, fifty percent (50%) of the amount of consideration thereby received.

ARTICLE 15
DEFAULT

        15.1    Default.    The following events shall be deemed to be events of default by Lessee under this Lease: (a) if Lessee shall fail to make any payment of rent or additional rent or any other payment required to be made by Lessee hereunder, as the same shall become due and payable and shall not cure such failure within five (5) days after written notice thereof to Lessee (it being understood, however, that after Lessee has been delinquent in the payment of rent or additional rent on more than two (2) occasions during the term of this Lease, Lessor shall no longer be required to provide Lessee with written notice of such default and a five (5) day period within which to cure such default, and Lessee shall be deemed in default of its obligations under this clause upon Lessee's failure to make any future payment of rent or additional rent as and when due); (b) if Lessee shall fail to comply with any term, provision or covenant of this Lease, other than the payment of rent and additional rent, and shall not cure such failure within thirty (30) days after written notice thereof to Lessee; (c) if Lessee shall become insolvent or shall make a transfer in fraud of its creditors, or shall make an assignment for the

13

benefit of its creditors of Lessee's assets or Lessee's interest in this Lease; or (d) if a receiver or trustee shall be appointed for all or substantially all of the assets of Lessee.

        15.2    Remedies of Lessor.    Upon the occurrence of any such event of default, Lessor shall have the option to pursue any one or more of the following remedies (as well as any other remedies provided by law) without any notice or demand whatsoever:

        A.    Lessor may terminate this Lease, in which event Lessor may immediately repossess the Premises and be entitled to recover sums or damages for which Lessee may be adjudged legally liable to Lessor. Lessee shall thereupon surrender possession and vacate the Premises immediately, and deliver possession thereof to Lessor, and hereby grants to Lessor the full right to enter into and upon the Premises in such event with or without process of law and repossess the Premises and to expel or remove Lessee and any others who may be occupying the Premises and to remove any and all property therefrom, without such entry constituting a trespass, eviction or forcible entry or detainer, and without relinquishing Lessor's right to collect any rent that may be or become due, or any other right to which Lessor may be entitled under this Lease or by operation of law.

        B.    Lessor may terminate Lessee's right of possession and may repossess the Premises by unlawful detainer suit or by taking peaceful possession without terminating this Lease, in which event Lessor may, at Lessor's option, enter into the Premises, remove property, and take and hold possession, all as provided above, without terminating this Lease or releasing Lessee, in whole or in part, from Lessee's obligation to pay rent hereunder for the full term. Upon and after entry into possession without termination of this Lease, Lessor may relet the Premises or any part thereof for the account of Lessee to any person, firm or corporation other than Lessee for such rent, for such period (including periods extending beyond the term of this Lease) and upon such terms as Lessor shall determine to be commercially reasonable. In any such case, Lessor may make such reasonable repairs and alterations to the Premises and redecorate them as deemed by Lessor to be appropriate in order to facilitate reletting of the Premises. All reasonable costs thereof and Lessor's expenses of retaking possession, removing property, and of reletting, including a reasonable lease commission, shall be charged against the first rents collected on any reletting of the Premises. If the rents collected by Lessor upon any such reletting for Lessee's account, after payment of the foregoing expenses, are not sufficient to pay the full amount of the rent reserved in this Lease as it becomes due, Lessee shall pay to Lessor the amount of the deficiency each month upon demand. In the event the rents collected by Lessor upon any such reletting for Lessee's account, after payment of the foregoing expenses, exceed the full amount of the rent reserved in this Lease as it becomes due, such excess shall be retained by Lessor to be applied against any subsequent deficiency, and any excess remaining at the end of the term of this Lease shall be paid to Lessee.

        C.    If Lessor elects to terminate this Lease as above provided (and Lessor may elect to terminate this Lease at any time after an event of default, even after and notwithstanding Lessor's prior election to terminate Lessee's right to possession only as provided above), Lessor shall forthwith upon such termination be entitled to recover as damages, and not as a penalty, in addition to all damages sustained for the period prior to termination of this Lease, an amount equal to the then present value of the annual fixed rent and all additional rent for the remainder of the term of this Lease, less the then present reasonable rental value of the Premises for the remainder of the term. The present reasonable rental value of the Premises shall be determined according to the actual rental rate at which the Premises shall have been relet (less all expenses described above), if the Premises shall have been relet at the time the determination is made, or which shall be determined according to expert opinion of the rental rate at which the Premises can be relet within a reasonable time, discounted for a reasonable vacancy factor and reasonable reletting expenses, if the Premises shall not then have been relet.

14

        D.    No waiver by Lessor of any violation or breach of any of the terms, provisions and covenants of this Lease shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained. Forbearance by Lessor to enforce on or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default.

ARTICLE 16
COMPLIANCE WITH LAWS

        16.1    Code Compliance.    Lessee shall, at Lessee's sole cost and expense, comply or cause the Premises to comply with all applicable laws, rules, regulations, requirements and ordinances now in force or which may hereafter be in force (hereinafter collectively referred to as "Laws"), including, without limitation, The Americans With Disabilities Act (the "ADA"), which have been or which may be enacted or imposed by any governmental unit concerning Lessee's use of the Premises; provided, however, that this provision shall not apply (and the provisions of Article IV shall instead apply, to the extent so stated in Article IV) to any building wide alteration, maintenance or restoration required to all of the space in the Building, or to compliance by the Building (as opposed to Lessee's use thereof) on the Lease Commencement Date with any existing law, rule or regulation.

        16.2    Environmental Covenants.    Lessee shall not use, store, manufacture, dispose of or discharge any pollutants, contaminants, or harmful or hazardous substances from or on the Premises or otherwise occupy or permit the Premises to be occupied or used in a manner which (i) violates any law, regulation, rule or other governmental requirement, (ii) impairs the health, safety or condition of any person or property or (iii) adversely affects the use, enjoyment or value of the Premises or the surrounding property. Lessee shall promptly notify Lessor of the breach, or the potential or threatened breach, of any of the provisions of this Section. Lessee shall indemnify and hold Lessor and its officers, shareholders, partners, employees, and agents, harmless from any loss, claim, liability or expense (including, without limitation, attorneys' fees, court costs, consultant fees, expert fees, penalties, fines, removal, clean-up, transportation, disposal and restoration expenses) arising in connection with Lessee's failure to comply with the provisions of this Section. A breach of the provisions of this Section shall be a material default enabling Lessor to exercise any of the remedies set forth in this Lease. Lessee's obligation hereunder shall survive the termination of this Lease.

        16.3    Bankruptcy.    If a petition is filed by or against Lessee for relief under Title 11 of the United States Code, as amended (the "Bankruptcy Code"), and Lessee (including for purposes of this Section Lessee's successor in bankruptcy, whether a trustee or Lessee as debtor in possession) assumes and proposes to assign, or proposes to assume and assign, this Lease pursuant to the provisions of the Bankruptcy Code to any person or entity who has made or accepted a bona fide offer to accept an assignment of this Lease on the terms acceptable to Lessee, then notice of the proposed assignment setting forth (a) the name and address of the proposed assignee, (b) all of the terms and conditions of the offer and proposed assignment, and (c) the adequate assurance to be furnished by the proposed assignee of its future performance under this Lease, shall be given to Lessor by Lessee no later than twenty (20) days after Lessee has made or received such offer, but in no event later than ten (10) days prior to the date on which Lessee applies to a court of competent jurisdiction for authority and approval to enter into the proposed assignment. Lessor shall have the prior right and option, to be exercised by notice to Lessee given at any time prior to the date on which the court order authorizing such assignment becomes final and non-appealable to take an assignment of this Lease upon the same terms and conditions, and for the same consideration, if any, as the proposed assignee, less any brokerage commission which may otherwise be payable out of the consideration to be paid by the proposed assignee for the assignment of this Lease. If this Lease is assigned pursuant to the provisions of the Bankruptcy Code, Lessor: (i) may require from the assignee a deposit or other security for the performance of its obligations under this Lease in an amount substantially the same as would have

15

been required by Lessor upon the initial leasing to a tenant similar to the assignee; and (ii) shall be entitled to receive as additional Rent, any amounts received by Lessee in connection with such assignment. 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 documentation to have assumed all of the Lessee's obligations arising under this Lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Lessor an instrument confirming such assumption. No provision of this Lease shall be deemed a waiver of Lessor's rights or remedies under the Bankruptcy Code to oppose any assumption and/or assignment of this Lease, or to regain possession of the Premises if this Lease has neither been assumed nor rejected within sixty (60) days after the date of the order for relief. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor, under this Lease, whether or not expressly denominated as rent, shall constitute rent for the purposes of Section 502(b)(6) of the Bankruptcy Code.

ARTICLE 17
SUBORDINATION

        17.1    Subordination.    This Lease shall be subject to and subordinate to the lien of any mortgage or deed of trust which now or hereafter may constitute a lien on the fee of the Premises and to any agreements at any time made by Lessor, modifying, supplementing, extending, or renewing any such mortgage or deed of trust. The provisions for the subordination of this Lease shall be self-operative and no further instrument shall be required to effect such subordination; provided, however, that Lessee shall, upon request by Lessor, execute and deliver any and all instruments that may be reasonable, necessary or proper to effect and evidence such subordination, and to evidence Lessee's agreement to attorn to the mortgagee or any purchaser at a foreclosure or judicial sale of the Premises.

ARTICLE 18
SIGNS

        18.1    Signs.    No advertisements or notices shall be placed by Lessee on the outside of the Building without the prior written consent of Lessor, which consent may be withheld in the sole discretion of Lessor. No Lessee identification sign shall be displayed, inscribed, painted or fixed by Lessee on any part of the Building or Premises without the prior written consent of Lessor, which consent may be withheld by Lessor in its sole discretion. With respect to any sign which has received the prior written consent of Lessor, Lessee shall be obligated to obtain all necessary approvals for such sign from all applicable authorities.

ARTICLE 19
SURRENDER AND HOLDING OVER

        19.1    Surrender and Holding Over.

        A.    Upon the expiration of the term of this Lease, or upon an earlier termination of this Lease, Lessee shall surrender up peaceable possession of the Premises in the same condition as the Premises are in at the commencement of this Lease, reasonable wear and tear and casualty excepted. In the event that Lessee or any party holding under Lessee shall remain in possession of the Premises beyond the expiration of the term of this Lease or any renewal term thereof, whether by limitation or forfeiture, such party shall pay one hundred fifty percent (150%) rent hereunder during such holdover period, and shall indemnify Lessor for all costs, expenses and damages incurred by Lessor by reason of Lessee's holdover.

        B.    Prior to termination of this Lease, or any extension thereof, if Lessee is not in default of any obligation or covenant under this Lease, Lessee may remove its supplies and movable office

16

furniture and equipment from the Premises, and shall promptly repair any damage caused by such removal. In addition, approximately sixty (60) days prior to the termination of this Lease, Lessor shall inspect the Premises in the presence of Lessee for the purpose of identifying all Alterations, fixtures and improvements made or installed by, or at the direction of, Lessee which Lessor shall require be removed prior to the termination of the Lease (the "Designated Items"). The Designated Items may include, by illustration and not limitation, special plumbing, HVAC equipment, and computer or telephone equipment and cable. Prior to the termination of the Lease, Lessee shall be required to remove all Designated Items and shall repair and restore the Leased Premises to a condition satisfactory to Lessor. The obligations of Lessee under this Section shall survive the termination of this Lease.

ARTICLE 20
NOTICES

        20.1    Notices.    Any notice required or permitted to be given or served by either party to this Lease shall be deemed to have been given or served when made either through personal delivery or in writing and forwarded by United States mail, postage prepaid, addressed as set forth in Paragraph 20.1 of the Lease Cover Page. The addresses may be changed from time to time by either party by serving notice to the other party in the manner above provided.

ARTICLE 21
ESTOPPEL CERTIFICATES

        21.1    Estoppel Certificates.    Within ten (10) days following any written request which Lessor may make from time to time, Lessee shall execute and deliver to Lessor a statement certifying: (a) the date of commencement of this Lease; (b) the fact that this Lease is unmodified and in full force and effect (or if there have been modifications hereto, that this Lease is in full force and effect, as modified, and stating the date and nature of such modifications); (c) the date to which the rental and other sums payable under this Lease have been paid; (d) the fact that there are no current defaults under this Lease by either Lessor or Lessee except as specified in Lessee's statement; and (e) such other matters requested by Lessor. Lessor and Lessee intend that any statement delivered pursuant to this Section may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. Lessee's failure to deliver such statement within such time shall be conclusive upon Lessee (a) that this Lease is in full force and effect, without modification except as may be represented by Lessor; (b) that there are no uncured defaults in Lessor's performance; and (c) that not more than one (1) month's rental has been paid in advance.

ARTICLE 22
MISCELLANEOUS PROVISIONS

        22.1    Partial Invalidity.    If any term, covenant, condition or provision of this Lease is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions hereof shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.

        22.2    Attorneys' Fees.    In the event it becomes necessary for Lessor to employ an attorney to bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease, or for any other reason against Lessee hereunder, then all costs and expenses, including reasonable attorneys' fees, whether or not suit is filed, so incurred by Lessor shall be paid by Lessee, which obligation on the part of Lessee shall be enforceable whether or not the action is prosecuted to judgement. Should Lessor be named as a defendant in any

17

suit brought against Lessee in connection with or arising out of Lessee's occupancy hereunder, Lessee shall pay to Lessor its costs and expenses incurred in any suit including reasonable attorneys' fees.

        22.3    Waiver of Liability.    Anything contained in the Lease to the contrary notwithstanding, Lessee agrees that Lessee shall look solely to the estate and property of Lessor in the land and buildings comprising the Premises for the collection of any judgment (or other judicial process) requiring the payment of money by Lessor to Lessee in the event of any default or breach by Lessor with respect to any of the terms and provisions of this Lease to be observed and/or performed by Lessor, subject, however, to the prior rights of any holder of any mortgage covering the Premises, and no other assets of the Lessor shall be subject to levy, execution or other judicial process for the satisfaction of Lessee's claim.

        22.4    Brokers.    Lessee represents and warrants that, except for the commission payable by Lessor to Lessor's Representative and Lessee's Representative identified in Paragraph 20.4 of the Lease Cover Page, there are no claims for brokerage commissions or finder's fees in connection with the execution of this Lease as a result of the actions of Lessee. Lessee agrees to indemnify Lessor and Lessor's Agent against, and hold Lessor and Lessor's Agent harmless from, all liabilities arising from any such claims (including, without limitation, attorneys' fees). Exhibit B attached hereto describes the respective agency relationships in compliance with MREC rules and regulations.

        22.5    Rules.    Lessor shall have the right, from time to time, to make, establish or promulgate reasonable rules and regulations with regard to the Premises, provided such rules and regulations are not inconsistent with the terms of this Lease, and Lessee hereby covenants that it will observe, keep and comply with such rules and regulations promulgated by the Lessor.

        22.6    Assignment by Lessor.    The term "Lessor" as used in this Lease means only the owner at the time of the fee of the Premises, so that in the event of any sale of the Premises, the seller, transferor or assignor shall be entirely relieved of all further obligations of Lessor herein.

        22.7    Sole Agreement.    This Lease contains the entire agreement between the parties hereto and no term or provision hereof may be changed, waived, discharged or terminated unless the same be in writing executed by Lessor and Lessee.

        22.8    Confidentiality.    The terms and conditions of this Lease may not be disclosed by Lessee to third parties other than Lessee's attorneys, accountants and other business advisors as may be necessary for the proper conduct of Lessee's business without the prior written consent of Lessor.

        22.9    Missouri Law Governs.    The law of the State of Missouri shall govern the construction, performance and enforcement of this Lease.

        22.10    Time of Essence.    Time shall be of the essence in the performance of every term, covenant and condition of this Lease.

        22.11    Captions.    The Articles, Section and paragraph captions are inserted for convenience of reference and are in no way to be construed as a part of this Lease or as a limitation on the scope of the portion of the Lease to which they refer.

        22.12    Benefit.    This Lease shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, legal representatives, successors, and assigns.

        22.13    Cancellation Option.    Notwithstanding anything in this Lease to the contrary, Lessee shall have the option to terminate this Lease effective as of the end of the thirty-sixth (36^th) month and as of the end of the forty-eighth (48^th) month of the initial term of this Lease by giving written notice thereof to Lessor not later then six (6) months prior to each respective early termination date that Lessee is exercising such option, and by reimbursing Lessor for the unamortized portion of tenant finish costs incurred by Lessor, leasing commissions and two (2) months of the then current base rent (the

18

"Cancellation Fee"). It is agreed by the parties hereto that in the event Lessee exercises its option to terminate this Lease at the end of the thirty-sixth (36^th) month of the initial lease term, the Cancellation Fee shall equal Eighty One Thousand Seven Hundred Thirty Seven and 36/100 Dollars ($81,737.36), which amount shall be paid to Lessor no later than the thirty-sixth (36^th) month of the term hereof. It is also agreed by the parties hereto that in the event Lessee exercises its option to terminate this Lease at the end of the forty-eighth (48^th) month of the initial lease term, the Cancellation Fee shall equal Fifty Six Thousand One Hundred Forty Three and 48/100 Dollars ($56,143,48), which amount shall be paid to Lessor no later than the forty-eighth (48^th) month of the term hereof. In the event Lessee exercises either of said options to terminate, Lessee shall be required to pay Rent and all other amounts due from Lessee pursuant to this Lease through each respective early termination date, this Lease shall automatically terminate, and be of no further force or effect as of the termination date, and neither party shall have any further rights or obligations hereunder from and after said dates, except of obligation which have accrued and remained unsatisfied prior to said dates. If Lessee exercises such option to terminate in accordance with this Section 22.13, but fails to pay the Cancellation Fee specified within the time periods specified above, or fails to pay the Rent and other charges due under this Lease through the respective early termination dates, this Lease shall remain in full force and effect, and Lessee shall not be relieved of its obligations and liabilities hereunder. If lessee does not exercise this option to terminate by giving written notice thereof to Lessor no later than six (6) months prior to each respective early termination date, this option to terminate shall automatically become null and void, and of no further force and effect, and Lessee shall have no further rights to terminate this Lease pursuant to this Section 22.13.

19

IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written.

LESSOR:
TEDUKE INVESTMENT COMPANY
By:	/s/  RICHARD W. MEIER
Title:	Trustee
LESSEE:
SURFACE SYSTEMS, INC.
By:	/s/  DANIEL P. GOREY
Title:	Vice President

20

EXHIBIT A
(Diagram of Leased Premises)

21

EXHIBIT B
(Agency Disclosure Form)

22

QuickLinks

Exhibit 10(f)

EX-21

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 21

QUIXOTE CORPORATION & SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
as of June 30, 2002

QUIXOTE CORPORATION (PARENT)				Jurisdiction Under Which Organized
Quixote Transportation Safety, Inc.				Delaware
	TranSafe Corporation			Delaware
		Nu-Metrics, Inc.		Pennsylvania
		Highway Information Systems, Inc.		Delaware
			TIS, Inc.	North Carolina
	National Signal, Inc.			California
	Surface Systems, Inc.			Missouri
		Sensing Systems, Ltd.		United Kingdom
	Energy Absorption Systems, Inc.			Delaware
		E-Tech Testing Services, Inc.		Delaware
		Spin-Cast Plastics, Inc.		Indiana
		Energy Absorption Systems (Europe), Inc.		Delaware
		Quixote Transportation Systems (Asia Pacific) Pty Limited		Australia
		Quixote Transportation Systems (Europe), Inc.		Delaware
Quixote Research Corporation				Delaware
Quixote Foreign Sales Corporation				U.S. Virgin Islands

        Quixote Transportation Safety, Inc., Quixote Research Corporation and Quixote Foreign Sales Corporation are wholly-owned by Quixote Corporation.

        TranSafe Corporation, National Signal, Inc., Surface Systems, Inc. and Energy Absorption Systems, Inc. are wholly-owned by Quixote Transportation Safety, Inc.

        All subsidiaries listed under TranSafe Corporation, Highway Information Systems, Inc., Surface Systems, Inc. and Energy Absorption Systems, Inc. are wholly-owned by those corporations.

QuickLinks

EXHIBIT 21

EX-23

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

        We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-76697, 33-1805, 33-22289, 33-50248, 33-74488, 333-62933, 333-81955, 333-32872, 333-56120 and 333-83404) of Quixote Corporation and the Registration Statements on Form S-3 (Nos. 2-96502 and 33-14873) of Quixote Corporation of our report dated August 2, 2002 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
September 25, 2002

QuickLinks

EXHIBIT 23

EX-99

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 99

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the annual report of Quixote Corporation (the "Company") on Form 10-K for the Annual Period ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date:	September 25, 2002	/s/  LESLIE J. JEZUIT
		Leslie J. Jezuit, Chief Executive Officer
Date:	September 25, 2002	/s/  DANIEL P. GOREY
		Daniel P. Gorey, Chief Financial Officer

        The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

QuickLinks

EXHIBIT 99