10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

OR

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

Commission file number 1-4987

SL INDUSTRIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

New Jersey	21-0682685
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
520 Fellowship Road, Suite A114, Mt. Laurel, NJ	08054
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 856-727-1500

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer    ¨	Accelerated filer     ¨	Non-accelerated filer     ¨	Smaller reporting Company     x
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

The number of shares of common stock outstanding as of August 6, 2012 was 4,121,000.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets June 30, 2012 (Unaudited) and December 31, 2011		1
Consolidated Statements of Income and Comprehensive Income Three Months Ended June 30, 2012 and 2011 (Unaudited) and Six Months Ended June 30, 2012 and 2011 (Unaudited)		2
Consolidated Statements of Cash Flows Six Months Ended June 30, 2012 and 2011 (Unaudited)		3
Notes to Consolidated Financial Statements (Unaudited)		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3. Quantitative and Qualitative Disclosures about Market Risk		52
Item 4. Controls and Procedures		52
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		52
Item 1A. Risk Factors		52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		53
Item 3. Defaults upon Senior Securities		54
Item 4. Mine Safety Disclosures		54
Item 5. Other Information		54
Item 6. Exhibits		56
Signatures		57

Item 1. Financial Statements

SL INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	7,891,000		$	5,632,000
Receivables, net		27,723,000			31,141,000
Inventories, net		23,816,000			22,599,000
Other current assets		3,069,000			2,074,000
Deferred income taxes, net		5,473,000			4,666,000
Total current assets		67,972,000			66,112,000
Property, plant and equipment, net		9,510,000			9,416,000
Deferred income taxes, net		8,134,000			8,648,000
Goodwill		22,735,000			22,738,000
Other intangible assets, net		3,027,000			3,229,000
Other assets and deferred charges, net		1,109,000			1,083,000
Total assets	$	112,487,000		$	111,226,000
LIABILITIES
Current liabilities:
Accounts payable	$	18,150,000		$	16,875,000
Accrued income taxes		—			14,000
Accrued liabilities:
Payroll and related costs		5,097,000			5,256,000
Other		13,589,000			9,563,000
Total current liabilities		36,836,000			31,708,000
Deferred compensation and supplemental retirement benefits		2,004,000			2,084,000
Other long-term liabilities		20,369,000			20,577,000
Total liabilities		59,209,000			54,369,000
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued		—			—
Common stock, $.20 par value; authorized, 25,000,000 shares; issued, 6,656,000 and 6,963,000 shares, respectively		1,332,000			1,393,000
Capital in excess of par value		21,630,000			25,002,000
Retained earnings		55,241,000			52,825,000
Accumulated other comprehensive (loss)		(443,000	)		(349,000	)
Treasury stock at cost, 2,535,000 and 2,395,000 shares, respectively		(24,482,000	)		(22,014,000	)
Total shareholders’ equity		53,278,000			56,857,000
Total liabilities and shareholders’ equity	$	112,487,000		$	111,226,000

See accompanying notes to consolidated financial statements.

1

SL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net sales	$	48,899,000		$	56,266,000		$	98,239,000		$	108,860,000
Cost and expenses:
Cost of products sold		32,756,000			37,890,000			66,527,000			72,709,000
Engineering and product development		2,954,000			3,180,000			5,975,000			6,486,000
Selling, general and administrative		10,137,000			8,807,000			19,648,000			17,468,000
Depreciation and amortization		707,000			775,000			1,372,000			1,544,000
Total cost and expenses		46,554,000			50,652,000			93,522,000			98,207,000
Income from operations		2,345,000			5,614,000			4,717,000			10,653,000
Other income (expense):
Amortization of deferred financing costs		(39,000	)		(77,000	)		(72,000	)		(153,000	)
Interest income		2,000			—			3,000			1,000
Interest expense		(9,000	)		(56,000	)		(31,000	)		(138,000	)
Other gain (loss), net		(162,000	)		—			(170,000	)		—
Fire related gain		—			277,000			—			277,000
Income from continuing operations before income taxes		2,137,000			5,758,000			4,447,000			10,640,000
Income tax provision		727,000			2,142,000			1,593,000			3,422,000
Income from continuing operations		1,410,000			3,616,000			2,854,000			7,218,000
(Loss) income from discontinued operations, net of tax		(244,000	)		593,000			(438,000	)		403,000
Net income	$	1,166,000		$	4,209,000		$	2,416,000		$	7,621,000
Basic net income (loss) per common share
Income from continuing operations	$	0.32		$	0.80		$	0.64		$	1.60
(Loss) income from discontinued operations, net of tax		(0.06	)		0.13			(0.10	)		0.09
Net income	$	0.26		$	0.93		$	0.54		$	1.69
Diluted net income (loss) per common share
Income from continuing operations	$	0.32		$	0.79		$	0.63		$	1.58
(Loss) income from discontinued operations, net of tax		(0.06	)		0.13			(0.10	)		0.09
Net income	$	0.26		$	0.92		$	0.53		$	1.67
Shares used in computing basic net income (loss) per common share		4,444,000			4,523,000			4,501,000			4,507,000
Shares used in computing diluted net income (loss) per common share		4,457,000			4,576,000			4,518,000			4,558,000

SL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012			2011		2012			2011
Net income	$	1,166,000		$	4,209,000	$	2,416,000		$	7,621,000
Other comprehensive income, net of tax:
Foreign currency translation		(113,000	)		93,000		(94,000	)		102,000
Comprehensive income	$	1,053,000		$	4,302,000	$	2,322,000		$	7,723,000

See accompanying notes to consolidated financial statements.

2

SL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(Unaudited)

	2012			2011
OPERATING ACTIVITIES:
Net income	$	2,416,000		$	7,621,000
Adjustment for loss (income) from discontinued operations		438,000			(403,000	)
Income from continuing operations		2,854,000			7,218,000
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation		892,000			1,007,000
Amortization		480,000			537,000
Amortization of deferred financing costs		72,000			153,000
Stock-based compensation		744,000			173,000
Tax benefit from exercise of stock options		—			(200,000	)
Loss on foreign exchange contracts		170,000			—
Non-cash fire related gain		—			(277,000	)
Provisions for (recoveries of) losses on accounts receivable		40,000			(13,000	)
Deferred compensation and supplemental retirement benefits		201,000			199,000
Deferred compensation and supplemental retirement benefit payments		(269,000	)		(270,000	)
Deferred income taxes		(293,000	)		584,000
Loss on sale of equipment		11,000			12,000
Changes in operating assets and liabilities:
Accounts receivable		3,297,000			(2,136,000	)
Inventories		(503,000	)		(1,894,000	)
Other assets		(1,004,000	)		(1,671,000	)
Accounts payable		1,216,000			2,575,000
Other accrued liabilities		3,333,000			(703,000	)
Accrued income taxes		10,000			155,000
Net cash provided by operating activities from continuing operations		11,251,000			5,449,000
Net cash (used in) operating activities from discontinued operations		(513,000	)		(823,000	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		10,738,000			4,626,000
INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(879,000	)		(1,934,000	)
Acquisition of a business, net of cash acquired		(756,000	)		—
Purchases of other assets		(155,000	)		(301,000	)
NET CASH (USED IN) INVESTING ACTIVITIES		(1,790,000	)		(2,235,000	)
FINANCING ACTIVITIES:
Proceeds from Revolving Credit Facility		3,900,000			10,300,000
Payments of Revolving Credit Facility		(3,900,000	)		(11,100,000	)
Payments of deferred financing costs		(43,000	)		(1,000	)
Repurchase and retirement of common stock		(4,177,000	)		—
Treasury stock purchases		(2,468,000	)		—
Proceeds from stock options exercised		—			465,000
Tax benefit from exercise of stock options		—			200,000
NET CASH (USED IN) FINANCING ACTIVITIES		(6,688,000	)		(136,000	)
Effect of exchange rate changes on cash		(1,000	)		(16,000	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		2,259,000			2,239,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		5,632,000			1,374,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,891,000		$	3,613,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	32,000		$	140,000
Income taxes	$	1,622,000		$	3,356,000

See accompanying notes to consolidated financial statements.

3

SL INDUSTRIES, INC.

Notes to Consolidated Financial Statements (Unaudited)

1. Basis Of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereon included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Unless the context requires otherwise, the terms the “Company,” “SL Industries,” “we,” “us” and “our” mean SL Industries, Inc., a New Jersey corporation, and its consolidated subsidiaries.

Certain reclassifications have been made to the prior period Consolidated Statement of Cash Flows and footnotes to conform to the current year presentation.

2. Receivables

Receivables consist of the following:

	June 30,			December 31,
	2012			2011
	(in thousands)
Trade receivables	$	27,897		$	30,447
Less: allowance for doubtful accounts		(599	)		(603	)
Trade receivables, net		27,298			29,844
Recoverable income taxes		7			202
Other		418			1,095
Receivables, net	$	27,723		$	31,141

3. Inventories

Inventories consist of the following:

	June 30,			December 31,
	2012			2011 (1)
	(in thousands)
Raw materials	$	16,420		$	16,219
Work in process		5,394			4,161
Finished goods		4,666			4,494
Gross inventory		26,480			24,874
Less: allowances		(2,664	)		(2,275	)
Inventories, net	$	23,816		$	22,599

⁽¹⁾  Prior year reclassification for comparative purposes.

4

4. Income Per Share

The Company has presented net income per common share pursuant to Accounting Standards Codification (“ASC”) 260 “Earnings Per Share.” Basic net income per common share is computed by dividing reported net income available to common shareholders by the weighted average number of shares outstanding for the period.

Diluted net income per common share is computed by dividing reported net income available to common shareholders by the weighted average shares outstanding for the period, adjusted for the dilutive effect of common stock equivalents, which consist of stock options, using the treasury stock method.

The table below sets forth the computation of basic and diluted net income per share:

	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
	(in thousands, except per share amounts)
Basic net income available to common shareholders:
Net income available to common shareholders from continuing operations	$	1,410		$	3,616	$	2,854		$	7,218
Diluted net income available to common shareholders from continuing operations	$	1,410		$	3,616	$	2,854		$	7,218
Shares:
Basic weighted average number of common shares outstanding		4,444			4,523		4,501			4,507
Common shares assumed upon exercise of stock options		13			53		17			51
Diluted weighted average number of common shares outstanding		4,457			4,576		4,518			4,558
Basic net income (loss) per common share:
Income from continuing operations	$	0.32		$	0.80	$	0.64		$	1.60
(Loss) income from discontinued operations (net of tax)		(0.06	)		0.13		(0.10	)		0.09
Net income	$	0.26		$	0.93	$	0.54		$	1.69
Diluted net income (loss) per common share:
Income from continuing operations	$	0.32		$	0.79	$	0.63		$	1.58
(Loss) income from discontinued operations (net of tax)		(0.06	)		0.13		(0.10	)		0.09
Net income	$	0.26		$	0.92	$	0.53		$	1.67

For the six-months ended June 30, 2012, approximately 6,000 stock options were excluded from the dilutive computation because the option exercise prices were greater than the average market price of the Company’s common stock. No stock options were excluded from the dilutive computation for the six-months ended June 30, 2011, since all option exercise prices were less than the average market price of the Company’s common stock.

5. Stock-Based Compensation

At June 30, 2012, the Company had stock-based employee compensation plans as described below. The total compensation expense (included in selling, general and administrative expense) related to these plans for the three and six months ended June 30, 2012 was $595,000 and $744,000 ($385,000 and $477,000, net of tax), respectively. For the three and six months ended June 30, 2011, the total compensation expense was $99,000 and $173,000 ($61,000 and $106,000, net of tax), respectively.

5

The Company maintains a shareholder approved stock option plan that has expired: the Non-Employee Director Nonqualified Stock Option Plan (the “Director Plan”). As of June 30, 2012, 13,000 options were outstanding under the Director Plan, which are scheduled to expire on February 28, 2013.

On May 14, 2008, the shareholders approved the 2008 Incentive Stock Plan (the “2008 Plan”). The 2008 Plan was proposed to create an additional incentive to retain directors, key employees and advisors of the Company. Prior to the amendment of the 2008 Plan on June 8, 2011, as described below, up to 315,000 shares of the Company’s common stock were subject to the 2008 Plan. Options granted under the 2008 Plan are required to stipulate an exercise price per share of not less than the fair market value of the Company’s common stock on the business day immediately prior to the date of the grant. Options granted under the 2008 Plan are exercisable no later than ten years after the grant date.

During 2008, the Company granted 155,000 incentive options to select executives and a key employee under the 2008 Plan. The options issued vest in three equal installments, with the first installment vesting on the date of the grant and the remaining two installments each vesting on the second and third anniversary of the grant. During 2010, 135,000 of these options were cancelled in connection to the departure of certain executives in June 2010.

During 2010, the Company granted 160,000 stock options to select executives and key employees under the 2008 Plan. All stock options that were issued vest over a three year period except for one grant of 15,000 shares, in which 7,500 shares vested on the date of grant and the remainder vests on the first anniversary of the grant date. Compensation expense is recognized over the vesting period of the options. During 2011, 5,000 of these options were forfeited in connection with the departure of a certain executive in February 2011.

During 2011, the shareholders of the Company approved amendments to the 2008 Plan to: (a) increase the number of shares of the Company’s common stock subject to the 2008 Plan from 315,000 shares to 450,000 shares, and (b) require shareholder approval prior to the reduction of the exercise price of any outstanding options or stock appreciation rights, any repricing through cancellations and re-grants of new options or stock appreciation rights, or any cancellation of outstanding options or stock appreciation rights with an exercise price above the current stock price in exchange for cash or other securities. No stock options were granted to select executives and key employees under the 2008 Plan during the six months ended June 30, 2012. As of June 30, 2012, there were 135,000 options outstanding under the 2008 Plan.

During the second quarter of 2011, the Company implemented a Long-Term Incentive Plan (the “2011 LTIP”) pursuant to the 2008 Plan which awarded restricted stock units (“RSUs”) to eligible executives. Under the terms of the 2011 LTIP, the number of RSUs that may vest, if any, will be based on, among other things, the Company achieving certain sales and return on invested capital (“ROIC”) targets during the January 2011 to December 2013 performance period. Earned RSUs, if any, cliff vest at the end of fiscal 2013 (100% of earned RSUs vest at December 31, 2013). The final value of these RSUs will be determined by the number of shares earned. The value of these RSUs is charged to compensation expense on a straight-line basis over the three year vesting period with periodic adjustments to account for changes in anticipated award amounts. The weighted-average price for these RSUs was $23.00 per share based on the grant date of June 9, 2011. During the three months ended and six months ended June 30, 2012, $40,000 and $78,000 was charged to compensation expense, respectively. As of June 30, 2012, total unamortized compensation expense for this grant was $242,000. As of June 30, 2012, the maximum number of achievable RSUs under the 2011 LTIP was 36,000 RSUs.

6

During the first quarter of 2012, the Company implemented a Long-Term Incentive Plan (the “2012 LTIP”) pursuant to the 2008 Plan which awarded RSUs to eligible executives. Under the terms of the 2012 LTIP, the number of RSUs that may vest, if any, will be based on, among other things, the Company achieving certain sales and ROIC, as defined, targets during the January 2012 to December 2014 performance period. Earned RSUs, if any, cliff vest at the end of fiscal 2014 (100% of earned RSUs vest at December 31, 2014). The final value of these RSUs will be determined by the number of shares earned. The value of these RSUs is charged to compensation expense on a straight-line basis over the three year vesting period with periodic adjustments to account for changes in anticipated award amounts. The weighted-average price for these RSUs was $18.00 per share based on the grant date of February 17, 2012. During the three months ended and six months ended June 30, 2012, $43,000 and $71,000 was charged to compensation expense, respectively. As of June 30, 2012, total unamortized compensation expense for this grant was $505,000. As of June 30, 2012, the maximum number of achievable RSUs under the 2012 LTIP was 55,000 RSUs.

On April 2, 2012, the Company awarded each Director, except the Chairman, 3,000 restricted shares pursuant to the 2008 Plan. The Chairman was awarded 10,000 restricted shares pursuant to the 2008 Plan. The restricted shares vest on the earlier of one year from the date of grant or upon the recipient ending his continuous service as a director of the Company. Based on the terms of the awards the shares were immediately expensed and as a result the Company recognized $431,000 of stock compensation expense during the second quarter of 2012. The weighted-average price of these restricted stock grants was $19.57 per share based on the grant date of April 2, 2012.

Stock Options

Option activity under the principal option plans as of June 30, 2012 and changes during the three months ended June 30, 2012 were as follows:

	Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Life		Aggregate Intrinsic Value
	(in thousands)						(in thousands)
Outstanding as of December 31, 2011		148	$	12.17		4.95	$	608
Granted		—		—
Exercised		—		—
Forfeited		—		—
Expired		—		—
Outstanding as of June 30, 2012		148	$	12.17		4.45	$	222
Exercisable as of June 30, 2012		85	$	11.56		3.96	$	163

7

During the six months ended June 30, 2012, no options to purchase common stock were exercised by option holders. During the six months ended June 30, 2011, options to purchase approximately 52,000 shares of common stock with an aggregate exercise price of $465,000 were exercised by option holders.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of fiscal 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2012. This amount changes based on the fair market value of the Company’s stock.

As of June 30, 2012, $362,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.1 years.

Tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options are classified as financing cash flows. There were no options exercised during the six months ended June 30, 2012. Cash received from option exercises for the six months ended June 30, 2011 was $465,000. The actual tax benefit realized for the tax deduction from option exercises of the share-based payment units totaled $200,000 for the six months ended June 30, 2011. The Company has applied the “Short-cut” method in calculating the historical windfall tax benefits. All tax shortfalls will be applied against this windfall before being charged to earnings.

6. Income Tax

The Company calculates its interim tax provision in accordance with the provisions of ASC 740-270 “Income Taxes – Interim Reporting.” For each interim period the Company estimates its annual effective income tax rate and applies the estimated rate to its year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items separately reported, such as discontinued operations, and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

For the six month periods ended June 30, 2012 and June 30, 2011, the estimated income tax rate from continuing operations was 36% and 32%, respectively. The increase in the effective tax rate in 2012 was primarily due to the effect of a federal tax rate change recognized in deferred taxes in 2011 that did not apply in 2012. The increase was also due to less foreign tax credits available to the Company in 2012 compared to 2011.

The Company has recorded gross unrecognized tax benefits, excluding interest and penalties, as of June 30, 2012 and December 31, 2011 of $762,000 and $722,000, respectively. Tax benefits are recorded pursuant to the provisions of ASC 740 “Income Taxes.” If such unrecognized tax benefits are ultimately recorded in any period, the Company’s effective tax rate would be reduced accordingly for such period.

The Company has been examined by the Internal Revenue Service (the “IRS”) for periods up to and including the calendar year 2004. During the third quarter of 2011 the Company was contacted by the IRS to examine the calendar year 2009 and 2010. The examination began in November 2011 and is still ongoing.

8

It is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months due to the expiration of the statutes of limitation of the federal government and various state governments by a range of zero to $366,000. The Company records such unrecognized tax benefits upon the expiration of the applicable statute of limitations or the settlement with tax authorities. As of June 30, 2012, the Company has a liability for unrecognized benefits of $485,000 and $277,000 for federal and state taxes, respectively. Such benefits relate primarily to expenses incurred in those jurisdictions.

The Company classifies interest and penalties related to unrecognized tax benefits as income tax expense. At June 30, 2012, the Company has accrued approximately $133,000 for the payment of interest and penalties.

During the six month period ended June 30, 2012, the Company recorded additional benefits from state research and development tax credits of $66,000. As of June 30, 2012, the Company’s gross research and development tax credit carryforwards totaled approximately $841,000. Of these credits, approximately $353,000 can be carried forward for 15 years and will expire between 2013 and 2026, and approximately $488,000 can be carried forward indefinitely. As of June 30, 2012, the Company’s gross deferred foreign tax credits totaled approximately $10,000, which are due to expire by December 31, 2012.

During the second quarter of 2011 the Company reached a settlement with a foreign tax authority which was recorded as part of discontinued operations. The settlement was associated with the Company’s Elektro-Metall Export GmbH subsidiary, which was sold in January 2003. As a result, during the second quarter of 2011, the Company recognized income of $787,000 ($619,000 tax and $168,000 interest) from a previously unrecognized tax position related to the settlement.

7. Recently Adopted and Issued Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-4, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS,” which converges fair value measurement and disclosure guidance in U.S. GAAP with fair value measurement and disclosure guidance issued by the International Accounting Standards Board (“IASB”). The amendments in the authoritative guidance do not modify the requirements for when fair value measurements apply. The amendments generally represent clarifications on how to measure and disclose fair value under ASC 820, “Fair Value Measurement.” ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption not permitted. The adoption of the provisions of ASU No. 2011-4 did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income,” which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for fiscal years beginning on or after December 15, 2011 and interim periods within those years. As this new guidance is related to presentation only, the implementation in the first quarter of 2012 did not have a material impact on the Company’s results of operations, financial position or cash flows.

9

In September 2011, the FASB issued ASU 2011-08 “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” which amends the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors (such as changes in management, key personnel, strategy, key technology, or customers) to determine if it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. ASU 2011-08 is effective for the first annual period beginning after December 15, 2011, with early adoption permitted. The implementation of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

8. Goodwill And Intangible Assets

Acquisitions in Fiscal 2012

On February 27, 2012, the Company purchased certain assets of Pro-Dex Astromec, Inc. (“Astromec”), a subsidiary of Pro-Dex Inc. (“Pro-Dex”), for approximately $1,050,000, which includes the assumption of liabilities for an estimated earn-out of $294,000. The acquisition was paid in cash. Astromec designs, develops and manufactures high-reliability, fractional horsepower motors and motion control accessories. Astromec provides custom motor and motion control solutions to the aerospace, defense, medical and commercial and industrial markets. SL-MTI recorded direct acquisition costs of approximately $422,000 during the first six months of 2012, which are recorded within selling, general and administrative expenses in the Consolidated Statements of Income.

At June 30, 2012, the financial statements reflect the preliminary purchase price based on estimated fair values at the date of acquisition, including $670,000 in inventories, $202,000 in equipment, and $10,000 in other current assets. The acquisition resulted in intangible assets of $168,000 while no goodwill was recognized. Intangible assets were composed of a customer list with a useful life of 5 years. The purchase price also includes $294,000 in liabilities related to an estimated earn-out, which is comprised of quarterly payments based on the performance of the acquired business over the three year period immediately following the date of acquisition.

The Company continues to evaluate certain assets and liabilities related to this business combination. Additional information, which existed as of the acquisition date but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill. The determination of the estimated fair values of all assets and liabilities acquired is expected to be completed during fiscal year 2012. The results from the acquisition date through June 30, 2012 are included in the SL-MTI segment.

10

Goodwill And Intangible Assets

Intangible assets consist of the following:

			June 30, 2012						December 31, 2011
	Amortizable Life (years)		Gross Value		Accumulated Amortization		Net Value		Gross Value		Accumulated Amortization		Net Value
			(in thousands)
Finite-lived intangible assets:
Customer relationships (1)		5 to 8	$	3,868	$	2,853	$	1,015	$	3,700	$	2,587	$	1,113
Patents (2)		5 to 20		1,281		1,170		111		1,250		1,154		96
Developed technology		5 to 6		1,700		1,608		92		1,700		1,517		183
Licensing fees		5 to 10		450		313		137		450		285		165
Total amortized finite-lived intangible assets				7,299		5,944		1,355		7,100		5,543		1,557
Indefinite-lived intangible assets:
Trademarks				1,672		—		1,672		1,672		—		1,672
Other intangible assets, net			$	8,971	$	5,944	$	3,027	$	8,772	$	5,543	$	3,229

⁽¹⁾  On February 27, 2012, the Company purchased certain assets of Astromec, a subsidiary of Pro-Dex. Included in the preliminary purchase price is a customer list valued at $168,000. The estimated useful life of the asset is 5 years.

⁽²⁾  During the first six months of 2012, the Company’s MTE division capitalized legal fees related to a new patent application. The estimated useful life of the asset is 20 years.

In accordance with ASC 350 “Intangibles – Goodwill and Other,” goodwill and other indefinite-lived intangible assets are not amortized, but are tested for impairment. Such impairment testing is undertaken annually, or more frequently upon the occurrence of some indication that an impairment has taken place. The Company conducted an annual impairment test as of December 31, 2011.

A two-step process is utilized to determine if goodwill has been impaired. In the first step, the fair value of each reporting unit is compared to the net asset value recorded for such unit. If the fair value exceeds the net asset value, the goodwill of the reporting unit is not adjusted. However, if the recorded net asset value exceeds the fair value, the Company performs a second step to measure the amount of impairment loss, if any. In the second step, the implied fair value of the reporting unit’s goodwill is compared with the goodwill recorded for such unit. If the recorded amount of goodwill exceeds the implied fair value, an impairment loss is recognized in the amount of the excess.

For the testing conducted as of December 31, 2011, the Company concluded that no impairment charge was warranted. Going forward there can be no assurance that economic conditions or other events may not have a negative material impact on the long-term business prospects of any of the Company’s reporting units. In such case, the Company may need to record an impairment loss, as stated above. The next annual impairment test will be conducted as of December 31, 2012, unless management identifies a triggering event in the interim.

Management has not identified any triggering events, as defined by ASC 350, during 2012. Accordingly, no interim impairment test has been performed.

11

Estimated future amortization expense for intangible assets subject to amortization in each of the next five fiscal years is as follows:

	Amortization Expense (in thousands)
2012	$	759
2013	$	439
2014	$	401
2015	$	58
2016	$	39

Total amortization expense, excluding the amortization of deferred financing costs, consists of amortization expense related to intangible assets and software. Amortization expense related to intangible assets for the three months ended June 30, 2012 and June 30, 2011 was $206,000 and $229,000 respectively. Amortization expense related to intangible assets for the six months ended June 30, 2012 and June 30, 2011 was $401,000 and $459,000, respectively. Amortization expense related to software for the three months ended June 30, 2012 and June 30, 2011 was $41,000 and $42,000, respectively. Amortization expense related to software for the six months ended June 30, 2012 and June 30, 2011 was $79,000 and $78,000, respectively.

Changes in goodwill balances by segment (defined below) are as follows:

	Balance					Balance
	December 31,		Translation			June 30,
	2011		Adjustment			2012
	(in thousands)
SL Power Electronics Corp.	$	4,245	$	(3	)	$	4,242
High Power Group:
MTE Corporation		8,189		—			8,189
Teal Electronics Corp.		5,055		—			5,055
RFL Electronics Inc.		5,249		—			5,249
Total	$	22,738	$	(3	)	$	22,735

9. Debt

On October 23, 2008, the Company and certain of its subsidiaries entered into an Amended and Restated Revolving Credit Agreement, as amended (the “2008 Credit Facility”) with Bank of America, N.A., a national banking association, individually, as agent, issuer and a lender thereunder, and the other financial institutions party thereto. The 2008 Credit Facility was reset and amended on August 12, 2009, November 19, 2010, March 28, 2011, July 20, 2011 and May 29, 2012.

12

The 2008 Credit Facility, as amended, provides for maximum borrowings of up to $40,000,000 and includes a standby and commercial letter of credit sub-limit of $10,000,000. The 2008 Credit Facility was scheduled to expire on July 1, 2012, unless earlier terminated by the agent thereunder following an event of default. Borrowings under the 2008 Credit Facility bear interest, at the Company’s option, at the British Bankers Association LIBOR rate plus 1.5% to 3.0%, or an alternative rate, which is the higher of (i) the Federal Funds rate plus 0.5%, or (ii) Bank of America, N.A.’s publicly announced prime rate, plus a margin rate ranging from 0% to 0.75%. The margin rates are based on certain leverage ratios, as provided in the facility documents. The Company is subject to compliance with certain financial covenants set forth in the 2008 Credit Facility, including a maximum ratio of total funded indebtedness to EBITDA (as defined), minimum levels of interest coverage and net worth and limitations on capital expenditures, as defined. Availability under the 2008 Credit Facility is based upon the Company’s trailing twelve month EBITDA, as defined.

On May 29, 2012, the Company entered into a Fifth Amendment to the 2008 Credit Facility. The Fifth Amendment, among other things, (a) amends the definition of Maturity Date to extend the Maturity Date of the Credit Agreement to August 30, 2012, (b) amends the Minimum Net Worth financial covenant, and (c) amends the business covenants to permit the Company to issue one or more dividends and/or purchase its registered capital stock then issued and outstanding, in an amount not in excess, in the aggregate, of Twenty Million Dollars ($20,000,000), on a trailing twelve month basis. In consideration for these amendments, the Company agreed to pay the lenders $43,000, which was remitted in May 2012 and will be amortized over the remaining life of the 2008 Credit Facility.

As of June 30, 2012, and December 31, 2011, the Company had no outstanding balance under the 2008 Credit Facility. At June 30, 2012 and December 31, 2011, the Company had total availability under the 2008 Credit Facility of $39,510,000 and $39,527,000, respectively.

The Company’s obligations under the 2008 Credit Facility are secured by the grant of security interests in substantially all of its assets.

10. Accrued Liabilities – Other

Accrued liabilities – other consist of the following:

	June 30,		December 31,
	2012		2011
	(in thousands)
Taxes (other than income) and insurance	$	400	$	332
Commissions		589		775
Litigation and legal fees		295		97
Other professional fees		400		519
Environmental		4,314		4,676
Warranty		896		1,318
Deferred revenue		170		101
Acquisition earn-out, current		179		—
Other (1)		6,346		1,745
Accrued liabilities—other	$	13,589	$	9,563

⁽¹⁾ The balance at June 30, 2012, includes the aggregate purchase price paid by the Company in connection with the Tender Offer of $4,147,000, excluding transaction costs. The total purchase price was recorded in other accrued liabilities since the expiration date of the Tender Offer was June 27, 2012 but payment was not made until July 5, 2012 according to the terms of the Tender offer (see Note 19 for additional information).

13

Included in the environmental accrual are estimates for all known costs believed to be probable and reasonably estimable for sites that the Company currently operates or operated at one time (see Note 12 for additional information).

A liability is established for estimated future warranty and service claims that relate to current and prior period sales. The Company estimates warranty costs based on historical claim experience and other factors including evaluating specific product warranty issues.

The following is a summary of activity in accrued warranty and service liabilities:

	Six Months Ended
	June 30, 2012
	(in thousands)
Liability, beginning of year	$	1,318
Expense for new warranties issued		441
Accruals related to preexisting warranties (1)		(274	)
Warranty claims		(589	)
Liability, end of period	$	896

⁽¹⁾  Includes adjustments related to changes in estimates.

11. Other Long-Term Liabilities

Other long-term liabilities consist of the following:

	June 30,		December 31,
	2012		2011
	(in thousands)
Environmental	$	19,033	$	18,533
Unrecognized tax benefits, interest and penalties		895		802
Long-term incentive plan		326		1,242
Acquisition earn-out, long-term		115		—
Other long-term liabilities	$	20,369	$	20,577

12. Commitments and Contingencies

The Company is involved in certain legal and regulatory actions. Management believes that the ultimate resolution of such matters is unlikely to have a material adverse effect on the Company’s financial condition or results of operations, except as described below.

Litigation: The Company has been and is the subject of administrative actions that arise from its ownership of SL Surface Technologies, Inc. (“SurfTech”), a wholly-owned subsidiary, the assets of which were sold in November 2003. SurfTech formerly operated chrome-plating facilities in Pennsauken Township, New Jersey (the “Pennsauken Site”) and Camden, New Jersey (the “Camden Site”).

In 2006 the United States Environmental Protection Agency (the “EPA”) named the Company as a potential responsible party (a “PRP”) in connection with the remediation of the Puchack Well Field, which has been designated as a Superfund Site. The EPA has alleged that hazardous substances generated at the Company’s Pennsauken Site contaminated the Puchack Well Field. As a PRP, the Company is potentially liable, jointly and severally, for the investigation and remediation of the Puchack Well Field Superfund Site under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”).

14

The EPA is remediating the Puchack Well Field Superfund Site in two separate operable units. The first operable unit consists of an area of chromium groundwater contamination in three aquifers that exceeds the selected cleanup standard (“OU-1”). The second operable unit (“OU-2”) pertains to sites that are allegedly the sources of contamination for the first operable unit. The EPA advised the Company in October 2010 that OU-2 includes soil contamination in the immediate vicinity of the Company’s Pennsauken Site.

In September 2006, the EPA issued a Record of Decision (“ROD”) that selected a remedy for OU-1 to address the groundwater contamination. The estimated cost of the EPA selected remedy for OU-1, to be conducted over a five to ten year timeframe, was approximately $17,600,000, as stated in the ROD. In an October 2010 meeting with the EPA, the EPA informed the Company that the OU-1 remedy would be implemented in two phases. Prior to the issuance of the EPA’s ROD, the Company had retained an experienced environmental consulting firm to prepare technical comments on the EPA’s proposed remediation of the Puchack Well Field Superfund Site. In those comments, the Company’s consultant, among other things, identified flaws in the EPA’s conclusions and the factual predicates for certain of the EPA’s decisions and for the proposed selected remedy.

Following the issuance of its ROD for OU-1, in November 2006, the EPA sent another letter to the Company encouraging the Company to either perform or finance the remedial actions for OU-1 identified in the EPA’s ROD. In addition to paying for the OU-1 remediation, the EPA has sought payment of the past costs that the EPA has allegedly incurred. The Company responded to the EPA that it was willing to investigate the existence of other PRPs and to undertake the activities necessary to design a final remediation for the Superfund Site. In July 2007, the EPA refused the Company’s offer to perform the work necessary to design the remediation plan without first agreeing to assume responsibility for the full remediation of the Superfund Site. The EPA did encourage the Company to investigate the existence of other PRPs and to submit evidence thereof, if appropriate. In January 2008, the Company submitted to the EPA evidence demonstrating the existence of several other PRPs.

In June 2011, the EPA announced a proposed plan for “cleaning up the soil” at OU-2. The remedy proposed by the EPA is “Geochemical Fixation.” This remedy involves applying a chemical reductant to the contaminated soil to reduce hexavalent chromium by converting it to immobilized trivalent chromium. The EPA’s estimated cost for this remedy is $20,700,000 over seven years. The public comment period for the proposed plan expired on July 27, 2011. On September 26, 2011 the EPA issued a ROD selecting the Geochemical Fixation remedy. This remedy involves mixing a reducing agent to treat soils containing concentrations of hexavalent chromium greater than 20 parts per million. The remedy also requires post-remediation sampling, site restoration and implementing a groundwater sampling and analysis program. The Company intends to have its environmental consultants play an active role in the remediation design.

15

The Company has reached an agreement in principle with the DOJ related to its liability for both OU-1 and OU-2. The Company has agreed in principle to perform the remediation for OU-2. Also, the Company has agreed in principle to pay a fixed sum for the EPA’s past cost for OU-2 and a portion of the EPA’s past cost for OU-1. The payments are to be made annually in four equal payments. The first payment plus interest is to be made within 30 days of entry of the Consent Decree. Each of the next three payments plus interest is to be made on the anniversary date of the first payment. The Company has also agreed in principle to pay the EPA’s costs for oversight of the OU-2 remediation. This agreement is subject to the approval of both the DOJ and EPA’s management who are authorized to settle this matter. Also, the proposed agreement will be subject to a public comment period and finally must be approved by the Federal District Court which we expect to occur by the end of fiscal 2012. Based on the current available information, the Company has estimated a total combined potential liability for OU-1 and OU-2 to be in the range of $20,118,000 to $31,448,000. The estimated OU-2 remediation liability is based upon the EPA’s plan for remediation, and data from our environmental engineering consultants. The liability for past costs of OU-1 and OU-2 is based upon the current terms of the agreement. The Company in consultation with its consultants and legal counsel, has agreed to a Statement of Work (“SOW”) for the implementation of the remedy selected in the September 26, 2011 ROD for OU-2. The SOW will be incorporated into the Consent Decree and will be an enforceable part of the Consent Decree.

On August 8, 2012, the Company’s management along with its counsel met with the DOJ and EPA to commence negotiating the terms and conditions of the Consent Decree. The discussion with the DOJ and EPA are ongoing.

Other

The Company has been and is conducting an investigation to determine whether certain employees of SL Xianghe Power Electronics Corporation, SL Shanghai Power Electronics Corporation and SL Shanghai International Trading Corporation, three of the Company’s indirect wholly-owned subsidiaries incorporated and operating exclusively in China, may have improperly provided gifts and entertainment to government officials (the “China Investigation”). Based upon the investigation, which is nearing completion, the estimate of the amounts of such gifts and entertainment as uncovered by the China Investigation does not appear to be material to the Company’s financial statements. There can be no assurance, however, that when the investigation is completed, the actual amounts will not be in excess of what is currently estimated. Such estimate does not take into account the costs to the Company of the China Investigation or any other additional costs.

The China Investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. The Company’s outside counsel has contacted the DOJ and the Securities and Exchange Commission (the “SEC”) voluntarily to disclose that the Company was conducting an internal investigation, and agreed to cooperate fully and update the DOJ and SEC periodically on further developments. The Company’s counsel has done so, and the Company has continued to cooperate fully with the DOJ and the SEC.

The Company has retained outside counsel and forensic accountants to assist in the China Investigation. The Company cannot predict at this time whether any regulatory action may be taken or any other adverse consequences may result from this matter.

16

In the ordinary course of its business the Company is and may be subject to other loss contingencies pursuant to foreign and domestic federal, state and local governmental laws and regulations and maybe party to certain legal actions, frequently involving complaints by terminated employees and disputes with customers, suppliers and others. In the opinion of management, any such other loss contingencies are not expected to have a material adverse effect on the financial condition or results of operations of the Company.

Environmental Matters: Loss contingencies include potential obligations to investigate and eliminate or mitigate the effects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other facilities, whether or not they are currently in operation. The Company is currently participating in environmental assessments and cleanups at a number of sites and may in the future be involved in additional environmental assessments and cleanups. Based upon investigations completed to date by the Company and its independent engineering-consulting firms, management has provided an estimated accrual for all known costs believed to be probable and costs that can be reasonably estimated in the amount of $23,347,000, of which $19,033,000 is included as other long-term liabilities as of June 30, 2012. However, it is the nature of environmental contingencies that other circumstances might arise, the costs of which are indeterminable at this time due to such factors as changing government regulations and stricter standards, the unknown magnitude of cleanup costs, the unknown timing and extent of the remedial actions that may be required, the determination of the Company’s liability in proportion to other responsible parties, the divisibility of costs, and the extent, if any, to which such costs are recoverable from other parties. These other circumstances could result in additional expenses or judgments, or offsets thereto. The adverse resolution of any one or more of these other circumstances could have a material adverse effect on the business, operating results, financial condition or cash flows of the Company. Most of the Company’s environmental costs relate to discontinued operations and such costs have been recorded in discontinued operations, net of tax.

There are three sites on which the Company may incur material environmental costs in the future as a result of past activities of its former subsidiary, SurfTech. There are two Company owned sites related to its former subsidiary, SurfTech. These sites are located in Pennsauken, New Jersey (the “Pennsauken Site”) and in Camden, New Jersey (the “Camden Site”). There is also a third site, which is not owned by the Company, referred to as the “Puchack Well Field Site.” The Puchack Well Field Site and the Pennsauken Site are part of the Puchack Well Field Superfund Site.

17

With respect to the Camden Site, the Company has reported soil contamination and a groundwater contamination plume emanating from the site. Delineation of the soil and groundwater contamination is substantially complete. In the third quarter of 2009, pursuant to an Interim Response Action (“IRA”) Workplan approved by the New Jersey Department of Environmental Protection (“NJDEP”), the Company completed building demolition and excavated and disposed of some of the contaminated soil underlying the building’s foundation. Treatability studies for in-situ remediation of the remaining unsaturated contaminated soil were conducted in 2009. Based upon the treatability study results, our environmental consultants prepared an IRA Workplan Addendum (“IRAWA”) to implement a Phase I Pilot Study (“PIPS”), which involved injecting neutralizing chemicals into the unsaturated soil. The NJDEP approved the IRAWA, and the PIPS was implemented in November 2010. As required by the IRAWA, our consultants collected post-injection data for assessment of the overall success of the PIPS. Our consultants completed the assessment of the PIPS and indicated that the PIPS can be implemented as a full scale soil remedy to treat unsaturated contaminated soil. A Remedial Action Workplan for soils (“RAWP”) is being developed. The RAWP will select the PIPS remedy as the site wide remedy for unsaturated soils, along with demolition and proper disposal of the former concrete building slab and targeted excavation and disposal of impacted soil immediately underlying the slab. Additionally, the RAWP will address a small area of impacted soil off the property. The RAWP will be submitted to the NJDEP, by the Licensed Site Remediation Professional (“LSRP”) for the site. The RAWP is scheduled to be implemented in 2013. Also, the Company’s environmental consultants finalized an IRA Workplan Addendum II (“IRAWA II”) to implement a Phase II Pilot Study (“PIIPS”) to treat on-site contaminated groundwater. The IRAWA II was submitted to the NJDEP in May 2011. It proposed multiple sub-surface injections of a food-grade product, into the groundwater at the down gradient property boundary, to create a “bio-barrier.” The PIIPS would assess the ability to treat contaminated groundwater as it moves through the bio-barrier. The IRAWA II also required the collection of groundwater samples to assess the performance of the PIIPS. Due to the NJDEP’s transition into the LSRP Program, the NJDEP did not comment on the IRAWA II and permit application. The Company’s LSRP believes the IRAWA II complies with the applicable NJDEP regulations and guidance documents. The permit application was resubmitted to the NJDEP for approval in June 2012. Implementation of the PIIPS is scheduled to occur during 2012 and 2013, depending upon the NJDEP’s approval of the related permit. At June 30, 2012, the Company had an accrual of $2,088,000 to remediate the Camden Site. Of this amount, the Company anticipates expenditures of approximately $700,000 in 2012.

As previously reported, the Company is currently participating in environmental assessments and cleanups at a number of sites. One of these sites is a commercial facility, located in Wayne, New Jersey. Contaminated soil and groundwater has undergone remediation with NJDEP oversight, but contaminants of concern (“COCs”) in groundwater and surface water, which extend off-site, still remain above applicable NJDEP remediation standards. Certain COCs have also been detected in the indoor air of two commercial buildings, located on the property. One of the buildings (the “Main Building”) was outfitted with a sub-slab depressurization system as a mitigation measure. The source investigations under the Main Building were completed in June 2012. Soil and groundwater samples collected from underneath the Main Building identified COCs in excess of the NJDEP’s applicable remediation standards. Consequently, a soil contaminant source remains under the Main Building that is feeding the groundwater contamination. The Company’s consultants are in the process of assessing remedial options and that assessment is expected to be completed by the fourth quarter of 2012. The remedial investigation conducted in the second quarter of 2012 identified a new source of COCs, outside of a second building and two sub-grade anomalies near the building that need to be further investigated. One of the anomalies has an appearance of an underground storage tank. Additional investigations will be required to delineate the source area and identify the anomalies. A soil remedial action plan will be required in order to remove contamination that continues to impact groundwater, which likely serves as a potential source of vapor detected inside the second building. Our consultants will review data to determine what supplemental remedial action is necessary for soils, and whether to modify or expand the groundwater remedy that will likely consist of additional in-situ injections of food grade product into the groundwater. The Company has engaged a LSRP to oversee the remediation of the site. The future costs for possible additional remediation are not currently estimable. The accrual for remediation cost at June 30, 2012 for this site is $620,000. Costs related to this site are recorded as part of discontinued operations, net of tax.

18

The Company has reported soil and groundwater contamination at the facility of SL-MTI located on its property in Montevideo, Minnesota. An analysis of the contamination has been completed and a remediation plan has been implemented at the site pursuant to the remedial action plan approved by the Minnesota Pollution Control Agency. The remaining steps under this plan are the monitoring of samples. Based on the current information, the Company believes it will incur remediation costs at this site of approximately $82,000, which has been accrued for at June 30, 2012. These costs are recorded as a component of continuing operations.

As of June 30, 2012 and December 31, 2011, environmental accruals of $23,347,000 and $23,209,000, respectively, have been recorded by the Company in accrued liabilities – other and in other long-term liabilities, as appropriate (see Note 10 and 11).

13. Segment Information

The Company currently operates under four business segments: SL Power Electronics Corp. (“SLPE”), the High Power Group, SL Montevideo Technology, Inc. (“SL-MTI”) and RFL Electronics Inc. (“RFL”). Teal Electronics Corp. (“Teal”) and MTE Corporation (“MTE”) are combined into one business segment, which is reported as the High Power Group. The Company aggregates operating business subsidiaries into a single segment for financial reporting purposes if aggregation is consistent with the objectives of ASC 280 “Segment Reporting.” Business units are also combined if they have similar characteristics in each of the following areas:

• nature of products and services

• nature of production process

• type or class of customer

• methods of distribution

SLPE designs, manufactures and markets high-reliability power conversion products in internal and external footprints. The Company’s power supplies provide a reliable and safe power source for the customer’s specific equipment needs. SLPE, which sells products under three brand names (SL Power Electronics, Condor and Ault), is a major supplier to the original equipment manufacturers (“OEMs”) of medical, industrial/instrumentation, military and information technology equipment. The High Power Group sells products under two brand names (Teal and MTE). Teal designs and manufactures custom power conditioning and distribution units, which are developed and manufactured for custom electrical subsystems for OEMs of medical imaging, medical treatment, military aerospace, semiconductor, solar and advanced simulation systems. MTE designs and manufactures power quality products used to protect equipment from power surges, bring harmonics into compliance and improve the efficiency of variable speed motor drives. SL-MTI designs and manufactures high power density precision motors that are used in numerous applications, including military and commercial aerospace, oil and gas, and medical and industrial products. RFL designs and manufactures communication and power protection products/systems that are used to protect electric utility transmission lines and apparatus by isolating faulty transmission lines from a transmission grid. The Other segment includes corporate related items, financing activities and other costs not allocated to reportable segments, which includes but is not limited to certain legal, litigation and public reporting charges and certain legacy costs. The accounting policies for the business units are the same as those described in the summary of significant accounting policies. For additional information, see Note 1 of the Notes to the Consolidated Financial Statements included in Part IV of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

19

Business segment operations are conducted through domestic subsidiaries. For all periods presented, sales between business segments were not material. Each of the segments has certain major customers, the loss of any of which would have a material adverse effect on such segment.

The unaudited comparative results for the three month periods and six month periods ended June 30, 2012 and June 30, 2011 are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(in thousands)
Net sales
SLPE	$	18,824	$	22,581	$	37,167	$	44,306
High Power Group		15,896		18,151		31,471		34,886
SL-MTI		9,077		9,310		18,676		18,418
RFL		5,102		6,224		10,925		11,250
Net sales	$	48,899	$	56,266	$	98,239	$	108,860

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(in thousands)
Income from operations
SLPE	$	479		$	2,055		$	268		$	4,370
High Power Group		1,585			2,393			2,950			4,498
SL-MTI		1,441			1,641			3,144			3,251
RFL		578			895			1,636			1,333
Other		(1,738	)		(1,370	)		(3,281	)		(2,799	)
Income from operations	$	2,345		$	5,614		$	4,717		$	10,653

Total assets as of June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
	2012		2011
	(in thousands)
Total assets
SLPE	$	35,800	$	39,205
High Power Group		30,646		29,639
SL-MTI		14,450		11,505
RFL		13,099		13,973
Other		18,492		16,904
Total assets	$	112,487	$	111,226

\

20

Goodwill and intangible assets, net, as of June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
	2012		2011
	(in thousands)
Goodwill and other intangible assets, net
SLPE	$	4,624	$	4,733
High Power Group		15,595		15,820
SL-MTI		157		—
RFL		5,386		5,414
Goodwill and other intangible assets, net	$	25,762	$	25,967

14. Retirement Plans And Deferred Compensation

During the six months ended June 30, 2012 and June 30, 2011, the Company maintained a defined contribution pension plan covering all full-time, U.S. employees of SLPE, Teal, MTE, SL-MTI, RFL and the corporate office. The Company’s contributions to this plan are based on a percentage of employee contributions and/or plan year gross wages, as defined. Costs incurred under these plans amounted to $346,000 and $669,000 during the three month and six month periods ended June 30, 2012 compared to $303,000 and $691,000 during the three month and six month periods ended June 30, 2011.

The Company has agreements with certain retired directors, officers and key employees providing for supplemental retirement benefits. The liability for supplemental retirement benefits is based on the most recent mortality tables available and discount rates ranging from 6% to 12%. The amount charged to expense in connection with these agreements amounted to $101,000 and $201,000 for the three month and six month periods ended June 30, 2012 compared to $100,000 and $199,000 for the three month and six month periods ended June 30, 2011.

15. Fire Related Gain And Insurance Recovery

On March 24, 2010, the Company sustained fire damage at its then leased manufacturing facility in Mexicali, Mexico. This facility manufactured products for both SLPE and MTE. The fire was contained to an area that manufactured MTE products. The Company was fully insured for the replacement of the assets damaged in the fire and for the loss of profits due to the business interruption and changed conditions caused by the fire.

The Company’s fire related loss includes the destruction of property and equipment, damaged inventory, cleanup costs and increased operating expenses incurred as a result of the fire. The Company’s insurance recovery represents the replacement cost of property and equipment damaged as a result of the fire, the fair market value of inventory damaged in the fire, cleanup costs and increased business expenses, net of applicable adjustments and deductibles.

During June 2011, the Company settled the fire damage claims with its insurance carriers for $810,000 and as a result the Company recorded a gain related to the fire of $277,000. The Company had recorded estimated insurance recoveries of $533,000.

21

16. Discontinued Operations

For the three months ended June 30, 2012, total loss from discontinued operations before income taxes was $401,000 ($244,000 net of tax). For the six months ended June 30, 2012, total loss from discontinued operations before income taxes was $714,000 ($438,000 net of tax). The loss from discontinued operations relates to environmental remediation costs, consulting fees, and legal charges primarily associated with the past operations of the Company’s five environmental sites.

For the three months ended June 30, 2011, discontinued operations before income taxes was a loss of $298,000 while net income from discontinued operations, net of tax, equaled $593,000. For the six months ended June 30, 2011, discontinued operations before income taxes was a loss of $591,000 while net income from discontinued operations, net of tax, equaled $403,000. Net income from discontinued operations relates to a settlement with a foreign tax authority which was recorded as part of discontinued operations. The settlement was associated with the Company’s Elektro-Metall Export GmbH subsidiary, which was sold in January 2003. As a result, during the second quarter of 2011, the Company recognized a previously unrecognized tax position related to the settlement in the amount of $787,000 ($619,000 tax and $168,000 interest). The above favorable settlement was partially offset by environmental remediation costs, consulting fees, and legal charges associated with the past operations of the Company’s five environmental sites.

17. Fair Value Measurement and Financial Instruments

ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

22

Currently, the Company uses foreign currency forward contracts to hedge its foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including spot rates and market forward points. The fair value of the foreign currency forward contracts is based on interest differentials between the currencies being traded, spot rates and market forward points.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees, where applicable.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2012, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

In conjunction with its implementation of updates to the fair value measurements guidance, the Company made an accounting policy election to measure derivative financial instruments subject to master netting agreements on a net basis.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall:

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at 6/30/2012
	(in thousands)
Liabilities
Derivative financial instruments	$	—	$	170	$	—	$	170

The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of June 30, 2012.

23

Credit Risk Contingent Features

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

18. Derivative Instruments and Hedging Activities

ASC Topic 815, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by ASC Topic 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to variability in expected future cash flows related to forecasted foreign exchange-based risk are considered economic hedges of the Company’s forecasted cash flows.

Risk Management Objective of Using Derivatives

The Company is a USD functional currency entity that manufactures products in the USA, Mexico and China. The Company’s sales are priced in U.S. dollars and its costs and expenses are priced in U.S. dollars, Mexican pesos (MXN) and Chinese Yuan (CNH). As a result, the Company has exposure to changes in exchange rates between the time when expenses in the non-functional currencies are initially incurred and the time when the expenses are ultimately paid. The Company’s objective in using derivatives is to add stability and to manage its exposure to foreign exchange risks. To accomplish this objective, the Company uses foreign currency forward contracts to manage its exposure to fluctuations in the exchange rates. Foreign currency forward contracts involve fixing the USD-MXN and USD-CNH exchange rates for delivery of a specified amount of foreign currency on a specified date.

During 2012, the Company entered into a series of foreign currency forward contracts to hedge its exposure to foreign exchange rate movements in its forecasted expenses in China and Mexico. The foreign currency forwards are not speculative and are being used to manage the Company’s exposure to foreign exchange rate movements. Foreign currency forward contracts involve fixing the USD-MXN and USD-CNH exchange rates for delivery of a specified amount of foreign currency on a specified date. The Company has elected not to apply hedge accounting to these derivatives and they are marked to market through earnings. Therefore, gains and losses resulting from changes in the fair value of these contracts are recognized at the end of each reporting period directly in earnings. The gains and losses associated with the foreign currency forward contracts are included in other gain (loss), net on the Consolidated Statements of Income. As of June 30, 2012, the fair value of the foreign currency forward contracts was recorded as a $170,000 liability in other current liabilities on the Consolidated Balance Sheets.

Non-designated Hedges of Foreign Exchange Risk

The notional amounts are used to measure the volume of foreign currency forward contracts and do not represent exposure to foreign currency losses. The following table summarizes the notional values of the Company’s derivative financial instruments as of June 30, 2012.

Product	Number of Instruments		Notional
			(in thousands)
Mexican Peso (MXN) Forward Contracts		9		MXN 74,000
Chinese Yuan (CNH) Forward Contracts		9		CNH 73,000

24

The following table details the location in the financial statements of the gain or loss recognized on foreign currency forward contracts that are marked to market for the six months ended June 30, 2012:

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in  Income on Derivative	Amount of Gain (Loss)  Recognized in Income on Derivative
		(in thousands)
Foreign Exchange Contracts	Other gain (loss), net	$	(170	)

The Company did not enter into foreign exchange contracts during fiscal 2011 and fiscal 2010.

19. Shareholders’ Equity

On November 16, 2010, the Board of Directors authorized a plan that allows for the repurchase up to an aggregate of 470,000 shares of the Company’s outstanding common stock (the “2010 Repurchase Plan”). Any repurchases pursuant to the 2010 Repurchase Plan would be made in the open market or in negotiated transactions. During the first six months of 2012, the Company purchased approximately 140,000 shares of Company stock at an average price of $17.59 a share. As a result, as of June 30, 2012, approximately 330,000 shares remained available for purchase under the 2010 Repurchase Plan.

On May 30, 2012, the Company announced a modified “Dutch Auction” Tender Offer to purchase up to $10 million of its common shares (the “Tender Offer”). The Tender Offer expired on June 27, 2012. Under the terms of the Tender Offer, the Company’s shareholders had the option of tendering all or a portion of the Company’s common stock that they owned (1) at a price of not less than $12.00 and not greater than $13.50, in increments of $0.25 per share, or (2) without specifying a purchase price, in which case the common stock that they owned would have been purchased at the purchase price determined in accordance with the Tender Offer. All common stock purchased by the Company were purchased at the same price.

The Company accepted for purchase approximately 307,000 shares of its common stock at a purchase price of $13.50 per share. These shares represented approximately 6.9% of the total common stock outstanding as of June 27, 2012 prior to the purchase of shares pursuant to the Tender Offer. With the completion of the Tender Offer, the Company had approximately 4,121,000 shares of common stock outstanding at that time. The aggregate purchase price paid by the Company in connection with the Tender Offer was $4,147,000 excluding transaction costs. The total purchase price was recorded in other accrued liabilities since the expiration date of the Tender Offer was June 27, 2012 but payment was not made until July 5, 2012 according to the terms of the Tender Offer. The Company paid for the Tender Offer on July 5, 2012, with available cash on hand.

20. Subsequent Events

On August 9, 2012, the Company entered into a senior revolving credit facility (the “2012 Credit Facility”) with PNC Bank, National Association (“PNC Bank”) to replace its 2008 Credit Facility. The 2012 Credit Facility provides for borrowings up to $40,000,000 and under certain circumstances maximum borrowings up to $70,000,000. The 2012 Credit Facility includes a $5,000,000 sublimit for letters of credit and provides for a separate $10,700,000 letter of credit which expires one year from the date of closing, with annual extensions. The 2012 Credit Facility expires on August 9, 2016.

25

Borrowings under the 2012 Credit Facility bear interest, at the Company’s option, at the London interbank offering rate (“LIBOR”) plus a margin rate ranging from 1.25% to 2.0%, or the higher of a Base Rate plus a margin rate ranging from 0.25% to 1.0%. The Base Rate is equal to the highest of (i) the Federal Funds Open Rate plus 0.5% and (ii) the Prime Rate and (iii) the Daily Libor Rate plus 1%. The margin rates are based on certain leverage ratios, as defined. The Company is subject to compliance with certain financial covenants set forth in the 2012 Credit Facility, including, but not limited to, indebtedness to EBITDA, as defined, minimum levels of fixed charges and limitations on capital expenditures, as defined. Availability under the 2012 Credit Facility is based upon the Company’s trailing twelve month EBITDA, as defined.

During July 2012, the Company announced to its employees a restructuring plan to align its costs with current and projected sales activity. The costs reductions were primarily direct labor employees and engineering, selling and administration employees at SLPE and at TEAL, which is part of the High Power Group. As of August 6, 2012, there was a consolidated charge to earnings of $905,000, which was comprised of an $847,000 charge at SLPE and a $58,000 charge at TEAL. The charges are composed of severance and other employee related charges. The total number of employees affected by the restructuring plan to date is 56, of which 55 have been terminated as of August 6, 2012. The remaining unpaid termination benefits associated with the plan are expected to be paid one month to three months after termination.

26

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section highlights significant factors impacting the consolidated operations and financial condition of the Company and its subsidiaries. The following discussion should be read in conjunction with the Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

Forward-Looking Statements

In addition to other information in this Quarterly Report on Form 10-Q, this Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment. These statements are not guarantees of future performance. They involve a number of risks and uncertainties that are difficult to predict, including, but not limited to, the Company’s ability to implement its business plan, retain key management, anticipate industry and competitive conditions, realize operating efficiencies, secure necessary capital facilities and obtain favorable determinations in various legal and regulatory matters. Actual results could differ materially from those expressed or implied in the forward-looking statements. Some important assumptions and other critical factors that could cause actual results to differ materially from those in the forward-looking statements are specified in the Company’s filings with the SEC, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and Current Reports on Form 8-K.

Overview

SL Industries Inc., through its subsidiaries, designs, manufactures and markets power electronics, motion control, power protection, power quality, and specialized communication equipment that is used in a variety of medical, commercial and military aerospace, solar, computer, datacom, industrial, telecom, transportation, utility, rail and highway equipment applications. Its products are generally incorporated into larger systems to increase operating performance, safety, reliability and efficiency. The Company’s products are largely sold to OEMs, the utility industry and, to a lesser extent, to commercial distributors. The Company is comprised of four domestic business segments, three of which have significant manufacturing operations in Mexico. SLPE has manufacturing, engineering and sales capability in China. Most of the Company’s sales are made to customers who are based in the United States. The Company places an emphasis on highly engineered, well-built, high quality, dependable products and is dedicated to continued product enhancement and innovation.

The Company’s business strategy has been to enhance the growth and profitability of each of its businesses through the penetration of attractive new market niches, further improvement of operations through the implementation of lean manufacturing principles and expansion of global capabilities. The Company intends to focus on improving efficiencies that better leverage the Company’s resources. Lean initiatives, both on the factory floor and throughout the organization, are ongoing. The Company expects to pursue its goals during the next twelve months principally through organic growth. The Company also continues to pursue strategic alternatives to maximize shareholder value. Some of these alternatives have included, and could continue to include, selective acquisitions, divestitures and the sale of certain assets. The Company has provided, and may from time to time in the future provide, information to interested parties.

27

In the sections that follow, statements with respect to the quarter ended 2012 or six months ended 2012 refer to the three month and six month periods ended June 30, 2012. Statements with respect to the quarter ended 2011 or six months ended 2011 refer to the three month and six month periods ended June 30, 2011. Also, statements with respect to operating costs refer to engineering and product development costs, selling, general and administrative costs and depreciation and amortization (“operating costs”).

Significant Transactions and Financial Trends

Significant transactions during the six months ended June 30, 2012 that impacted the Company’s financial results and cash flows include a loss from discontinued operations of $438,000. The loss from discontinued operations primarily comprised of environmental remediation costs, consulting fees, and legal charges primarily associated with the past operations of the Company’s five environmental sites.

The Company has reached an agreement in principle with the DOJ related to its liability for both OU-1 and OU-2. The Company has agreed in principle to perform the remediation for OU-2. Also, the Company has agreed in principle to pay a fixed sum for the EPA’s past cost for OU-2 and a portion of the EPA’s past cost for OU-1. The payments are to be made annually in four equal payments. The first payment plus interest is to be made within 30 days of entry of the Consent Decree. Each of the next three payments plus interest is to be made on the anniversary date of the first payment. The Company has also agreed in principle to pay the EPA’s costs for oversight of the OU-2 remediation. This agreement is subject to the approval of both the DOJ and EPA’s management who are authorized to settle this matter. Also, the proposed agreement will be subject to a public comment period and finally must be approved by the Federal District Court which we expect to occur by the end of fiscal 2012. Based on the current available information, the Company has estimated a total combined potential liability for OU-1 and OU-2 to be in the range of $20,118,000 to $31,448,000. The estimated OU-2 remediation liability is based upon the EPA’s plan for remediation, and data from our environmental engineering consultants. The liability for past costs of OU-1 and OU-2 is based upon the current terms of the agreement. The Company, in consultation with its consultants and legal counsel, has agreed to a Statement of Work (“SOW”) for the implementation of the remedy selected in the September 26, 2011 ROD for OU-2. The SOW will be incorporated into the Consent Decree and will be an enforceable part of the Consent Decree.

On February 27, 2012, the Company purchased certain assets of Astromec, a subsidiary of Pro-Dex, for approximately $1,050,000, which includes the assumption of liabilities for an estimated earn-out of $294,000. The earn-out is comprised of quarterly payments based on the performance of the acquired business over the three year period immediately following the date of acquisition. The Company continues to evaluate certain assets and liabilities related to this business combination. Additional information, which existed as of the acquisition date but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill. The determination of the estimated fair values of all assets and liabilities acquired is expected to be completed during fiscal year 2012. SL-MTI recorded direct acquisition costs of approximately $422,000 during the first six months of 2012, which are recorded within selling, general and administrative expenses in the Consolidated Statements of Income. The results from the acquisition date through June 30, 2012 are included in the SL-MTI segment.

28

During 2012, the Company entered into a series of foreign currency forward contracts to hedge its exposure to foreign exchange rate movements in its forecasted expenses in China and Mexico. The foreign currency forwards are not speculative and are being used to manage the Company’s exposure to foreign exchange rate movements. Foreign currency forward agreements involve fixing the USD-MXN and USD-CNH exchange rates for delivery of a specified amount of foreign currency on a specified date. The Company has elected not to apply hedge accounting to these derivatives and they are marked to market through earnings. Therefore, gains and losses resulting from changes in the fair value of these contracts are recognized at the end of each reporting period directly in earnings. During the six months ended June 30, 2012, the Company recognized a $170,000 loss associated with the foreign currency forward contracts, which is included in other gain (loss), net on the Consolidated Statements of Income. As of June 30, 2012, the fair value of the foreign currency forward contracts was recorded as a $170,000 liability in other current liabilities on the Consolidated Balance Sheets.

On May 29, 2012, the Company entered into a Fifth Amendment to the 2008 Credit Facility. The Fifth Amendment, among other things, (a) amends the definition of Maturity Date to extend the Maturity Date of the Credit Agreement to August 30, 2012, (b) amends the Minimum Net Worth financial covenant, and (c) amends the business covenants to permit the Company to issue one or more dividends and/or purchase its registered capital stock then issued and outstanding, in an amount not in excess, in the aggregate, of Twenty Million Dollars ($20,000,000), on a trailing twelve month basis. In consideration for these amendments, the Company agreed to pay the lenders $40,000, which was remitted in May 2012 and will be amortized over the remaining life of the 2008 Credit Facility. On August 9, 2012, the Company entered into the 2012 Credit Facility with PNC Bank and terminated the 2008 Credit Facility (See Note 20 – Subsequent Events for terms and conditions of the 2012 Credit Facility).

On November 16, 2010, the Board of Directors authorized a plan that allows for the repurchase up to an aggregate of 470,000 shares of the Company’s outstanding common stock. Any repurchases pursuant to the 2010 Repurchase Plan would be made in the open market or in negotiated transactions. During the first six months of 2012, the Company purchased approximately 140,000 shares of Company stock at an average price of $17.59 a share. As a result, as of June 30, 2012, approximately 330,000 shares remained available for purchase under the 2010 Repurchase Plan.

On May 30, 2012, the Company announced a modified “Dutch Auction” Tender Offer to purchase up to $10 million of its common shares. The Company accepted for purchase approximately 307,000 shares of its common stock at a purchase price of $13.50 per share. These shares represented approximately 6.9% of the total common stock outstanding as of June 27, 2012 prior to the purchase of shares pursuant to the Tender Offer. With the completion of the Tender Offer, the Company had approximately 4,121,000 shares of common stock outstanding at that time. The aggregate purchase price paid by the Company in connection with the Tender Offer was $4,147,000 excluding transaction costs. The total purchase price was recorded in other accrued liabilities since the expiration date of the Tender Offer was June 27, 2012 but payment was not made until July 5, 2012 according to the terms of the Tender Offer. The Company paid for the Tender Offer on July 5, 2012, with available cash on hand.

29

Business Trends

Demand for the Company’s products and services decreased during 2012, compared to 2011. Sales for the six months ended June 30, 2012, decreased by $10,621,000, or 10%, and income from operations decreased by $5,936,000, or 56%. SL-MTI experienced increases in sales and RFL experienced increases in income from operations during 2012 as compared to 2011. SLPE and the High Power Group experienced decreases in both sales and income from operations during 2012 as compared to 2011.

During the six months ended June 30, 2012, the Company’s backlog decreased to $66,210,000, from $71,499,000 for the same period the prior year, for a decrease of 7% on a comparative basis. The decrease in backlog in 2012 was primarily attributable to SLPE, who recorded a 26% decrease in backlog, which was partially offset by increases at SL-MTI and the High Power Group of 14% and 3%, respectively. The Company’s net new orders for the six months ended June 30, 2012 decreased by 9%, compared to the six months ended June 30, 2011.

The Company’s management is taking numerous actions to improve sales and income from continuing operations with an emphasis on lean initiatives at all facilities. The Company expects to expand product portfolios, enter new market segments and penetrate selected geographic markets. The Company also continues to pursue strategic alternatives to maximize shareholder value. Some of these alternatives have included, and could continue to include, selective acquisitions, divestitures and the sale of certain assets. During July 2012, the Company announced to its employees a restructuring plan to align its costs with current and projected sales activity. The costs reductions were primarily direct labor employees and engineering, selling and administration employees at SLPE and at TEAL, which is part of the High Power Group (See Note 20 – Subsequent Events for further details about to the restructuring plan).

While these items are important in understanding and evaluating financial results and trends, other transactions or events, which are disclosed in this Management’s Discussion and Analysis, may have a material impact on continuing operations. A complete understanding of these transactions is necessary in order to estimate the likelihood that these trends will continue.

Critical Accounting Policies

The Company’s consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). GAAP requires management to make estimates and assumptions that affect the amounts of reported and contingent assets and liabilities at the date of the consolidated financial statements and the amounts of reported net sales and expenses during the reporting period.

The Securities and Exchange Commission (the “SEC”) has issued disclosure guidance for “critical accounting policies.” The SEC defines “critical accounting policies” as those that are most important to the portrayal of the Company’s financial condition and results, and that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in Part IV of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates.

30

However, the following policies are deemed to be critical within the SEC definition. The Company’s senior management has reviewed these critical accounting policies and estimates and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations with the Audit Committee of the Board of Directors.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. Revenue is recorded in accordance with Staff Accounting Bulletin (“SAB”) No. 104 and in certain circumstances in accordance with the guidance provided by ASC 605-25 “Revenue Recognition – Multiple-Element Arrangements.” The major portion of the Company’s revenue is derived from equipment sales. The Company recognizes equipment revenue upon shipment or delivery, depending upon the terms of the order, and transfer of title. Generally, the revenue recognition criteria is met at the time the product is shipped. Provisions are established for product warranties, principally based on historical experience. At times the Company establishes reserves for specific warranty issues known by management. Customer service and installation revenue is recognized when completed. RFL has customer service revenue, which accounted for less than one percent of consolidated net revenue for the six months ended 2012 and 2011.

SLPE has two sales programs with distributors, pursuant to which credits are issued to distributors: (1) a re-stocking program and (2) a competitive discount program. The distributor re-stocking program allows distributors to rotate up to a pre-determined percentage of their purchases over the previous six month period. SLPE provides for this allowance as a decrease to revenue based upon the amount of sales to each distributor and other historical factors. The competitive discount program allows a distributor to sell a product out of its inventory below net distribution price in order to meet certain competitive situations. SLPE records this discount as a reduction to revenue based on the distributor’s eligible inventory. The eligible distributor inventory is reviewed at least quarterly. No cash is paid under either distributor program. These programs affected consolidated gross revenue for each of the six month periods ended 2012 and 2011 by approximately 0.6% and 0.5%, respectively.

Certain judgments affect the application of the Company’s revenue policy, as mentioned above. Revenue recognition is significant because net revenue is a key component of results of operations. In addition, revenue recognition determines the timing of certain expenses, such as commissions, royalties and certain incentive programs. Revenue results are difficult to predict. Any shortfall in revenue or delay in recognizing revenue could cause operating results to vary significantly from year to year and quarter to quarter.

Allowance For Doubtful Accounts

The Company’s estimate for the allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, the Company evaluates specific accounts where it has information that the customer may have an inability to meet its financial obligations (e.g., bankruptcy or insolvency). In these cases, the Company uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. Second, a general reserve is established for all customers based on several factors, including historical write-offs as a percentage of sales. If circumstances change (e.g., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligation), the Company’s estimates of the recoverability of amounts due could be reduced by a material amount. Receivables are charged off against the reserve when they are deemed uncollectible. The Company’s allowance for doubtful accounts equaled 2.1% and 2.0% of gross trade receivables as of June 30, 2012 and December 31, 2011, respectively.

31

Inventories

The Company values inventory at the lower of cost or market, and continually reviews the book value of discontinued product lines to determine if these items are properly valued. The Company identifies these items and assesses the ability to dispose of them at a price greater than cost. If it is determined that cost is less than market value, then cost is used for inventory valuation. If market value is less than cost, then related inventory is adjusted to market value.

If a write down to the current market value is necessary, the market value cannot be greater than the net realizable value, which is defined as selling price less costs to complete and dispose, and cannot be lower than the net realizable value less a normal profit margin. The Company also continually evaluates the composition of its inventory and identifies slow-moving and excess inventories. Inventory items identified as slow-moving or excess are evaluated to determine if reserves are required. If the Company were not able to achieve its expectations of the net realizable value of the inventory at current market value, it would have to adjust its reserves accordingly. The Company attempts to accurately estimate future product demand to properly adjust inventory levels. However, significant unanticipated changes in demand could have a significant impact on the value of inventory and of operating results.

Derivative Instruments and Hedging Activities

FASB ASC 815, “Derivatives and Hedging” (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Certain of the Company’s foreign operations expose the Company to fluctuations of foreign interest rates and exchange rates. These fluctuations may impact the value of the Company’s revenues, expenses, cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain cash flows in terms of the functional currency of the business unit with that exposure.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. Currently, the Company does not apply hedge accounting to any of its foreign currency derivatives.

32

Accounting For Income Taxes

The Company has reported gross unrecognized tax benefits, excluding interest and penalties, of $762,000 and $722,000 as of June 30, 2012 and December 31, 2011, respectively. These amounts represent unrecognized tax benefits, which, if ultimately recognized, will reduce the Company’s effective tax rate. The Company reported accrued interest and penalties related to unrecognized tax benefits of $133,000 as of June 30, 2012, and $80,000 as of December 31, 2011. For additional disclosures related to ASC 740, see Note 3 of the Notes to the Consolidated Financial Statements included in Part IV of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Significant management judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. The net deferred tax assets as of June 30, 2012 and December 31, 2011 were $13,607,000 and $13,314,000, respectively, net of valuation allowances of $1,995,000 and $1,926,000, respectively. The carrying value of the Company’s net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions. Valuation allowances are attributable to uncertainties related to the Company’s ability to utilize certain deferred tax assets prior to expiration. These deferred tax assets primarily consist of loss carryforwards. The valuation allowance is based on estimates of taxable income, expenses and credits by the jurisdictions in which the Company operates and the period over which deferred tax assets will be recoverable. In the event that actual results differ from these estimates or these estimates are adjusted in future periods, the Company may need to establish an additional valuation allowance that could materially impact its consolidated financial position and results of operations. Each quarter, management evaluates the ability to realize the deferred tax assets and assesses the need for additional valuation allowances.

Legal Contingencies

The Company is currently involved in certain legal proceedings. As discussed in Note 12 of the Notes to the Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q, the Company has accrued an estimate of the probable costs for the resolution of these claims. This estimate has been developed after investigation and is based upon an analysis of potential results, including a combination of litigation and settlement strategies. Management does not believe these proceedings will have a further material adverse effect on the Company’s consolidated financial position. As with litigation, generally the outcome is inherently uncertain. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in these assumptions, or the effectiveness of these strategies, related to these proceedings.

33

Goodwill

The Company has allocated its adjusted goodwill balance to its reporting units. The Company tests goodwill for impairment annually at fiscal year-end and in interim periods if certain events occur indicating that the carrying value of goodwill may be impaired, such as a significant adverse change in business climate, an adverse action or assessment by a regulator or the decision to sell a business, that would make it more likely than not that an impairment may have occurred. The goodwill impairment test is a two-step process. The first step of the impairment analysis compares the fair value to the net book value. In determining fair value, the accounting guidance allows for the use of several valuation methodologies, although it indicates that quoted market prices are the best evidence of fair value. The Company uses a combination of expected present values of future cash flows and comparative market multiples. It has also performed a review of market capitalization with estimated control premiums at December 31, 2011. If the fair value of a reporting unit is less than its net book value, the Company would perform a second step in its analysis, which compares the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, the Company recognizes an impairment loss equal to that excess amount. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount and growth rates, operating margins and working capital requirements, selecting comparable companies within each reporting unit and market and determining control premiums. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit. There were no impairment charges for the six months ended 2012 and 2011. As of June 30, 2012 and December 31, 2011, goodwill totaled $22,735,000 and $22,738,000 (representing 20% and 20% of total assets), respectively.

As of the testing conducted as of December 31, 2011, the Company concluded that no impairment charge was warranted. However, there can be no assurance that the economic conditions currently affecting the world economy or other events may not have a negative material impact on the long-term business prospects of any of the Company’s reporting units. In such case, the Company may need to record an impairment loss, as stated above. The next annual impairment test will be conducted as of December 31, 2012, unless management identifies a triggering event in the interim.

Management has not identified any triggering events, as defined by ASC 350 “Intangibles – Goodwill and Other,” during 2012. Accordingly, no interim impairment test has been performed.

Impairment Of Long-Lived And Intangible Assets

The Company’s long-lived and intangible assets primarily consist of fixed assets, goodwill and other intangible assets. The Company periodically reviews the carrying value of its long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, and assets to be disposed of whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses the recoverability of the asset by estimated cash flows and at times by independent appraisals. It compares estimated cash flows expected to be generated from the related assets, or the appraised value of the asset, to the carrying amounts to determine whether impairment has occurred. If the estimate of cash flows expected to be generated changes in the future, the Company may be required to record impairment charges that were not previously recorded for these assets. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Asset impairment evaluations are by nature highly subjective.

34

Environmental Expenditures

The Company is subject to United States, Mexican, Chinese and United Kingdom environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters, and generation, handling, storage, transportation, treatment and disposal of waste materials. The Company is also subject to other federal, state and local environmental laws and regulations, including those that require it to remediate or mitigate the effects of the disposal or release of certain chemical substances at various sites, mostly at sites where the Company has ceased operations. It is impossible to predict precisely what effect these laws and regulations will have in the future.

Expenditures that relate to current operations are charged to expense or capitalized, as appropriate. Expenditures that relate to an existing condition caused by formerly owned operations are expensed and recorded as part of discontinued operations, net of tax. Expenditures include costs of remediation, consulting, legal fees to defend against claims for environmental liability and for certain administrative matters. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. The liability for remediation expenditures includes, as appropriate, elements of costs such as site investigations, consultants’ fees, feasibility studies, outside contractor expenses and monitoring expenses. Estimates are not discounted and they are not reduced by potential claims for recovery from insurance carriers. The Company does not currently have any outstanding claims against insurance carriers related to remediation expenditures. The liability is periodically reviewed and adjusted to reflect current remediation progress, prospective estimates of required activity and other relevant factors, including changes in technology or regulations. During fiscal 2011, the Company recorded additional reserves of $8,300,000 related to environmental matters at its Pennsauken, New Jersey site. No significant adjustments were made to reserves recorded during the first six months of 2012 for the Pennsauken, New Jersey site. For additional information related to environmental matters, see Note 14 of the Notes to the Consolidated Financial Statements included in Part IV of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and Note 12 to this Quarterly Report.

The above listing is not intended to be a comprehensive list of all of the Company’s accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP with no need for management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternatives would not produce a materially different result. For a discussion of accounting policies and other disclosures required by GAAP, see the Company’s audited Consolidated Financial Statements and Notes thereto included in Part IV of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and Part 1 to this Quarterly Report.

35

Liquidity And Capital Resources

	June 30,		December 31,
	2012		2011		$ Variance			% Variance
	(in thousands)
Cash and cash equivalents	$	7,891	$	5,632	$	2,259			40	%
Working capital	$	31,136	$	34,404	$	(3,268	)		(9	%)
Shareholders’ equity	$	53,278	$	56,857	$	(3,579	)		(6	%)

The Company’s liquidity needs have related to, and are expected to continue to relate to, capital investments, product development costs, acquisitions, working capital requirements, and certain environmental and legal remediation costs. The Company has met its liquidity needs primarily through cash generated from operations and, to a lesser extent, through bank borrowings. The Company believes that cash provided by operating activities from continuing operations and funding available under a credit facility will be adequate to service debt and meet working capital needs, capital investment requirements, and product development requirements for the next twelve months. The Company’s 2008 Credit Facility was scheduled to expire on August 30, 2012, but was terminated by the Company on August 9, 2012.

On August 9, 2012, the Company entered into the 2012 Credit Facility, which consists of a new $40,000,000 four year senior revolving credit facility with a $5,000,000 sublimit for letters of credit and provides for a separate $10,700,000 letter of credit. The senior revolving credit facility can be increased up to $70,000,000 under certain conditions. (See Note 20 – Subsequent Events for terms and conditions of the 2012 Credit Facility).

At June 30, 2012, the Company reported $7,891,000 of cash, compared to $5,632,000 of cash and cash equivalents as of December 31, 2011. Cash and cash equivalents increased in 2012 primarily due to $11,251,000 cash provided by operating activities from continuing operations, which was partially offset by $1,790,000 of cash used in investing activities and $6,688,000 of cash used in financing activities. The increase in cash in 2012 was also partially offset by $513,000 of cash used in operating activities from discontinued operations.

Net cash provided by operating activities from continuing operations during the six month period ended June 30, 2012 was $11,251,000 as compared to net cash provided by operating activities from continuing operations of $5,449,000 during the six month period ended June 30, 2011. The sources of cash from operating activities for the six month period ended June 30, 2012 were income from continuing operations of $2,854,000, an increase in other accrued liabilities of $3,333,000, a decrease in account receivable of $3,297,000, an increase in accounts payable of $1,216,000, and the add-back of depreciation and amortization expense of $1,372,000. The Company’s increase in other accrued liabilities was primarily due to the timing of payments related to the Tender Offer. The aggregate purchase price of $4,147,000, excluding transaction costs, for the Tender Offer was accrued for as of June 30, 2012 since the expiration date of the Tender Offer was June 27, 2012 but payment was not made until July 5, 2012 according to the terms of the Tender Offer. The largest decreases in accounts receivable occurred at SLPE, Teal, and RFL. The decrease at SLPE was primarily due to a VAT refund in China of $1,625,000. The decrease at RFL was primarily due to decreased sales during 2012. The decrease at Teal was primarily due to increased efforts to decrease collection times with large customers. The largest increases in accounts payable occurred at MTE, SL-MTI, and Teal due primarily to increased inventory purchases to meet anticipated customer demand during the second half of 2012 coupled with increased efforts to extended payment terms with suppliers. These increases were partially offset by a decrease in accounts payable at SLPE. The decrease at SLPE was primarily due to a decrease in inventory purchases due to a decreased backlog. These sources and add-backs were partially offset by a $1,004,000 increase in other assets. All operating entities experienced increases in other assets due primarily to the renewal of certain insurance policies during the first half of 2012. The increase in other assets was also due to an increase in payments related to inventory purchase agreements for copper at MTE and TEAL.

36

Net cash provided by operating activities from continuing operations during the six month period ended June 30, 2011 was $5,449,000. The sources of cash from operating activities for the six-month period ended June 30, 2011 were income from continuing operations of $7,218,000, an increase in accounts payable of $2,575,000, and the add-back of depreciation and amortization expense of $1,544,000. All operating entities experienced increases in accounts payable, except for RFL, due primarily to increased inventory purchases to meet customer demand and extended payment terms negotiated with suppliers. These sources and add-backs were partially offset by an increase in accounts receivable of $2,136,000, an increase in inventories of $1,894,000, and an increase in other assets of $1,671,000. The largest increases in accounts receivable occurred at SL-MTI and MTE primarily due to increased sales during the second quarter of 2011. The increase in accounts receivable at SL-MTI was also due to significant collections during December 2010. The increase in inventory was due to increases in inventory at SLPE and Teal in order to meet the increase in demand from customers, partially offset by decreases in inventory at MTE and SL-MTI due to lean initiatives to reduce inventory levels. The increase in other assets was due to a $610,000 receivable related to the settlement of a fire loss insurance claim for the Company’s former leased manufacturing facility in Mexicali, Mexico, which was received on July 15, 2011. The Company received a $200,000 advance from its carrier related to the fire loss in July 2010. The increase in other current assets was also due to the renewal of certain insurance policies during the first half of 2011.

Net cash used in investing activities during the six month period ended June 30, 2012 was $1,790,000 as compared to net cash used in investing activities of $2,235,000 during the six month period ended June 30, 2011. Cash used in investing activities during 2012 was for the purchases of property, plant and equipment of $879,000, the acquisition of certain assets of a business of $756,000, and for the purchase of other assets of $155,000. Purchases of property, plant and equipment were primarily used to upgrade production capabilities and technology. Purchases of other assets were primarily related to the purchase of software and the capitalization of legal fees related to a new patent application at MTE. Cash used in investing activities during 2011 was for the purchases of property, plant and equipment of $1,934,000 and for the purchase of other assets of $301,000. During the six months ended June 30, 2011, SLPE incurred approximately $1,121,000 in tenant improvements related to its relocation to a more modern facility in Mexicali, Mexico. The remaining cash used in investing activities was primarily used to upgrade production capabilities and upgrade technology. The purchase of other assets was primarily related to the purchase of software.

On February 27, 2012, the Company purchased certain assets of Astromec, a subsidiary of Pro-Dex, for approximately $1,050,000, which includes the assumption of liabilities for an estimated earn-out of $294,000. The earn-out is comprised of quarterly payments based on the performance of the acquired business over the three year period immediately following the date of acquisition. The acquisition was paid in cash. SL-MTI recorded direct acquisition costs of approximately $422,000 during the first six months of 2012 within selling, general and administrative expenses in the Consolidated Statements of Income. The results from the acquisition date through June 30, 2012 are included in the SL-MTI segment.

37

Net cash used in financing activities during the six month period ended June 30, 2012 was $6,688,000 as compared to net cash used in investing activities of $136,000 during the six month period ended June 30, 2011. Cash used in financing activities during 2012 was primarily related to the repurchase and retirement of common stock pursuant to the Company’s Tender Offer and the purchase of Company stock pursuant to the Company’s 2010 Repurchase Plan. Cash used in financing activities during 2011 was primarily related to $800,000 in net payments to the 2008 Credit Facility, which was partially offset by $465,000 of proceeds from stock option exercises and $200,000 from the tax benefit on the exercise of stock options.

On May 30, 2012, the Company announced a modified “Dutch Auction” Tender Offer to purchase up to $10 million of its common shares. The Company accepted for purchase 307,000 shares of its common stock at a purchase price of $13.50 per share. These shares represented approximately 6.9% of the total common stock outstanding as of June 27, 2012 prior to the purchase of shares pursuant to the Tender Offer. With the completion of the Tender Offer, the Company had approximately 4,121,000 shares of common stock outstanding at that time. The aggregate purchase price paid by the Company in connection with the Tender Offer was $4,147,000 excluding transaction costs. The total purchase price was recorded in other accrued liabilities due to the timing of funding the Tender Offer as previously discussed. The Company paid for the Tender Offer on July 5, 2012, with available cash on hand.

On November 16, 2010, the Board of Directors authorized a plan that allows for the repurchase up to an aggregate of 470,000 shares of the Company’s outstanding common stock. Any repurchases pursuant to the 2010 Repurchase Plan would be made in the open market or in negotiated transactions. During the first six months of 2012, the Company purchased 140,000 shares of Company stock at an average price of $17.59 a share, for a total purchase price of $2,468,000 excluding transaction costs. As a result, as of June 30, 2012, 330,000 shares remained available for purchase under the 2010 Repurchase Plan.

As of June 30, 2012, and December 31, 2011, the Company had no outstanding balance under the 2008 Credit Facility. At June 30, 2012 and December 31, 2011, the Company had total availability under the 2008 Credit Facility of $39,510,000 and $39,527,000, respectively.

The Company’s current ratio was 1.85 to 1 at June 30, 2012 and 2.09 to 1 at December 31, 2011. Current assets increased by $1,860,000 from December 31, 2011, while current liabilities increased by $5,128,000 during the same period.

Capital expenditures were $879,000 in 2012, which represented a decrease of $1,055,000 from the capital expenditure levels of 2011. The decrease in capital expenditures was primarily due to $1,121,000 in tenant improvements related to its relocation to a more modern facility in Mexicali, Mexico during 2011.

With the exception of the segment reported as “Other” (which consists primarily of corporate office expenses, financing activities, certain legal, litigation, public reporting costs, legacy costs and costs not specifically allocated to the reportable business segments), all of the Company’s operating segments recorded income from operations for the six months ended June 30, 2012.

38

Contractual Obligations

The following is a summary of the Company’s contractual obligations at June 30, 2012 for the periods indicated:

	Less Than		1 to 3		4 to 5		After
	1 Year		Years		Years		5 Years		Total
	(in thousands)
Operating Leases	$	1,601	$	3,806	$	1,466	$	875	$	7,748

The table above excludes the Company’s gross liability for uncertain tax positions, including accrued interest and penalties, which totaled $133,000 as of June 30, 2012, since the Company cannot predict with reasonable reliability the timing or certainty of cash settlements to the respective taxing authorities.

Off-Balance Sheet Arrangements

It is not the Company’s usual business practice to enter into off-balance sheet arrangements such as guarantees on loans and financial commitments, indemnification arrangements and retained interests in assets transferred to an unconsolidated entity for securitization purposes. Consequently, the Company has no off-balance sheet arrangements which have, or are reasonably likely to have, a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for operating lease commitments disclosed in the table above and inventory purchase commitments. In an attempt to stabilize copper costs, the Company has entered into purchase agreements for copper. As of June 30, 2012, inventory purchase agreements for copper totaled $1,193,000. No purchase commitments for copper were greater than three months.

39

Results of Operations

Three months ended June 30, 2012, compared with three months ended June 30, 2011

The tables below show the comparisons of net sales and income from operations for the quarter ended June 30, 2012 (“2012”) and the quarter ended June 30, 2011 (“2011”):

	Net Sales
	Three Months		Three Months		$ Variance			% Variance
	Ended		Ended		From			From
	June 30,		June 30,		Same Quarter			Same Quarter
	2012		2011		Last Year			Last Year
	(in thousands)
SLPE	$	18,824	$	22,581	$	(3,757	)		(17	%)
High Power Group		15,896		18,151		(2,255	)		(12	)
SL-MTI		9,077		9,310		(233	)		(3	)
RFL		5,102		6,224		(1,122	)		(18	)
Net sales	$	48,899	$	56,266	$	(7,367	)		(13	%)

	Income from Operations
	Three Months			Three Months			$ Variance			% Variance
	Ended			Ended			From			From
	June 30,			June 30,			Same Quarter			Same Quarter
	2012			2011			Last Year			Last Year
	(in thousands)
SLPE	$	479		$	2,055		$	(1,576	)		(77	%)
High Power Group		1,585			2,393			(808	)		(34	)
SL-MTI		1,441			1,641			(200	)		(12	)
RFL		578			895			(317	)		(35	)
Other		(1,738	)		(1,370	)		(368	)		(27	)
Income from operations	$	2,345		$	5,614		$	(3,269	)		(58	%)

During 2012, consolidated net sales decreased by $7,367,000, or 13%. When compared to 2011, net sales of SLPE decreased by $3,757,000, or 17%; net sales of the High Power Group decreased by $2,255,000, or 12%; net sales of SL-MTI decreased by $233,000, or 3%; and net sales at RFL decreased by $1,122,000, or 18%. SL-MTI benefited from $821,000 of sales related to the Astromec acquisition which was completed on February 27, 2012.

In 2012, the Company’s income from operations was $2,345,000, compared to $5,614,000 in 2011, representing a decrease of $3,269,000, or 58%. Income from operations was 5% of net sales in 2012, compared to income from operations of 10% of net sales in 2011. All of the Company’s operating entities recorded income from operations in 2012 and 2011.

Income from continuing operations in 2012 was $1,410,000, or $0.32 per diluted share, compared to income from continuing operations in 2011 of $3,616,000, or $0.79 per diluted share. Income from continuing operations was approximately 3% of net sales in 2012, compared to income from continuing operations of 6% of net sales in 2011.

40

The Company’s business segments and the components of operating expenses are discussed in the following sections.

SLPE

SLPE recorded net sales of $18,824,000 or 38% of consolidated net sales in 2012, compared to $22,581,000, or 40% of consolidated net sales in 2011. At SLPE, the net sales of its medical equipment product line decreased by $2,096,000, or 15%, sales of the industrial product line decreased by $676,000, or 16%, sales of other products decreased by $519,000, or 85%, and sales of the data communications product line decreased by $466,000 or 14%. The decrease in sales of the medical equipment product line was primarily due to decreased distributor sales to medical customers, including decreased sales volumes to one large domestic distributor and one large international distributor during 2012. The decrease in sales in the industrial product line was primarily due to decreased distributor sales to industrial customers, including decreased sales volumes to one large domestic distributor. The decrease was also due to a decrease in sales volumes to a large international customer during 2012, as well as a general decline in demand in both the domestic and international markets. The decrease in sales of the data communications product line was primarily due to decreased sales volumes to several large domestic customers, which was partially offset by an increase in sales to a large domestic customer. Returns and distributor credits also negatively affected net sales, which represented approximately 1% of gross sales in 2012 and 2011, respectively. Domestic sales decreased by 19% and international sales decreased by 10% during 2012.

SLPE reported income from operations of $479,000 in 2012, compared to income from operations of $2,055,000 in 2011. Income from operations decreased in 2012 due to a decrease in sales of 17%, an increase in cost of products sold as a percentage of net sales, and an increase in operating expenses as a percentage of net sales. Cost of products sold increased by approximately 2% as a percentage of net sales during 2012. Operating costs increased by approximately 5% as a percentage of net sales during 2012 primarily due to an increase in SG&A as a percentage of net sales, which was primarily related to China Investigation costs, partially offset by a decrease in engineering and product development costs as a percentage of net sales.

High Power Group

The High Power Group reported net sales of $15,896,000, or 33% of consolidated net sales in 2012, compared to $18,151,000, or 32% of consolidated net sales in 2011. The decrease in net sales during 2012 was due to a decrease in net sales at TEAL of $2,980,000, or 29%, partially offset by an increase in net sales at MTE of $725,000, or 9%.

Teal’s sales decrease was primarily attributable to a decrease in sales to the medical imaging equipment market of $2,244,000, a decrease in sales to the military and aerospace markets of $624,000, and a decrease in sales to the semi-conductor market of $218,000, partially offset by an increase in sales to customers in the solar market of $106,000. The decrease in sales to the medical imaging equipment market was primarily due to a decrease in demand and a shift to lower average selling price units. The decrease in the semi-conductor market was almost entirely driven by a decrease in sales to international customers. Sales to military and aerospace customers decreased during 2012 primarily due to decreased volumes to a large domestic customer. Teal’s sales to customers in the solar market increased primarily due to orders from three large domestic customers during 2012, which are the result of a new focus for expansion and growth in the solar market. Domestic sales decreased by 33% and international sales decreased by 2% during 2012.

41

MTE’s sales increase is primarily attributable to an increase in sales in the natural resource markets, especially the oil and gas industry, during 2012. The increase in sales in the oil and gas industry during 2012 was primarily due to the introduction of a new product and an increase in customer projects. International sales increased by 36% primarily due to increased sales to distributers in Canada and increased sales to two large oil and gas customers in South America. Domestic sales increased by only 1% as sales to domestic customers in the oil and gas market and sales to domestic customers in the industrial automation market were relatively flat between periods.

The High Power Group reported income from operations of $1,585,000 in 2012, which represented a decrease of 34% from 2011. The decrease in income from operations during 2012 was due to a decrease at TEAL of $1,162,000, partially offset by an increase at MTE of $354,000. The decrease in the High Power Group’s income from operations was due to a decrease in sales and an increase in operating expenses as a percentage of net sales, partially offset by a decrease in cost of products sold as a percentage of net sales. Operating costs increased by approximately 4% as a percentage of net sales during 2012 due primarily to increases in SG&A and engineering and product development costs as a percentage of net sales. Cost of products sold as a percentage of net sales decreased 1% during 2012.

SL-MTI

SL-MTI recorded net sales of $9,077,000, or 19% of consolidated net sales in 2012, compared to $9,310,000, or 17% of consolidated net sales in 2011. SL-MTI recorded $821,000 of sales related to the Astromec acquisition during the second quarter of 2012. As a result, comparable sales, net of the acquisition, decreased by $1,054,000, or 11%, during 2012 as compared to 2011. Sales to customers in the defense industry, excluding Astromec sales, decreased by $932,000, or 18%, sales of other commercial products decreased by $103,000, or 16%, and sales to customers in the commercial aerospace industry, excluding Astromec sales, decreased by $61,000, or 2%, which were partially offset by an increase in sales of medical products, excluding the acquisition, of $42,000, or 25%. Domestic sales increased by 2% and international sales decreased by 30% during 2012. The increase in domestic sales was primarily due to $821,000 of sales related to the Astromec acquisition, partially offset by lower volumes to a large customer in the defense industry. The decrease in international sales was primarily related to lower volumes to a military customer located in Canada.

SL-MTI reported income from operations of $1,441,000 in 2012, which represented a decrease of 12% from 2011. SL-MTI recorded $222,000 of additional direct costs related to the Astromec acquisition during the second quarter of 2012. Excluding the one-time acquisition costs, income from operations increased by $22,000, or 1%, in 2012. The increase was due to a decrease in cost of products sold as a percentage of net sales, which was partially offset by a decrease in sales and an increase in operating expenses as a percentage of net sales. Cost of products sold decreased by approximately 2% as a percentage of net sales during 2012.

42

RFL

RFL recorded net sales of $5,102,000, or 10% of consolidated net sales in 2012, compared to $6,224,000, or 11% of consolidated net sales in 2011. Sales of RFL’s protection products decrease by $780,000, or 24%, and sales of communications products decreased by $389,000, or 14%, which was partially offset by an increase in customer service sales of $47,000, or 22%. The decrease in protection products was primarily due to decreased legacy product sales to domestic customers and due to a decrease in sales to a large international customer. The decrease was also due to a large domestic customer project in 2011 without a comparable project of that size in 2012. The decrease in the communications product line during 2012 was primarily due to decreased sales to three large domestic customers and a decrease in international sales to a customer located in Venezuela. Customer service sales increased primarily due to higher spare parts sales to a domestic customer. Domestic sales decreased by $508,000, or 11%, while international sales decreased by $614,000, or 39%.

RFL reported income from operations of $578,000 in 2012, which represented a decrease of 35% from 2011. Income from operations decreased in 2012 due to a decrease in sales and an increase in operating expenses as a percentage of net sales, which was partially offset by a decrease in cost products sold as a percentage of net sales. Cost of products sold as a percentage of net sales decreased by approximately 5% in 2012. Operating expenses as a percentage of net sales increased by approximately 8% due to an increase in SG&A and engineering and product development costs as a percentage of net sales.

Cost of Products Sold

Cost of products sold was approximately 67% of net sales in 2012, compared to 67% for the quarter ended 2011. Cost of products sold as a percentage of net sales remained flat on a decrease in net sales of 13%.

SLPE recorded an increase in cost of products sold as a percentage of net sales, while RFL, SL-MTI and the High Power Group each recorded a decrease in cost of products sold as a percentage of sales. SLPE’s cost of products sold as a percentage of net sales increased by approximately 2% primarily due to unabsorbed manufacturing overhead related to reduced sales. SLPE’s cost of products sold as a percentage of net sales also increased due to an increase in their inventory reserve in 2012. Cost of products sold as a percentage of net sales decreased by 5% at RFL primarily due to a favorable change in customer and sales mix. During 2012, SL-MTI recorded a 2% decrease in its cost of products sold as a percentage of net sales primarily due to improved lean initiatives implemented at its manufacturing facilities in Matamoros, Mexico and Montevideo, Minnesota, and lower warranty costs. The decrease in SL-MTI’s cost of products sold as a percentage of net sales was partially offset by an increase in cost of products sold as a percentage of net sales due to the integration of Astromec operations. The High Power Group recorded a 1% decrease in its cost of products sold as a percentage of net sales due to a 5% decrease at MTE, which was partially offset by a 4% increase at TEAL. The decrease in cost of products sold as a percentage of net sales at MTE was primarily due to increased sales levels, which improved overhead absorption. The decrease at MTE was also due to lower commodity costs and increased product pricing. The increase in cost of products sold as a percentage of net sales at TEAL was primarily due to unabsorbed factory overhead related to a 29% reduction in sales levels. All operating entities are at various stages of emphasizing lean initiatives throughout the factory floor in an attempt to improve future margins. During July 2012, the management of SLPE and TEAL, which is part of the High Power Group, announced to its employees a restructuring plan to align its costs with current and projected sales activity (See Note 20 – Subsequent Events for further details about the restructuring plan).

43

Engineering and Product Development Expenses

Engineering and product development expenses decreased by $226,000, or 7%, during the second quarter of 2012. Engineering and product development expenses were approximately 6% of net sales in 2012 and 2011. SLPE recorded a 1% decrease in engineering and product development costs as a percentage of net sales during 2012. The decrease in engineering and product development costs as a percentage of net sales at SLPE was primarily due to decreased employee compensation and related costs due to a decrease in employees in 2012. The decrease in engineering and product development costs as a percentage of net sales at SLPE was partially offset by a 2% increase in engineering and product development costs as a percentage of net sales at the High Power Group and a 2% increase at RFL. The increase in engineering and product development costs as a percentage of net sales at the High Power Group was primarily due to increased employee compensation costs coupled with a decrease in customer funded projects and lower sales volumes in 2012. The increase in engineering and product development costs as a percentage of net sales at RFL was primarily due to increased employee compensation costs and lower sales volumes in 2012. Engineering and product development expenses as a percentage of net sales at SL-MTI were relatively flat during 2012 and 2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were approximately 21% of net sales for 2012 and 16% of net sales for 2011. Selling, general and administrative expenses increased by $1,330,000, or 15%, on a 13% decrease in sales. SLPE’s expenses increased by $576,000 in 2012 primarily due to an increase in consulting and legal fees related to the on-going China Investigation. SL-MTI’s expenses increased by $333,000 primarily due to direct costs related to the Astromec acquisition of $222,000. The High Power Group recorded an increase in selling, general and administrative expenses of $79,000 primarily due to increased legal expenses primarily related to an ongoing litigation. Selling, general and administrative expenses at RFL increased by $23,000 primarily due to increased sales and commissions expenses on domestic sales. Corporate and other expenses increased by $368,000 primarily due to increased stock compensation costs related to restricted shares granted to Directors on April 2, 2012. During July 2012, the management of SLPE and TEAL, which is part of the High Power Group, announced to its employees a restructuring plan to align its costs with current and projected sales activity (See Note 20 – Subsequent Events for further details about the restructuring plan).

Depreciation And Amortization Expenses

Depreciation and amortization expenses in 2012 were $707,000, a decrease of $68,000, or 9%, compared to depreciation and amortization expenses in 2011.

Amortization of Deferred Financing Costs

In connection with entering into the 2008 Credit Facility and related waivers and amendments, the Company incurred deferred financing costs which are amortized over the term of the 2008 Credit Facility in accordance with the guidance provided by ASC 470-50 “Debt-Modification and Extinguishments.” During 2012 and 2011, the amortization of deferred financing costs equaled $39,000 and $77,000, respectively.

Interest Expense

Interest expense in 2012 was $9,000, compared to $56,000 in 2011. The decrease in interest expense in 2012 was primarily due to decreased borrowings under the Company’s 2008 Credit Facility. The Company had no outstanding balance as of June 30, 2012 under the 2008 Credit Facility compared to $9,000,000 in outstanding debt as of June 30, 2011.

44

Other gain (loss), net

Other gain (loss), net in 2012 was a net loss of $162,000 while no gain or loss was recorded in 2011. During 2012, the Company entered into a series of foreign currency forward contracts to hedge its exposure to foreign exchange rate movements in its forecasted expenses in China and Mexico. The loss recognized in 2012 represents the unrealized loss on foreign currency forward contracts that are marked to market. The Company did not enter into foreign exchange contracts during 2011.

Fire Related Gain

On March 24, 2010, the Company sustained fire damage at its then leased manufacturing facility in Mexicali, Mexico. This facility manufactured products for both SLPE and MTE. The fire was contained to an area that manufactured MTE products. The Company was fully insured for the replacement of the assets damaged in the fire and for the loss of profits due to business interruption and changed conditions caused by the fire. The Company’s fire related loss includes the destruction of property and equipment, damaged inventory, cleanup costs and increased operating expenses incurred as a result of the fire.

During June 2011, the Company settled the fire damage claims with its insurance carriers for $810,000 and as a result the Company recorded a gain related to the fire of $277,000. No additional material gains, losses or recoveries were recognized in subsequent periods related to the fire loss.

Taxes (Continuing Operations)

The effective tax rate for continuing operations for the second quarter ended 2012 was approximately 34%. For the second quarter ended 2011, the effective tax rate was approximately 37%. The decrease in the effective tax rate was primarily due to a reduction in research and development and foreign tax credits in 2012.

Discontinued Operations

During 2012, the Company recorded a loss from discontinued operations, net of tax, of $244,000, compared to income of $593,000, net of tax, in 2011. Loss from discontinued operations during 2012 primarily related to environmental remediation costs, consulting fees, and legal charges associated with the past operations of the Company’s five environmental sites. Income from discontinued operations in 2011 primarily relates to the $787,000 favorable settlement with a foreign tax authority, partially offset by charges related to ongoing environmental remediation and legal costs.

Net Income

Net income was $1,166,000, or $0.26 per diluted share, for 2012 compared to $4,209,000, or $0.92 per diluted share, for 2011. The weighted average number of shares used in the diluted earnings per share computation was 4,457,000 and 4,576,000 for 2012 and 2011, respectively.

45

Results of Operations

Six months ended June 30, 2012, compared with six months ended June 30, 2011

The tables below show the comparisons of net sales and income from operations for the six months ended June 30, 2012 (“2012”) and the six months ended June 30, 2011 (“2011”):

	Net Sales
	Six Months Ended June 30, 2012		Six Months Ended June 30, 2011		$ Variance From Same Period Last Year			% Variance From Same Period Last Year
	(in thousands)
SLPE	$	37,167	$	44,306	$	(7,139	)		(16	%)
High Power Group		31,471		34,886		(3,415	)		(10	)
SL-MTI		18,676		18,418		258			1
RFL		10,925		11,250		(325	)		(3	)
Net sales	$	98,239	$	108,860	$	(10,621	)		(10	%)

	Six Months Ended June 30, 2012			Six Months Ended June 30, 2011			$ Variance From Same Period Last Year			% Variance From Same Period Last Year
	(in thousands)
SLPE	$	268		$	4,370		$	(4,102	)		(94	%)
High Power Group		2,950			4,498			(1,548	)		(34	)
SL-MTI		3,144			3,251			(107	)		(3	)
RFL		1,636			1,333			303			23
Other		(3,281	)		(2,799	)		(482	)		(17	)
Income from operations	$	4,717		$	10,653		$	(5,936	)		(56	%)

During 2012, consolidated net sales decreased by $10,621,000 or 10%. When compared to 2011, net sales of SLPE decreased by $7,139,000 or 16%; net sales of the High Power Group decreased by $3,415,000, or 10%; net sales of SL-MTI increased by $258,000, or 1%; and net sales at RFL decreased by $325,000, or 3%. SL-MTI benefited from $1,068,000 of sales related to the Astromec acquisition which was completed on February 27, 2012.

In 2012, the Company’s income from operations was $4,717,000, compared to $10,653,000 in 2011, representing a decrease of $5,936,000, or 56%. Income from operations was 5% of net sales in 2012, compared to income from operations of 10% of net sales in 2011. All of the Company’s operating entities recorded income from operations in 2012 and 2011. SL-MTI incurred $422,000 of direct acquisition costs related to the Astromec acquisition previously mentioned.

46

Income from continuing operations in 2012 was $2,854,000, or $0.63 per diluted share, compared to income from continuing operations in 2011 of $7,218,000, or $1.58 per diluted share. Income from continuing operations was approximately 3% of net sales in 2012, compared to income from continuing operations of 7% of net sales in 2011.

The Company’s business segments and the components of operating expenses are discussed in the following sections.

SLPE

SLPE recorded net sales of $37,167,000 or 38% of consolidated net sales in 2012, compared to $44,306,000, or 41% of consolidated net sales in 2011. At SLPE, the net sales of its medical equipment product line decreased by $4,156,000, or 14%, sales of the industrial product line decreased by $1,825,000, or 23%, sales of the data communications product line decreased by $731,000, or 11%, and sales of other products decreased $427,000, or 61%. The decrease in sales of the medical equipment product line was primarily due to decreased distributor sales to medical customers, including decreased sales volumes to one large domestic distributor and one large international distributor during 2012. The decrease was also due to a general decline in demand in both the domestic and international markets. The decrease in sales in the industrial product line was primarily due to decreased distributor sales to industrial customers, including decreased sales volumes to one large domestic distributor. The decrease was also due to a decrease in sales volumes to a large international customer during 2012. The decrease in sales of the data communications product line was primarily due to decreased sales volumes to several large domestic customers. Returns and distributor credits also negatively affected net sales, which represented approximately 2% and 1% of gross sales in 2012 and 2011, respectively. Domestic sales decreased by 15% and international sales decreased by 21% during 2012.

SLPE reported income from operations of $268,000 in 2012, compared to income from operations of $4,370,000 in 2011. Income from operations decreased in 2012 due to a decrease in sales of 16%, an increase in cost of products sold as a percentage of net sales, and an increase in operating expenses as a percentage of net sales. Cost of products sold increased by approximately 5% as a percentage of net sales during 2012. Operating costs increased by approximately 4% as a percentage of net sales during 2012 due to an increase in SG&A as a percentage of net sales, which was primarily related to China Investigation costs, partially offset by a decrease in engineering and product development costs as a percentage of net sales.

High Power Group

The High Power Group reported net sales of $31,471,000 or 32% of consolidated net sales in 2012, compared to $34,886,000, or 32% of consolidated net sales in 2011. The decrease in net sales during 2012 was due to a decrease in net sales at TEAL of $3,886,000, or 21%, which was partially offset by an increase in net sales at MTE of $471,000 or 3%.

Teal’s sales decrease was primarily attributable to a decrease in sales to the medical equipment market of $2,153,000, a decrease in sales to the military and aerospace markets of $1,258,000, and decrease in sales to the semi-conductor market of $851,000, partially offset by an increase in sales to customers in the solar market of $376,000. The decrease in sales to the medical imaging equipment market was primarily due to a decrease in demand and a shift to lower average selling price units. Sales to military and aerospace customers decreased during 2012 primarily due to decreased volumes to a large domestic customer. The decrease in the semi-conductor market was almost entirely driven by a decrease in sales to international customers. Teal’s sales to customers in the solar market increased primarily due to orders from three large domestic customers during 2012, which are the result of a new focus for expansion and growth in the solar market. Domestic sales decreased by 21% and international sales decreased by 19% during 2012.

47

MTE’s sales increase is primarily attributable to an increase in sales in the natural resource markets, especially the oil and gas industry, during 2012. International sales increased by 7% while domestic sales increased by 2%. The increase in international sales is primarily due to increased sales to distributors in Canada in both the industrial automation and natural resource market, and increases in sales to customers located in Asia in the industrial automation market. The increase in domestic sales is due to increased sales to several customers in the industrial automation market, partially offset by a decrease in sales to a large customer in the oil and gas market.

The High Power Group reported income from operations of $2,950,000 in 2012, which represented a decrease of 34% from 2011. The decrease in income from operations during 2012 was due to a decrease at TEAL of $1,777,000, offset by an increase at MTE of $229,000. The decrease in the High Power Group’s income from operations was due to a decrease in sales and an increase in operating expenses as a percentage of net sales. Operating expenses increased by approximately 3% as a percentage of net sales during 2012 due primarily to increases in SG&A at MTE due to higher sales levels and engineering and product development costs as a percentage of net sales related to TEAL. Cost of products sold as a percentage of net sales was flat at the High Power Group.

SL-MTI

SL-MTI recorded net sales of $18,676,000 or 19% of consolidated net sales in 2012, compared to $18,418,000, or 17% of consolidated net sales in 2011. SL-MTI recorded $1,068,000 of sales related to the Astromec acquisition during the 2012. As a result, comparable sales, net of the acquisition, decreased by $810,000, or 4%, during 2012 as compared to 2011. Sales to customers in the defense industry, excluding the acquisition, decreased by $1,343,000, or 12%, and sales of other commercial products, excluding the acquisition, decreased by $70,000, or 6%, which were partially offset by an increase in sales to customers in the commercial aerospace industries of $465,000, or 8%, and an increase in sales of medical products, excluding Astromec sales, of $138,000, or 43%. Domestic sales increased by 7% and international sales decreased by 28% during 2012. The increase in domestic sales was primarily due to $1,068,000 of sales related to the Astromec acquisition previously mentioned. The decrease in international sales was primarily related to lower volumes to a military customer located in Canada.

SL-MTI reported income from operations of $3,144,000 in 2012, which represented a decrease of 3% from 2011. SL-MTI recorded $422,000 of direct costs related to the Astromec acquisition during 2012. Excluding the one-time acquisition costs, income from operations increased by $315,000, or 10%, in 2012. The increase was due to a decrease in cost of products sold as a percentage of net sales, which was partially offset by an increase in operating expenses as a percentage of net sales. Cost of products sold decreased by approximately 2% as a percentage of net sales during 2012.

48

RFL

RFL recorded net sales of $10,925,000, or 11% of consolidated net sales in 2012, compared to $11,250,000, or 10% of consolidated net sales in 2011. Sales of RFL’s protection products decreased by $388,000, or 7%, sales of communications products decreased by $103,000, or 2%, partially offset by an increase in customer service sales of $166,000, or 36%. The decrease in protection products was primarily due to decreased legacy product sales and decreased sales volumes to a large international customer. The decrease in the communications product line was primarily due to decreased sales to a large domestic customer and decreased sales to an international customer located in Venezuela, partially offset by increased sales to a large domestic customer in the rail industry. Customer service sales increased primarily due to higher spare parts sales to a domestic customer. Domestic sales increased by $485,000 or 6%, while international sales decreased by $810,000, or 32%.

RFL reported income from operations of $1,636,000 in 2012, which represented an increase of 23% from 2011. Income from operations increased in 2012 due to a decrease in cost products sold as a percentage of net sales, partially offset by a decrease in net sales and an increase operating expenses as a percentage of net sales. Cost of products sold as a percentage of net sales decreased by approximately 5% in 2012. Operating expenses as a percentage of net sales increased by approximately 2% due to an increase in SG&A and engineering and product development costs as a percentage of net sales.

Cost of Products Sold

Cost of products sold was approximately 68% of net sales in 2012, compared to 67% in 2011. The cost of products sold as a percentage of net sales increased by 1% on a decrease in net sales of 10%.

SLPE recorded an increase in cost of products sold as a percentage of net sales, while RFL and SL-MTI each recorded a decrease in cost of products sold as a percentage of sales. Cost of products sold as a percentage of net sales was flat at the High Power Group. SLPE’s cost of products sold as a percentage of net sales increased approximately 5% primarily due to unabsorbed manufacturing overhead related to reduced sales. SLPE’s cost of products sold as a percentage of net sales also increased due to an increase in their inventory reserve in 2012. Cost of products sold as a percentage of net sales decreased by 5% at RFL due to a favorable change in customer and sales mix. During 2012, SL-MTI recorded a 2% decrease in its cost of products sold as a percentage of net sales primarily due to improved sales mix and lean initiatives implemented at its manufacturing facilities in Matamoros, Mexico and Montevideo, Minnesota, and lower warranty costs. The decrease in SL-MTI’s cost of products sold as a percentage of net sales was partially offset by an increase in cost of products sold as a percentage of net sales due to the integration of Astromec operations. All operating entities are at various stages of emphasizing lean initiatives throughout the factory floor in an attempt to improve future margins. During July 2012, the management of SLPE and TEAL, which is part of the High Power Group, announced to its employees a restructuring plan to align its costs with current and projected sales activity (See Note 20 – Subsequent Events for further details about the restructuring plan).

Engineering and Product Development Expenses

Engineering and product development expenses decreased by $511,000, or 8% during 2012. Engineering and product development expenses were approximately 6% of net sales in 2012 and 2011. SLPE and SL-MTI each recorded a 1% decrease in engineering and product development costs as a percentage of net sales during 2012. The decrease in engineering and product development costs as a percentage of net sales at SLPE was primarily due to decreased employee compensation and related costs due to a decrease in employees in 2012. The decrease in engineering and product development costs as a percentage of net sales at SL-MTI was primarily due to a 1% increase in sales coupled with a 7% decrease in research and development costs. The decrease in research and development costs at SL-MTI was primarily due to an increase in funding from customers for research and development projects in 2012. The decreases in engineering and product development costs as a percentage of net sales at SLPE and SL-MTI were partially offset by 1% increase in engineering and product development costs as a percentage of net sales at the High Power Group and a 1% increase at RFL. The increase in engineering and product development costs as a percentage of net sales at the High Power Group was primarily due to increased employee compensation costs coupled with a decrease in customer funded projects and lower sales volumes in 2012. The increase in engineering and product development costs as a percentage of net sales at RFL was primarily due to increased employee compensation costs and lower sales volumes in 2012.

49

Selling, General and Administrative Expenses

Selling, general and administrative expenses were approximately 20% of net sales for 2012 and 16% of net sales for 2011. Selling, general and administrative expenses increased by $2,180,000 or 12%, on a 10% decrease in sales. SLPE’s expenses increased by $900,000 in 2012 primarily due to an increase in consulting and legal fees related to the China Investigation. SL-MTI increased by $518,000 primarily due direct costs related to the Astromec acquisition of $422,000. The High Power Group recorded an increase in selling, general and administrative expenses of $257,000 primarily due to increased legal expenses primarily related to an ongoing litigation and increased selling expenses related to new product growth. Selling, general and administrative expenses at RFL increased by $66,000 primarily due to increased sales and commissions expenses on higher domestic sales volumes. Corporate and other expenses increased by $482,000 primarily due to increased stock compensation related to restricted shares granted to Directors on April 2, 2012. During July 2012, the management of SLPE and TEAL, which is part of the High Power Group, announced to its employees a restructuring plan to align its costs with current and projected sales activity (See Note 20 – Subsequent Events for further details about the restructuring plan).

Depreciation And Amortization Expenses

Depreciation and amortization expenses in 2012 were $1,372,000 a decrease of $172,000, or 11%, compared to depreciation and amortization expenses in 2011.

Amortization of Deferred Financing Costs

In connection with entering into the 2008 Credit Facility and related waivers and amendments, the Company incurred deferred financing costs which are amortized over the term of the 2008 Credit Facility in accordance with the guidance provided by ASC 470-50 “Debt-Modification and Extinguishments.” During 2012 and 2011, the amortization of deferred financing costs equaled $72,000 and $153,000, respectively.

Interest Expense

Interest expense in 2012 was $31,000, compared to $138,000 in 2011. The decrease in interest expense was primarily due to decreased borrowings under the Company’s 2008 Credit Facility. The Company had no outstanding balance as of June 30, 2012 under the 2008 Credit Facility compared to $9,000,000 in outstanding debt as of June 30, 2011.

Other gain (loss), net

Other gain (loss), net in 2012 was a net loss of $170,000 while no gain or loss was recorded in 2011. During 2012, the Company entered into a series of foreign currency forward contracts to hedge its exposure to foreign exchange rate movements in its forecasted expenses in China and Mexico. The loss recognized in 2012 represents the unrealized loss on foreign currency forward contracts that are marked to market. The Company did not enter into foreign exchange contracts during 2011.

50

Fire Related Gain

On March 24, 2010, the Company sustained fire damage at its then leased manufacturing facility in Mexicali, Mexico. This facility manufactured products for both SLPE and MTE. The fire was contained to an area that manufactured MTE products. The Company was fully insured for the replacement of the assets damaged in the fire and for the loss of profits due to business interruption and changed conditions caused by the fire. The Company’s fire related loss includes the destruction of property and equipment, damaged inventory, cleanup costs and increased operating expenses incurred as a result of the fire.

During June 2011, the Company settled the fire damage claims with its insurance carriers for $810,000 and as a result the Company recorded a gain related to the fire of $277,000. No additional material gains, losses or recoveries were recognized in subsequent periods related to the fire loss.

Taxes (Continuing Operations)

The effective tax rate for continuing operations for the six months ended 2012 was approximately 36%. For the six months ended 2011, the effective tax rate was approximately 32%. The increase in the effective tax rate in 2012 was primarily due to the effect of a federal tax rate change recognized in deferred taxes in 2011 that did not apply in 2012. The increase was also due to less foreign tax credits available to the Company in 2012 compared to 2011.

Effective January 1, 2011, the Company’s statutory federal income tax rate increased from 34% to 35%. The effective tax rate in 2011 reflects the statutory rate after adjustments for state and international tax provisions and the recording of benefits primarily related to federal and state research and development tax credits and foreign tax credits, as well as the effect of applying a higher statutory tax rate to deferred taxes that existed as of the first day of the year.

Discontinued Operations

During 2012, the Company recorded a loss from discontinued operations, net of tax, of $438,000, compared to income of $403,000, net of tax, in 2011. Loss from discontinued operations during 2012 primarily related to environmental remediation costs, consulting fees, and legal charges associated with the past operations of the Company’s five environmental sites. Income from discontinued operations in 2011 relates to the $787,000 favorable settlement with a foreign tax authority, primarily offset by environmental and legal expenses.

Net Income

Net income was $2,416,000, or $0.53 per diluted share, for 2012 compared to $7,621,000, or $1.67 per diluted share, for 2011. The weighted average number of shares used in the diluted earnings per share computation was 4,518,000 and 4,558,000 for 2012 and 2011, respectively.

51

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures,” as such term is defined in Rules 13a-15e and 15d-15e promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Conclusion of Evaluation

Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Inherent Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the Company’s disclosure controls and procedures, management recognizes that any control, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the first six months of 2012 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 12 of the Notes to the Consolidated Financial Statements included in Part I to this Quarterly Report on Form 10-Q. Also, see Note 14 of the Notes to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, for additional disclosure related to the Company’s legal proceedings.

ITEM 1A. RISK FACTORS

Not applicable.

52

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On November 16, 2010, the Board of Directors authorized a plan that allows for the repurchase up to an aggregate of 470,000 shares of the Company’s outstanding common stock (the “2010 Repurchase Plan”). Any repurchases pursuant to the 2010 Repurchase Plan would be made in the open market or in negotiated transactions. During the first six months of 2012, the Company purchased approximately 140,000 shares of Company stock at an average price of $17.59 a share. As a result, as of June 30, 2012, approximately 330,000 shares remained available for purchase under the 2010 Repurchase Plan.

On May 30, 2012, the Company announced a modified “Dutch Auction” Tender Offer to purchase up to $10 million of its common shares. The Tender Offer expired on June 27, 2012. Under the terms of the Tender Offer, the Company’s shareholders had the option of tendering all or a portion of the Company’s common stock that they owned (1) at a price of not less than $12.00 and not greater than $13.50, in increments of $0.25 per share, or (2) without specifying a purchase price, in which case the common stock that they owned would have been purchased at the purchase price determined in accordance with the Tender Offer. All common stock purchased by the Company were purchased at the same price.

The Company accepted for purchase approximately 307,000 shares of its common stock at a purchase price of $13.50 per share. These shares represented approximately 6.9% of the total common stock outstanding as of June 27, 2012 prior to the purchase of shares pursuant to the Tender Offer. With the completion of the Tender Offer, the Company had approximately 4,121,000 shares of common stock outstanding at that time. The aggregate purchase price paid by the Company in connection with the Tender Offer was $4,147,000 excluding transaction costs. The total purchase price was recorded in other accrued liabilities since the expiration date of the Tender Offer was June 27, 2012 but payment was not made until July 5, 2012 according to the terms of the Tender Offer. The Company paid for the Tender Offer on July 5, 2012, with available cash on hand.

53

The following table presents information related to the repurchases of common stock that the Company made during the six months ended June 30, 2012:

						Total Number		Maximum Number
						of Shares		of Shares That May
	Total					Purchased as Part		Yet Be Purchased
	Number of			Average		of Publicly		under Publicly
	Shares			Price Paid		Announced Plans		Announced Plans or
Period	Purchased			per Share		or Programs		Programs
January 2012		6,000	(1)	$	18.98		6,000		464,000	(3)
February 2012		9,000	(1)	$	17.61		9,000		455,000	(3)
March 2012		9,000	(1)	$	17.99		9,000		446,000	(3)
April 2012		106,000	(1)	$	17.94		106,000		340,000	(3)
May 2012		10,000	(1)	$	12.88		10,000		1,163,000	(4)
June 2012		307,000	(2)	$	13.50		307,000		330,000	(3)
Total		447,000		$	17.59		447,000		330,000

⁽¹⁾  The number of shares purchased pursuant to the 2010 Repurchase Plan.

⁽²⁾  The number of shares purchased pursuant to the Tender Offer. The Tender Offer expired on June 27, 2012.

⁽³⁾  Equals the maximum number of shares that may yet be purchased pursuant to the 2010 Repurchase plan.

⁽⁴⁾  Equals the maximum number of shares that may be purchased pursuant to the Tender Offer (833,000 shares) plus the remaining maximum number of shares that may yet be purchased pursuant to the 2010 Repurchase plan (330,000 shares). The Tender Offer expired on June 27, 2012, in which the Company accepted for purchase approximately 307,000 shares of its common stock at a purchase price of $13.50 per share. As a result, no further shares remain available for purchase pursuant to the Tender Offer.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On August 9, 2012, the Company entered into a senior revolving credit facility (the “2012 Credit Facility”) with PNC Bank, National Association (“PNC Bank”) to replace its 2008 Credit Facility. The 2012 Credit Facility provides for borrowings up to $40,000,000 and under certain circumstances maximum borrowings up to $70,000,000. The 2012 Credit Facility includes a $5,000,000 sublimit for letters of credit and provides for a separate $10,700,000 letter of credit which expires one year from the date of closing, with annual extensions. The 2012 Credit Facility expires on August 9, 2016.

54

Borrowings under the 2012 Credit Facility bear interest, at the Company’s option, at the London interbank offering rate (“LIBOR”) plus a margin rate ranging from 1.25% to 2.0%, or the higher of a Base Rate plus a margin rate ranging from 0.25% to 1.0%. The Base Rate is equal to the highest of (i) the Federal Funds Open Rate plus 0.5% and (ii) the Prime Rate and (iii) the Daily Libor Rate plus 1%. The margin rates are based on certain leverage ratios, as defined. The Company is subject to compliance with certain financial covenants set forth in the 2012 Credit Facility, including, but not limited to, indebtedness to EBITDA, as defined, minimum levels of fixed charges and limitations on capital expenditures, as defined. Availability under the 2012 Credit Facility is based upon the Company’s trailing twelve month EBITDA, as defined. The foregoing description of the 2012 Credit Facility is qualified in its entirety by the actual terms of the credit agreement, which is included as exhibit 10.3 to this Quarterly Report, and such terms are incorporated herein by reference.

Pursuant to Section 10A(i)(2) of the Exchange Act, the Company is responsible for listing the non-audit services performed by Grant Thornton LLP, the Company’s external auditor, in the first six months of 2012, as approved by its Audit Committee. During the six months ended June 30, 2012, the Audit Committee of the Board of Directors of the Company approved permitted non-audit services to be performed by Grant Thornton LLP. These non-audit services that were approved relate to domestic and international tax advisory and compliance.

55

ITEM 6. EXHIBITS

10.1 Form of 2012 Restricted Shares Agreement between the Company and each director of the Company, dated April 2, 2012. Incorporated by reference to Exhibit 10.2 to the Company’s report on Form 10-Q for the fiscal quarter ended March 31, 2012.

10.2 Fifth Amendment to Credit Agreement, dated May 29, 2012, by and among the Company, Bank of America, N.A. as administrative agent and lender, and a syndicate of other lenders party thereto, further amending the Amended and Restated Revolving Credit Agreement entered into as of October 23, 2008 among the Company, subsidiaries of the Company party thereto, Bank of America, N.A., as administrative agent and lender, and a syndicate of other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 30, 2012.

10.3 Credit Agreement, dated August 9, 2012, by and among the Company, the Company’s subsidiaries, PNC Bank, National Association, as administrative agent, and the lenders from time to time party thereto (transmitted herewith).

31.1 Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted herewith).

31.2 Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted herewith).

32.1 Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (transmitted herewith).

101.INS* XBRL Instance Document.

101.SCH* XBRL Taxonomy Extension Schema Document.

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB* XBRL Taxonomy Extension Label Linkbase Document.

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document.

* Furnished herewith. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

56

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 14, 2012	SL INDUSTRIES, INC.
	(Registrant)
	By:	/s/ William T. Fejes
		William T. Fejes
		Chief Executive Officer
		(Principal Executive Officer)

By:	/s/ Louis J. Belardi
	Louis J. Belardi Chief Financial Officer
	(Principal Accounting Officer)

57

EX-10.3

Exhibit 10.3

$40,000,000 REVOLVING CREDIT FACILITY

$10,700,000 EPA/DOJ LETTER OF CREDIT FACILITY

CREDIT AGREEMENT

by and among

SL INDUSTRIES, INC.

AND THE OTHER ENTITIES LISTED AS BORROWERS ON THE SIGNATURE PAGES

HERETO OR JOINED AS A BORROWER FROM TIME TO TIME

and

THE LENDERS PARTY HERETO

and

PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent

Dated as of August 9, 2012

TABLE OF CONTENTS

	Page
1. CERTAIN DEFINITIONS		1
1.1 Certain Definitions		1
1.2 Construction		22
1.3 Accounting Principles; Changes in GAAP		22
2. REVOLVING CREDIT FACILITY		23
2.1 Revolving Credit Commitments		23
2.1.1 Revolving Credit Loans		23
2.1.2 Reserved		23
2.2 Nature of Lenders’ Obligations with Respect to Revolving Credit Loans		23
2.3 Commitment Fees		23
2.4 Facility Fees		24
2.5 Revolving Credit Loan Requests		24
2.5.1 Revolving Credit Loan Requests		24
2.5.2 Reserved		24
2.6 Making Revolving Credit Loans; Presumptions by the Administrative Agent; Repayment of Revolving Credit Loans		24
2.6.1 Making Revolving Credit Loans		24
2.6.2 Presumptions by the Administrative Agent		25
2.6.3 Reserved		25
2.6.4 Repayment of Revolving Credit Loans		25
2.6.5 Reserved		25
2.6.6 Reserved		25
2.7 Notes		25
2.8 Use of Proceeds		25
2.9 Letter of Credit Subfacility		26
2.9.1 Issuance of Letters of Credit		26
2.9.2 Letter of Credit Fees		27
2.9.3 Disbursements, Reimbursement		27
2.9.4 Repayment of Participation Advances		28
2.9.5 Documentation		29
2.9.6 Determinations to Honor Drawing Requests		29
2.9.7 Nature of Participation and Reimbursement Obligations		29
2.9.8 Indemnity		31
2.9.9 Liability for Acts and Omissions		31
2.9.10 Issuing Lender Reporting Requirements		32
2.9.11 Cash Collateral		32
2.10 Defaulting Lenders		33
2.11 Reduction of Revolving Credit Commitment		34
2.12 Increase in Revolving Credit Commitments		35
2.12.1 Increasing Lenders and New Lenders		35
2.12.2 Treatment of Outstanding Loans and Letters of Credit		36

i

3. RESERVED	36
4. INTEREST RATES	36
4.1 Interest Rate Options	36
4.1.1 Revolving Credit Interest Rate Options	36
4.1.2 Reserved	37
4.1.3 Rate Quotations	37
4.2 Interest Periods	37
4.2.1 Amount of Borrowing Tranche	37
4.2.2 Renewals	37
4.3 Interest After Default	37
4.3.1 Letter of Credit Fees, Interest Rate	37
4.3.2 Other Obligations	37
4.3.3 Acknowledgment	37
4.4 LIBOR Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available	38
4.4.1 Unascertainable	38
4.4.2 Illegality; Increased Costs; Deposits Not Available	38
4.4.3 Administrative Agent’s and Lender’s Rights	39
4.5 Selection of Interest Rate Options	39
5. PAYMENTS	39
5.1 Payments	39
5.2 Pro Rata Treatment of Lenders	40
5.3 Sharing of Payments by Lenders	40
5.4 Presumptions by Administrative Agent	40
5.5 Interest Payment Dates	41
5.6 Voluntary Prepayments	41
5.6.1 Right to Prepay	41
5.6.2 Replacement of a Lender	42
5.7 Mandatory Prepayments	42
5.7.1 Sale of Assets/Issuance of Indebtedness	42
5.7.2 Application Among Interest Rate Options	43
5.8 Increased Costs	43
5.8.1 Increased Costs Generally	43
5.8.2 Capital Requirements	44
5.8.3 Certificates for Reimbursement; Repayment of Outstanding Loans; Borrowing of New Loans	44
5.8.4 Delay in Requests	44
5.9 Taxes	44
5.9.1 Issuing Lender	44
5.9.2 Payments Free of Taxes	44
5.9.3 Payment of Other Taxes by the Loan Parties	45
5.9.4 Indemnification by the Loan Parties	45
5.9.5 Indemnification by the Lenders	45
5.9.6 Evidence of Payments	45

ii

5.9.7 Status of Lenders	46
5.9.8 Treatment of Certain Refunds	48
5.9.9 Survival	48
5.10 Indemnity	48
5.11 Settlement Date Procedures	49
6. REPRESENTATIONS AND WARRANTIES	49
6.1 Representations and Warranties	49
6.1.1 Organization and Qualification; Power and Authority; Compliance With Laws; Title to Properties; Event of Default	49
6.1.2 Subsidiaries and Owners; Investment Companies	50
6.1.3 Validity and Binding Effect	50
6.1.4 No Conflict; Material Agreements; Consents	50
6.1.5 Litigation	51
6.1.6 Financial Statements	51
6.1.7 Margin Stock	51
6.1.8 Full Disclosure	52
6.1.9 Taxes	52
6.1.10 Patents, Trademarks, Copyrights, Licenses, Etc.	52
6.1.11 Liens in the Collateral	52
6.1.12 Insurance	52
6.1.13 ERISA Compliance	52
6.1.14 Environmental Matters	53
6.1.15 Solvency	53
6.2 Updates to Schedules	53
7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT	53
7.1 First Loans and Letters of Credit	53
7.1.1 Deliveries	53
7.1.2 Payment of Fees	55
7.2 Each Loan or Letter of Credit	55
8. COVENANTS	55
8.1 Affirmative Covenants	55
8.1.1 Preservation of Existence, Etc.	55
8.1.2 Payment of Liabilities, Including Taxes, Etc.	55
8.1.3 Maintenance of Insurance	56
8.1.4 Maintenance of Properties and Leases	56
8.1.5 Visitation Rights	56
8.1.6 Keeping of Records and Books of Account	56
8.1.7 Compliance with Laws; Use of Proceeds	56
8.1.8 Further Assurances	56
8.1.9 Anti-Terrorism Laws	57
8.1.10 Deposit and Securities Accounts	57
8.2 Negative Covenants	57

iii

8.2.1 Indebtedness	57
8.2.2 Liens; Lien Covenants	58
8.2.3 Guaranties	58
8.2.4 Loans and Investments	58
8.2.5 Dividends and Related Distributions	59
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions	59
8.2.7 Dispositions of Assets or Subsidiaries	59
8.2.8 Affiliate Transactions	60
8.2.9 Subsidiaries, Partnerships and Joint Ventures	61
8.2.10 Continuation of or Change in Business	61
8.2.11 Fiscal Year	61
8.2.12 Issuance of Stock	61
8.2.13 Changes in Organizational Documents	62
8.2.14 Capital Expenditures and Leases	62
8.2.15 Minimum Fixed Charge Coverage Ratio	62
8.2.16 Maximum Leverage Ratio	62
8.3 Reporting Requirements	62
8.3.1 Quarterly Financial Statements	62
8.3.2 Annual Financial Statements	63
8.3.3 Certificate of the Borrower	63
8.3.4 Notices	63
9. DEFAULT	64
9.1 Events of Default	64
9.1.1 Payments Under Loan Documents	64
9.1.2 Breach of Warranty	64
9.1.3 Breach of Negative Covenants or Visitation Rights	64
9.1.4 Breach of Other Covenants	64
9.1.5 Defaults in Other Agreements or Indebtedness	65
9.1.6 Final Judgments or Orders	65
9.1.7 Loan Document Unenforceable	65
9.1.8 Uninsured Losses; Proceedings Against Assets	65
9.1.9 Events Relating to Plans and Benefit Arrangements	65
9.1.10 Change of Control	66
9.1.11 Relief Proceedings	66
9.2 Consequences of Event of Default	66
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings	66
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings	66
9.2.3 Set-off	67
9.2.4 Application of Proceeds	67
10. THE ADMINISTRATIVE AGENT	68
10.1 Appointment and Authority	68
10.2 Rights as a Lender	68
10.3 Exculpatory Provisions	68

iv

10.4 Reliance by Administrative Agent	69
10.5 Delegation of Duties	69
10.6 Resignation of Administrative Agent	70
10.7 Non-Reliance on Administrative Agent and Other Lenders	70
10.8 Reserved	70
10.9 Reserved	71
10.10 Authorization to Release Collateral and Guarantors	71
10.11 No Reliance on Administrative Agent's Customer Identification Program	71
11. MISCELLANEOUS	71
11.1 Modifications, Amendments or Waivers	71
11.1.1 Increase of Commitment	71
11.1.2 Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment	71
11.1.3 Release of Collateral or Guarantor	72
11.1.4 Miscellaneous	72
11.2 No Implied Waivers; Cumulative Remedies	72
11.3 Expenses; Indemnity; Damage Waiver	72
11.3.1 Costs and Expenses	72
11.3.2 Indemnification by the Borrower	73
11.3.3 Reimbursement by Lenders	73
11.3.4 Waiver of Consequential Damages, Etc.	74
11.3.5 Payments	74
11.4 Holidays	74
11.5 Notices; Effectiveness; Electronic Communication	74
11.5.1 Notices Generally	74
11.5.2 Electronic Communications	75
11.5.3 Change of Address, Etc.	75
11.6 Severability	75
11.7 Duration; Survival	75
11.8 Successors and Assigns	76
11.8.1 Successors and Assigns Generally	76
11.8.2 Assignments by Lenders	76
11.8.3 Register	77
11.8.4 Participations	78
11.8.5 Certain Pledges; Successors and Assigns Generally	79
11.9 Confidentiality	79
11.9.1 General	79
11.9.2 Sharing Information With Affiliates of the Lenders	79
11.10 Counterparts; Integration; Effectiveness	80
11.10.1 Counterparts; Integration; Effectiveness	80
11.11 CHOICE OF LAW; SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL	80
11.11.1 Governing Law	80
11.11.2 SUBMISSION TO JURISDICTION	80
11.11.3 WAIVER OF VENUE	81
11.11.4 SERVICE OF PROCESS	81
11.11.5 WAIVER OF JURY TRIAL	81
11.12 USA Patriot Act Notice	81

v

LIST OF SCHEDULES AND EXHIBITS

SCHEDULES
SCHEDULE 1.1(A)	—	PRICING GRID
SCHEDULE 1.1(B)	—	COMMITMENTS OF LENDERS AND ADDRESSES FOR NOTICES
SCHEDULE 1.1(P)	—	PERMITTED LIENS
SCHEDULE 6.1.1	—	QUALIFICATIONS TO DO BUSINESS
SCHEDULE 6.1.2	—	SUBSIDIARIES
SCHEDULE 6.1.4		REQUIRED CONSENTS
SCHEDULE 6.1.5		LITIGATION
SCHEDULE 6.1.7		MATERIAL ADVERSE CHANGE
SCHEDULE 6.1.10		INTELLECTUAL PROPERTY
SCHEDULE 6.1.14	—	ENVIRONMENTAL DISCLOSURES
SCHEDULE 8.1.3	—	INSURANCE REQUIREMENTS RELATING TO COLLATERAL
SCHEDULE 8.2.1	—	PERMITTED INDEBTEDNESS
SCHEDULE 9.1.6	—	FINAL JUDGMENTS OR ORDERS
EXHIBITS
EXHIBIT 1.1(A)	—	ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(G)(1)	—	GUARANTOR JOINDER
EXHIBIT 1.1(G)(2)	—	GUARANTY AGREEMENT
EXHIBIT 1.1(I)(2)	—	INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(N)(1)	—	REVOLVING CREDIT NOTE
EXHIBIT 2.5	—	LENDER JOINDER
EXHIBIT 2.5.1	—	LOAN REQUEST
EXHIBIT 5.9.7(A)	—	U.S. TAX COMPLIANCE CERTIFICATE (For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
EXHIBIT 5.9.7(B)	—	U.S. TAX COMPLIANCE CERTIFICATE (For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
EXHIBIT 5.9.7(C)	—	U.S. TAX COMPLIANCE CERTIFICATE (For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
EXHIBIT 5.9.7(D)	—	U.S. TAX COMPLIANCE CERTIFICATE (For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
EXHIBIT 8.3.3	—	QUARTERLY COMPLIANCE CERTIFICATE

vi

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (as hereafter amended, the “Agreement”) is dated as of August 9, 2012 and is made by and among SL INDUSTRIES, INC., a New Jersey corporation (the “Parent Borrower”) and each of the entities listed as a Borrower on the signature pages (together with the Parent Borrower, collectively and individually as the context may require, “Borrower”), each of the GUARANTORS (as hereinafter defined), the LENDERS (as hereinafter defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the Lenders under this Agreement (hereinafter referred to in such capacity as the “Administrative Agent”).

The Borrower has requested the Lenders to provide (i) a revolving credit facility to the Borrower in an aggregate principal amount not to exceed $40,000,000 (or such other amount pursuant to the terms of Section 2.12 hereof) and (ii) up to a $10,700,000 letter of credit. In consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto covenant and agree as follows:

1. CERTAIN DEFINITIONS

1.1 Certain Definitions. In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise:

Administrative Agent shall mean PNC Bank, National Association, and its successors and assigns.

Affiliate as to any Person shall mean any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds 10% or more of any class of the voting or other equity interests of such Person, or (iii) 10% or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person; provided, however, that Mario J. Gabelli and the various entities which he directly or indirectly controls or for which he acts as chief investment officer (his affiliates) shall not be deemed Affiliates of the Loan Parties.

Anti-Terrorism Laws shall mean any Laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing Laws may from time to time be amended, renewed, extended, or replaced).

Applicable Commitment Fee Rate shall mean the percentage rate per annum based on the Leverage Ratio then in effect according to the pricing grid on Schedule 1.1(A) below the heading “Commitment Fee.”

Applicable Letter of Credit Fee Rate shall mean (i) the percentage rate per annum based on the Leverage Ratio then in effect according to the pricing grid on Schedule 1.1(A) below the heading “Letter of Credit Fee” with respect to each Letter of Credit (other than the DOJ/EPA Letter of Credit) and (ii) one percent (1.0%) per annum with respect to the DOJ/EPA Letter of Credit.

Applicable Margin shall mean, as applicable:

(A) the percentage spread to be added to the Base Rate applicable to Revolving Credit Loans under the Base Rate Option based on the Leverage Ratio then in effect according to the pricing grid on Schedule 1.1(A) below the heading “Revolving Credit Base Rate Spread”, or

(B) the percentage spread to be added to the LIBOR Rate applicable to Revolving Credit Loans under the LIBOR Rate Option based on the Leverage Ratio then in effect according to the pricing grid on Schedule 1.1(A) below the heading “Revolving Credit LIBOR Rate Spread”.

Approved Fund shall mean any fund that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

Assignment and Assumption Agreement shall mean an assignment and assumption agreement entered into by a Lender and an assignee permitted under Section 11.8 [Successors and Assigns], in substantially the form of Exhibit 1.1(A).

Authorized Officer shall mean, with respect to any Loan Party, the Chief Executive Officer, President, Chief Financial Officer, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of such Loan Party or such other individuals, designated by written notice to the Administrative Agent from the Borrower, authorized to execute notices, reports and other documents on behalf of the Loan Parties required hereunder. The Borrower may amend such list of individuals from time to time by giving written notice of such amendment to the Administrative Agent.

Base Rate shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (a) the Federal Funds Open Rate, plus 0.5%, and (b) the Prime Rate, and (c) the Daily LIBOR Rate, plus 100 basis points (1.0%). Any change in the Base Rate (or any component thereof) shall take effect at the opening of business on the day such change occurs.

Base Rate Option shall mean the option of the Borrower to have Loans bear interest at the rate and under the terms set forth in Section 4.1.1(i) [Revolving Credit Interest Rate Options].

Borrower shall have the meaning set forth in the preamble.

Borrowing Date shall mean, with respect to any Loan, the date for the making thereof or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day.

2

Borrowing Tranche shall mean specified portions of Loans outstanding as follows: (i) any Loans to which a LIBOR Rate Option applies which become subject to the same Interest Rate Option under the same Loan Request by the Borrower and which have the same Interest Period shall constitute one Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall constitute one Borrowing Tranche.

Business Day shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Pittsburgh, Pennsylvania and if the applicable Business Day relates to any Loan to which the LIBOR Rate Option applies, such day must also be a day on which dealings are carried on in the London interbank market.

Cash Collateralize shall mean to pledge and deposit with or deliver to Administrative Agent, for the benefit of each Issuing Lender and the Lenders, as collateral for the Letter of Credit Obligations, cash or deposit account balances pursuant to documentation satisfactory to Administrative Agent and each Issuing Lender (which documents are hereby consented to by the Lenders) in an amount equal to 105% of the Letter of Credit Obligations. Such cash collateral shall be maintained in blocked, non-interesting bearing deposit accounts at the Administrative Agent.

Change in Law shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Law, (b) any change in any Law or in the administration, interpretation, implementation or application thereof by any Official Body or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of Law) by any Official Body; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, regulations, guidelines, interpretations or directives thereunder or issued in connection therewith (whether or not having the force of Law) and (y) all requests, rules, regulations, guidelines, interpretations or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities (whether or not having the force of Law), in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law regardless of the date enacted, adopted, issued, promulgated or implemented.

Closing Date shall mean the Business Day on which the first Loan shall be made, which shall be August 9, 2012.

Code shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

Collateral shall mean the collateral under the (i) Security Agreement (ii) Pledge Agreement and (iii) Patent, Trademark and Copyright Security Agreement.

Commitment shall mean as to any Lender the aggregate of its Revolving Credit Commitment and DOJ/EPA Commitment, and Commitments shall mean the aggregate of the Revolving Credit Commitments and DOJ/EPA Commitments of all of the Lenders.

3

Commitment Fee shall have the meaning specified in Section 2.3 [Commitment Fees].

Compliance Certificate shall have the meaning specified in Section 8.3.3 [Certificate of the Borrower].

Connection Income Taxes shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.

Consolidated Adjusted EBITDA for any period of determination shall mean the Consolidated EBITDA of Borrower and any Person acquired pursuant to a Permitted Acquisition to the extent (i) such Person is a domestic or foreign Subsidiary that becomes a Loan Party hereunder in connection with such Permitted Acquisition and (ii) such historical Consolidated EBITDA of such Person is supported by audited financial statements or an independent third party due diligence report (i.e. Quality of Earnings Report) in form and substance satisfactory to Administrative Agent; provided, further, that Administrative Agent may make adjustments to such historical information as it determines in its reasonable discretion.

Consolidated EBITDA for any period of determination shall mean the sum of

(a) net income, plus

(b) the following to the extent deducted in the computation of net income, (i) depreciation expense, (ii) amortization expense, (iii) interest expense, (iv) taxes, (v) non-cash restructuring charges that have been approved in writing by Administrative Agent; (vi) all other non-cash charges reducing net income for such period including, but not limited to, (1) non-cash charges attributable to the grant, exercise or repurchase of stock, restricted stock, restricted stock units or options for shares of capital stock (or similar equity interests) to or from employees, directors, Related Parties or consultants, (2) unrealized losses resulting solely from the marking of market of derivative securities, including foreign exchange forward contracts, (3) non-cash charges associated with amortization or write-off of deferred financing costs, and (4) non-cash charges associated with purchase accounting write-up of inventory, but excluding non-cash charges that require an accrual of or a reserve for cash charges for any future periods and normally occurring accruals (other than with respect to liabilities arising under Environmental Laws); plus

(c) non-cash charges with respect to liabilities arising under Environmental Laws that require an accrual of or a reserve for cash charges for any future periods; minus

(d) the amount of all cash payments made during the applicable period to the extent such payments relate to non-cash charges with respect to liabilities arising under Environmental Laws that were added back in determining net income for such period or any prior period, in each case of the Borrower and its Subsidiaries for such period determined and consolidated in accordance with GAAP.

4

Daily LIBOR Rate shall mean, for any day, the rate per annum determined by the Administrative Agent by dividing (x) the Published Rate by (y) a number equal to 1.00 minus the LIBOR Reserve Percentage on such day.

Defaulting Lender shall mean any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or (iii) pay over to the Administrative Agent, the Issuing Lender or any Lender any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or the Administrative Agent in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within two Business Days after request by the Administrative Agent, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and participations in then outstanding Letters of Credit under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon the Administrative Agent’s receipt of such certification in form and substance satisfactory to the Administrative Agent, (d) has become the subject of a Bankruptcy Event or (e) has failed at any time to comply with the provisions of Section 5.3 with respect to purchasing participations from the other Lenders, whereby such Lender’s share of any payment received, whether by setoff or otherwise, is in excess of its Ratable Share of such payments due and payable to all of the Lenders.

As used in this definition and in Section 2.10 [Defaulting Lenders], the term “Bankruptcy Event” means, with respect to any Person, such Person or such Person’s direct or indirect parent company becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person or such Person’s direct or indirect parent company by an Official Body or instrumentality thereof if, and only if, such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Official Body or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.

5

DOJ/EPA Agreements shall mean those certain settlement agreements with the United States of America on behalf of the Administrator of the United States Environmental Protection Agency (the “EPA”) and the United States Department of Justice (the “DOJ”), the EPA and the DOJ and Borrower regarding certain remediation and past costs for environmental liabilities with respect to the premises known as the Puchack Well Field Superfund Site.

DOJ/EPA Commitment shall mean, as to any Lender at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled “Amount of Commitment for DOJ/EPA Letter of Credit,” as such Commitment is thereafter assigned or modified and DOJ/EPA Commitments shall mean the aggregate DOJ/EPA Commitments of all of the Lenders.

DOJ/EPA Letter of Credit shall mean a letter of credit issued to Borrower pursuant to Section 2.9.1.2 [Issuances of Letters of Credit].

DOJ/EPA Letter of Credit Obligations shall mean, as of any date of determination, the aggregate amount available to be drawn under the DOJ/EPA Letter of Credit on such date (if such DOJ/EPA Letter of Credit shall increase in amount automatically in the future, such aggregate amount available to be drawn shall currently give effect to any such future increase) plus the aggregate Reimbursement Obligations and Letter of Credit Borrowings with respect to such DOJ/EPA Letter of Credit on such date.

DOJ/EPA Loan shall mean a loan made by Lenders to Borrower pursuant to Section 2.9.3.1 [Disbursement, Reimbursement].

Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of the United States of America.

Drawing Date shall have the meaning specified in Section 2.9.3.1 [Disbursements, Reimbursement].

Environmental Laws shall mean all applicable federal, state, local, tribal, territorial and foreign Laws (including common law), constitutions, statutes, treaties, regulations, rules, ordinances and codes and any consent decrees, settlement agreements, judgments, orders, directives, policies or programs issued by or entered into with an Official Body pertaining or relating to: (i) pollution or pollution control; (ii) protection of human health from exposure to regulated substances; (iii) protection of the environment and/or natural resources; (iv) employee safety in the workplace; (v) the presence, use, management, generation, manufacture, processing, extraction, treatment, recycling, refining, reclamation, labeling, packaging, sale, transport, storage, collection, distribution, disposal or release or threat of release of regulated substances; (vi) the presence of contamination; (vii) the protection of endangered or threatened species; and (viii) the protection of environmentally sensitive areas.

Equity Interests shall have the meaning specified in Section 6.1.2.

ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

6

ERISA Affiliate shall mean, at any time, any trade or business (whether or not incorporated) under common control with the Borrower and are treated as a single employer under Section 414 of the Code.

ERISA Event shall mean (a) a reportable event (under Section 4043 of ERISA and regulations thereunder) with respect to a Pension Plan; (b) a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.

ERISA Group shall mean, at any time, the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code.

Event of Default shall mean any of the events described in Section 9.1 [Events of Default] and referred to therein as an “Event of Default.”

Excluded Taxes shall mean any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (i) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (a) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (b) that are Other Connection Taxes, (ii) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (a) such Lender acquires such interest in such Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 5.6.2 [Replacement of a Lender]) or (b) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 5.9.7 [Status of Lenders], amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (iii) Taxes attributable to such Recipient’s failure to comply with 5.9.7 [Status of Lenders], and (iv) any U.S. federal withholding Taxes imposed under FATCA (except to the extent imposed due to the failure of the Borrower to provide documentation or information to the IRS).

7

Executive Order No. 13224 shall mean the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

Expiration Date shall mean, with respect to the Revolving Credit Commitments, August 9, 2016.

Facility Fees shall mean the fees referred to in Section 2.4 [Facility Fees].

FATCA shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof.

Federal Funds Effective Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate” as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the “Federal Funds Effective Rate” for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced.

Federal Funds Open Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North America, Inc. (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such other substitute Bloomberg Screen that displays such rate), or as set forth on such other recognized electronic source used for the purpose of displaying such rate as selected by the Administrative Agent (for purposes of this definition, an “Alternate Source”) (or if such rate for such day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Source, or if there shall at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate Source, a comparable replacement rate determined by the Administrative Agent at such time (which determination shall be conclusive absent manifest error); provided however, that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the “open” rate on the immediately preceding Business Day. If and when the Federal Funds Open Rate changes, the rate of interest hereunder with respect to any advance to which the Federal Funds Open Rate applies will change automatically without notice to the Borrower, effective on the date of any such change.

Fixed Charge Coverage Ratio shall mean the ratio of Consolidated EBITDA to Fixed Charges.

8

Fixed Charges shall mean for any period of determination the sum of interest expense, income taxes actually paid in cash, scheduled principal installments on Indebtedness (as adjusted for prepayments), capital expenditures and payments under capitalized leases, in each case of the Borrower and its Subsidiaries for such period determined and consolidated in accordance with GAAP.

Foreign Lender shall mean (i) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (ii) if the Borrower is not a U.S. Person, a Lender that is resident or organized under the Laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.

GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3 [Accounting Principles], and applied on a consistent basis both as to classification of items and amounts.

Guarantor shall mean each of the parties to this Agreement which is designated as a “Guarantor” on the signature page hereof and each other Person which joins this Agreement as a Guarantor after the date hereof.

Guarantor Joinder shall mean a joinder by a Person as a Guarantor under the Loan Documents in the form of Exhibit 1.1(G)(1).

Guaranty of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business.

Guaranty Agreement shall mean the Continuing Agreement of Guaranty and Suretyship in substantially the form of Exhibit 1.1(G)(2) executed and delivered by each of the Guarantors.

Indebtedness shall mean, as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations (contingent or otherwise) under any letter of credit agreement, (iv) obligations under any currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device, (v) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than sixty (60) days past due or bond contracts unless drawn upon or claims have been made thereunder), or (vi) any Guaranty of Indebtedness for borrowed money.

Indemnified Taxes shall mean (i) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document, and (ii) to the extent not otherwise described in the preceding clause (i), Other Taxes.

9

Indemnitee shall have the meaning specified in Section 11.3.2 [Indemnification by the Borrower].

Information shall mean all information received from the Loan Parties or any of their Subsidiaries relating to the Loan Parties or any of such Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the Issuing Lender on a non-confidential basis prior to disclosure by the Loan Parties or any of their Subsidiaries, provided that, in the case of information received from the Loan Parties or any of their Subsidiaries after the date of this Agreement, such information is clearly identified at the time of delivery as confidential.

Insolvency Proceeding shall mean, with respect to any Person, (a) a case, action or proceeding with respect to such Person (i) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or otherwise relating to the liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person’s creditors generally or any substantial portion of its creditors; undertaken under any Law.

Intercompany Subordination Agreement shall mean a Subordination Agreement among the Loan Parties in the form attached hereto as Exhibit 1.1(I)(2).

Interest Period shall mean the period of time selected by the Borrower in connection with (and to apply to) any election permitted hereunder by the Borrower to have Revolving Credit Loans bear interest under the LIBOR Rate Option. Subject to the last sentence of this definition, such period shall be one, two, three or six Months. Such Interest Period shall commence on the effective date of such Interest Rate Option, which shall be (i) the Borrowing Date if the Borrower is requesting new Loans, or (ii) the date of renewal of or conversion to the LIBOR Rate Option if the Borrower is renewing or converting to the LIBOR Rate Option applicable to outstanding Loans. Notwithstanding the second sentence hereof: (A) any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (B) the Borrower shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Expiration Date.

Interest Rate Hedge shall mean (i) an interest rate exchange, collar, cap, swap, adjustable strike cap, adjustable strike corridor or similar agreements entered into by the Loan Parties or their Subsidiaries in order to provide protection to, or minimize the impact upon, the Borrower, the Guarantor and/or their Subsidiaries of increasing floating rates of interest applicable to Indebtedness.

10

Interest Rate Option shall mean any LIBOR Rate Option or Base Rate Option.

IRS shall mean the United States Internal Revenue Service.

Issuing Lender shall mean PNC, in its individual capacity as issuer of Letters of Credit hereunder, and any other Lender that Borrower, Administrative Agent and such other Lender may agree may from time to time issue Letters of Credit hereunder.

Joint Venture shall mean a corporation, partnership, limited liability company or other entity in which any Person other than the Loan Parties and their Subsidiaries holds, directly or indirectly, an equity interest.

Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award by or settlement agreement with any Official Body.

Lender Provided Interest Rate Hedge shall mean an Interest Rate Hedge which is provided by any Lender or its Affiliate and with respect to which the Administrative Agent confirms: (i) is documented in a standard International Swap Dealer Association Agreement, and (ii) provides for the method of calculating the reimbursable amount of the provider’s credit exposure in a reasonable and customary manner.

Lenders shall mean the financial institutions named on Schedule 1.1(B) and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Lender. For the purpose of any Loan Document which provides for the granting of a security interest or other Lien to the Lenders or to the Administrative Agent for the benefit of the Lenders as security for the Obligations, “Lenders” shall include any Affiliate of a Lender to which such Obligation is owed.

Letter of Credit shall have mean the letters of credit issued under Section Section 2.9.1.1 [Issuance of Letters of Credit] and Section 2.9.1.2 [Issuance of DOJ/EPA Letter of Credit].

Letter of Credit Borrowing shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Letter of Credit Fee shall have the meaning specified in Section 2.9.2 [Letter of Credit Fees].

Letter of Credit Obligation shall mean, as of any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit on such date (if any Letter of Credit shall increase in amount automatically in the future, such aggregate amount available to be drawn shall currently give effect to any such future increase) plus the aggregate Reimbursement Obligations and Letter of Credit Borrowings on such date.

Letter of Credit Sublimit shall have the meaning specified in Section 2.9.1 [Issuance of Letters of Credit].

11

Leverage Ratio shall mean, as of the end of any date of determination, the ratio of (A) consolidated Indebtedness of Borrower and its Subsidiaries on such date to (B) Consolidated EBITDA (i) for the four fiscal quarters then ending if such date is a fiscal quarter end or (ii) for the four fiscal quarters most recently ended if such date is not a fiscal quarter end.

LIBOR Rate shall mean, with respect to the Loans comprising any Borrowing Tranche to which the LIBOR Rate Option applies for any Interest Period, the interest rate per annum determined by the Administrative Agent by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which US dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another source selected by the Administrative Agent which has been approved by the British Bankers’ Association as an authorized information vendor for the purpose of displaying rates at which US dollar deposits are offered by leading banks in the London interbank deposit market (for purposes of this definition, an “Alternate Source”), at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period as the London interbank offered rate for U.S. Dollars for an amount comparable to such Borrowing Tranche and having a borrowing date and a maturity comparable to such Interest Period (or if there shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternate Source, a comparable replacement rate determined by the Administrative Agent at such time (which determination shall be conclusive absent manifest error)), by (ii) a number equal to 1.00 minus the LIBOR Reserve Percentage. LIBOR may also be expressed by the following formula:

LIBOR Rate	=	London interbank offered rates quoted by Bloomberg or appropriate successor as shown on Bloomberg Page BBAM1
		1.00 - LIBOR Reserve Percentage

The LIBOR Rate shall be adjusted with respect to any Loan to which the LIBOR Rate Option applies that is outstanding on the effective date of any change in the LIBOR Reserve Percentage as of such effective date. The Administrative Agent shall give prompt notice to the Borrower of the LIBOR Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.

LIBOR Rate Option shall mean the option of the Borrower to have Loans bear interest at the rate and under the terms set forth in Section 4.1.1(ii) [Revolving Credit LIBOR Rate Option].

LIBOR Reserve Percentage shall mean as of any day the maximum percentage in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as “Eurocurrency Liabilities”).

Lien shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing).

12

Loan Documents shall mean this Agreement, the Guaranty Agreement, the Intercompany Subordination Agreement, the Notes, the Patent, Trademark and Copyright Security Agreement, the Pledge Agreement, the Security Agreement, and any other instruments, certificates or documents delivered in connection herewith or therewith.

Loan Parties shall mean the Borrower and the Guarantors.

Loan Request shall have the meaning specified in Section 2.5 [Revolving Credit Loan Requests].

Loans shall mean collectively and Loan shall mean separately all Revolving Credit Loans and the DOJ/EPA Loans or any Revolving Credit Loan or DOJ/EPA Loan.

Material Adverse Change shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition, results of operations or prospects of the Loan Parties taken as a whole, (c) impairs materially or could reasonably be expected to impair materially the ability of the Loan Parties taken as a whole to duly and punctually pay or perform any of the Obligations, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Administrative Agent or any of the Lenders, to the extent permitted, to enforce their legal remedies pursuant to this Agreement or any other Loan Document.

Month, with respect to an Interest Period under the LIBOR Rate Option, shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. If any LIBOR Rate Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month.

Multiemployer Plan shall mean any employee benefit plan which is a “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA and to which the Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions.

Non-Consenting Lender shall have the meaning specified in Section 11.1 [Modifications, Amendments or Waivers].

Notes shall mean, collectively, the promissory notes in the form of Exhibit 1.1(N)(1) evidencing the Revolving Credit Loans.

13

Obligation shall mean any obligation or liability of any of the Loan Parties, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with (i) this Agreement, the Notes, the Letters of Credit or any other Loan Document whether to the Administrative Agent, any of the Lenders or their Affiliates or other persons provided for under such Loan Documents, (ii) any Lender Provided Interest Rate Hedge and (iii) any Other Lender Provided Financial Service Product.

Official Body shall mean the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank) and any group or body charged with setting financial accounting or regulatory capital rules or standards (including, without limitation, the Financial Accounting Standards Board, the Bank for International Settlements or the Basel Committee on Banking Supervision or any successor or similar authority to any of the foregoing).

Other Connection Taxes shall mean, with respect to any Recipient, Taxes imposed as a result of such Recipient conducting or having conducted a sufficient level of ongoing business or income-generating activity in the jurisdiction imposing such Tax to subject it to tax generally on the income or privilege of doing business or unretained earnings associated with such activity (but, without broadening the scope of the foregoing, not including any Tax imposed as a result of such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Documents, or sold or assigned an interest in any Loan or Loan Document).

Other Lender Provided Financial Service Product shall mean agreements or other arrangements under which any Lender or Affiliate of a Lender provides any of the following products or services to any of the Loan Parties: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) foreign currency exchange.

Other Taxes shall mean all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 5.6.2 [Replacement of a Lender]).

Parent Borrower shall have the meaning set forth in the preamble.

Participant has the meaning specified in Section 11.8.4 [Participations].

Participant Register shall have the meaning specified in Section 11.8.4 [Participations].

14

Participation Advance shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Patent, Trademark and Copyright Security Agreement shall mean the Patent, Trademark and Copyright Security Agreement dated as of even date herewith executed and delivered by each of the Loan Parties to the Administrative Agent for the benefit of the Lenders.

Payment Date shall mean the first day of each calendar quarter after the date hereof and on the Expiration Date or upon acceleration of the Notes.

Payment In Full shall mean the indefeasible payment in full in cash of the Loans and other Obligations hereunder, termination of the Commitments and expiration or termination of all Letters of Credit.

PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

Pension Plan shall mean any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any times during the immediately preceding five plan years.

Permitted Acquisitions shall mean acquisitions of the assets or Equity Interests of another Person so long as: (a) the total costs and liabilities (including without limitation, all assumed liabilities, all earn-out payments, deferred payments and the value of any other stock or assets transferred, assigned or encumbered with respect to such acquisitions) of (i) all such acquisitions do not exceed $70,000,000 in the aggregate during the term of this Agreement, (ii) all acquisitions involving foreign Subsidiaries does not exceed $40,000,000 in the aggregate during the term of this Agreement and (iii) each individual acquisition involving foreign Subsidiaries does not exceed $20,000,000 for any single transaction or related transactions; (b) with respect to the acquisition of Equity Interests, such acquired company shall (i) have a positive EBITDA and tangible net worth, calculated in accordance with GAAP immediately prior to such acquisition, (ii) such acquired company shall be added as a Borrower or Guarantor as determined by Administrative Agent in its sole discretion to this Agreement and be jointly and severally liable for all Obligations, and (iii) Administrative Agent shall be granted a first priority lien in all assets of such acquired company; (c) the acquired company or property is used or useful in the same or a similar line of business as the Borrower was engaged in on the Closing Date (or any reasonable extensions or expansions thereof); (d) Administrative Agent shall have received a first-priority security interest in all acquired assets or Equity Interests, subject to documentation satisfactory to Administrative Agent; (e) the board of directors (or other comparable governing body) of such company shall have duly approved the transaction; (f) the Borrower has delivered to Administrative Agent (i) a pro forma balance sheet and pro forma financial statements and a Compliance Certificate demonstrating that, upon giving effect to such acquisition on a pro forma basis, the Borrower shall have a Pro-Forma Leverage Ratio less than or equal to 2.75 to 1.0 as of the most recent fiscal quarter end for the trailing twelve month period then ending (calculating such ratio as if such acquisition occurred on the first day of such testing period) and (ii) financial statements of the acquired entity for the two most recent fiscal years then ended, in form and substance reasonably acceptable to Administrative Agent; (h) if such acquisition includes general partnership interests or any other Equity Interest that does not have a corporate (or similar) limitation on liability of the owners thereof, then such acquisition shall be effected by having such Equity Interests acquired by a corporate holding company directly or indirectly wholly-owned by the Borrower and newly formed for the sole purpose of effecting such acquisition; and (j) no Default or Event of Default shall have occurred or will occur after giving pro forma effect to such acquisition.

15

Permitted Investments shall mean:

(i) direct obligations of the United States of America or any agency or instrumentality thereof or obligations backed by the full faith and credit of the United States of America maturing in twelve (12) months or less from the date of acquisition;

(ii) commercial paper maturing in 180 days or less rated not lower than A-2 or the equivalent thereof by Standard & Poor’s or P-2 or the equivalent thereof by Moody’s Investors Service, Inc. on the date of acquisition;

(iii) demand deposits, time deposits or certificates of deposit maturing within one year in commercial banks whose obligations are rated A-2 or the equivalent or better by Standard & Poor’s or at least P-2 or the equivalent or better by Moody’s Investors Services, Inc. on the date of acquisition;

(iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in (i) through (iii) above entered into with any financial institution meeting the qualifications specified in (iii) above;

(v) money market or mutual funds whose investments are limited to those types of investments described in clauses (i)-(iii) above; and

(vi) investments made under cash management agreements with any other Lenders.

Permitted Liens shall mean:

(i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable;

(ii) Liens incurred or deposits made in the ordinary course of business to secure the obligations of each Borrower under workers compensation, unemployment insurance and other types of social security legislation or otherwise to secure statutory or regulatory obligations or security deposits delivered with respect to the payment of rent of each Borrower in the ordinary course of business consistent with past practice, including to secure the performance of tenders, surety and appeal bonds, performance bonds, performance of bids, leases, trade contracts, governmental contracts, operating leases, performance and return-of-money bonds and other similar obligations (exclusive in each case of obligations for the payment of borrowed money); provided, that the obligations in connection with which such Liens were incurred or deposits made shall have been incurred in the ordinary course of business and shall otherwise be permitted by this Agreement;

16

(iii) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default;

(iv) Good-faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business;

(v) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use;

(vi) Liens, security interests and mortgages in favor of the Administrative Agent for the benefit of the Lenders and their Affiliates securing the Obligations (including Lender Provided Interest Rate Hedges and Other Lender Provided Financial Services Obligations);

(vii) Liens on property leased by any Loan Party or Subsidiary of a Loan Party under capital and operating leases permitted in Section 8.2.14 [Capital Expenditures and Leases] securing obligations of such Loan Party or Subsidiary to the lessor under such leases;

(viii) Any Lien existing on the date of this Agreement and described on Schedule 1.1(P), provided that the principal amount secured thereby is not hereafter increased, and no additional assets become subject to such Lien;

(ix) Purchase Money Security Interests and capitalized leases; provided that the aggregate amount of loans and deferred payments secured by such Purchase Money Security Interests and capitalized leases shall not exceed $2,500,000 in the aggregate (excluding for the purpose of this computation any loans or deferred payments secured by Liens described on Schedule 1.1(P));

(x) judgment Liens not giving rise to an Event of Default so long as any such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired, and such Lien does not affect the Collateral or, in the aggregate, materially impair the ability of any Loan Party to perform its Obligations hereunder or under the other Loan Documents; and

17

(xi) Liens securing Indebtedness, or Liens on shares of capital stock, of a Person existing at the time such Person becomes a Subsidiary or is merged with or into any Loan Party pursuant to a Permitted Acquisition or any Lien securing Indebtedness incurred in connection with a Permitted Acquisition, provided that (A) such Liens were in existence prior to the date of such Permitted Acquisition, were not incurred in anticipation thereof, and do not extend to any other assets; and (B) do not exceed One Million Dollars ($1,000,000) in the aggregate; and

(xii) The following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within thirty (30) days of entry, and in either case they do not affect the Collateral or, in the aggregate, materially impair the ability of any Loan Party to perform its Obligations hereunder or under the other Loan Documents:

(1) Claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty; provided that the applicable Loan Party maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien;

(2) Claims, Liens or encumbrances upon, and defects of title to, real or personal property other than the Collateral, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits;

(3) Claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens; or

(4) Liens resulting from final judgments or orders described in Section 9.1.6 [Final Judgments or Orders].

Person shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.

Plan shall mean at any time an employee pension benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group.

Pledge Agreement shall mean the Pledge Agreement dated as of even date herewith executed and delivered by each of the Loan Parties to the Administrative Agent for the benefit of the Lenders.

PNC shall mean PNC Bank, National Association, its successors and assigns.

Potential Default shall mean any event or condition which with notice or passage of time, or both, would constitute an Event of Default.

18

Prime Rate shall mean the interest rate per annum announced from time to time by the Administrative Agent at its Principal Office as its then prime rate, which rate may not be the lowest or most favorable rate then being charged commercial borrowers or others by the Administrative Agent. Any change in the Prime Rate shall take effect at the opening of business on the day such change is announced.

Principal Office shall mean the main banking office of the Administrative Agent in Pittsburgh, Pennsylvania.

Prior Security Interest shall mean a valid and enforceable perfected first-priority security interest under the Uniform Commercial Code in the Collateral which is subject only to statutory Liens for taxes not yet due and payable or Purchase Money Security Interests.

Pro Forma Leverage Ratio shall mean, as of the end of any date of determination, the ratio of (A) consolidated Indebtedness of Borrower and its Subsidiaries on such date to (B) Consolidated Adjusted EBITDA (i) for the four fiscal quarters then ending if such date is a fiscal quarter end or (ii) for the four fiscal quarters most recently ended if such date is not a fiscal quarter end.

Published Rate shall mean the rate of interest published each Business Day in The Wall Street Journal “Money Rates” listing under the caption “London Interbank Offered Rates” for a one month period (or, if no such rate is published therein for any reason, then the Published Rate shall be the rate at which U.S. dollar deposits are offered by leading banks in the London interbank deposit market for a one month period as published in another publication selected by the Administrative Agent).

Purchase Money Security Interest shall mean Liens upon tangible personal property securing loans to any Loan Party or Subsidiary of a Loan Party or deferred payments by such Loan Party or Subsidiary for the purchase of such tangible personal property.

Ratable Share shall mean the proportion that a Lender’s Commitment bears to the Commitments of all of the Lenders, provided that in the case of Section 2.10 [Defaulting Lenders] when a Defaulting Lender shall exist, “Ratable Share” shall mean the percentage of the aggregate Commitments (disregarding any Defaulting Lender’s Commitment) represented by such Lender’s Commitment. If the Commitments have terminated or expired, the Ratable Share shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.

“Recipient” shall mean (i) the Administrative Agent, (ii) any Lender and (iii) the Issuing Lender, as applicable.

Reimbursement Obligation shall have the meaning specified in Section 2.9.3 [Disbursements, Reimbursement].

Related Parties shall mean, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

19

Relief Proceeding shall mean any proceeding seeking a decree or order for relief in respect of any Loan Party or Subsidiary of a Loan Party in a voluntary or involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or Subsidiary of a Loan Party for any substantial part of its property, or for the winding-up or liquidation of its affairs, or an assignment for the benefit of its creditors.

Required Lenders shall mean

(A) If there exists fewer than three (3) Lenders, all Lenders (other than any Defaulting Lender), and

(B) If there exist three (3) or more Lenders, Lenders (other than any Defaulting Lender) having more than fifty percent (50%) of the aggregate amount of the Revolving Credit Commitments of the Lenders (excluding any Defaulting Lender) or, after the termination of the Revolving Credit Commitments, the outstanding Revolving Credit Loans and Ratable Share of Letter of Credit Obligations of the Lenders (excluding any Defaulting Lender).

Required Share shall have the meaning assigned to such term in Section 5.11 [Settlement Date Procedures].

Revolving Credit Commitment shall mean, as to any Lender at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled “Amount of Commitment for Revolving Credit Loans,” as such Commitment is thereafter assigned or modified and Revolving Credit Commitments shall mean the aggregate Revolving Credit Commitments of all of the Lenders.

Revolving Credit Loans shall mean collectively and Revolving Credit Loan shall mean separately all Revolving Credit Loans or any Revolving Credit Loan made by the Lenders or one of the Lenders to the Borrower pursuant to Section 2.1 [Revolving Credit Commitments] or 2.9.3 [Disbursements, Reimbursement].

Revolving Facility Usage shall mean at any time the sum of the outstanding Revolving Credit Loans and the Letter of Credit Obligations (other than the DOJ/EPA Letter of Credit Obligations).

Security Agreement shall mean the Security Agreement dated as of even date herewith executed and delivered by each of the Loan Parties to the Administrative Agent for the benefit of the Lenders.

Settlement Date shall mean the Business Day on which the Administrative Agent elects to effect settlement pursuant Section 5.11 [Settlement Date Procedures].

20

Solvent shall mean, with respect to any Person on any date of determination, taking into account such right of reimbursement, contribution or similar right available to such Person from other Persons, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

Standard & Poor’s shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.

Statements shall have the meaning specified in Section 6.1.6(i) [Historical Statements].

Subsidiary of any Person at any time shall mean any corporation, trust, partnership, any limited liability company or other business entity (i) of which more than 50% of the outstanding voting securities or other interests normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person’s Subsidiaries, or (ii) which is controlled or capable of being controlled by such Person or one or more of such Person’s Subsidiaries.

Subsidiary Equity Interests shall have the meaning specified in Section 6.1.2 [Subsidiaries and Owners; Investment Companies].

Taxes shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Official Body, including any interest, additions to tax or penalties applicable thereto.

Undrawn Availability at a particular date shall mean an amount equal to the difference between the (i) Revolving Credit Commitments and (ii) the Revolving Facility Usage.

USA Patriot Act shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

U.S. Person shall mean any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.

U.S. Tax Compliance Certificate shall have the meaning specified in Section 5.9.7 [Status of Lenders].

21

Withholding Agent shall mean any Loan Party and the Administrative Agent.

1.2 Construction. Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents: (i) references to the plural include the singular, the plural, the part and the whole and the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; (ii) the words “hereof,” “herein,” “hereunder,” “hereto” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole; (iii) article, section, subsection, clause, schedule and exhibit references are to this Agreement or another Loan Document, as the case may be, unless otherwise specified; (iv) reference to any Person includes such Person’s successors and assigns; (v) reference to any agreement, including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto, document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated; (vi) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding,” and “through” means “through and including”; (vii) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, (viii) section headings herein and in each other Loan Document are included for convenience and shall not affect the interpretation of this Agreement or such Loan Document, and (ix) unless otherwise specified, all references herein to times of day shall be references to Eastern Time.

1.3 Accounting Principles; Changes in GAAP. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; provided, however, that all accounting terms used in Section 8.2 [Negative Covenants] (and all defined terms used in the definition of any accounting term used in Section 8.2 shall have the meaning given to such terms (and defined terms) under GAAP as in effect on the date hereof applied on a basis consistent with those used in preparing Statements referred to in Section 6.1.6(i) [Historical Statements]. Notwithstanding the foregoing, if the Borrower notifies the Administrative Agent in writing that the Borrower wishes to amend any financial covenant in Section 8.2 of this Agreement, any related definition and/or the definition of the term Leverage Ratio for purposes of interest, Letter of Credit Fee and Commitment Fee determinations to eliminate the effect of any change in GAAP occurring after the Closing Date on the operation of such financial covenants and/or interest, Letter of Credit Fee or Commitment Fee determinations (or if the Administrative Agent notifies the Borrower in writing that the Required Lenders wish to amend any financial covenant in Section 8.2, any related definition and/or the definition of the term Leverage Ratio for purposes of interest, Letter of Credit Fee and Commitment Fee determinations to eliminate the effect of any such change in GAAP), then the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratios or requirements to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, the Loan Parties’ compliance with such covenants and/or the definition of the term Leverage Ratio for purposes of interest, Letter of Credit Fee and Commitment Fee determinations shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenants or definitions are amended in a manner satisfactory to the Borrower and the Required Lenders, and the Loan Parties shall provide to the Administrative Agent, when they deliver their financial statements pursuant to Section 8.3.1 [Quarterly Financial Statements] and 8.3.2 [Annual Financial Statements] of this Agreement, such reconciliation statements as shall be reasonably requested by the Administrative Agent.

22

2. REVOLVING CREDIT FACILITY

2.1 Revolving Credit Commitments.

2.1.1 Revolving Credit Loans. Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, each Lender severally agrees to make Revolving Credit Loans to the Borrower at any time or from time to time on or after the date hereof to the Expiration Date; provided that after giving effect to each such Loan (i) the aggregate amount of Revolving Credit Loans from such Lender shall not exceed such Lender’s Revolving Credit Commitment minus such Lender’s Ratable Share of the Letter of Credit Obligations and (ii) the Revolving Facility Usage shall not exceed the Revolving Credit Commitments. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section 2.1.

2.1.2 Reserved.

2.2 Nature of Lenders’ Obligations with Respect to Revolving Credit Loans. Each Lender shall be obligated to participate in each request for Revolving Credit Loans pursuant to Section 2.5 [Revolving Credit Loan Requests] and deemed requests for DOJ/EPA Loans pursuant to Section 2.9.2 [Disbursements, Reimbursement] in accordance with its Ratable Share. The aggregate of each Lender’s Revolving Credit Loans outstanding hereunder to the Borrower at any time shall never exceed its Revolving Credit Commitment minus its Ratable Share of the outstanding Letter of Credit Obligations (other than the DOJ/EPA Letter of Credit Obligations). The aggregate of each Lender’s DOJ/EPA Loans outstanding hereunder to the Borrower at any time shall never exceed its DOJ/EPA Letter of Credit Commitment. The obligations of each Lender hereunder are several. The failure of any Lender to perform its obligations hereunder shall not affect the Obligations of the Borrower to any other party nor shall any other party be liable for the failure of such Lender to perform its obligations hereunder. The Lenders shall have no obligation to make Revolving Credit Loans hereunder on or after the Expiration Date.

2.3 Commitment Fees. Accruing from the date hereof until the Expiration Date, the Borrower agrees to pay to the Administrative Agent for the account of each Lender according to its Ratable Share, a nonrefundable commitment fee (the “Commitment Fee”) equal to the Applicable Commitment Fee Rate (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) multiplied by the average daily difference between the amount of (i) the Revolving Credit Commitments and (ii) the Revolving Facility Usage; provided, however, that any Commitment Fee accrued with respect to the Revolving Credit Commitment of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender except to the extent that such Commitment Fee shall otherwise have been due and payable by the Borrower prior to such time; and provided further that no Commitment Fee shall accrue with respect to the Revolving Commitment of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. Subject to the proviso in the directly preceding sentence, all Commitment Fees shall be payable in arrears on each Payment Date.

23

2.4 Facility Fees. The Borrower agrees to pay to the Administrative Agent on the Closing Date for the account of each Lender, as consideration for such Lender’s Commitments, a non-refundable facility fee equal to 0.125% of such Lender’s Revolving Credit Commitment.

2.5 Revolving Credit Loan Requests.

2.5.1 Revolving Credit Loan Requests. Except as otherwise provided herein, the Borrower may from time to time prior to the Expiration Date request the Lenders to make Revolving Credit Loans, or renew or convert the Interest Rate Option applicable to existing Revolving Credit Loans pursuant to Section 4.2 [Interest Periods], by delivering to the Administrative Agent, not later than 10:00 a.m., (i) three (3) Business Days prior to the proposed Borrowing Date with respect to the making of Revolving Credit Loans to which the LIBOR Rate Option applies or the conversion to or the renewal of the LIBOR Rate Option for any Loans; and (ii) the same Business Day of the proposed Borrowing Date with respect to the making of a Revolving Credit Loan to which the Base Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Base Rate Option for any Loan, of a duly completed request therefor substantially in the form of Exhibit 2.5.1 or a request by telephone immediately confirmed in writing by letter, facsimile or telex in such form (each, a “Loan Request”), it being understood that the Administrative Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall be irrevocable and shall specify the aggregate amount of the proposed Loans comprising each Borrowing Tranche, and, if applicable, the Interest Period, which amounts shall be in (x) integral multiples of $100,000 and not less than $500,000 for each Borrowing Tranche under the LIBOR Rate Option, and (y) integral multiples of $10,000 and not less than $100,000 for each Borrowing Tranche under the Base Rate Option.

2.5.2 Reserved.

2.6 Making Revolving Credit Loans; Presumptions by the Administrative Agent; Repayment of Revolving Credit Loans.

2.6.1 Making Revolving Credit Loans. The Administrative Agent shall, promptly after receipt by it of a Loan Request pursuant to Section 2.5 [Revolving Credit Loan Requests], notify the Lenders of its receipt of such Loan Request specifying the information provided by the Borrower and the apportionment among the Lenders of the requested Revolving Credit Loans as determined by the Administrative Agent in accordance with Section 2.2 [Nature of Lenders’ Obligations with Respect to Revolving Credit Loans]. Each Lender shall remit the principal amount of each Revolving Credit Loan to the Administrative Agent such that the Administrative Agent is able to, and the Administrative Agent shall, to the extent the Lenders have made funds available to it for such purpose and subject to Section 7.2 [Each Loan or Letter of Credit], fund such Revolving Credit Loans to the Borrower in U.S. Dollars and immediately available funds at the Principal Office prior to 2:00 p.m., on the applicable Borrowing Date; provided that if any Lender fails to remit such funds to the Administrative Agent in a timely manner, the Administrative Agent may elect in its sole discretion to fund with its own funds the Revolving Credit Loans of such Lender on such Borrowing Date, and such Lender shall be subject to the repayment obligation in Section 2.6.2 [Presumptions by the Administrative Agent].

24

2.6.2 Presumptions by the Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Loan that such Lender will not make available to the Administrative Agent such Lender’s share of such Loan, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.6.1 [Making Revolving Credit Loans] and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Loan available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to Loans under the Base Rate Option. If such Lender pays its share of the applicable Loan to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

2.6.3 Reserved.

2.6.4 Repayment of Revolving Credit Loans. The Borrower shall repay the Revolving Credit Loans together with all outstanding interest thereon on the Expiration Date.

2.6.5 Reserved.

2.6.6 Reserved.

2.7 Notes. The Obligation of the Borrower to repay the aggregate unpaid principal amount of the Revolving Credit Loans made to it by each Lender, together with interest thereon, shall be evidenced by a revolving credit Note dated the Closing Date payable to the order of such Lender in a face amount equal to the Revolving Credit Commitment of such Lender.

2.8 Use of Proceeds. The proceeds of the Loans shall be used for refinancing existing Indebtedness of Borrower and to provide for the working capital needs of Borrower and reimbursement of letters of credit.

25

2.9 Letter of Credit Subfacility.

2.9.1 Issuance of Letters of Credit. Borrower may at any time prior to the Expiration Date request the issuance of a standby or trade letter of credit on behalf of itself or another Loan Party, or the amendment or extension of an existing Letter of Credit, by delivering or having such other Loan Party deliver to the Issuing Lender (with a copy to the Administrative

Agent) a completed application and agreement for letters of credit, or request for such amendment or extension, as applicable, in such form as the Issuing Lender may specify from time to time by no later than 10:00 a.m. at least five (5) Business Days, or such shorter period as may be agreed to by the Issuing Lender, in advance of the proposed date of issuance. Promptly after receipt of any letter of credit application, the Issuing Lender shall confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit application and if not, such Issuing Lender will provide Administrative Agent with a copy thereof. Unless the Issuing Lender has received notice from any Lender, Administrative Agent or any Loan Party, at least one day prior to the requested date of issuance, amendment or extension of the applicable Letter of Credit, that one or more applicable conditions in Section 7 [Conditions of Lending and Issuance of Letters of Credit] is not satisfied, then, subject to the terms and conditions hereof and in reliance on the agreements of the other Lenders set forth in this Section 2.9, the Issuing Lender or any of the Issuing Lender’s Affiliates will issue a Letter of Credit or agree to such amendment or extension, provided that each Letter of Credit shall (A) have a maximum maturity of twelve (12) months from the date of issuance, and (B) in no event expire later than the date which is 364 days after the Expiration Date and provided further that; (i) Borrower shall Cash Collateralize such Letter of Credit Obligations if required pursuant to Section 2.9.11, and (ii) in no event shall (a) the Letter of Credit Obligations (other than the DOJ/EPA Letter of Credit Obligations) exceed, at any one time, $5,000,000 (the “Letter of Credit Sublimit”) or (b) the Revolving Facility Usage exceed, at any one time, the Revolving Credit Commitments. Each request by the Borrower for the issuance, amendment or extension of a Letter of Credit shall be deemed to be a representation by the Borrower that it shall be in compliance with the preceding sentence and with Section 7 [Conditions of Lending and Issuance of Letters of Credit] after giving effect to the requested issuance, amendment or extension of such Letter of Credit. Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to the beneficiary thereof, the applicable Issuing Lender will also deliver to Borrower and Administrative Agent a true and complete copy of such Letter of Credit or amendment.

2.9.1.2 Issuance of DOJ/EPA Letter of Credit. Notwithstanding anything to the contrary contained in Section 2.9.1.1, Borrower may at any time prior to the Expiration Date request the issuance of a standby letter of credit on behalf of itself or another Loan Party for the benefit of the DOJ and the EPA, by complying with the requirements set forth in Section 2.9.1.1; provided that each Letter of Credit shall (A) have a maximum maturity of twelve (12) months from the date of issuance, with automatic annual extensions, so long as no Potential Default or Event of Default has occurred and such extension does not extend beyond the Expiration Date, and (B) in no event expire later than the Expiration Date and provided further that in no event shall (i) the aggregate face amount of such Letter of Credit exceed an amount approved by Administrative Agent, which in no event shall exceed the DOJ/EPA Letter of Credit Commitment.

26

2.9.2 Letter of Credit Fees. The Borrower shall pay (i) to the Administrative Agent for the ratable account of the Lenders a fee (the “Letter of Credit Fee”) equal to the Applicable Letter of Credit Fee Rate, and (ii) to the Issuing Lender for its own account a fronting fee equal to 0.125% per annum (in each case computed on the basis of a year of 360 days and actual days elapsed), which fees shall be computed on the daily average Letter of Credit Obligations and shall be payable quarterly in arrears on each Payment Date following issuance of each Letter of Credit. The Borrower shall also pay to the Issuing Lender for the Issuing Lender’s sole account the Issuing Lender’s then in effect customary fees and administrative expenses payable with respect to the Letters of Credit as the Issuing Lender may generally charge or incur from time to time in connection with the issuance, maintenance, amendment (if any), assignment or transfer (if any), negotiation, and administration of Letters of Credit.

2.9.3 Disbursements, Reimbursement. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Lender a participation in such Letter of Credit and each drawing thereunder in an amount equal to such Lender’s Ratable Share of the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively.

2.9.3.1 In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Lender will promptly notify the Borrower and the Administrative Agent thereof. Provided that it shall have received such notice, the Borrower shall reimburse (such obligation to reimburse the Issuing Lender shall sometimes be referred to as a “Reimbursement Obligation”) the Issuing Lender prior to 12:00 noon on each date that an amount is paid by the Issuing Lender under any Letter of Credit (each such date, a “Drawing Date”) by paying to the Administrative Agent for the account of the Issuing Lender an amount equal to the amount so paid by the Issuing Lender. In the event the Borrower fails to reimburse the Issuing Lender (through the Administrative Agent) for the full amount of any drawing under (i) any Letter of Credit (other than the DOJ/EPA Letter of Credit) by 12:00 noon on the Drawing Date, the Administrative Agent will promptly notify each Lender thereof, and the Borrower shall be deemed to have requested that Revolving Credit Loans be made by the Lenders under the Base Rate Option to be disbursed on the Drawing Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Credit Commitment and subject to the conditions set forth in Section 7.2 [Each Loan or Letter of Credit] other than any notice requirements or (ii) the DOJ/EPA Letter of Credit by 12:00 noon on the Drawing Date, the Administrative Agent will promptly notify each Lender thereof, and the Borrower shall be deemed to have requested that a borrowing by the Lenders (a “DOJ/EPA Loan”) which shall be due and payable on demand (including interest) and shall accrue interest at a rate applicable to the Revolving Credit Loans under the Base Rate Option to be disbursed on the Drawing Date under the DOJ/EPA Letter of Credit, subject to the amount of the DOJ/EPA Letter of Credit Commitment and subject to the conditions set forth in Section 7.2 [Each Loan or Letter of Credit] other than any notice requirements. Any notice given by the Administrative Agent or Issuing Lender pursuant to this Section 2.9.3.1 may be oral if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

27

2.9.3.2 Each Lender shall upon any notice pursuant to Section 2.9.3.1 make available to the Administrative Agent for the account of the Issuing Lender an amount in immediately available funds equal to its Ratable Share of the amount of the drawing, whereupon the participating Lenders shall (subject to Section 2.9.3 [Disbursement; Reimbursement]) each be deemed to have made, as applicable, (i) a Revolving Credit Loan under the Base Rate Option to the Borrower in that amount or (ii) a DOJ/EPA Loan to the Borrower in that Amount, which shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to Revolving Credit Loans under the Base Rate Option. If any Lender so notified fails to make available to the Administrative Agent for the account of the Issuing Lender the amount of such Lender’s Ratable Share of such amount by no later than 2:00 p.m. on the Drawing Date, then interest shall accrue on such Lender’s obligation to make such payment, from the Drawing Date to the date on which such Lender makes such payment (i) at a rate per annum equal to the Federal Funds Effective Rate during the first three (3) days following the Drawing Date and (ii) at a rate per annum equal to the rate applicable to Loans under the Revolving Credit Base Rate Option on and after the fourth day following the Drawing Date. The Administrative Agent and the Issuing Lender will promptly give notice (as described in Section 2.9.3.1 above) of the occurrence of the Drawing Date, but failure of the Administrative Agent or the Issuing Lender to give any such notice on the Drawing Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligation under this Section 2.9.3.2.

2.9.3.3 With respect to any DOJ/EPA Loan or any unreimbursed drawing that is not converted into a Revolving Credit Loans under the Base Rate Option to the Borrower in whole or in part as contemplated by Section 2.9.3.1, because of the Borrower’s failure to satisfy the conditions set forth in Section 7.2 [Each Loan or Letter of Credit] other than any notice requirements, or for any other reason, the Borrower shall be deemed to have incurred from the Issuing Lender a borrowing (each a “Letter of Credit Borrowing”) in the amount of such DOJ/EPA Loan or drawing. Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to the Revolving Credit Loans under the Base Rate Option. Each Lender’s payment to the Administrative Agent for the account of the Issuing Lender pursuant to Section 2.9.3 [Disbursements, Reimbursement] shall be deemed to be a payment in respect of its participation in such Letter of Credit Borrowing (each a “Participation Advance”) from such Lender in satisfaction of its participation obligation under this Section 2.9.3.

2.9.4 Repayment of Participation Advances.

2.9.4.1 Upon (and only upon) receipt by the Administrative Agent for the account of the Issuing Lender of immediately available funds from the Borrower (i) in reimbursement of any payment made by the Issuing Lender under the Letter of Credit with respect to which any Lender has made a Participation Advance to the Administrative Agent, or (ii) in payment of interest on such a payment made by the Issuing Lender under such a Letter of Credit, the Administrative Agent on behalf of the Issuing Lender will pay to each Lender, in the same funds as those received by the Administrative Agent, the amount of such Lender’s Ratable Share of such funds, except the Administrative Agent shall retain for the account of the Issuing Lender the amount of the Ratable Share of such funds of any Lender that did not make a Participation Advance in respect of such payment by the Issuing Lender.

2.9.4.2 If the Administrative Agent is required at any time to return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of any payment made by any Loan Party to the Administrative Agent for the account of the Issuing Lender pursuant to this Section in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Lender shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent for the account of the Issuing Lender the amount of its Ratable Share of any amounts so returned by the Administrative Agent plus interest thereon from the date such demand is made to the date such amounts are returned by such Lender to the Administrative Agent, at a rate per annum equal to the Federal Funds Effective Rate in effect from time to time.

28

2.9.5 Documentation. Each Loan Party agrees to be bound by the terms of the Issuing Lender’s application and agreement for letters of credit and the Issuing Lender’s written regulations and customary practices relating to letters of credit, though such interpretation may be different from such Loan Party’s own. In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern. It is understood and agreed that, except in the case of gross negligence or willful misconduct, the Issuing Lender shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following any Loan Party’s instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto.

2.9.6 Determinations to Honor Drawing Requests. In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit.

2.9.7 Nature of Participation and Reimbursement Obligations. Each Lender’s obligation in accordance with this Agreement to make the Revolving Credit Loans, DOJ/EPA Loans or Participation Advances, as contemplated by Section 2.9.3 [Disbursements, Reimbursement], as a result of a drawing under a Letter of Credit, and the Obligations of the Borrower to reimburse the Issuing Lender upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.9 under all circumstances, including the following circumstances:

(i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Lender or any of its Affiliates, the Borrower or any other Person for any reason whatsoever, or which any Loan Party may have against the Issuing Lender or any of its Affiliates, any Lender or any other Person for any reason whatsoever;

(ii) the failure of any Loan Party or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in Sections 2.1 [Revolving Credit Commitments], 2.5 [Revolving Credit Loan Requests], 2.6 [Making Revolving Credit Loans] or 7.2 [Each Loan or Letter of Credit] or as otherwise set forth in this Agreement for the making of a Revolving Credit Loan, it being acknowledged that such conditions are not required for the making of a Letter of Credit Borrowing and the obligation of the Lenders to make Participation Advances under Section 2.9.3 [Disbursements, Reimbursement];

(iii) any lack of validity or enforceability of any Letter of Credit;

29

(iv) any claim of breach of warranty that might be made by any Loan Party or any Lender against any beneficiary of a Letter of Credit, or the existence of any claim, set-off, recoupment, counterclaim, crossclaim, defense or other right which any Loan Party or any Lender may have at any time against a beneficiary, successor beneficiary any transferee or assignee of any Letter of Credit or the proceeds thereof (or any Persons for whom any such transferee may be acting), the Issuing Lender or its Affiliates or any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for which any Letter of Credit was procured);

(v) the lack of power or authority of any signer of (or any defect in or forgery of any signature or endorsement on) or the form of or lack of validity, sufficiency, accuracy, enforceability or genuineness of any draft, demand, instrument, certificate or other document presented under or in connection with any Letter of Credit, or any fraud or alleged fraud in connection with any Letter of Credit, or the transport of any property or provision of services relating to a Letter of Credit, in each case even if the Issuing Lender or any of its Affiliates has been notified thereof;

(vi) payment by the Issuing Lender or any of its Affiliates under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit;

(vii) the solvency of, or any acts or omissions by, any beneficiary of any Letter of Credit, or any other Person having a role in any transaction or obligation relating to a Letter of Credit, or the existence, nature, quality, quantity, condition, value or other characteristic of any property or services relating to a Letter of Credit;

(viii) any failure by the Issuing Lender or any of its Affiliates to issue any Letter of Credit in the form requested by any Loan Party, unless the Issuing Lender has received written notice from such Loan Party of such failure within three Business Days after the Issuing Lender shall have furnished such Loan Party and the Administrative Agent a copy of such Letter of Credit and such error is material and no drawing has been made thereon prior to receipt of such notice;

(ix) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Loan Party or Subsidiaries of a Loan Party;

(x) any breach of this Agreement or any other Loan Document by any party thereto;

(xi) the occurrence or continuance of an Insolvency Proceeding with respect to any Loan Party;

(xii) the fact that an Event of Default or a Potential Default shall have occurred and be continuing;

(xiii) the fact that the Expiration Date shall have passed or this Agreement or the Commitments hereunder shall have been terminated; and

(xiv) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

30

2.9.8 Indemnity. The Borrower hereby agrees to protect, indemnify, pay and save harmless the Issuing Lender and any of its Affiliates that has issued a Letter of Credit from and against any and all claims, demands, liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which the Issuing Lender or any of its Affiliates may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit, other than as a result of (A) the gross negligence or willful misconduct of the Issuing Lender as determined by a final non-appealable judgment of a court of competent jurisdiction or (B) the wrongful dishonor by the Issuing Lender or any of Issuing Lender’s Affiliates of a proper demand for payment made under any Letter of Credit, except if such dishonor resulted from any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Official Body.

2.9.9 Liability for Acts and Omissions. As between any Loan Party and the Issuing Lender, or the Issuing Lender’s Affiliates, such Loan Party assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Issuing Lender shall not be responsible for any of the following, including any losses or damages to any Loan Party or other Person or property relating therefrom: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if the Issuing Lender or its Affiliates shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Loan Party against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Loan Party and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, facsimile, e-mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Issuing Lender or its Affiliates, as applicable, including any act or omission of any Official Body, and none of the above shall affect or impair, or prevent the vesting of, any of the Issuing Lender’s or its Affiliates rights or powers hereunder. Nothing in the preceding sentence shall relieve the Issuing Lender from liability for the Issuing Lender’s gross negligence or willful misconduct in connection with actions or omissions described in such clauses (i) through (viii) of such sentence. In no event shall the Issuing Lender or its Affiliates be liable to any Loan Party for any indirect, consequential, incidental, punitive, exemplary or special damages or expenses (including without limitation attorneys’ fees), or for any damages resulting from any change in the value of any property relating to a Letter of Credit.

31

Without limiting the generality of the foregoing, the Issuing Lender and each of its Affiliates (i) may rely on any oral or other communication believed in good faith by the Issuing Lender or such Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit, (ii) may honor any presentation if the documents presented appear on their face substantially to comply with the terms and conditions of the relevant Letter of Credit; (iii) may honor a previously dishonored presentation under a Letter of Credit, whether such dishonor was pursuant to a court order, to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the same extent as if such presentation had initially been honored, together with any interest paid by the Issuing Lender or its Affiliate; (iv) may honor any drawing that is payable upon presentation of a statement advising negotiation or payment, upon receipt of such statement (even if such statement indicates that a draft or other document is being delivered separately), and shall not be liable for any failure of any such draft or other document to arrive, or to conform in any way with the relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming that it rightfully honored under the laws or practices of the place where such bank is located; and (vi) may settle or adjust any claim or demand made on the Issuing Lender or its Affiliate in any way related to any order issued at the applicant’s request to an air carrier, a letter of guarantee or of indemnity issued to a carrier or any similar document (each an “Order”) and honor any drawing in connection with any Letter of Credit that is the subject of such Order, notwithstanding that any drafts or other documents presented in connection with such Letter of Credit fail to conform in any way with such Letter of Credit.

In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Issuing Lender or its Affiliates under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put the Issuing Lender or its Affiliates under any resulting liability to the Borrower or any Lender.

2.9.10 Issuing Lender Reporting Requirements. Each Issuing Lender shall, on the first Business Day of each month, provide to Administrative Agent and Borrower a schedule of the Letters of Credit issued by it, in form and substance satisfactory to Administrative Agent, showing the date of issuance of each Letter of Credit, the account party, the original face amount (if any), and the expiration date of any Letter of Credit outstanding at any time during the preceding month, and any other information relating to such Letter of Credit that the Administrative Agent may request.

2.9.11 Cash Collateral. Upon the request of Administrative Agent, (i) if any Issuing Lender has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in a Letter of Credit Borrowing, or (ii) if, six months prior to the Expiration Date, any Letter of Credit Obligation for any reason remains outstanding, Borrower shall, in each case, immediately Cash Collateralize the then outstanding amount of all Letter of Credit Obligations. Borrower hereby grants to Administrative Agent, for the benefit of each Issuing Lender and the Lenders, a security interest in all cash collateral pledged pursuant to this Section or otherwise under this Agreement.

32

2.10 Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:

(i) fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 2.3 [Commitment Fees];

(ii) the Commitment and outstanding Loans of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, waiver or other modification pursuant to Section 11.1 [Modifications, Amendments or Waivers]); provided, that this clause (ii) shall not apply to the vote of a Defaulting Lender in the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender directly affected thereby;

(iii) if any Letter of Credit Obligations exist at the time such Lender becomes a Defaulting Lender, then:

(a) all or any part of the outstanding Letter of Credit Obligations of such Defaulting Lender shall be reallocated among the non-Defaulting Lenders in accordance with their respective Ratable Shares but only to the extent that (x) with respect to the Letter of Credit Obligations, other than the DOJ/EPA Letter of Credit Obligations, the Revolving Facility Usage does not exceed the total of all non-Defaulting Lenders’ Revolving Credit Commitments, and (y) no Potential Default or Event of Default has occurred and is continuing at such time. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation;

(b) if the reallocation described in clause (a) above cannot, or can only partially, be effected, the Borrower shall within one Business Day following notice by the Administrative Agent, cash collateralize for the benefit of the Issuing Lender the Borrower’s obligations corresponding to such Defaulting Lender’s Letter of Credit Obligations (after giving effect to any partial reallocation pursuant to clause (a) above) in a deposit account held at the Administrative Agent for so long as such Letter of Credit Obligations are outstanding;

(c) if the Borrower cash collateralizes any portion of such Defaulting Lender’s Letter of Credit Obligations pursuant to clause (b) above, the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.9.2 [Letter of Credit Fees] with respect to such Defaulting Lender’s Letter of Credit Obligations during the period such Defaulting Lender’s Letter of Credit Obligations are cash collateralized;

(d) if the Letter of Credit Obligations of the non-Defaulting Lenders are reallocated pursuant to clause (a) above, then the fees payable to the Lenders pursuant to Section 2.9.2 shall be adjusted in accordance with such non-Defaulting Lenders’ Ratable Share; and

(e) if all or any portion of such Defaulting Lender’s Letter of Credit Obligations are neither reallocated nor cash collateralized pursuant to clause (a) or (b) above, then, without prejudice to any rights or remedies of the Issuing Lender or any other Lender hereunder, all Letter of Credit Fees payable under Section 2.9.2 with respect to such Defaulting Lender’s Letter of Credit Obligations shall be payable to the Issuing Lender (and not to such Defaulting Lender) until and to the extent that such Letter of Credit Obligations are reallocated and/or cash collateralized; and

33

(iv) so long as such Lender is a Defaulting Lender, the Issuing Lender shall not be required to issue, amend or increase any Letter of Credit, unless such Issuing Lender is satisfied that the related exposure and the Defaulting Lender’s then outstanding Letter of Credit Obligations will be 100% covered by the Revolving Credit Commitments and/or DOJ/EPA Letter of Credit Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.10(iii), and participating interests in any newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 2.10(iii)(a) (and such Defaulting Lender shall not participate therein).

If (i) a Bankruptcy Event with respect to a parent company of any Lender shall occur following the date hereof and for so long as such event shall continue, or (ii) PNC or the Issuing Lender has a good faith belief that any Lender has defaulted in fulfilling its obligations under one or more other agreements in which such Lender commits to extend credit, the Issuing Lender shall not be required to issue, amend or increase any Letter of Credit, unless PNC or the Issuing Lender, as the case may be, shall have entered into arrangements with the Borrower or such Lender, satisfactory to PNC or the Issuing Lender, as the case may be, to defease any risk to it in respect of such Lender hereunder.

In the event that the Administrative Agent, the Borrower, PNC and the Issuing Lender agree in writing that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Administrative Agent will so notify the parties hereto, and the Ratable Share of the Letter of Credit Obligations of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment, and on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Ratable Share.

2.11 Reduction of Revolving Credit Commitment. The Borrower shall have the right at any time after the Closing Date upon five (5) days’ prior written notice to the Administrative Agent to permanently reduce (ratably among the Lenders in proportion to their Ratable Shares) the Revolving Credit Commitments, in a minimum amount of $5,000,000 and whole multiples of $1,000,000, or to terminate completely the Revolving Credit Commitments, without penalty or premium except as hereinafter set forth; provided that (i) any such reduction or termination shall be accompanied by prepayment of the Notes, together with outstanding Commitment Fees, and the full amount of interest accrued on the principal sum to be prepaid (and all amounts referred to in Section 5.10 [Indemnity] hereof) to the extent necessary to cause the aggregate Revolving Facility Usage after giving effect to such prepayments to be equal to or less than the Revolving Credit Commitments as so reduced or terminated, (ii) after giving effect to such reduction Borrower has Undrawn Availability at all times thereafter in an amount equal to at least $10,000,000 and (iii) contemporaneously with any termination completely of the Revolving Credit Commitments, Borrower shall Cash Collateralize such Letter of Credit Obligations pursuant to Section 2.9.11. Any notice to reduce the Revolving Credit Commitments under this Section 2.1. shall be irrevocable.

34

2.12 Increase in Revolving Credit Commitments.

2.12.1 Increasing Lenders and New Lenders. The Borrower may, at any time prior to the third anniversary of the Closing Date, request that (1) the current Lenders increase their Revolving Credit Commitments (any current Lender which elects to increase its Revolving Credit Commitment shall be referred to as an “Increasing Lender”) or (2) one or more new lenders (each a “New Lender”) join this Agreement and provide a Revolving Credit Commitment hereunder, subject to the following terms and conditions:

2.12.1.1 No Obligation to Increase. No current Lender shall be obligated to increase its Revolving Credit Commitment and any increase in the Revolving Credit Commitment by any current Lender shall be in the sole discretion of such current Lender.

2.12.1.2 Defaults. There shall exist no Events of Default or Potential Default on the effective date of such increase after giving effect to such increase.

2.12.1.3 Aggregate Revolving Credit Commitments. After giving effect to such increase, the total Revolving Credit Commitments shall not exceed $70,000,000.

2.12.1.4 Minimum Revolving Credit Commitments. After giving effect to such increase, the amount of the Revolving Credit Commitments provided by each of the New Lenders and each of the Increasing Lenders shall be at least $5,000,000; and

2.12.1.5 Resolutions; Opinion. The Loan Parties shall deliver to the Administrative Agent on or before the effective date of such increase the following documents in a form reasonably acceptable to the Administrative Agent: (1) certifications of their corporate secretaries with attached resolutions certifying that the increase in the Revolving Credit Commitment has been approved by such Loan Parties, and (2) an opinion of counsel addressed to the Administrative Agent and the Lenders addressing the authorization and execution of the Loan Documents by, and enforceability of the Loan Documents against, the Loan Parties.

2.12.1.6 Notes. The Borrower shall execute and deliver (1) to each Increasing Lender a replacement revolving credit Note reflecting the new amount of such Increasing Lender’s Revolving Credit Commitment after giving effect to the increase (and the prior Note issued to such Increasing Lender shall be deemed to be terminated) and (2) to each New Lender a revolving credit Note reflecting the amount of such New Lender’s Revolving Credit Commitment.

2.12.1.7 Approval of New Lenders. Any New Lender shall be subject to the approval of the Administrative Agent, which approval shall not be unreasonably withheld or delayed.

2.12.1.8 Increasing Lenders. Each Increasing Lender shall confirm its agreement to increase its Revolving Credit Commitment pursuant to an acknowledgement in a form acceptable to the Administrative Agent, signed by it and the Borrower and delivered to the Administrative Agent at least five (5) days before the effective date of such increase.

2.12.1.9 New Lenders—Joinder. Each New Lender shall execute a lender joinder in substantially the form of Exhibit 2.5 pursuant to which such New Lender shall join and become a party to this Agreement and the other Loan Documents with a Revolving Credit Commitment in the amount set forth in such lender joinder.

35

2.12.2 Treatment of Outstanding Loans and Letters of Credit.

2.12.2.1 Repayment of Outstanding Loans; Borrowing of New Loans. On the on the effective date of such increase, the Borrower shall repay all Loans then outstanding, subject to the Borrower’s indemnity obligations under Section 5.10 [Indemnity]; provided that it may borrow new Loans with a Borrowing Date on such date. Each of the Lenders shall participate in any new Loans made on or after such date in accordance with their respective Ratable Shares after giving effect to the increase in Revolving Credit Commitments contemplated by this Section 2.5.

2.12.2.2 Outstanding Letters of Credit. Repayment of Outstanding Loans; Borrowing of New Loans. On the effective date of such increase, each Increasing Lender and each New Lender (i) will be deemed to have purchased a participation in each then outstanding Letter of Credit equal to its Ratable Share of such Letter of Credit and the participation of each other Lender in such Letter of Credit shall be adjusted accordingly and (ii) will acquire, (and will pay to the Administrative Agent, for the account of each Lender, in immediately available funds, an amount equal to) its Ratable Share of all outstanding Participation Advances.

3. RESERVED

4. INTEREST RATES

4.1 Interest Rate Options. The Borrower shall pay interest in respect of the outstanding unpaid principal amount of the Loans as selected by it from the Base Rate Option or LIBOR Rate Option set forth below applicable to the Loans, it being understood that, subject to the provisions of this Agreement, the Borrower may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Loans comprising different Borrowing Tranches and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Loans comprising any Borrowing Tranche; provided that there shall not be at any one time outstanding more than six (6) Borrowing Tranches in the aggregate among all of the Loans and provided further that if an Event of Default or Potential Default exists and is continuing, the Borrower may not request, convert to, or renew the LIBOR Rate Option for any Loans and the Required Lenders may demand that all existing Borrowing Tranches bearing interest under the LIBOR Rate Option shall be converted immediately to the Base Rate Option, subject to the obligation of the Borrower to pay any indemnity under Section 5.10 [Indemnity] in connection with such conversion. If at any time the designated rate applicable to any Loan made by any Lender exceeds such Lender’s highest lawful rate, the rate of interest on such Lender’s Loan shall be limited to such Lender’s highest lawful rate.

4.1.1 Revolving Credit Interest Rate Options. The Borrower shall have the right to select from the following Interest Rate Options applicable to the Revolving Credit Loans:

(i) Revolving Credit Base Rate Option: A fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or

36

(ii) Revolving Credit LIBOR Rate Option: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the LIBOR Rate plus the Applicable Margin.

4.1.2 Reserved.

4.1.3 Rate Quotations. The Borrower may call the Administrative Agent on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such projection shall not be binding on the Administrative Agent or the Lenders nor affect the rate of interest which thereafter is actually in effect when the election is made.

4.2 Interest Periods. At any time when the Borrower shall select, convert to or renew a LIBOR Rate Option, the Borrower shall notify the Administrative Agent thereof at least three (3) Business Days prior to the effective date of such LIBOR Rate Option by delivering a Loan Request. The notice shall specify an Interest Period during which such Interest Rate Option shall apply. Notwithstanding the preceding sentence, the following provisions shall apply to any selection of, renewal of, or conversion to a LIBOR Rate Option:

4.2.1 Amount of Borrowing Tranche. Each Borrowing Tranche of Loans under the LIBOR Rate Option shall be in integral multiples of $100,000 and not less than $500,000; and

4.2.2 Renewals. In the case of the renewal of a LIBOR Rate Option at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day.

4.3 Interest After Default. To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured or waived, and at the discretion of the Administrative Agent or upon written demand by the Required Lenders to the Administrative Agent:

4.3.1 Letter of Credit Fees, Interest Rate. The Letter of Credit Fees and the rate of interest for each Loan otherwise applicable pursuant to Section 2.9.2 [Letter of Credit Fees] or Section 4.1 [Interest Rate Options], respectively, shall be increased by 3.0% per annum;

4.3.2 Other Obligations. Each other Obligation hereunder if not paid when due shall bear interest at a rate per annum equal to the sum of the rate of interest applicable under the Revolving Credit Base Rate Option plus an additional 3.0% per annum from the time such Obligation becomes due and payable and until it is paid in full; and

4.3.3 Acknowledgment. The Borrower acknowledges that the increase in rates referred to in this Section 4.3 reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Lenders are entitled to additional compensation for such risk; and all such interest shall be payable by Borrower upon demand by Administrative Agent.

37

4.4 LIBOR Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available.

4.4.1 Unascertainable. If on any date on which a LIBOR Rate would otherwise be determined, the Administrative Agent shall have reasonably determined that:

(i) adequate and reasonable means do not exist for ascertaining such LIBOR Rate, or

(ii) a contingency has occurred which materially and adversely affects the London interbank eurodollar market relating to the LIBOR Rate,

then, the Administrative Agent shall have the rights specified in Section 4.4.3 [Administrative Agent’s and Lender’s Rights].

4.4.2 Illegality; Increased Costs; Deposits Not Available. If at any time any Lender shall have determined that:

(i) the making, maintenance or funding of any Loan to which a LIBOR Rate Option applies has been made impracticable or unlawful by compliance by such Lender in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), or

(ii) such LIBOR Rate Option will not adequately and fairly reflect the cost to such Lender of the establishment or maintenance of any such Loan, or

(iii) after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan, or to banks generally, to which a LIBOR Rate Option applies, respectively, are not available to such Lender with respect to such Loan, or to banks generally, in the interbank eurodollar market,

then the Administrative Agent shall have the rights specified in Section 4.4.3 [Administrative Agent’s and Lender’s Rights].

38

4.4.3 Administrative Agent’s and Lender’s Rights. In the case of any event specified in Section 4.4.1 [Unascertainable] above, the Administrative Agent shall promptly so notify the Lenders and the Borrower thereof, and in the case of an event specified in Section 4.4.2 [Illegality; Increased Costs; Deposits Not Available] above, such Lender shall promptly so notify the Administrative Agent and endorse a certificate to such notice as to the specific circumstances of such notice, and the Administrative Agent shall promptly send copies of such notice and certificate to the other Lenders and the Borrower. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given), the obligation of (A) the Lenders, in the case of such notice given by the Administrative Agent, or (B) such Lender, in the case of such notice given by such Lender, to allow the Borrower to select, convert to or renew a LIBOR Rate Option shall be suspended until the Administrative Agent shall have later notified the Borrower, or such Lender shall have later notified the Administrative Agent, of the Administrative Agent’s or such Lender’s, as the case may be, determination that the circumstances giving rise to such previous determination no longer exist. If at any time the Administrative Agent makes a determination under Section 4.4.1 [Unascertainable] and the Borrower has previously notified the Administrative Agent of its selection of, conversion to or renewal of a LIBOR Rate Option and such Interest Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option otherwise available with respect to such Loans. If any Lender notifies the Administrative Agent of a determination under Section 4.4.2 [Illegality; Increased Costs; Deposits Not Available], the Borrower shall, subject to the Borrower’s indemnification Obligations under Section 5.10 [Indemnity], as to any Loan of the Lender to which a LIBOR Rate Option applies, on the date specified in such notice either convert such Loan to the Base Rate Option otherwise available with respect to such Loan or prepay such Loan in accordance with Section 5.6 [Voluntary Prepayments]. Absent due notice from the Borrower of conversion or prepayment, such Loan shall automatically be converted to the Base Rate Option otherwise available with respect to such Loan upon such specified date.

4.5 Selection of Interest Rate Options. If the Borrower fails to select a new Interest Period to apply to any Borrowing Tranche of Loans under the LIBOR Rate Option at the expiration of an existing Interest Period applicable to such Borrowing Tranche in accordance with the provisions of Section 4.2 [Interest Periods], the Borrower shall be deemed to have converted such Borrowing Tranche to the Revolving Credit Base Rate Option commencing upon the last day of the existing Interest Period.

5. PAYMENTS

5.1 Payments. All payments and prepayments to be made in respect of principal, interest, Commitment Fees, Letter of Credit Fees, or other fees or amounts due from the Borrower hereunder shall be payable prior to 11:00 a.m. on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Administrative Agent at the Principal Office for the ratable accounts of the Lenders with respect to the Revolving Credit Loans or DOJ/EPA Loans in U.S. Dollars and in immediately available funds, and the Administrative Agent shall promptly distribute such amounts to the Lenders in immediately available funds; provided that in the event payments are received by 11:00 a.m. by the Administrative Agent with respect to the Loans and such payments are not distributed to the Lenders on the same day received by the Administrative Agent, the Administrative Agent shall pay the Lenders the Federal Funds Effective Rate with respect to the amount of such payments for each day held by the Administrative Agent and not distributed to the Lenders. The Administrative Agent’s and each Lender’s statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans and other amounts owing under this Agreement and shall be deemed an “account stated.”

39

5.2 Pro Rata Treatment of Lenders. Each borrowing of Revolving Credit Loans shall be allocated to each Lender according to its Ratable Share, and each selection of, conversion to or renewal of any Interest Rate Option and each payment or prepayment by the Borrower with respect to principal, interest, Commitment Fees and Letter of Credit Fees (but excluding the Issuing Lender’s fronting fee) shall (except as otherwise may be provided with respect to a Defaulting Lender and except as provided in Section 4.4.3 [Administrative Agent’s and Lender’s Rights] in the case of an event specified in Section 4.4 [LIBOR Rate Unascertainable; Etc.], 5.6.2 [Replacement of a Lender] or 5.8 [Increased Costs]) be payable ratably among the Lenders entitled to such payment in accordance with the amount of principal, interest, Commitment Fees and Letter of Credit Fees, as set forth in this Agreement.

5.3 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff, counterclaim or banker’s lien, by receipt of voluntary payment, by realization upon security, or by any other non-pro rata source, obtain payment in respect of any principal of or interest on any of its Loans or other obligations hereunder resulting in such Lender’s receiving payment of a proportion of the aggregate amount of its Loans and accrued interest thereon or other such obligations greater than the pro-rata share of the amount such Lender is entitled thereto, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:

(i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, together with interest or other amounts, if any, required by Law (including court order) to be paid by the Lender or the holder making such purchase; and

(ii) the provisions of this Section 5.3 shall not be construed to apply to (x) any payment made by the Loan Parties pursuant to and in accordance with the express terms of the Loan Documents or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or Participation Advances to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section 5.3 shall apply).

Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against each Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of each Loan Party in the amount of such participation.

5.4 Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Lender hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Lender, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Lender, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the Issuing Lender, with interest thereon, for each day from and including the date such amount is distributed to it but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

40

5.5 Interest Payment Dates. Interest on Loans to which the Base Rate Option applies shall be due and payable in arrears on each Payment Date. Interest on Loans to which the LIBOR Rate Option applies shall be due and payable on the last day of each Interest Period for those Loans and, if such Interest Period is longer than three (3) Months, also on the 90th day of such Interest Period. Interest on mandatory prepayments of principal under Section 5.7 [Mandatory Prepayments] shall be due on the date such mandatory prepayment is due. Interest on the principal amount of each Loan or other monetary Obligation shall be due and payable on demand after such principal amount or other monetary Obligation becomes due and payable (whether on the stated Expiration Date, upon acceleration or otherwise).

5.6 Voluntary Prepayments.

5.6.1 Right to Prepay. The Borrower shall have the right at its option from time to time to prepay the Loans in whole or part without premium or penalty (except as provided in Section 5.6.2 [Replacement of a Lender] below, in Section 5.8 [Increased Costs] and Section 5.10 [Indemnity]). Whenever the Borrower desires to prepay any part of the Loans, it shall provide a prepayment notice to the Administrative Agent by 1:00 p.m. at least one (1) Business Day prior to the date of prepayment of the Revolving Credit Loans, setting forth the following information:

(w) the date, which shall be a Business Day, on which the proposed prepayment is to be made;

(x) a statement indicating the application of the prepayment between to the Revolving Credit Loans;

(y) a statement indicating the application of the prepayment between Loans to which the Base Rate Option applies and Loans to which the LIBOR Rate Option applies; and

(z) the total principal amount of such prepayment, which shall not be less than the lesser of (i) the Revolving Facility Usage or (ii) $5,000,000 for any Revolving Credit Loan.

All prepayment notices shall be irrevocable. The principal amount of the Loans for which a prepayment notice is given, together with interest on such principal amount except with respect to Loans to which the Base Rate Option applies, shall be due and payable on the date specified in such prepayment notice as the date on which the proposed prepayment is to be made. Except as provided in Section 4.4.3 [Administrative Agent’s and Lender’s Rights], if the Borrower prepays a Loan but fails to specify the applicable Borrowing Tranche which the Borrower is prepaying, the prepayment shall be applied (i) to Revolving Credit Loans; and (ii) after giving effect to the allocations in clause (i) above and in the preceding sentence, first to Loans to which the Base Rate Option applies, then to Loans to which the LIBOR Rate Option applies. Any prepayment hereunder shall be subject to the Borrower’s Obligation to indemnify the Lenders under Section 5.10 [Indemnity].

41

5.6.2 Replacement of a Lender. In the event any Lender (i) gives notice under Section 4.4 [LIBOR Rate Unascertainable, Etc.], (ii) requests compensation under Section 5.8 [Increased Costs], or requires the Borrower to pay any Indemnified Taxes or additional amount to any Lender or any Official Body for the account of any Lender pursuant to Section 5.9 [Taxes], (iii) is a Defaulting Lender, (iv) becomes subject to the control of an Official Body (other than normal and customary supervision), or (v) is a Non-Consenting Lender referred to in Section 11.1 [Modifications, Amendments or Waivers], then in any such event the Borrower may, at its sole expense, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.8 [Successors and Assigns]), all of its interests, rights (other than existing rights to payments pursuant to Sections 5.8 [Increased Costs] or 5.9 [Taxes]) and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

(i) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 11.8 [Successors and Assigns], except in the case of Section 5.6.2(iii) below;

(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and Participation Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 5.10 [Indemnity]) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

(iii) in the case of any such assignment resulting from a claim for compensation under Section 5.8.1 [Increased Costs Generally] or payments required to be made pursuant to Section 5.9 [Taxes], such assignment will result in a reduction in such compensation or payments thereafter; and

(iv) such assignment does not conflict with applicable Law.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

5.7 Mandatory Prepayments.

5.7.1 Sale of Assets/Issuance of Indebtedness. Within five (5) Business Days of any sale of assets authorized by Sections 8.2.7(v) and 8.2.7.(vi) [Disposition of Assets or Subsidiaries] or the issuance or incurrence of Indebtedness by Borrower, the Borrower shall make a mandatory prepayment of principal on the Revolving Credit Loans which shall result in a permanent reduction on a dollar-for-dollar basis of the Revolving Credit Commitment equal to the after-tax proceeds of such sale (as estimated in good faith by the Borrower) and/or the net cash proceeds of such issuance or incurrence, together with accrued interest on such principal amount. The foregoing shall not be deemed to be implied consent to any such issuance and/or incurrence of Indebtedness.

42

5.7.2 Application Among Interest Rate Options. All prepayments required pursuant to this Section 5.7 shall first be applied among the Interest Rate Options to the principal amount of the Loans subject to the Base Rate Option, then to Loans subject to a LIBOR Rate Option. In accordance with Section 5.10 [Indemnity], the Borrower shall indemnify the Lenders for any loss or expense, including loss of margin, incurred with respect to any such prepayments applied against Loans subject to a LIBOR Rate Option on any day other than the last day of the applicable Interest Period.

5.8 Increased Costs.

5.8.1 Increased Costs Generally. If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the LIBOR Rate) or the Issuing Lender;

(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (ii) through (iv) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or

(iii) impose on any Lender, the Issuing Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, converting to, continuing or maintaining any Loan or of maintaining its obligation to make any such Loan, or to increase the cost to such Lender, the Issuing Lender or such other Recipient of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender, the Issuing Lender or other Recipient hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Issuing Lender or other Recipient, the Borrower will pay to such Lender, the Issuing Lender or other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender, as the case may be, for such additional costs incurred or reduction suffered.

43

5.8.2 Capital Requirements. If any Lender or the Issuing Lender determines that any Change in Law affecting such Lender or the Issuing Lender or any lending office of such Lender or such Lender’s or the Issuing Lender’s holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Lender’s capital or on the capital of such Lender’s or the Issuing Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Lender, to a level below that which such Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Lender’s policies and the policies of such Lender’s or the Issuing Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding company for any such reduction suffered.

5.8.3 Certificates for Reimbursement; Repayment of Outstanding Loans; Borrowing of New Loans. A certificate of a Lender or the Issuing Lender setting forth in reasonably sufficient detail for the calculation of the amount or amounts necessary to compensate such Lender or the Issuing Lender or its holding company, as the case may be, as specified in Sections 5.8.1 [Increased Costs Generally] or 5.8.2 [Capital Requirements] and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Lender, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.

5.8.4 Delay in Requests. Failure or delay on the part of any Lender or the Issuing Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or the Issuing Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender or the Issuing Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the Issuing Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the Issuing Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine (9) month period referred to above shall be extended to include the period of retroactive effect thereof).

5.9 Taxes.

5.9.1 Issuing Lender. For purposes of this Section 5.9, the term “Lender” includes the Issuing Lender.

5.9.2 Payments Free of Taxes. Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be without deduction or withholding for any Taxes, except as required by applicable Law. If any applicable Law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Official Body in accordance with applicable Law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 5.9 [Taxes]) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

44

5.9.3 Payment of Other Taxes by the Loan Parties. The Loan Parties shall timely pay to the relevant Official Body in accordance with applicable Law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.

5.9.4 Indemnification by the Loan Parties. The Loan Parties shall jointly and severally indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 5.9 [Taxes]) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Official Body. A certificate as to the amount of such payment or liability reasonably describing the basis for such determination delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

5.9.5 Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of any of the Loan Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 11.8.4 [Participations] relating to the maintenance of a Participant Register, and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Official Body. A certificate as to the amount of such payment or liability reasonably describing the basis for such determination delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this Section 5.9.5 [Indemnification by the Lenders].

5.9.6 Evidence of Payments. As soon as practicable after any payment of Taxes by any Loan Party to an Official Body pursuant to this Section 5.9 [Taxes], such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Official Body evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

45

5.9.7 Status of Lenders.

(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 5.9.7(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Borrower,

(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:

(i) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(ii) executed originals of IRS Form W-8ECI;

(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit 5.9.7(A) to the effect that such Foreign Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN; or

46

(iv) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit 5.9.7(B) or Exhibit 5.9.7(C), IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit 5.9.7(D) on behalf of each such direct and indirect partner;

(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and

(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.

47

5.9.8 Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 5.9 [Taxes] (including by the payment of additional amounts pursuant to this Section 5.9 [Taxes]), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 5.9 [Taxes] with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Official Body with respect to such refund). Such indemnifying party, upon the request of such indemnified party incurred in connection with obtaining such refund, shall repay to such indemnified party the amount paid over pursuant to this Section 5.9.8 [Treatment of Certain Refunds] (plus any penalties, interest or other charges imposed by the relevant Official Body) in the event that such indemnified party is required to repay such refund to such Official Body. Notwithstanding anything to the contrary in this Section 5.9.8 [Treatment of Certain Refunds]), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this Section 5.9.8 [Treatment of Certain Refunds] the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

5.9.9 Survival. Each party’s obligations under this Section 5.9 [Taxes] shall survive the resignation of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all Obligations.

5.10 Indemnity. In addition to the compensation or payments required by Section 5.8 [Increased Costs] or Section 5.9 [Taxes], the Borrower shall indemnify each Lender against all liabilities, losses or expenses (including loss of anticipated profits, any foreign exchange losses and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan, from fees payable to terminate the deposits from which such funds were obtained or from the performance of any foreign exchange contract) which such Lender sustains or incurs as a consequence of any:

(i) payment, prepayment, conversion or renewal of any Loan to which a LIBOR Rate Option applies on a day other than the last day of the corresponding Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due),

(ii) attempt by the Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any Loan Requests under Section 2.5 [Revolving Credit Loan Requests] or Section 4.2 [Interest Periods] or notice relating to prepayments under Section 5.6 [Voluntary Prepayments], or

(iii) default by the Borrower in the performance or observance of any covenant or condition contained in this Agreement or any other Loan Document, including any failure of the Borrower to pay when due (by acceleration or otherwise) any principal, interest, Commitment Fee or any other amount due hereunder.

If any Lender sustains or incurs any such loss or expense, it shall from time to time notify the Borrower of the amount determined in good faith by such Lender (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Lender shall deem reasonable) to be necessary to indemnify such Lender for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrower to such Lender ten (10) Business Days after such notice is given.

48

5.11 Settlement Date Procedures. The Administrative Agent shall notify each Lender of its Ratable Share of the total of the Revolving Credit Loans and DOJ/EPA Loans (each a “Required Share”). On such Settlement Date, each Lender shall pay to the Administrative Agent the amount equal to the difference between its Required Share and its Revolving Credit Loans and DOJ/EPA Loans, as applicable, and the Administrative Agent shall pay to each Lender its Ratable Share of all payments made by the Borrower to the Administrative Agent with respect to the Revolving Credit Loans and DOJ/EPA Loans. The Administrative Agent shall also effect settlement in accordance with the foregoing sentence on the proposed Borrowing Dates for Revolving Credit Loans and on [Mandatory Prepayment Dates] and may at its option effect settlement on any other Business Day. These settlement procedures are established solely as a matter of administrative convenience, and nothing contained in this Section 5.11 shall relieve the Lenders of their obligations to fund Revolving Credit Loans on dates other than a Settlement Date. The Administrative Agent may at any time at its option for any reason whatsoever require each Lender to pay immediately to the Administrative Agent such Lender’s Ratable Share of the outstanding Revolving Credit Loans and each Lender may at any time require the Administrative Agent to pay immediately to such Lender its Ratable Share of all payments made by the Borrower to the Administrative Agent with respect to the Revolving Credit Loans.

6. REPRESENTATIONS AND WARRANTIES

6.1 Representations and Warranties. The Loan Parties, jointly and severally, represent and warrant to the Administrative Agent and each of the Lenders as follows:

6.1.1 Organization and Qualification; Power and Authority; Compliance With Laws; Title to Properties; Event of Default. Each Loan Party and each Subsidiary of each Loan Party (i) is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct, (iii) is duly licensed or qualified and in good standing in each jurisdiction listed on Schedule 6.1.1 and in all other jurisdictions where the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary, (iv) has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part, (v) is in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in Section 6.1.14 [Environmental Matters]) in all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is presently or will be doing business except where the failure to do so could not reasonably be expected to constitute a Material Adverse Change, and (vi) has good and marketable title to or valid leasehold interest in all properties, assets and other rights which it purports to own or lease or which are reflected as owned or leased on its books and records, free and clear of all Liens and encumbrances except Permitted Liens. No Event of Default or Potential Default exists or is continuing.

49

6.1.2 Subsidiaries and Owners; Investment Companies. Schedule 6.1.2 states (i) the name of each of the Borrower’s Subsidiaries, its jurisdiction of organization and the amount, percentage and type of equity interests in such Subsidiary (the “Subsidiary Equity Interests”), (ii) the name of each holder of an equity interest in each Borrower other than Parent Borrower, the amount, percentage and type of such equity interest (the “Borrower Equity Interests”), and (iii) any options, warrants or other rights outstanding to purchase any such equity interests referred to in clause (i) or (ii) (collectively the “Equity Interests”). Except as set forth on Schedule 6.1.2, the Borrower and each Subsidiary of the Borrower has good and marketable title to all of the Subsidiary Equity Interests it purports to own, free and clear in each case of any Lien and all such Subsidiary Equity Interests have been validly issued, fully paid and nonassessable. None of the Loan Parties or Subsidiaries of any Loan Party is an “investment company” registered or required to be registered under the Investment Company Act of 1940 or under the “control” of an “investment company” as such terms are defined in the Investment Company Act of 1940 and shall not become such an “investment company” or under such “control.”

6.1.3 Validity and Binding Effect. This Agreement and each of the other Loan Documents (i) has been duly and validly executed and delivered by each Loan Party, and (ii) constitutes, or will constitute, legal, valid and binding obligations of each Loan Party which is or will be a party thereto, enforceable against such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and the implied covenants of good faith and fair dealing.

6.1.4 No Conflict; Material Agreements; Consents. Neither the execution and delivery of this Agreement or the other Loan Documents by any Loan Party nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of any Loan Party or (ii) any Law or any material agreement or instrument or order, writ, judgment, injunction or decree to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan Party or any of its Subsidiaries (other than Liens granted under the Loan Documents). There is no default under such material agreement (referred to above) and none of the Loan Parties or their Subsidiaries is bound by any contractual obligation, or subject to any restriction in any organization document, or any requirement of Law which could reasonably be expected to result in a Material Adverse Change. Except as set forth in Schedule 6.1.4, no consent, approval, exemption, order or authorization of, or a registration or filing with, any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents.

50

6.1.5 Litigation. Except as set forth in Schedule 6.1.5, there are no actions, suits, proceedings or investigations pending or, to the knowledge of any Loan Party, threatened in writing against such Loan Party or any Subsidiary of such Loan Party at law or in equity before any Official Body which individually or in the aggregate could reasonably be expected to result in any Material Adverse Change, except with regard to the environmental matters and issues disclosed herein or otherwise disclosed to the Administrative Agent. None of the Loan Parties or any Subsidiaries of any Loan Party is in violation of any order, writ, injunction or any decree of any Official Body which could reasonably be expected to result in any Material Adverse Change.

6.1.6 Financial Statements.

(i) Historical Statements. The Borrower has delivered to the Administrative Agent copies of its audited consolidated year-end financial statements for and as of the end of the fiscal year ended December 31, 2011. In addition, the Borrower has delivered to the Administrative Agent copies of its unaudited consolidated interim financial statements for the fiscal year to date and as of the end of the fiscal quarter ended March 31, 2012 (all such annual and interim statements being collectively referred to as the “Statements”). The Statements were compiled from the books and records maintained by the Borrower’s management, are correct and complete in all material respects and fairly represent the consolidated financial condition of the Borrower and its Subsidiaries as of the respective dates thereof and the results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied, subject (in the case of the interim statements) to normal year-end audit adjustments and the absence of footnotes.

(ii) Accuracy of Financial Statements. Neither the Borrower nor any Subsidiary of the Borrower has any material liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Statements or in the notes thereto, and except as disclosed therein there are no unrealized or anticipated losses from any commitments of the Borrower or any Subsidiary of the Borrower which could reasonably be expected to cause a Material Adverse Change. Since December 31, 2011, no Material Adverse Change has occurred, except as set forth on Schedule 6.1.6.

6.1.7 Margin Stock. None of the Loan Parties or any Subsidiaries of any Loan Party engages or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U, T or X as promulgated by the Board of Governors of the Federal Reserve System). No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. None of the Loan Parties or any Subsidiary of any Loan Party holds or intends to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party are or will be represented by margin stock.

51

6.1.8 Full Disclosure. Neither this Agreement nor any other Loan Document, nor any certificate, statement, agreement or other documents furnished to the Administrative Agent or any Lender in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact known to any Loan Party which materially adversely affects the business, property, assets, financial condition, results of operations or prospects of any Loan Party or Subsidiary of any Loan Party which has not been set forth in this Agreement or in the certificates, statements, agreements or other documents furnished in writing to the Administrative Agent and the Lenders or the Parent Borrower’s public filings with the Securities and Exchange Commission, prior to or at the date hereof in connection with the transactions contemplated hereby.

6.1.9 Taxes. All federal, state, local and other tax returns required to have been filed with respect to each Loan Party and each Subsidiary of each Loan Party have been filed, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made.

6.1.10 Patents, Trademarks, Copyrights, Licenses, Etc. Except as set forth on Schedule 6.1.10, each Loan Party and each Subsidiary of each Loan Party owns or possesses all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by such Loan Party or Subsidiary, without known possible, alleged or actual conflict with the rights of others, except where the failure to do so could not reasonably be expected to result in a Material Adverse Change.

6.1.11 Liens in the Collateral. The Liens in the Collateral granted to the Administrative Agent for the benefit of the Lenders pursuant to the Patent, Trademark and Copyright Security Agreement, the Pledge Agreement, the Security Agreement and the Mortgage (collectively, the “Collateral Documents”) constitute and will continue to constitute Prior Security Interests. All filing fees and other expenses in connection with the perfection of such Liens have been or will be paid by the Borrower.

6.1.12 Insurance. The properties of each Loan Party and each of its Subsidiaries are insured pursuant to policies and other bonds which are valid and in full force and effect and which provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of each such Loan Party and Subsidiary in accordance with prudent business practice in the industry of such Loan Parties and Subsidiaries.

6.1.13 ERISA Compliance. (i) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

52

(ii) No ERISA Event has occurred or is reasonably expected to occur; (a) no Pension Plan has any unfunded pension liability (i.e. excess of benefit liabilities over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan for the applicable plan year); (b) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (c) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (d) neither Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.

6.1.14 Environmental Matters. Each Loan Party is and, to the knowledge of each respective Loan Party and each of its Subsidiaries is and has been in compliance in all material respects with applicable Environmental Laws except as disclosed on Schedule 6.1.14.

6.1.15 Solvency. Before and after giving effect to the initial Loans hereunder, each of the Loan Parties is solvent.

6.2 Updates to Schedules. Should any of the information or disclosures provided on any of the Schedules attached hereto become outdated or incorrect in any material respect, the Borrower shall promptly provide the Administrative Agent in writing with such revisions or updates to such Schedule as may be reasonably necessary or appropriate to update or correct same. No Schedule shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such Schedule be deemed to have been cured thereby, unless and until the Required Lenders, in their reasonable discretion, shall have accepted in writing such revisions or updates to such Schedule; provided however, that the Borrower may update Schedules 6.1.1 and 6.1.2 without any Lender approval in connection with any transaction permitted under Sections 8.2.6 [Liquidations, Mergers, Consolidations, Acquisitions], 8.2.7 [Dispositions of Assets or Subsidiaries] and 8.2.9 [Subsidiaries, Partnerships and Joint Ventures].

7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

The obligation of each Lender to make Loans and of the Issuing Lender to issue Letters of Credit hereunder is subject to the performance by each of the Loan Parties of its Obligations to be performed hereunder at or prior to the making of any such Loans or issuance of such Letters of Credit and to the satisfaction of the following further conditions:

7.1 First Loans and Letters of Credit.

7.1.1 Deliveries. On the Closing Date, the Administrative Agent shall have received each of the following in form and substance satisfactory to the Administrative Agent:

53

(i) A certificate of each of the Loan Parties signed by an Authorized Officer, dated the Closing Date stating that (w) all representations and warranties of the Loan Parties set forth in this Agreement are true and correct in all material respects, (x) the Loan Parties are in compliance with each of the covenants and conditions hereunder, (y) no Event of Default or Potential Default exists, and (z) no Material Adverse Change has occurred since the date of the last audited consolidated financial statements of the Parent Borrower delivered to the Administrative Agent except as set forth on Schedule 6.1.6;

(ii) A certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of each of the Loan Parties, certifying as appropriate as to: (a) all action taken by each Loan Party in connection with this Agreement and the other Loan Documents; (b) the names of the Authorized Officers authorized to sign the Loan Documents and their true signatures; and (c) copies of its organizational documents as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing of each Loan Party in each state where organized or qualified to do business;

(iii) This Agreement and each of the other Loan Documents signed by an Authorized Officer and all appropriate financing statements and appropriate stock powers and certificates evidencing the pledged Collateral;

(iv) A written opinion of counsel for the Loan Parties, dated the Closing Date;

(v) Evidence that adequate insurance required to be maintained under this Agreement is in full force and effect, with additional insured, mortgagee and lender loss payable special endorsements attached thereto in form and substance satisfactory to the Administrative Agent and its counsel naming the Administrative Agent as additional insured, mortgagee and lender loss payee;

(vi) A duly completed Compliance Certificate as of the last day of the fiscal quarter of Borrower most recently ended prior to the Closing Date, signed by an Authorized Officer of Borrower;

(vii) All material consents required to effectuate the transactions contemplated hereby;

(viii) Evidence that the Amended and Restated Revolving Credit Agreement dated October 23, 2008 among Borrower and Bank of America, N.A., has been terminated, and all outstanding obligations thereunder have been paid and all Liens securing such obligations have been released;

(ix) A Lien search in acceptable scope and with acceptable results;

(x) An executed landlord’s waiver or other lien waiver agreement from the lessor, warehouse operator or other applicable Person for each leased Collateral location as required under the Security Agreement;

54

(xi) Satisfactory completion by Borrower of the environmental questionnaire provided by the Administrative Agent; and

(xii) Such other documents in connection with such transactions as the Administrative Agent or said counsel may reasonably request.

7.1.2 Payment of Fees. The Borrower shall have paid all fees payable on or before the Closing Date as required by this Agreement or any other Loan Document.

7.2 Each Loan or Letter of Credit. At the time of making any Loans or issuing, extending or increasing any Letters of Credit and after giving effect to the proposed extensions of credit: (i) the representations, warranties of the Loan Parties shall then be true and correct, (ii) no Event of Default or Potential Default shall have occurred and be continuing, (iii) the making of the Loans or issuance, extension or increase of such Letter of Credit shall not contravene any Law applicable to any Loan Party or Subsidiary of any Loan Party or any of the Lenders, and (iv) the Borrower shall have delivered to the Administrative Agent a duly executed and completed Loan Request or to the Issuing Lender an application for a Letter of Credit, as the case may be.

8. COVENANTS

The Loan Parties, jointly and severally, covenant and agree that until Payment In Full, the Loan Parties shall comply at all times with the following covenants:

8.1 Affirmative Covenants.

8.1.1 Preservation of Existence, Etc. Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain its legal existence as a corporation, limited partnership or limited liability company and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change or as otherwise expressly permitted in Section 8.2.6 [Liquidations, Mergers, Etc.].

8.1.2 Payment of Liabilities, Including Taxes, Etc. Each Loan Party shall, and shall cause each of its Subsidiaries to, duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Change or to the extent that such liabilities, including taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made.

55

8.1.3 Maintenance of Insurance. Each Loan Party shall, and shall cause each of its Subsidiaries to, insure its properties and assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, extended coverage, property damage, workers’ compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary, all as reasonably determined by the Administrative Agent. The Loan Parties shall comply with the covenants and provide the endorsement set forth on Schedule 8.1.3 relating to property and related insurance policies covering the Collateral.

8.1.4 Maintenance of Properties and Leases. Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to its business, and from time to time, such Loan Party will make or cause to be made all appropriate repairs, renewals or replacements thereof.

8.1.5 Visitation Rights. Each Loan Party shall, and shall cause each of its Subsidiaries to, permit any of the officers or authorized employees or representatives of the Administrative Agent or any of the Lenders to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times during normal business hours and as often as any of the Lenders may reasonably request, provided that each Lender shall provide the Borrower and the Administrative Agent with reasonable notice prior to any visit or inspection. In the event any Lender desires to conduct an audit of any Loan Party, such Lender shall make a reasonable effort to conduct such audit contemporaneously with any audit to be performed by the Administrative Agent.

8.1.6 Keeping of Records and Books of Account. The Borrower shall, and shall cause each Subsidiary of the Borrower to, maintain and keep proper books of record and account which enable the Borrower and its Subsidiaries to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrower or any Subsidiary of the Borrower, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs.

8.1.7 Compliance with Laws; Use of Proceeds. Each Loan Party shall, and shall cause each of its Subsidiaries to, comply with all applicable Laws, including all Environmental Laws, in all respects; provided that it shall not be deemed to be a violation of this Section 8.1.7 if any failure to comply with any Law would not result in fines, penalties, remediation costs, other similar liabilities or injunctive relief which in the aggregate could reasonably be expected to constitute a Material Adverse Change. The Loan Parties will use the Letters of Credit and the proceeds of the Loans only in accordance with Section 2.8 [Use of Proceeds] and as permitted by applicable Law.

8.1.8 Further Assurances. Each Loan Party shall, from time to time, at its expense, faithfully preserve and protect the Administrative Agent’s Lien on and Prior Security Interest in the Collateral and all other real and personal property of the Loan Parties whether now owned or hereafter acquired as a continuing first priority perfected Lien, subject only to Permitted Liens, and shall do such other acts and things as the Administrative Agent in its sole discretion may deem necessary or advisable from time to time in order to preserve, perfect and protect the Liens granted under the Loan Documents and to exercise and enforce its rights and remedies thereunder with respect to the Collateral.

56

8.1.9 Anti-Terrorism Laws. None of the Loan Parties is or shall be (i) a Person with whom any Lender is restricted from doing business under Executive Order No. 13224 or any other Anti-Terrorism Law, (ii) engaged in any business involved in making or receiving any contribution of funds, goods or services to or for the benefit of such a Person or in any transaction that evades or avoids, or has the purpose of evading or avoiding, the prohibitions set forth in any Anti-Terrorism Law, or (iii) otherwise in violation of any Anti-Terrorism Law. The Loan Parties shall provide to the Lenders any certifications or information that a Lender requests to confirm compliance by the Loan Parties with Anti-Terrorism Laws.

8.1.10 Deposit and Securities Accounts. Each Loan Party shall, within 60 days of the Closing Date, and at all times thereafter, maintain their primary demand, time and other deposit accounts with the Agent or a Lender approved by the Agent in order to facilitate the making of the Loans and to provide security for repayment of the Obligations, other than accounts with aggregate deposits of less than $5,000 per Borrower or payroll accounts (subject to the limitations set forth in clause (b) of the next sentence). Deposits and investments in securities accounts with financial institutions, other than as provided above, shall at no time exceed an aggregate of $200,000, provided that, (a) one account may be maintained in England, six accounts in China, and six accounts in Mexico, with aggregate deposits in all such accounts to be limited to $300,000 and (b) amounts in excess of the aggregate limits stated above may be deposited in employee payroll accounts (whether domestic or foreign) on any particular day if such excess is paid as compensation to employees within one day.

8.2 Negative Covenants.

8.2.1 Indebtedness. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Indebtedness, except:

(i) Indebtedness under the Loan Documents;

(ii) Existing Indebtedness as set forth on Schedule 8.2.1 (including any extensions or renewals thereof; provided there is no increase in the amount thereof or other significant change in the terms thereof unless otherwise specified on Schedule 8.2.1);

(iii) Indebtedness incurred with respect to Purchase Money Security Interests and capitalized leases as and to the extent permitted under Section 8.2.14 [Capital Expenditures and Leases];

(iv) Indebtedness of a Loan Party to another Loan Party which is subordinated pursuant to the Intercompany Subordination Agreement;

(v) Any (i) Lender Provided Interest Rate Hedge, (ii) other Interest Rate Hedge approved by the Administrative Agent or (iii) Indebtedness under any Other Lender Provided Financial Services Product; provided however, the Loan Parties and their Subsidiaries shall enter into a Lender Provided Interest Rate Hedge or another Interest Rate Hedge only for hedging (rather than speculative) purposes;

57

(vi) Any guarantees permitted pursuant to Section 8.2.3; and

(vii) Other unsecured Indebtedness not described in clauses (i) through (vi) above in an aggregate amount not to exceed Two Million Five Hundred Thousand Dollars ($2,500,000).

8.2.2 Liens; Lien Covenants. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so, except Permitted Liens.

8.2.3 Guaranties. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time, directly or indirectly, become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person, except for Guaranties of Indebtedness or other obligations of the Loan Parties permitted hereunder. Any Loan Party may guarantee the obligations of another Loan Party, provided that such other Loan Party is permitted to take such action or incur such obligations under this Agreement.

8.2.4 Loans and Investments. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) or limited liability company interest in, or any other investment or interest in, or make any capital contribution to, any other Person, or agree, become or remain liable to do any of the foregoing, except:

(i) Maintain existing investments in other Loan Parties;

(ii) trade credit extended on usual and customary terms in the ordinary course of business;

(iii) Permitted Investments;

(iv) Loans, advances and investments in other Loan Parties;

(v) so long as no Event of Default shall have occurred and be continuing, make investments in securities of trade creditors, customers or any debtor of any Borrower or any of its Subsidiaries received in compromise of obligations incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors, customers or debtors and any Investments received in satisfaction of judgments;

58

(vi) so long as no Event of Default shall have occurred and be continuing, make loans or advances to employees, directors, officers or consultants of any Borrower or any of its Subsidiaries of the types consistent with past practice in an aggregate amount at any time outstanding not to exceed Five Hundred Thousand Dollars ($500,000); and

(vii) so long as no Event of Default shall have occurred and be continuing, Parent Borrower may repurchase, redeem or otherwise retire or acquire equity or other ownership interests of Parent Borrower from its employees or directors (or their heirs or estates) or employees or directors (or their heirs or estates) of Parent Borrower or other Loan Parties, in each case, pursuant to the terms of any employment agreement, severance agreement, employee stock option agreement or similar agreement in accordance with the provisions of any such arrangement as in effect on the date hereof, in an aggregate amount pursuant to this clause (viii) to all such employees or directors (or their heirs or estates) not to exceed $500,000 per fiscal year.

8.2.5 Dividends and Related Distributions. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, make or pay, or agree to become or remain liable to make or pay, any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of its shares of capital stock, partnership interests or limited liability company interests on account of the purchase, redemption, retirement or acquisition of its shares of capital stock (or warrants, options or rights therefor), partnership interests or limited liability company interests at any time when an Event of Default has occurred and is continuing or would occur as a result of the making of such dividend or distribution.

8.2.6 Liquidations, Mergers, Consolidations, Acquisitions. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person; provided that (i) any Loan Party, other than the Parent Borrower, may consolidate or merge into another Loan Party which is wholly-owned by one or more of the other Loan Parties, so long as any consolidation and/or merger involving any Borrower results in the Borrower entity being the surviving entity, (ii) the Borrower may consummate a Permitted Acquisition and (iii) the liquidation and dissolution of a non-operating Subsidiary or a Subsidiary having book assets not in excess of $100,000.

8.2.7 Dispositions of Assets or Subsidiaries. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest, partnership interests or limited liability company interests of a Subsidiary of such Loan Party), except:

(i) transactions involving the sale or other disposition of inventory in the ordinary course of business;

(ii) any sale, transfer, lease or other disposition of assets in the ordinary course of business which are no longer necessary or required in the conduct of such Loan Party’s or such Subsidiary’s business;

59

(iii) any sale, transfer or lease of assets by any Loan Party to another Loan Party;

(iv) any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets acquired or leased within the parameters of Section 8.2.14 [Capital Expenditures and Leases]; provided such substitute assets are subject to the Lenders’ Prior Security Interest;

(v) upon twenty (20) days prior written notice to Agent, any sale, transfer, lease or other disposition of assets, a division, operations or business to a third party in a commercially reasonable arms-length transaction, whether as a sale of assets or equity of one or more Loan Parties, so long as the total value of the assets sold and/or transferred in conjunction with a sale of equity interests, pursuant to this provision in the aggregate does not exceed $20,000,000 during the term of this Agreement and so long as the after-tax proceeds (as reasonably estimated by the Borrower) are applied as a mandatory prepayment of the Revolving Credit Loans (if any) and a permanent reduction on a dollar-for-dollar basis to the Revolving Credit Commitment in accordance with the provisions of Section 5.7.1 [Sale of Assets] above; or

(vi) any sale, transfer or lease of assets, other than those specifically excepted pursuant to clauses (i) through (v) above, which is approved by the Required Lenders or the disposition of property subject to governmental condemnation, so long as the after-tax proceeds (as reasonably estimated by the Borrower) are applied as a mandatory prepayment of the Revolving Credit Loans (if any) and a permanent reduction on a dollar-for-dollar basis to the Revolving Credit Commitment in accordance with the provisions of Section 5.7.1 [Sale of Assets] above.

8.2.8 Affiliate Transactions. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, enter into or carry out any transaction with any Affiliate of any Loan Party (including purchasing property or services from or selling property or services to any Affiliate of any Loan Party or other Person) unless such transaction (w) is desirable or beneficial to the business of such Loan Party, (x) is not otherwise prohibited by this Agreement, (y) is entered into upon fair and reasonable arm’s-length terms and conditions and (z) is in accordance with all applicable Law, including, the payment of management, consulting or other fees for management or similar services in the exercise of the Loan Parties’ reasonable business judgment that are:

(i) reasonable compensation for services rendered to such Loan Party or Subsidiary for officers, employees and directors in the ordinary course of business and that are either (A) paid directly to such officers, employees or directors or (B) to an Affiliate of such Loan Party or Subsidiary which provides the services of such officers, employees or directors, so long as, in the case of this clause (i), such arrangements are upon fair and reasonable terms no less favorable to such Loan Party or Subsidiary than such Loan Party or Subsidiary would obtain in a comparable arm’s length transaction with an unaffiliated person,

(ii) for actual and necessary reasonable out-of-pocket legal and accounting, insurance, marketing, payroll and similar types of services paid for by such Affiliate on behalf of such Loan Party or Subsidiary, in the ordinary course of their respective businesses or as the same may be directly attributable to such Loan Party or Subsidiary and for the payment of taxes by or on behalf of such Affiliate, or

60

(iii) for management, transaction and related fees, or other services, not in excess of $500,000 per year to any Affiliate, and made pursuant to the reasonable requirements of such Loan Party’s or Subsidiary’s business (as the case may be), which services would be required by such Loan Party or Subsidiary to operate such Loan Party’s or Subsidiary’s business whether or not such services were provided by an Affiliate, and upon fair and reasonable terms no less favorable to such Loan Party or Subsidiary than such Loan Party or Subsidiary would obtain in a comparable arm’s length transaction with an unaffiliated person.

provided, however, the foregoing restrictions on Affiliate transactions shall not apply to transactions exclusively among the Loan Parties. Notwithstanding anything contained herein to the contrary, any Loan Party or Subsidiary may make payments for an indemnity provided in the ordinary course of business on behalf of any officers, directors, employees, shareholders or any other Affiliate of such Loan Party or Subsidiary in connection with the transactions permitted by Section 8.2.8(b)(iii) hereof.

8.2.9 Subsidiaries, Partnerships and Joint Ventures. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to own or create directly or indirectly any Subsidiaries other than (i) any Subsidiary which has joined this Agreement as Guarantor on the Closing Date; and (ii) any Subsidiary formed after the Closing Date which joins this Agreement as a Guarantor by delivering to the Administrative Agent (A) a signed Guarantor Joinder; (B) documents in the forms described in Section 7.1 [First Loans and Letters of Credit] modified as appropriate; and (C) documents necessary to grant and perfect Prior Security Interests to the Administrative Agent for the benefit of the Lenders in the equity interests of, and Collateral held by, such Subsidiary. Each of the Loan Parties shall not become or agree to become a party to a Joint Venture without the prior written consent of the Administrative Agent.

8.2.10 Continuation of or Change in Business. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, engage in any business other than as substantially conducted and operated by such Loan Party or Subsidiary during the present fiscal year and such businesses as are reasonably related thereto and accretive to such Loan Party’s business, and such Loan Party or Subsidiary shall not permit any material change in such business.

8.2.11 Fiscal Year. The Borrower shall not, and shall not permit any Subsidiary of the Borrower to, change its fiscal year from the twelve-month period beginning January 1 and ending December 31.

8.2.12 Issuance of Stock. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, issue any additional shares of its capital stock or any options, warrants or other rights in respect thereof, except in connection with, and so long as such issuance does not result in a Change of Control hereunder, (i) compensation of employees, directors, Related Parties or consultants and (ii) Permitted Acquisitions.

61

8.2.13 Changes in Organizational Documents. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, amend in any respect its certificate of incorporation (including any provisions or resolutions relating to capital stock), by-laws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents without providing at least five (5) Business Days’ prior written notice to the Administrative Agent and the Lenders and, in the event such change would be adverse to the Lenders as determined by the Administrative Agent in its sole discretion, obtaining the prior written consent of the Required Lenders.

8.2.14 Capital Expenditures and Leases. Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, make any payments exceeding $7,000,000 in the aggregate in any fiscal year on account of the purchase or lease of any assets which if purchased would constitute fixed assets or which if leased would constitute a capitalized lease.

8.2.15 Minimum Fixed Charge Coverage Ratio. The Loan Parties shall not permit the Fixed Charge Coverage Ratio, calculated as of the end of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2012, in each case for the four (4) fiscal quarters then ended, to be less than 1.25 to 1.0; provided, however, the ratio required to be maintained for any three (3) fiscal quarters, following the execution of the DOJ/EPA Agreements (which Borrower and Administrative Agent expect to occur by December 31, 2012), may be not be less than 1.15 to 1.0.

8.2.16 Maximum Leverage Ratio. The Loan Parties shall not at any time permit the ratio of Indebtedness of the Borrower and its Subsidiaries, as of the most recently ended fiscal quarter, to Consolidated EBITDA, for the most recently ended four fiscal quarters commencing with the fiscal quarter ending June 30, 2012, to exceed 3.25 to 1.0.

8.3 Reporting Requirements. The Loan Parties will furnish or cause to be furnished to the Administrative Agent and each of the Lenders:

8.3.1 Quarterly Financial Statements. As soon as available and in any event within fifty (50) calendar days after the end of each of the first three fiscal quarters in each fiscal year, financial statements of the Borrower, consisting of a consolidated and consolidating balance sheet as of the end of such fiscal quarter and related consolidated and consolidating statements of income, stockholders’ equity and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by the Chief Executive Officer, President or Chief Financial Officer of the Borrower as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year.

62

8.3.2 Annual Financial Statements. As soon as available and in any event within one-hundred twenty (120) days after the end of each fiscal year of the Borrower, financial statements of the Borrower consisting of a consolidated and consolidating balance sheet as of the end of such fiscal year, and related consolidated and consolidating statements of income, stockholders’ equity and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by independent certified public accountants of nationally recognized standing satisfactory to the Administrative Agent. The certificate or report of accountants shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of any Loan Party under any of the Loan Documents. The Loan Parties shall deliver with such financial statements and certification by their accountants, if available, a letter of such accountants to the Administrative Agent and the Lenders substantially to the effect that, based upon their ordinary and customary examination of the affairs of the Borrower, performed in connection with the preparation of such consolidated financial statements, and in accordance with GAAP, they are not aware of the existence of any condition or event which constitutes an Event of Default or Potential Default or, if they are aware of such condition or event, stating the nature thereof.

8.3.3 Certificate of the Borrower. Concurrently with the financial statements of the Borrower furnished to the Administrative Agent and to the Lenders pursuant to Sections 8.3.1 [Quarterly Financial Statements] and 8.3.2 [Annual Financial Statements], a certificate (each a “Compliance Certificate”) of the Borrower signed by the Chief Executive Officer, President or Chief Financial Officer of the Borrower, in the form of Exhibit 8.3.3.

8.3.4 Notices.

8.3.4.1 Default. Promptly after any officer of any Loan Party has learned of the occurrence of an Event of Default or Potential Default, a certificate signed by an Authorized Officer setting forth the details of such Event of Default or Potential Default and the action which such Loan Party proposes to take with respect thereto.

8.3.4.2 Litigation. Promptly after the commencement thereof, notice of all actions, suits, proceedings or investigations before or by any Official Body or any other Person against any Loan Party or Subsidiary of any Loan Party which relate to the Collateral, involve a claim or series of claims in excess of $250,000 or which if adversely determined could reasonably be expected to constitute a Material Adverse Change.

8.3.4.3 Organizational Documents. Within the time limits set forth in Section 8.2.13 [Changes in Organizational Documents], any amendment to the organizational documents of any Loan Party.

8.3.4.4 Erroneous Financial Information. Promptly following the conclusion by the Borrower or its accountants that any previously issued financial statement, audit report or interim review should no longer be relied upon or that disclosure should be made or action should be taken to prevent future reliance.

8.3.4.5 ERISA Event. Immediately upon the occurrence of any ERISA Event.

8.3.4.6 Other Reports. Promptly upon their becoming available to the Borrower:

63

(i) Annual Budget. The annual budget and any forecasts or projections of the Borrower, to be supplied upon request by Administrative Agent;

(ii) Management Letters. Any reports including management letters submitted to the Borrower by independent accountants in connection with any annual, interim or special audit;

(iii) SEC Reports; Shareholder Communications. Reports, including Forms 10-K, 10-Q and 8-K, registration statements and prospectuses and other shareholder communications, filed by the Borrower with the Securities and Exchange Commission, to be provided upon request by the Administrative Agent unless available on the Securities and Exchange Commission’s EDGAR website; and

(iv) Other Information. Such other reports and information as any of the Lenders may from time to time reasonably request.

9. DEFAULT

9.1 Events of Default. An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law):

9.1.1 Payments Under Loan Documents. The Borrower shall fail to pay any principal of any Loan (including scheduled installments, mandatory prepayments or the payment due at maturity), Reimbursement Obligation or Letter of Credit or Obligation on any Loan, Reimbursement Obligation or Letter of Credit Obligation or any other amount owing hereunder or under the other Loan Documents on the date on which such principal becomes due in accordance with the terms hereof or thereof. The Borrower shall fail to pay any interest on any Loan, Reimbursement Obligation or Letter of Credit Obligation or any other amount owing hereunder or under the other Loan Documents on the date on which such interest or other amount becomes due in accordance with the terms hereof or thereof and such amount shall remain unpaid for a period of three (3) Business Days;

9.1.2 Breach of Warranty. Any representation or warranty made at any time by any of the Loan Parties herein or by any of the Loan Parties in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished;

9.1.3 Breach of Negative Covenants or Visitation Rights. Any of the Loan Parties shall default in the observance or performance of any covenant contained in Section 8.1.5 [Visitation Rights] or Section 8.2 [Negative Covenants];

9.1.4 Breach of Other Covenants. Any of the Loan Parties shall default in the observance or performance of any other covenant, condition or provision hereof or of any other Loan Document and such default shall continue unremedied for a period of ten (10) Business Days;

64

9.1.5 Defaults in Other Agreements or Indebtedness. A default or event of default shall occur at any time under the terms of any other agreement involving borrowed money or the extension of credit or any other Indebtedness under which any Loan Party or Subsidiary of any Loan Party may be obligated as a borrower or guarantor in excess of $250,000 in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any Indebtedness when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default permits or causes the acceleration of any Indebtedness (whether or not such right shall have been waived) or the termination of any commitment to lend;

9.1.6 Final Judgments or Orders. Except as set forth in Schedule 9.1.6, any final judgments or orders for the payment of money in excess of $1,000,000 in the aggregate and not covered by insurance in amounts and subject to policies acceptable to Administrative Agent in its reasonable discretion shall be entered against any Loan Party by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry;

9.1.7 Loan Document Unenforceable. Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party’s successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby;

9.1.8 Uninsured Losses; Proceedings Against Assets. There shall occur any material uninsured damage to or loss, theft or destruction of any of the Collateral in excess of $500,000 or the Collateral or any other of the Loan Parties’ or any of their Subsidiaries’ assets are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter;

9.1.9 Events Relating to Plans and Benefit Arrangements. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $1,000,000, or (ii) Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $1,000,000;

65

9.1.10 Change of Control. Any person or group of persons (within the meaning of Sections 13(d) or 14(a) of the Securities Exchange Act of 1934, as amended), other than Steel Partners Holdings L.P. and its Affiliates, and GAMCO Investors, Inc. and its Affiliates, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of a percentage (based on voting power, in the event different classes of stock shall have different voting powers) of the voting stock of Parent Borrower equal to at least forty percent (40%); or (ii) within a period of twelve (12) consecutive calendar months, individuals who were directors of the Parent Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Parent Borrower without the approval of such individuals who were directors of the Parent Borrower on the first day of such period.

9.1.11 Relief Proceedings. (i) A Relief Proceeding shall have been instituted against any Loan Party or Subsidiary of a Loan Party and such Relief Proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting any of the relief sought in such Relief Proceeding, (ii) any Loan Party or Subsidiary of a Loan Party institutes, or takes any action in furtherance of, a Relief Proceeding, or (iii) any Loan Party or any Subsidiary of a Loan Party ceases to be solvent or admits in writing its inability to pay its debts as they mature.

9.2 Consequences of Event of Default.

9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings. If an Event of Default specified under Sections 9.1.1 through 9.1.10 shall occur and be continuing, the Lenders and the Administrative Agent shall be under no further obligation to make Loans and the Issuing Lender shall be under no obligation to issue Letters of Credit and the Administrative Agent may, and upon the request of the Required Lenders, shall (i) by written notice to the Borrower, declare the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lenders hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Administrative Agent for the benefit of each Lender without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, and (ii) require the Borrower to, and the Borrower shall thereupon, deposit in a non-interest-bearing account with the Administrative Agent, as cash collateral for its Obligations under the Loan Documents, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrower hereby pledges to the Administrative Agent and the Lenders, and grants to the Administrative Agent and the Lenders a security interest in, all such cash as security for such Obligations; and

9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings. If an Event of Default specified under Section 9.1.11 [Relief Proceedings] shall occur, the Lenders shall be under no further obligations to make Loans hereunder and the Issuing Lender shall be under no obligation to issue Letters of Credit and the unpaid principal amount of the Loans then outstanding and all interest accrued thereon, any unpaid fees and all other Obligations of the Borrower to the Lenders hereunder and thereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and

66

9.2.3 Set-off. If an Event of Default shall have occurred and be continuing, each Lender, the Issuing Lender, and each of their respective Affiliates and any participant of such Lender or Affiliate which has agreed in writing to be bound by the provisions of Section 5.3 [Sharing of Payments by Lenders] is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the Issuing Lender or any such Affiliate or participant to or for the credit or the account of any Loan Party against any and all of the Obligations of such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender, the Issuing Lender, Affiliate or participant, irrespective of whether or not such Lender, Issuing Lender, Affiliate or participant shall have made any demand under this Agreement or any other Loan Document and although such Obligations of the Borrower or such Loan Party may be contingent or unmatured or are owed to a branch or office of such Lender or the Issuing Lender different from the branch or office holding such deposit or obligated on such Indebtedness. The rights of each Lender, the Issuing Lender and their respective Affiliates and participants under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the Issuing Lender or their respective Affiliates and participants may have. Each Lender and the Issuing Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application; and

9.2.4 Application of Proceeds. From and after the date on which the Administrative Agent has taken any action pursuant to this Section 9.2 and until all Obligations of the Loan Parties have been paid in full, any and all proceeds received by the Administrative Agent from any sale or other disposition of the Collateral, or any part thereof, or the exercise of any other remedy by the Administrative Agent, shall be applied as follows:

(i) first, to reimburse the Administrative Agent and the Lenders for out-of-pocket costs, expenses and disbursements, including reasonable attorneys’ and paralegals’ fees and legal expenses, incurred by the Administrative Agent or the Lenders in connection with realizing on the Collateral or collection of any Obligations of any of the Loan Parties under any of the Loan Documents, including advances made by the Lenders or any one of them or the Administrative Agent for the reasonable maintenance, preservation, protection or enforcement of, or realization upon, the Collateral, including advances for taxes, insurance, repairs and the like and reasonable expenses incurred to sell or otherwise realize on, or prepare for sale or other realization on, any of the Collateral;

(ii) second, to the repayment of all Obligations then due and unpaid of the Loan Parties to the Lenders or their Affiliates incurred under this Agreement or any of the other Loan Documents or agreements evidencing any Lender Provided Interest Rate Hedge or Other Lender Provided Financial Services Obligations, whether of principal, interest, fees, expenses or otherwise and to cash collateralize the Letter of Credit Obligations, in such manner as the Administrative Agent may determine in its discretion; and

(iii) the balance, if any, as required by Law.

67

10. THE ADMINISTRATIVE AGENT

10.1 Appointment and Authority. Each of the Lenders and the Issuing Lender hereby irrevocably appoints PNC to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms

hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Section 10 are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Lender, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions.

10.2 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

10.3 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:

(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Potential Default or Event of Default has occurred and is continuing;

(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable Law; and

(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 11.1 [Modifications, Amendments or Waivers] and 9.2 [Consequences of Event of Default]) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Potential Default or Event of Default unless and until notice describing such Potential Default or Event of Default is given to the Administrative Agent by the Borrower, a Lender or the Issuing Lender.

68

The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Potential Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 7 [Conditions of Lending and Issuance of Letters of Credit] or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

10.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the Issuing Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender or the Issuing Lender unless the Administrative Agent shall have received notice to the contrary from such Lender or the Issuing Lender prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

10.5 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Section 10 shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

69

10.6 Resignation of Administrative Agent. The Administrative Agent may at any time give notice of its resignation to the Lenders, the Issuing Lender and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with approval from the Borrower (so long as no Event of Default has occurred and is continuing), to appoint a successor, such approval not to be unreasonably withheld or delayed. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and the Issuing Lender, appoint a

successor Administrative Agent; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (i) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the Issuing Lender under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the Issuing Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section 10.6. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Section 10 and Section 11.3 [Expenses; Indemnity; Damage Waiver] shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

If PNC resigns as Administrative Agent under this Section 10.6, PNC shall also resign as an Issuing Lender. Upon the appointment of a successor Administrative Agent hereunder, such successor shall (i) succeed to all of the rights, powers, privileges and duties of PNC as the retiring Issuing Lender and Administrative Agent and PNC shall be discharged from all of its respective duties and obligations as Issuing Lender and Administrative Agent under the Loan Documents, and (ii) issue letters of credit in substitution for the Letters of Credit issued by PNC, if any, outstanding at the time of such succession or make other arrangement satisfactory to PNC to effectively assume the obligations of PNC with respect to such Letters of Credit.

10.7 Non-Reliance on Administrative Agent and Other Lenders. Each Lender and the Issuing Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and the Issuing Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

10.8 Reserved.

70

10.9 Reserved.

10.10 Authorization to Release Collateral and Guarantors. The Lenders and Issuing Lenders authorize the Administrative Agent to release (i) any Collateral consisting of assets or equity interests sold or otherwise disposed of in a sale or other disposition or transfer permitted under Section 8.2.7 [Disposition of Assets or Subsidiaries] or 8.2.6 [Liquidations, Mergers, Consolidations, Acquisitions], and (ii) any Guarantor from its obligations under the Guaranty Agreement if the ownership interests in such Guarantor are sold or otherwise disposed of or transferred to persons other than Loan Parties or Subsidiaries of the Loan Parties in a transaction permitted under Section 8.2.7 [Disposition of Assets or Subsidiaries] or 8.2.6 [Liquidations, Mergers, Consolidations, Acquisitions].

10.11 No Reliance on Administrative Agent’s Customer Identification Program. Each Lender acknowledges and agrees that neither such Lender, nor any of its Affiliates, participants or assignees, may rely on the Administrative Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the USA Patriot Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with any of the Loan Parties, their Affiliates or their agents, the Loan Documents or the transactions hereunder or contemplated hereby: (i) any identity verification procedures, (ii) any recordkeeping, (iii) comparisons with government lists, (iv) customer notices or (v) other procedures required under the CIP Regulations or such other Laws.

11. MISCELLANEOUS

11.1 Modifications, Amendments or Waivers. With the written consent of the Required Lenders, the Administrative Agent, acting on behalf of all the Lenders, and the Borrower, on behalf of the Loan Parties, may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of the Lenders or the Loan Parties hereunder or thereunder, or may grant written waivers or consents hereunder or thereunder. Any such agreement, waiver or consent made with such written consent shall be effective to bind all the Lenders and the Loan Parties; provided, that no such agreement, waiver or consent may be made which will:

11.1.1 Increase of Commitment. Increase the amount of the Revolving Credit Commitment of any Lender hereunder without the consent of such Lender;

11.1.2 Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment. Whether or not any Loans are outstanding, extend the Expiration Date or the time for payment of principal or interest of any Loan (excluding the due date of any mandatory prepayment of a Loan), the Commitment Fee or any other fee payable to any Lender, or reduce the principal amount of or the rate of interest borne by any Loan or reduce the Commitment Fee or any other fee payable to any Lender, without the consent of each Lender directly affected thereby;

71

11.1.3 Release of Collateral or Guarantor. Except for sales of assets permitted by Section 8.2.7 [Disposition of Assets or Subsidiaries], release all or substantially all of the Collateral or any Guarantor from its Obligations under the Guaranty Agreement without the consent of all Lenders (other than Defaulting Lenders); or

11.1.4 Miscellaneous. Amend Section 5.2 [Pro Rata Treatment of Lenders], 10.3 [Exculpatory Provisions] or 5.3 [Sharing of Payments by Lenders] or this Section 11.1, alter any provision regarding the pro rata treatment of the Lenders or requiring all Lenders to authorize the taking of any action or reduce any percentage specified in the definition of Required Lenders, in each case without the consent of all of the Lenders (other than Defaulting Lenders);

provided that no agreement, waiver or consent which would modify the interests, rights or obligations of the Administrative Agent or the Issuing Lender may be made without the written consent of such Administrative Agent or Issuing Lender, as applicable, and provided, further that, if in connection with any proposed waiver, amendment or modification referred to in Sections 11.1.1 through 11.1.4 above, the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained (each a “Non-Consenting Lender”), then the Borrower shall have the right to replace any such Non-Consenting Lender with one or more replacement Lenders pursuant to Section 5.6.2 [Replacement of a Lender].

11.2 No Implied Waivers; Cumulative Remedies. No course of dealing and no delay or failure of the Administrative Agent or any Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Administrative Agent and the Lenders under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have.

11.3 Expenses; Indemnity; Damage Waiver.

11.3.1 Costs and Expenses. The Borrower shall pay (i) all out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), and shall pay all reasonable fees and time charges and disbursements for attorneys who may be employees of the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all out-of-pocket expenses incurred by the Issuing Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or the Issuing Lender (including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or the Issuing Lender), and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent, any Lender or the Issuing Lender, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit, and (iv) all reasonable out-of-pocket expenses of the Administrative Agent’s regular employees and agents engaged periodically to perform audits of the Loan Parties’ books, records and business properties.

72

11.3.2 Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the Issuing Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all reasonable fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance or nonperformance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) breach of representations, warranties or covenants of the Borrower under the Loan Documents, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, including any such items or losses relating to or arising under Environmental Laws or pertaining to environmental matters, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. This Section 11.3.2 [Indemnification by the Borrower] shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

11.3.3 Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under Sections 11.3.1 [Costs and Expenses] or 11.3.2 [Indemnification by the Borrower] to be paid by it to the Administrative Agent (or any sub-agent thereof), the Issuing Lender or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Issuing Lender or such Related Party, as the case may be, such Lender’s Ratable Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the Issuing Lender in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or Issuing Lender in connection with such capacity.

73

11.3.4 Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable Law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in Section 11.3.2 [Indemnification by Borrower] shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

11.3.5 Payments. All amounts due under this Section shall be payable not later than ten (10) days after demand therefor.

11.4 Holidays. Whenever payment of a Loan to be made or taken hereunder shall be due on a day which is not a Business Day such payment shall be due on the next Business Day (except as provided in Section 4.2 [Interest Periods]) and such extension of time shall be included in computing interest and fees, except that the Loans shall be due on the Business Day preceding the Expiration Date if the Expiration Date is not a Business Day. Whenever any payment or action to be made or taken hereunder (other than payment of the Loans) shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day, and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action.

11.5 Notices; Effectiveness; Electronic Communication.

11.5.1 Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in Section 11.5.2 [Electronic Communications]), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier (i) if to a Lender, to it at its address set forth in its administrative questionnaire, or (ii) if to any other Person, to it at its address set forth on Schedule 1.1(B).

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in Section 11.5.2 [Electronic Communications], shall be effective as provided in such Section.

74

11.5.2 Electronic Communications. Notices and other communications to the Lenders and the Issuing Lender hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender or the Issuing Lender if such Lender or the Issuing Lender, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

11.5.3 Change of Address, Etc. Any party hereto may change its address, e-mail address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.

11.6 Severability. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.

11.7 Duration; Survival. All representations and warranties of the Loan Parties contained herein or made in connection herewith shall survive the execution and delivery of this Agreement, the completion of the transactions hereunder and Payment In Full. All covenants and agreements of the Borrower contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Notes, Section 5 [Payments] and Section 11.3 [Expenses; Indemnity; Damage Waiver], shall survive Payment In Full. All other covenants and agreements of the Loan Parties shall continue in full force and effect from and after the date hereof and until Payment In Full.

75

11.8 Successors and Assigns.

11.8.1 Successors and Assigns Generally. The provisions of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 11.8.2 [Assignments by Lenders], (ii) by way of participation in accordance with the provisions of Section 11.8.4 [Participations], or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 11.8.6 [Certain Pledges; Successors and Assigns Generally] (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 11.8.4 [Participations] and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

11.8.2 Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

(i) Minimum Amounts.

(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B) in any case not described in clause (i)(A) of this Section 11.8.2, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption Agreement with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption Agreement, as of the Trade Date) shall not be less than $5,000,000, in the case of any assignment in respect of the Revolving Credit Commitment of the assigning Lender, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).

(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned.

(iii) Required Consents. No consent shall be required for any assignment except for the consent of the Administrative Agent (which shall not be unreasonably withheld or delayed) and:

(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; and

76

(B) the consent of the Issuing Lender (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding).

(iv) Assignment and Assumption Agreement. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption Agreement, together with a processing and recordation fee of $3,500, and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an administrative questionnaire provided by the Administrative Agent.

(v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower’s Affiliates or Subsidiaries.

(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 11.8.3 [Register], from and after the effective date specified in each Assignment and Assumption Agreement, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption Agreement covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 4.4 [LIBOR Rate Unascertainable; Etc.], 5.8 [Increased Costs], and 11.3 [Expenses, Indemnity; Damage Waiver] with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 11.8.2 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 11.8.4 [Participations].

11.8.3 Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain a record of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time. Such register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is in such register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. Such register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

77

11.8.4 Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders, and the Issuing Lender shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree (other than as is already provided for herein) to any amendment, modification or waiver with respect to Sections 11.1.1 [Increase of Commitment], 11.1.2 [Extension of Payment, Etc.], or 11.1.3 [Release of Collateral or Guarantor]) that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 4.4 [Libor Rate Unascertainable, Etc.], 5.8 [Increased Costs], 5.10 [Indemnity] and 5.9 [Taxes] (subject to the requirements and limitations therein, including the requirements under Section 5.9.7 [Status of Lenders] (it being understood that the documentation required under Section 5.9.7 [Status of Lenders] shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 11.8.2 [Assignments by Lenders]; provided that such Participant (A) agrees to be subject to the provisions of Section 5.6.2 [Replacement of a Lender] as if it were an assignee under Section 11.8.2 [Assignments by Lenders]; and (B) shall not be entitled to receive any greater payment under Sections 5.8 [Increased Costs] or 5.9 [Taxes], with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 5.6.2 [Replacement of a Lender] with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.2.3 [Set-off] as though it were a Lender; provided that such Participant agrees to be subject to Section 5.3 [Sharing of Payments by Lenders] as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

78

11.8.5 Certain Pledges; Successors and Assigns Generally. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

11.9 Confidentiality.

11.9.1 General. Each of the Administrative Agent, the Lenders and the Issuing Lender agrees to maintain the confidentiality of the Information, except that Information may be disclosed (i) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and other representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (iii) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (iv) to any other party hereto, (v) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (B) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (vii) with the consent of the Borrower or (viii) to the extent such Information (Y) becomes publicly available other than as a result of a breach of this Section or (Z) becomes available to the Administrative Agent, any Lender, the Issuing Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower or the other Loan Parties. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

11.9.2 Sharing Information With Affiliates of the Lenders. Each Loan Party acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Borrower or one or more of its Affiliates (in connection with this Agreement or otherwise) by any Lender or by one or more Subsidiaries or Affiliates of such Lender and each of the Loan Parties hereby authorizes each Lender to share for such purpose any information delivered to such Lender by such Loan Party and its Subsidiaries pursuant to this Agreement to any such Subsidiary or Affiliate subject to the provisions of Section 11.9.1 [General].

79

11.10 Counterparts; Integration; Effectiveness.

11.10.1 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof including any prior confidentiality agreements and commitments. Except as provided in Section 7 [Conditions Of Lending And Issuance Of Letters Of Credit], this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or e-mail shall be effective as delivery of a manually executed counterpart of this Agreement.

11.11 CHOICE OF LAW; SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.

11.11.1 Governing Law. This Agreement shall be deemed to be a contract under the Laws of the State of New York without regard to its conflict of laws principles. Each standby Letter of Credit issued under this Agreement shall be subject either to the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce (the “ICC”) at the time of issuance (“UCP”) or the rules of the International Standby Practices (ICC Publication Number 590) (“ISP98”), as determined by the Issuing Lender, and each trade Letter of Credit shall be subject to UCP, and in each case to the extent not inconsistent therewith, the Laws of the State of New York without regard to is conflict of laws principles.

11.11.2 SUBMISSION TO JURISDICTION. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA SITTING IN PHILADELPHIA COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE EASTERN DISTRICT OF PENNSYLVANIA, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH PENNSYLVANIA STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE ISSUING LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

80

11.11.3 WAIVER OF VENUE. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN THIS SECTION 11.11. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND AGREES NOT ASSERT ANY SUCH DEFENSE.

11.11.4 SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.5 [NOTICES; EFFECTIVENESS; ELECTRONIC COMMUNICATION]. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

11.11.5 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, ADMINISTRATIVE AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

11.12 USA Patriot Act Notice. Each Lender that is subject to the USA Patriot Act and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies Loan Parties that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of Loan Parties and other information that will allow such Lender or Administrative Agent, as applicable, to identify the Loan Parties in accordance with the USA Patriot Act.

81

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written.

BORROWERS:	SL INDUSTRIES, INC.
	By:	/s/ Louis J. Belardi
	Name:	Louis J. Belardi
	Title:	CFO, Secretary & Treasurer

SL DELAWARE, INC. SL DELAWARE HOLDINGS, INC. TEAL ELECTRONICS CORPORATION RFL ELECTRONICS INC. SL MONTEVIDEO TECHNOLOGY, INC. SL SURFACE TECHNOLOGIES, INC. CEDAR CORPORATION MTE CORPORATION MEX HOLDINGS LLC SL POWER ELECTRONICS CORPORATION SLGC HOLDINGS, INC.
By:	/s/ Louis J. Belardi
Name:	Louis J. Belardi
Title:	Authorized Officer

GUARANTORS:	SL POWER ELECTRONICS LTD. INDUSTRIAS SL, S.A. DE C.V. CONDOR POWER SUPPLIES DE MEXICO, S.A. DE C.V. SL XIANGHE POWER ELECTRONICS CORP. SL SHANGHAI POWER ELECTRONICS CORP. SL SHANGHAI INTERNATIONAL TRADING CORP. CEDRO DE MEXICO, S.A. DE C.V. TPE DE MEXICO, S. DE R.L. DE C.V.
	By:	/s/ Louis J. Belardi
	Name:	Louis J. Belardi
	Title:	Authorized Officer

[SIGNATURE PAGE TO CREDIT AGREEMENT]

PNC BANK, NATIONAL ASSOCIATION, individually as a Lender and as Administrative Agent
By:	/s/ Kirk M Mader
Name:	Kirk M. Mader
Title:	Senior Vice President

[SIGNATURE PAGE TO CREDIT AGREEMENT]

SCHEDULE 1.1(A)

PRICING GRID —

VARIABLE PRICING AND FEES BASED ON LEVERAGE RATIO

Level	Leverage Ratio	Commitment Fee			Letter of Credit  Fee			Revolving Credit Base  Rate Spread			Revolving Credit LIBOR Rate Spread
I	Less than or equal to 1.75 to 1.0		0.125	%		1.25	%		0.25	%		1.25	%
II	Greater than 1.75 to 1.0 but less than or equal to 2.25 to 1.0		0.15	%		1.50	%		0.50	%		1.50	%
III	Greater than 2.25 to 1.0 but less than or equal to 2.75 to 1.0		0.20	%		1.75	%		0.75	%		1.75	%
IV	Greater than 2.75 to 1.0 but less than or equal to 3.25 to 1.0		0.25	%		2.00	%		1.00	%		2.00	%

For purposes of determining the Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate:

(a) The Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate shall be determined on the Closing Date based on the Leverage Ratio computed on such date pursuant to a Compliance Certificate to be delivered on the Closing Date.

(b) The Applicable Margin, the Applicable Commitment Fee Rate and the Applicable Letter of Credit Fee Rate shall be recomputed as of the end of each fiscal quarter ending after the Closing Date based on the Leverage Ratio as of such quarter end. Any increase or decrease in the Applicable Margin, the Applicable Commitment Fee Rate or the Applicable Letter of Credit Fee Rate computed as of a quarter end shall be effective on the date on which the Compliance Certificate evidencing such computation is due to be delivered under Section 8.3.3 [Certificate of Borrower]. If a Compliance Certificate is not delivered when due in accordance with such Section 8.3.3, then the rates in Level IV shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered.

SCHEDULE 1.1(A)

(c) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Borrower or the Lenders determine that (i) the Leverage Ratio as calculated by the Borrower as of any applicable date was inaccurate and (ii) a proper calculation of the Leverage Ratio would have resulted in higher pricing for such period, the Borrower shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent, any Lender or the Issuing Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This paragraph shall not limit the rights of the Administrative Agent, any Lender or the Issuing Lender, as the case may be, under Section 2.9 [Letter of Credit Subfacility] or 4.3 [Interest After Default] or 9 [Default]. The Borrower’s obligations under this paragraph shall survive the termination of the Commitments and the repayment of all other Obligations hereunder.

SCHEDULE 1.1(A)

SCHEDULE 1.1(B)

COMMITMENTS OF LENDERS AND ADDRESSES FOR NOTICES

Page 1 of 2

Part 1—Commitments of Lenders and Addresses for Notices to Lenders

Lender	Amount of Commitment for Revolving Credit Loans		Amount of Commitment for DOJ/EPA Loans		Commitment		Ratable Share
Name: PNC Bank, National Association Address: 1600 Market Street, 22nd Floor, F2-F070-22-2 Philadelphia, PA 19103 Attention: Kirk Mader, Senior Vice President Telephone: 215.585.1385 Telecopy: 215.585.4144	$	40,000,000	$	10,700,000	$	50,700,000		100	%

SCHEDULE 1.1(B)

SCHEDULE 1.1(B)

COMMITMENTS OF LENDERS AND ADDRESSES FOR NOTICES

Page 2 of 2

Part 2—Addresses for Notices to Borrower and Guarantors:

ADMINISTRATIVE AGENT

Name: PNC Bank, National Association

Address: 1600 Market Street, 22nd Floor, F2-F070-22-2

Philadelphia, PA 19103

Attention: Kirk Mader, Senior Vice President

Telephone: 215.585.1385

Telecopy: 215.585.4144

With a Copy To:

PNC Bank, National Association

Loan Administrator — Team Lead

Commercial Loan Administration

PNC Harborside

One East Pratt Street

4^th Floor W, Mail Stop C3-C411-04-1

Baltimore, Maryland 21202

Attention: Nancy Norris

Telephone: 410.237.5283

Telecopy: 410.237.5256

BORROWER:

Name: SL Industries, Inc.

SL Delaware, Inc.

SL Delaware Holdings, Inc.

Teal Electronics Corporation

RFL Electronics, Inc.

SL Montevideo Technology, Inc.

SL Surface Technologies, Inc.

MTE Corporation

Cedar Corporation

MEX Holdings LLC

SL Power Electronics Corporation

SCHEDULE 1.1(B)

SLGC Holdings, Inc.

Address: 520 Fellowship Road, Suite A-114

Mount Laurel, NJ 08054

Attention: Louis J. Belardi

Telephone: (856) 222-5525

Telecopy: (856) 727-1683

GUARANTORS:

Name: SL Power Electronics Ltd.

Industrias SL, S.A. de C.V.

Condor Power Supplies de Mexico, S.A. de C.V.

SL Xianghe Power Electronics Corp.

SL Shanghai Power Electronics Corp.

SL Shanghai International Trading Corp.

Cedro de Mexico, S.A. de C.V.

TPE de Mexico, S. de R.L. De C.V.

Address: 520 Fellowship Road, Suite A-114

Mount Laurel, NJ 08054

Attention: Louis J. Belardi

Telephone: (856) 222-5525

Telecopy: (856) 727-1683

SCHEDULE 1.1(B)

SCHEDULE 1.1(P)

PERMITTED LIENS

Debtor	Secured Party	Type/Filing Date	File Number	State	Collateral Description
RFL Electronics Inc.	Oce Financial Services Inc.	Original 4/7/2010	25593105	NJ	Equipment under PO# 49315 and all accessions, attachments, replacements, substitutions, modifications and additions thereto, now or hereafter acquired, and all proceeds thereof (including insurance proceeds) Model serial# with all peripherals TDS720FA, 0772006341, 4904942, 0073205780, TC54, 0451014275. This is a precautionary filing in connection with a true lease transaction and is not to be construed as indicating the transaction is other than a true lease.

SCHEDULE 6.1.1

QUALIFICATIONS TO DO BUSINESS

Loan Party	Jurisdiction of Organization	Other States in which Loan Party is Qualified to do Business
SL Industries, Inc.	New Jersey	None
SL Delaware, Inc.	Delaware	None
SL Delaware Holdings, Inc.	Delaware	None
MTE Corporation	Wisconsin	None
RFL Electronics Inc.	Delaware	New Jersey, Ohio
SL Montevideo Technology, Inc.	Minnesota	Pennsylvania
Cedar Corporation	Nevada	None
Teal Electronics Corporation	California	None
Mex Holdings LLC	Delaware	None
SL Power Electronics Corporation	Delaware	California, Massachusetts, Minnesota, New York, Pennsylvania, Washington
SLGC Holdings, Inc.	Delaware	None
SL Surface Technologies, Inc.	New Jersey	None

SL Power Electronics Ltd.	United Kingdom	None
Industrias SL, S.A. de C.V.	Mexico	None
Condor Power Supplies de Mexico, S.A. de C.V.	Mexico	None
SL Xianghe Power Electronics Corp.	China	None
SL Shanghai Power Electronics Corp.	China	None
SL Shanghai International Trading Corp.	China	None
Cedro de Mexico, S.A. de C.V.	Mexico	None
TPE de Mexico, S. de R.L. De C.V.	Mexico	None

SCHEDULE 6.1.2

SUBSIDIARIES

Company	Authorized Shares		Shares Issued and Outstanding		Holder and % of Equity Interest
SL Delaware, Inc.		1,000		1,000	SL Industries, Inc. 100%
SL Delaware Holdings, Inc.		1,000		1,000	SL Industries, Inc. 100%
MTE Corporation		50,000		1,746 2/3	SL Delaware Holdings, Inc. 100%
RFL Electronics Inc.		1,000		1,000	SL Delaware Holdings, Inc. 100%
SL Montevideo Technology, Inc.		100		1	SL Delaware Holdings, Inc. 100%
Cedar Corporation		25,000		25,000	SL Montevideo Technology, Inc. 100%
Teal Electronics Corporation		1,000		100	SL Delaware Holdings, Inc. 100%
Mex Holdings LLC		N/A		N/A	Teal Electronics Corporation 100%
SL Power Electronics Corporation		3,000		1,000	SL Delaware Holdings, Inc. 100%
SLGC Holdings, Inc.		3,000		1,000	SL Delaware Holdings, Inc. 100%
SL Surface Technologies, Inc.		2,500		2,500	SLGC Holdings, Inc. 100%
SL Power Electronics Ltd.		50,000		1,000	SL Power Electronics Corporation 100%
Industrias SL, S.A. de C.V.		100		100	SL Power Electronics Corporation 99%. SL Delaware Holdings, Inc. 1%

Condor Power Supplies de Mexico, S.A. de C.V.	5,000	5,000	SL Power Electronics Corporation 99%. SL Industries, Inc. 1%
SL Xianghe Power Electronics Corp.	386,065	386,065	SL Power Electronics Corporation 100%
SL Shanghai Power Electronics Corp.	39,656	39,656	SL Power Electronics Corporation 100%
SL Shanghai International Trading Corp.	39,648	39,648	SL Power Electronics Corporation 100%
Cedro de Mexico, S.A. de C.V.	5,000	5,000	Cedar Corporation 99.98% SL Delaware Holdings, Inc. .02%
TPE de Mexico, S. de R.L. de C.V.	3,000	3,000	Teal Electronics Corporation 99% MEX Holdings LLC 1%

SCHEDULE 6.1.4

REQUIRED CONSENTS AND FILINGS

Filing of the UCC financing statements, and filings relating to the perfection of security interests in intellectual property including tradenames, copyrights and patents.

SCHEDULE 6.1.5

LITIGATION

China

The Company has been and is conducting an investigation to determine whether certain employees of SL Xianghe Power Electronics Corporation, SL Shanghai Power Electronics Corporation and SL Shanghai International Trading Corporation, three of the Company’s indirect wholly-owned subsidiaries incorporated and operating exclusively in China, may have improperly provided gifts and entertainment to government officials (the “China Investigation”). Based upon the China Investigation, which is nearing completion, the estimate of the amounts of such gifts and entertainment, as uncovered by such investigation, does not appear to be material to the Company’s financial statements. There can be no assurance, however, that when the investigation is completed, the actual amounts will not be in excess of what is currently estimated. Such estimate does not take into account the costs to the Company of the China Investigation or any other additional costs.

The China Investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. The Company’s outside counsel has contacted the DOJ and the Securities and Exchange Commission (the “SEC”) voluntarily to disclose that the Company was conducting an internal investigation, and agreed to cooperate fully and update the DOJ and SEC periodically on further developments. The Company’s counsel has done so, and the Company has continued to cooperate fully with the DOJ and the SEC.

The Company has retained outside counsel and forensic accountants to assist in the China Investigation and the Company cannot predict at this time whether any regulatory action may be taken or any other adverse consequences may result from this matter.

Environmental

The matters set forth on Schedule 6.1.14 are incorporated herein by reference.

SCHEDULE 6.1.6

MATERIAL ADVERSE CHANGE

The matters set forth on Schedule 6.1.14 are incorporated herein by reference.

SCHEDULE 6.1.10

INTELLECTUAL PROPERTY

None

SCHEDULE 6.1.14

ENVIRONMENTAL MATTERS

There are three sites on which the Company may incur material environmental costs in the future as a result of past activities of its former subsidiary, SurfTech. There are two Company owned sites related to its former subsidiary, SurfTech. These sites are located in Pennsauken, New Jersey (the “Pennsauken Site”) and in Camden, New Jersey (the “Camden Site”). There is also a third site, which is not owned by the Company, referred to as the “Puchack Well Field Site.” The Puchack Well Field Site and the Pennsauken Site are part of the Puchack Well Field Superfund Site.

The Company has been and is the subject of administrative actions that arise from its ownership of SL Surface Technologies, Inc. (“SurfTech”), a wholly-owned subsidiary, the assets of which were sold in November 2003. SurfTech formerly operated chrome-plating facilities in Pennsauken Township, New Jersey (the “Pennsauken Site”) and Camden, New Jersey (the “Camden Site”).

In 2006 the United States Environmental Protection Agency (the “EPA”) named the Company as a potential responsible party (a “PRP”) in connection with the remediation of the Puchack Well Field, which has been designated as a Superfund Site. The EPA has alleged that hazardous substances generated at the Company’s Pennsauken Site contaminated the Puchack Well Field. As a PRP, the Company is potentially liable, jointly and severally, for the investigation and remediation of the Puchack Well Field Superfund Site under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”).

The EPA is remediating the Puchack Well Field Superfund Site in two separate operable units. The first operable unit consists of an area of chromium groundwater contamination in three aquifers that exceeds the selected cleanup standard (“OU-1”). The second operable unit (“OU-2”) pertains to sites that are allegedly the sources of contamination for the first operable unit. The EPA advised the Company in October 2010 that OU-2 includes soil contamination in the immediate vicinity of the Company’s Pennsauken Site.

In September 2006, the EPA issued a Record of Decision (“ROD”) that selected a remedy for OU-1 to address the groundwater contamination. The estimated cost of the EPA selected remedy for OU-1, to be conducted over a five to ten year timeframe, was approximately $17,600,000, as stated in the ROD. In an October 2010 meeting with the EPA, the EPA informed the Company that the OU-1 remedy would be implemented in two phases. Prior to the issuance of the EPA’s ROD, the Company had retained an experienced environmental consulting firm to prepare technical comments on the EPA’s proposed remediation of the Puchack Well Field Superfund Site. In those comments, the Company’s consultant, among other things, identified flaws in the EPA’s conclusions and the factual predicates for certain of the EPA’s decisions and for the proposed selected remedy.

Following the issuance of its ROD for OU-1, in November 2006, the EPA sent another letter to the Company encouraging the Company to either perform or finance the remedial actions for OU-1 identified in the EPA’s ROD. In addition to paying for the OU-1 remediation, the EPA has sought payment of the past costs that the EPA has allegedly incurred. The Company responded to the EPA that it was willing to investigate the existence of other PRPs and to undertake the activities necessary to design a final remediation for the Superfund Site. In July 2007, the EPA refused the Company’s offer to perform the work necessary to design the remediation plan without first agreeing to assume responsibility for the full remediation of the Superfund Site. The EPA did encourage the Company to investigate the existence of other PRPs and to submit evidence thereof, if appropriate. In January 2008, the Company submitted to the EPA evidence demonstrating the existence of several other PRPs.

In June 2011, the EPA announced a proposed plan for “cleaning up the soil” at OU-2. The remedy proposed by the EPA is “Geochemical Fixation.” This remedy involves applying a chemical reductant to the contaminated soil to reduce hexavalent chromium by converting it to immobilized trivalent chromium. The EPA’s estimated cost for this remedy is $20,700,000 over seven years. The public comment period for the proposed plan expired on July 27, 2011. On September 26, 2011 the EPA issued a ROD selecting the Geochemical Fixation remedy. This remedy involves mixing a reducing agent to treat soils containing concentrations of hexavalent chromium greater than 20 parts per million. The remedy also requires post-remediation sampling, site restoration and implementing a groundwater sampling and analysis program. The Company intends to have its environmental consultants play an active role in the remediation design.

The Company has reached an agreement in principle with the DOJ related to its liability for both OU-1 and OU-2. The Company has agreed in principle to perform the remediation for OU-2. Also, the Company has agreed in principle to pay a fixed sum for the EPA’s past cost for OU-2 and a portion of the EPA’s past cost for OU-1. The payments are to be made annually in four equal payments. The first payment plus interest is to be made within 30 days of entry of the Consent Decree. Each of the next three payments plus interest is to be made on the anniversary date of the first payment. The Company has also agreed in principle to pay the EPA’s costs for oversight of the OU-2 remediation. This agreement is subject to the approval of both the DOJ and EPA’s management who are authorized to settle this matter. Also, the proposed agreement will be subject to a public comment period and finally must be approved by the Federal District Court. The Company, in consultation with its consultants and legal counsel, are working on a Statement of Work (“SOW”) for the implementation of the remedy selected in the September 26, 2011 ROD for OU-2. The SOW will be incorporated into the Consent Decree and will be an enforceable part of the Consent Decree.

With respect to the Camden Site, the Company has reported soil contamination and a groundwater contamination plume emanating from the site. Delineation of the soil and groundwater contamination is substantially complete. In the third quarter of 2009, pursuant to an Interim Response Action (“IRA”) Workplan approved by the New Jersey Department of Environmental Protection (“NJDEP”), the Company completed building demolition and excavated and disposed of some of the contaminated soil underlying the building’s foundation. Treatability studies for in-situ remediation of the remaining unsaturated contaminated soil were conducted in 2009. Based upon the treatability study results, our environmental consultants prepared an IRA Workplan Addendum (“IRAWA”) to implement a Phase I Pilot Study (“PIPS”), which involved injecting neutralizing chemicals into the unsaturated soil. The NJDEP approved the IRAWA, and the PIPS was implemented in November 2010. As required by the IRAWA, our consultants collected post-injection data for assessment of the overall success of the PIPS. Our consultants completed the assessment of the PIPS and indicated that the PIPS can be implemented as a full scale soil remedy to treat unsaturated contaminated soil. A Remedial Action Workplan for soils (“RAWP”) is being developed. The RAWP will select the PIPS remedy as the site wide remedy for unsaturated soils, along with demolition and proper disposal of the former concrete building slab and targeted excavation and disposal of impacted soil immediately underlying the slab. Additionally, the RAWP will address a small area of impacted soil off the property. The RAWP will be submitted to the NJDEP, by the Licensed Site Remediation Professional (“LSRP”) for the site. The RAWP is scheduled to be implemented in 2013. Also, the Company’s environmental consultants finalized an IRA Workplan Addendum II (“IRAWA II”) to implement a Phase II Pilot Study (“PIIPS”) to treat on-site contaminated groundwater. The IRAWA II was submitted to the NJDEP in May 2011. It proposed multiple sub-surface injections of a food-grade product, into the groundwater at the down gradient property boundary, to create a “bio-barrier.” The PIIPS would assess the ability to treat contaminated groundwater as it moves through the bio-barrier. The IRAWA II also required the collection of groundwater samples to assess the performance of the PIIPS. Due to the NJDEP’s transition into the LSRP Program, the NJDEP did not comment on the IRAWA II and permit application. The Company’s LSRP believes the IRAWA II complies with the applicable NJDEP regulations and guidance documents. The permit application was resubmitted to the NJDEP for approval in June 2012. Implementation of the PIIPS is scheduled to occur during 2012 and 2013, depending upon the NJDEP’s approval of the related permit.

The Company is currently participating in environmental assessments and clean-up at a commercial facility located in Wayne, New Jersey. Contaminated soil and groundwater has undergone remediation with NJDEP oversight, but contaminants of concern (“COCs”) in groundwater and surface water, which extend off-site, still remain above applicable NJDEP remediation standards. Certain COCs have also been detected in the indoor air of two commercial buildings, located on the property. One of the buildings (the “Main Building”) was outfitted with a sub-slab depressurization system as a mitigation measure. The source investigations under the Main Building were completed in June 2012. Soil and groundwater samples collected from underneath the Main Building identified COCs in excess of the NJDEP’s applicable remediation standards. Consequently, a soil contaminant source remains under the Main Building that is feeding the groundwater contamination. The Company’s consultants are in the process of assessing remedial options and that assessment is expected to be completed by the fourth quarter of 2012. The remedial investigation conducted in the second quarter of 2012 identified a new source of COCs, outside of a second building and two sub-grade anomalies near the building that need to be further investigated. One of the anomalies has an appearance of an underground storage tank. Additional investigations will be required to delineate the source area and identify the anomalies. A soil remedial action plan will be required in order to remove contamination that continues to impact groundwater, which likely serves as a potential source of vapor detected inside the second building. Our consultants will review data to determine what supplemental remedial action is necessary for soils, and whether to modify or expand the groundwater remedy that will likely consist of additional in-situ injections of food grade product into the groundwater. The Company has engaged a LSRP to oversee the remediation of the site. The future costs for possible additional remediation are not currently estimable.

The Company has reported soil and groundwater contamination at the facility of SL-MTI located on its property in Montevideo, Minnesota. An analysis of the contamination has been completed and a remediation plan has been implemented at the site pursuant to the remedial action plan approved by the Minnesota Pollution Control Agency. The remaining steps under this plan are the monitoring of samples.

Westville, NJ

The Former SL Waber Facility is located in Westville, New Jersey. The property was previously owned by SL Industries, and operated by SL Waber, a subsidiary of SL Industries. SL Waber ceased operations; SL Industries subdivided the property, and sold a portion of the property to a knitting company in 1998. SL Industries remains the owner of a small undeveloped portion of the property. SL Industries is under an Administrative Consent Order/Remediation Agreement with the New Jersey Department of Environmental Protection (“NJDEP”) to remediate the property. Under NJDEP guidelines, the contaminates of concern (“COC’s”) exceeded certain screening levels. Annual groundwater sampling was completed in May, 2011 on the property. Analytical results confirmed that COC’s for the property remain above applicable NJDEP standards. Vapor sampling was completed and a “Vapor Intrusion Update Report” was sent to the NJDEP. In the report the Company’s consultants indicated that there are two areas of elevated vapors of concern (“VOC”) concentrations beneath one of the building’s floor located on the property .Soil samples collected from underneath the building confirmed that a soil source is present and that another one may be present. The remedial investigation of the property had been completed by May 2012 per statutory mandate. The Company’s consultants are assessing soil and groundwater remedial options. This assessment will be important to determine if supplemental injections into the groundwater are necessary to “kick start” the biodegradation process which was performed several years ago. A Licensed Site Responsible Person (“LSRP”) has been selected for this site who is an individual from the Company’s current consulting firm.

Swope Superfund Site

The Company has a minor liability for this site, approximately 0.49% for liabilities related to remediation and other administrative costs .Expenses for the past several years have been minor. The Company has accrued $45,000 relate the Swope site.

SCHEDULE 8.1.3

INSURANCE REQUIREMENTS RELATING TO THE COLLATERAL

COVENANTS:

At the request of the Administrative Agent, the Loan Parties shall deliver to the Administrative Agent and each of the Lenders (x) on the Closing Date and annually thereafter an original certificate of insurance signed by the Loan Parties’ independent insurance broker describing and certifying as to the existence of the insurance on the Collateral required to be maintained by this Agreement and the other Loan Documents, together with a copy of the endorsement described in the next sentence attached to such certificate, and (y) from time to time a summary schedule indicating all insurance then in force with respect to each of the Loan Parties. Such policies of insurance shall contain special endorsements which include the provisions set forth below or are otherwise in form acceptable to the Administrative Agent in its discretion. The applicable Loan Parties shall notify the Administrative Agent promptly of any occurrence causing a material loss or decline in value of the Collateral and the estimated (or actual, if available) amount of such loss or decline. Any monies received by the Administrative Agent constituting insurance proceeds may, at the option of the Administrative Agent, (i) in the case of property insurance proceeds received during the existence of an Event of Default, be applied by the Administrative Agent to the payment of the Obligations in accordance with the terms of the Credit Agreement, (ii) for losses of less than $500,000 received at such time as no Event of Default or Potential Default exists, be disbursed by the Administrative Agent to the applicable Loan Parties, and (iii) for losses equal to or greater than $500,000 received at such time as no Event of Default or Potential Default exists, be disbursed by the Administrative Agent to the applicable Loan Parties on such terms as are deemed appropriate by the Administrative Agent for the repair, restoration and/or replacement of Collateral and other property in respect of which such proceeds were received.

ENDORSEMENT:

(i) specify the Administrative Agent as an additional insured, mortgagee and lender loss payee as its interests may appear,

(ii) with respect to all property insurance policies, provide that the interest of the Lenders shall be insured regardless of any breach or violation by the applicable Loan Parties of any warranties, declarations or conditions contained in such policies or any action or inaction of the applicable Loan Parties or others insured under such policies, except that the insurer shall not be obligated to maintain the insurance if the breach consists of non-payment of premiums which continues for 30 days after written notice to Administrative Agent,

(iii) provide a waiver of any right of the insurers to set off or counterclaim or any other deduction, whether by attachment or otherwise,

(iv) provide that any and all rights of subrogation which the insurers may have or acquire against the Loan Parties shall be, at all times and in all respects, junior and subordinate to the prior Payment In Full of the Indebtedness hereunder and that no insurer shall exercise or assert any right of subrogation until such time as the Indebtedness hereunder has been paid in full and the Commitments have terminated,

(v) provide that no cancellation of such policies for any reason (including non-payment of premium) nor any change therein shall be effective until at least thirty (30) days after receipt by the Administrative Agent of written notice of such cancellation or change,

(vi) be primary without right of contribution of any other insurance carried by or on behalf of any additional insureds with respect to their respective interests in the Collateral, and

(vii) provide that inasmuch as the policy covers more than one insured, all terms, conditions, insuring agreements and endorsements (except limits of liability) shall operate as if there were a separate policy covering each insured.

SCHEDULE 8.2.1

PERMITTED INDEBTEDNESS

1. Indebtedness related to foreign currency forward contracts used to hedge foreign currency risk.*

2. Indebtedness related to Copper Purchase Agreements. As of June 30, 2012, inventory purchase agreements for copper totaled $1,193,000.*

3. Operating leases as and to the extent permitted under Section 8.2.14.*

4. Letter of Credit issued by Bank of America, N.A., held by Royal Bank of Canada on behalf of SL Industries, Inc.

5. Letter of Credit issued by Bank of America, N.A., held by Kevin O’Reilley, Trustee of E2S Trust, on behalf of SL Power Electronics Corporation.

* Amounts related to these arrangements fluctuate.

SCHEDULE 9.1.6

FINAL JUDGMENTS/ORDERS

Any final judgments or orders arising out of or related to the matters set forth on Schedule 6.1.5 are incorporated herein by reference.

EXHIBIT 1.1(A)

ASSIGNMENT AND ASSUMPTION AGREEMENT

EXHIBIT 1.1(A)

ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the “Assignment”) is dated as of the Effective Date set forth below and is entered into by and between                                                                           (the “Assignor”) and                                                                           (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by each Assignee. The Standard Terms and Conditions set forth in Annex 1 are hereby agreed to and incorporated herein by reference and made a part of this Assignment as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to each Assignee, and each Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below, the interest in and to all of the Assignor’s rights and obligations under the Credit Agreement and any other documents or instruments delivered pursuant thereto that represents the amount and percentage interests identified below each Assignee’s name on the signature pages hereto, of all of the Assignor’s outstanding rights and obligations under the respective facilities identified on the signature pages hereto (including, to the extent included in any such facilities, letters of credit and swingline loans) (each an “Assigned Interest” and collectively the “Assigned Interests”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment, without representation or warranty by the Assignor.

1.	Assignor:
2.	Assignee:
		[and is an Affiliate/Approved Fund of [identify Lender]1]
3.	Borrower(s):	SL Industries, Inc., a New Jersey corporation, SL Power Electronics Corporation, a Delaware corporation, SL Montevideo Technology, Inc., a Minnesota corporation, RFL Electronics Inc., a Delaware corporation, Teal Electronics Corporation, a California corporation, MTE Corporation, a Wisconsin corporation, SL Delaware, Inc., a Delaware corporation, SL Delaware Holdings, Inc., a Delaware corporation, Cedar Corporation, a Nevada corporation, Mex Holdings LLC, a Delaware limited liability company, SLGC Holdings, Inc., a Delaware corporation and SL Surface Technologies, Inc., a New Jersey corporation

¹  Select as applicable.

4.	Administrative Agent:	PNC Bank, National Association, as the administrative agent under the Credit Agreement
5.	Credit Agreement:	The Credit Agreement dated             , 2012 by and among Borrowers, the Lenders parties thereto, PNC Bank, National Association, as Administrative Agent, and the Guarantors now or hereafter party thereto, as the same may be amended, restated or supplemented from time to time.
6.	Assigned Interest:

Facility Assigned	Aggregate Amount of Commitment/ Loans for all Lenders	Amount of Commitment/ Loans Assigned	Percentage Assigned of Commitment/ Loans2		CUSIP Number
Revolving Credit Commitment	$	$		%

7. [Trade Date:                      ]³

8. Effective Date:             , 20        [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]⁴

[SIGNATURE PAGES FOLLOW]

²  Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

³  To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.

⁴  Assignor shall pay a fee of $3,500 to the Administrative Agent in connection with the Assignment and Assumption.

[SIGNATURE PAGE—ASSIGNMENT AND ASSUMPTION AGREEMENT]

The terms set forth in this Assignment are hereby agreed to:

ASSIGNOR

[NAME OF ASSIGNOR]

By:

Name:

Title:

ASSIGNEE

[NAME OF ASSIGNEE]

By:

Name:

Title:

Consented to and Accepted:

PNC BANK, NATIONAL ASSOCIATION,

as Administrative Agent

By:

Name:

Title:

[Consented to:]⁵

BORROWER

[NAME]

By:

Name:

Title:

GUARANTORS

[NAME]

By:

Name:

Title:

⁵  To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

ANNEX 1

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION AGREEMENT

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interests, (ii) the Assigned Interests are free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with any Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document delivered pursuant thereto, other than this Assignment (herein collectively the “Loan Documents”), or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2 Assignee. Each Assignee severally (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements, if any, of an eligible assignee under the Credit Agreement, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement and, to the extent of its Assigned Interests, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 6.1.6 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and to purchase its Assigned Interests on the basis of which it has made such analysis and decision, and (v) if such Assignee is not incorporated or organized under the laws of the United States of America or any State thereof, attached to the Assignment is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by such Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of each Assignee’s Assigned Interests (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the respective Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions. This Assignment shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment. This Assignment shall be governed by, and construed in accordance with, the laws of the State of New York.

EXHIBIT 1.1(G)(1)

GUARANTOR JOINDER

EXHIBIT 1.1(G)(1)

FORM OF

GUARANTOR JOINDER AND ASSUMPTION AGREEMENT

THIS GUARANTOR JOINDER AND ASSUMPTION AGREEMENT is made as of             , 20    , by                                 , a             [corporation/partnership/limited liability company] (the “New Guarantor”).

Background

Reference is made to (i) the Credit Agreement, dated as of             , 2012, as the same may be amended, restated, supplemented or modified from time to time (the “Credit Agreement”), by and among SL Industries, Inc., a New Jersey corporation, SL Power Electronics Corporation, a Delaware corporation, SL Montevideo Technology, Inc., a Minnesota corporation, RFL Electronics Inc., a Delaware corporation, Teal Electronics Corporation, a California corporation, MTE Corporation, a Wisconsin corporation, SL Delaware, Inc., a Delaware corporation, SL Delaware Holdings, Inc., a Delaware corporation, Cedar Corporation, a Nevada corporation, Mex Holdings LLC, a Delaware limited liability company, SLGC Holdings, Inc., a Delaware corporation and SL Surface Technologies, Inc., a New Jersey corporation (collectively, the “Borrower”), each of the Guarantors now or hereafter party thereto, the Lenders now or hereafter party thereto (the “Lenders”) and PNC Bank, National Association, in its capacity as agent for the Lenders (in such capacity, the “Agent”), (ii) the Continuing Agreement of Guaranty and Suretyship (Subsidiary), dated as of             , 2012 as the same may be amended, restated, supplemented or modified from time to time (the “Guaranty”) of Guarantors given to the Agent as agent for the Lenders, (iii) the Security Agreement, dated as of             , 2012 as the same may be amended, restated, supplemented or modified from time to time (the “Security Agreement”) among the Loan Parties and the Agent as agent for the Lenders, (iv) the Pledge Agreement, dated as of             , 2012, as the same may be amended, restated, supplemented or modified from time to time (the “Pledge Agreement”) made by certain Loan Parties party thereto in favor of the Agent, (v) Patent, Trademark and Copyright Security Agreement, dated as of             , 2012, as the same may be amended, restated, supplemented or modified from time to time (the “Patent, Trademark and Copyright Security Agreement”) among certain Loan Parties party thereto and the Agent for the benefit of the Lenders and (vi) the other Loan Documents referred to in the Credit Agreement, as the same may be amended, restated, supplemented or modified from time to time (the “Loan Documents”).

Agreement

Capitalized terms defined in the Credit Agreement are used herein as defined therein.

New Guarantor hereby becomes a Guarantor under the terms of the Credit Agreement and in consideration of the value of the synergistic and other benefits received by New Guarantor as a result of being or becoming affiliated with the Borrower and the Guarantors, New Guarantor hereby agrees that effective as of the date hereof it hereby is, and shall be deemed to be, and assumes the obligations of, a “Loan Party” and a “Guarantor”, jointly and severally under the Credit Agreement, a “Guarantor,” jointly and severally with the existing Guarantors under the Guaranty, a “Debtor” jointly and severally under the Security Agreement, a “Pledgor” jointly and severally under the Pledge Agreement and the Patent, Trademark and Copyright Security Agreement and a Loan Party or Guarantor, as the case may be, under each of the other Loan Documents to which the Loan Parties or Guarantors are a party; and, New Guarantor hereby agrees that from the date hereof and so long as any Loan or any Commitment of any Lender shall remain outstanding and until the payment in full of the Loans and the Notes, the expiration of all Letters of Credit, and the performance of all other obligations of the Loan Parties under the Loan Documents, New Guarantor shall perform, comply with, and be subject to and bound by each of the terms and provisions of the Credit Agreement, Guaranty, Security Agreement, Pledge Agreement, Patent, Trademark and Copyright Security Agreement and each of the other Loan Documents jointly and severally with the existing parties thereto. Without limiting the generality of the foregoing, New Guarantor hereby represents and warrants that (i) each of the representations and warranties set forth in Section 6 of the Credit Agreement applicable to a Loan Party is true and correct as to New Guarantor on and as of the date hereof and (ii) New Guarantor has heretofore received a true and correct copy of the Credit Agreement, Guaranty, Security Agreement, Pledge Agreement, Patent, Trademark and Copyright Security Agreement and each of the other Loan Documents (including any modifications thereof or supplements or waivers thereto) in effect on the date hereof.

New Guarantor hereby makes, affirms, and ratifies in favor of the Lenders and the Agent the Credit Agreement, Guaranty, Security Agreement, Pledge Agreement, Intercompany Subordination Agreement, Patent, Trademark and Copyright Security Agreement and each of the other Loan Documents given by the Guarantors to the Agent and any of the Lenders.

New Guarantor is simultaneously delivering to the Agent the documents, together with this Guarantor Joinder and Assumption Agreement, required under Sections 7.1 [First Loans and Letters of Credit] and 8.2.9 [Subsidiaries, Partnership and Join Ventures].

In furtherance of the foregoing, New Guarantor shall execute and deliver or cause to be executed and delivered at any time and from time to time such further instruments and documents and do or cause to be done such further acts as may be reasonably necessary in the reasonable opinion of Agent to carry out more effectively the provisions and purposes of this Guarantor Joinder and Assumption Agreement and the other Loan Documents.

New Guarantor acknowledges and agrees that a telecopy transmission to the Agent or any Lender of signature pages hereof purporting to be signed on behalf of New Guarantor shall constitute effective and binding execution and delivery hereof by New Guarantor.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGE 1 OF 1 OF GUARANTOR JOINDER AND ASSUMPTION AGREEMENT]

NEW GUARANTOR SHALL CAUSE BORROWER TO PROVIDE SUCH ADDITIONAL DOCUMENTS AS REQUIRED BY SECTION 8.2.9 OF THE CREDIT AGREEMENT.

IN WITNESS WHEREOF, and intending to be legally bound hereby, the New Guarantor has duly executed this Guarantor Joinder and Assumption Agreement and delivered the same to the Agent for the benefit of the Lenders, as of the date and year first above written with the intention that this Guarantor Joinder and Assumption Agreement constitute a sealed instrument.

ATTEST:
	By:	(SEAL)
Name:	Name:
Title:	Title:

Acknowledged and accepted:

PNC BANK, NATIONAL ASSOCIATION, as Agent

By:
	Name:
	Title:

EXHIBIT 1.1(G)(2)

GUARANTY AGREEMENT

CONTINUING AGREEMENT OF GUARANTY AND SURETYSHIP

This Continuing Agreement of Guaranty and Suretyship (the “Guaranty”), dated as of this             day of August             , 2012, is jointly and severally given by each of the undersigned and each of the other Persons which become Guarantors hereunder from time to time (each a “Guarantor” and collectively the “Guarantors”) in favor of PNC BANK, NATIONAL ASSOCIATION, as agent for the Lenders (the “Agent”) in connection with that Credit Agreement, dated as of the date hereof, by and among SL INDUSTRIES, INC., a New Jersey corporation, SL POWER ELECTRONICS CORPORATION, a Delaware corporation, SL MONTEVIDEO TECHNOLOGY, INC., a Minnesota corporation, RFL ELECTRONICS INC., a Delaware corporation, TEAL ELECTRONICS CORPORATION, a California corporation, MTE CORPORATION, a Wisconsin corporation, SL DELAWARE, INC., a Delaware corporation, SL DELAWARE HOLDINGS, INC., a Delaware corporation, CEDAR CORPORATION, a Nevada corporation, MEX HOLDINGS LLC, a Delaware limited liability company, SLGC HOLDINGS, INC., a Delaware corporation and SL SURFACE TECHNOLOGIES, INC., a New Jersey corporation (each a “Borrower” and collectively the “Borrowers”), the Guarantors now or hereafter party thereto, the Agent, and the Lenders now or hereafter party thereto (the “Lenders”) (as amended, restated, modified, or supplemented from time to time hereafter, the “Credit Agreement”). Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them by the Credit Agreement and the rules of construction set forth in Section 1.2 [Construction] of the Credit Agreement shall apply to this Guaranty.

1. Guarantied Obligations. To induce the Agent and the Lenders to make loans and grant other financial accommodations to the Borrower under the Credit Agreement, each Guarantor hereby jointly and severally unconditionally, and irrevocably, guaranties to the Agent, each Lender and any Lender Provided Interest Rate Hedge (each an “IRH Provider”); and becomes surety, as though it was a primary obligor for, the full and punctual payment and performance when due (whether on demand, at stated maturity, by acceleration, or otherwise and including any amounts which would become due but for the operation of an automatic stay under the United States Bankruptcy Code or any similar laws of any country or jurisdiction) of all Obligations, including, without limiting the generality of the foregoing, all obligations, liabilities, and indebtedness from time to time of the Borrower or any other Guarantor to the Agent or any of the Lenders or any Affiliate of any Lender under or in connection with the Credit Agreement or any other Loan Document, whether for principal, interest, fees, indemnities, expenses, or otherwise, and all refinancings or refundings thereof, whether such obligations, liabilities, or indebtedness are direct or indirect, secured or unsecured, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or hereafter arising (and including obligations, liabilities, and indebtedness arising or accruing after the commencement of any bankruptcy, insolvency, reorganization, or similar proceeding with respect to the Borrower or any Guarantor or which would have arisen or accrued but for the commencement of such proceeding, even if the claim for such obligation, liability, or indebtedness is not enforceable or allowable in such proceeding, and including all Obligations, liabilities, and indebtedness arising from any extensions of credit under or in connection with the

Loan Documents from time to time, regardless whether any such extensions of credit are in excess of the amount committed under or contemplated by the Loan Documents or are made in circumstances in which any condition to extension of credit is not satisfied) (all of the foregoing obligations, liabilities and indebtedness are referred to herein collectively as the “Guarantied Obligations” and each as a “Guarantied Obligation”). Without limitation of the foregoing, any of the Guarantied Obligations shall be and remain Guarantied Obligations entitled to the benefit of this Guaranty if the Agent or any of the Lenders (or any one or more assignees or transferees thereof) from time to time assign or otherwise transfer all or any portion of their respective rights and obligations under the Loan Documents, or any other Guarantied Obligations, to any other Person in accordance with the terms of the Credit Agreement. In furtherance of the foregoing, each Guarantor jointly and severally agrees as follows.

2. Guaranty. Each Guarantor hereby jointly and severally promises to pay and perform all such Guarantied Obligations when due and payable immediately upon demand of the Agent and the Lenders or any one or more of them. All payments made hereunder shall be made by each Guarantor in immediately available funds in United States Dollars and shall be made without setoff, counterclaim, withholding, or other deduction of any nature.

3. Obligations Absolute. The obligations of the Guarantors hereunder shall not be discharged or impaired or otherwise diminished by the failure, default, omission, or delay, willful or otherwise, by any Lender, the Agent, or any Borrower or any other obligor on any of the Guarantied Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Guarantor or would otherwise operate as a discharge of any Guarantor as a matter of law or equity, except for, and to the extent of, indefeasible payment and performance in full of the Guarantied Obligations. Each of the Guarantors agrees that the Guarantied Obligations will be paid and performed strictly in accordance with the terms of the Loan Documents. Without limiting the generality of the foregoing, each Guarantor hereby consents to, at any time and from time to time, and the joint and several obligations of each Guarantor hereunder shall not be diminished, terminated, or otherwise similarly affected by any of the following:

(a) Any lack of genuineness, legality, validity, enforceability or allowability (in a bankruptcy, insolvency, reorganization or similar proceeding, or otherwise), or any avoidance or subordination, in whole or in part, of any Loan Document or any of the Guarantied Obligations and regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of the Guarantied Obligations, any of the terms of the Loan Documents, or any rights of the Agent or the Lenders or any other Person with respect thereto;

(b) Any increase, decrease, or change in the amount, nature, type or purpose of any of, or any release, surrender, exchange, compromise or settlement of any of the Guarantied Obligations (whether or not contemplated by the Loan Documents as presently constituted); any change in the time, manner, method, or place of payment or performance of, or in any other term of, any of the Guarantied Obligations; any execution or delivery of any additional Loan Documents; or any amendment, modification or supplement to, or refinancing or refunding of, any Loan Document or any of the Guarantied Obligations;

(c) Any failure to assert any breach of or default under any Loan Document or any of the Guarantied Obligations; any extensions of credit in excess of the amount committed under or contemplated by the Loan Documents, or in circumstances in which any condition to such extensions of credit has not been satisfied; any other exercise or non-exercise, or any other failure, omission, breach, default, delay, or wrongful action in connection with any exercise or non-exercise, of any right or remedy against the Borrower or any other Person under or in connection with any Loan Document or any of the Guarantied Obligations; any refusal of payment or performance of any of the Guarantied Obligations, whether or not with any reservation of rights against any Guarantor; or any application of collections (including but not limited to collections resulting from realization upon any direct or indirect security for the Guarantied Obligations) to other obligations, if any, not entitled to the benefits of this Guaranty, in preference to Guarantied Obligations entitled to the benefits of this Guaranty, or if any collections are applied to Guarantied Obligations, any application to particular Guarantied Obligations;

(d) Any taking, exchange, amendment, modification, waiver, supplement, termination, subordination, compromise, release, surrender, loss, or impairment of, or any failure to protect, perfect, or preserve the value of, or any enforcement of, realization upon, or exercise of rights, or remedies under or in connection with, or any failure, omission, breach, default, delay, or wrongful action by the Agent or the Lenders, or any of them, or any other Person in connection with the enforcement of, realization upon, or exercise of rights or remedies under or in connection with, or, any other action or inaction by any of the Agent or the Lenders, or any of them, or any other Person in respect of, any direct or indirect security for any of the Guarantied Obligations. As used in this Guaranty, “direct or indirect security” for the Guarantied Obligations, and similar phrases, includes any collateral security, guaranty, suretyship, letter of credit, capital maintenance agreement, put option, subordination agreement, or other right or arrangement of any nature providing direct or indirect assurance of payment or performance of any of the Guarantied Obligations, made by or on behalf of any Person;

(e) Any merger, consolidation, liquidation, dissolution, winding-up, charter revocation, or forfeiture, or other change in, restructuring or termination of the corporate structure or existence of, the Borrower or any other Person; any bankruptcy, insolvency, reorganization or similar proceeding with respect to the Borrower or any other Person; or any action taken or election made by the Agent or the Lenders, or any of them (including but not limited to any election under Section 1111(b)(2) of the United States Bankruptcy Code), the Borrower, or any other Person in connection with any such proceeding;

(f) Any defense, setoff, or counterclaim which may at any time be available to or be asserted by the Borrower or any other person with respect to any Loan Document or any of the Guarantied Obligations, other than, and to the extent of, indefeasible payment and performance in full of the Guarantied Obligations; or any discharge by operation of law or release of the Borrower or any other Person from the performance or observance of any Loan Document or any of the Guarantied Obligations; or

(g) Any other event or circumstance, whether similar or dissimilar to the foregoing, and whether known or unknown, which might otherwise constitute a defense available to, or limit the liability of, any Guarantor, a guarantor or a surety, excepting only full, strict, and indefeasible payment and performance of the Guarantied Obligations in full.

4. Waivers, etc. Each of the Guarantors hereby waives any defense to or limitation on its obligations under this Guaranty (other than, and to the extent of, the defense of prior indefeasible payment in full of the Guarantied Obligations) arising out of or based on any event or circumstance referred to in Section 3 hereof. Without limitation and to the fullest extent permitted by applicable law, each Guarantor waives each of the following:

(a) All notices, disclosures and demand of any nature which otherwise might be required from time to time to preserve intact any rights against any Guarantor, including the following: any notice of any event or circumstance described in Section 3 hereof; any notice required by any law, regulation or order now or hereafter in effect in any jurisdiction; any notice of nonpayment, nonperformance, dishonor, or protest under any Loan Document or any of the Guarantied Obligations; any notice of the incurrence of any Guarantied Obligation; any notice of any default or any failure on the part of the Borrower or any other Person to comply with any Loan Document or any of the Guarantied Obligations or any direct or indirect security for any of the Guarantied Obligations; and any notice of any information pertaining to the business, operations, condition (financial or otherwise) or prospects of the Borrower or any other Person;

(b) Any right to any marshalling of assets, to the filing of any claim against the Borrower or any other Person in the event of any bankruptcy, insolvency, reorganization or similar proceeding, or to the exercise against the Borrower or any other Person of any other right or remedy under or in connection with any Loan Document or any of the Guarantied Obligations or any direct or indirect security for any of the Guarantied Obligations; any requirement of promptness or diligence on the part of the Agent or the Lenders, or any of them, or any other Person; any requirement to exhaust any remedies under or in connection with, or to mitigate the damages resulting from default under, any Loan Document or any of the Guarantied Obligations or any direct or indirect security for any of the Guarantied Obligations; any benefit of any statute of limitations; and any requirement of acceptance of this Guaranty or any other Loan Document, and any requirement that any Guarantor receive notice of any such acceptance;

(c) Any defense or other right arising by reason of any law now or hereafter in effect in any jurisdiction pertaining to election of remedies (including but not limited to anti-deficiency laws, “one action” laws or the like), or by reason of any election of remedies or other action or inaction by the Agent or the Lenders, or any of them (including but not limited to commencement or completion of any judicial proceeding or nonjudicial sale or other action in respect of collateral security for any of the Guarantied Obligations), which results in denial or impairment of the right of the Agent or the Lenders, or any of them, to seek a deficiency against the Borrower or any other Person or which otherwise discharges or impairs any of the Guarantied Obligations; and

(d) Any and all defenses it may now or hereafter have based on principles of suretyship, impairment of collateral, or the like.

5. Reinstatement. This Guaranty is a continuing obligation of the Guarantors and shall remain in full force and effect notwithstanding that no Guarantied Obligations may be outstanding from time to time and notwithstanding any other event or circumstance. Upon termination of all Commitments, the expiration of all Letters of Credit and indefeasible payment in full of all Guarantied Obligations, this Guaranty shall terminate; provided, however, that this Guaranty shall continue to be effective or be reinstated, as the case may be, any time any payment of any of the Guarantied Obligations is rescinded, recouped, avoided, or must otherwise be returned or released by any Lender or Agent upon or during the insolvency, bankruptcy, or reorganization of, or any similar proceeding affecting, the Borrower or for any other reason whatsoever, all as though such payment had not been made and was due and owing.

6. Subrogation. Each Guarantor waives and agrees it will not exercise any rights against Borrower or any other Guarantor arising in connection with, or any Collateral securing, the Guarantied Obligations (including rights of subrogation, contribution, and the like) until the Guarantied Obligations have been indefeasibly paid in full, and all Commitments have been terminated and all Letters of Credit have expired. If any amount shall be paid to any Guarantor by or on behalf of the Borrower or any other Guarantor by virtue of any right of subrogation, contribution, or the like, such amount shall be deemed to have been paid to such Guarantor for the benefit of, and shall be held in trust for the benefit of, the Agent and the Lenders and shall forthwith be paid to the Agent to be credited and applied upon the Guarantied Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement.

7. No Stay. Without limitation of any other provision of this Guaranty, if any declaration of default or acceleration or other exercise or condition to exercise of rights or remedies under or with respect to any Guarantied Obligation shall at any time be stayed, enjoined, or prevented for any reason (including but not limited to stay or injunction resulting from the pendency against the Borrower or any other Person of a bankruptcy, insolvency, reorganization or similar proceeding), the Guarantors agree that, for the purposes of this Guaranty and their obligations hereunder, the Guarantied Obligations shall be deemed to have been declared in default or accelerated, and such other exercise or conditions to exercise shall be deemed to have been taken or met.

8. Taxes.

(a) No Deductions. All payments made by any Guarantor under any of the Loan Documents shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto, excluding taxes imposed on the net income of any Lender and all income and franchise taxes of the United States applicable to any Lender (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as “Taxes”). If any Guarantor shall be required by law to deduct any Taxes from or in respect of any sum payable under any of the Loan Documents, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Subsection (a) such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Guarantor shall make such deductions and (iii) such Guarantor shall timely pay the full amount deducted to the relevant tax authority or other authority in accordance with applicable law.

(b) Stamp Taxes. In addition, each Guarantor agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies which arise from any payment made hereunder or from the execution, delivery, or registration of, or otherwise with respect to, any of the Loan Documents (hereinafter referred to as “Other Taxes”).

(c) Indemnification for Taxes Paid by any Lender. Each Guarantor shall indemnify each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Subsection) paid by any Lender and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty (30) days from the date a Lender makes written demand therefor.

(d) Certificate. Within thirty (30) days after the date of any payment of any Taxes by any Guarantor, such Guarantor shall furnish to each Lender, the original or a certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment by such Guarantor, such Guarantor shall, if so requested by a Lender, provide a certificate of an officer of such Guarantor to that effect.

9. Judgment Currency.

(a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due under any of the Loan Documents in any currency (the “Original Currency”) into another currency (the “Other Currency”), each Guarantor hereby agrees, to the fullest extent permitted by law, that the rate of exchange used shall be that at which in accordance with normal banking procedures each Lender could purchase the Original Currency with the Other Currency after any premium and costs of exchange on the Business Day preceding that on which final judgment is given.

(b) The obligation of each Guarantor in respect of any sum due from such Guarantor to any Lender under any of the Loan Documents shall, notwithstanding any judgment in an Other Currency, whether pursuant to a judgment or otherwise, be discharged only to the extent that, on the business day (being a day on which it is open for business at its principal office in the United States) following receipt by any Lender of any sum adjudged to be so due in such Other Currency, such Lender may in accordance with normal banking procedures purchase the Original Currency with such Other Currency. If the amount of the Original Currency so purchased is less than the sum originally due to such Lender in the Original Currency, each Guarantor agrees, as a separate obligation and notwithstanding any such judgment or payment, to indemnify such Lender against such loss.

10. Notices. Each Guarantor agrees that all notices, statements, requests, demands and other communications under this Guaranty shall be given to such Guarantor at the address set forth on a Schedule to, or in a Guarantor Joinder and Assumption Agreement given under, the Credit Agreement and in the manner provided in Section 11.5 of the Credit Agreement. The Agent and the Lenders may rely on any notice (whether or not made in a manner contemplated by this Guaranty) purportedly made by or on behalf of a Guarantor, and the Agent and the Lenders shall have no duty to verify the identity or authority of the Person giving such notice.

11. Counterparts; Telecopy Signatures. This Guaranty may be executed in any number of counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall together constitute but one and the same instrument. Each Guarantor acknowledges and agrees that a telecopy or electronic transmission to Agent or any Lender of signature pages hereof purporting to be signed on behalf of any Guarantor shall constitute effective and binding execution and delivery hereof by such Guarantor.

12. Setoff, Default Payments by Borrower.

(a) In the event that at any time any obligation of the Guarantors now or hereafter existing under this Guaranty shall have become due and payable, the Agent and the Lenders, or any of them, shall have the right from time to time, without notice to such Guarantor, to set off against and apply to such due and payable amount any obligation of any nature of any Lender or the Agent, or any subsidiary or affiliate of any Lender or Agent, to any Guarantor, including but not limited to all deposits (whether time or demand, general or special, provisionally credited or finally credited, however evidenced) now or hereafter maintained by any Guarantor with the Agent or any Lender or any IRH Provider. Such right shall be absolute and unconditional in all circumstances and, without limitation, shall exist whether or not the Agent or the Lenders, or any of them, shall have given any notice or made any demand under this Guaranty or under such obligation to the Guarantor, whether such obligation to the Guarantor is absolute or contingent, matured or unmatured (it being agreed that the Agent and the Lenders, or any of them, may deem such obligation to be then due and payable at the time of such setoff), and regardless of the existence or adequacy of any collateral, guaranty, or other direct or indirect security or right or remedy available to the Agent or any of the Lenders. The rights of the Agent and the Lenders under this Section are in addition to such other rights and remedies (including, without limitation, other rights of setoff and banker’s lien) which the Agent and the Lenders, or any of them, may have, and nothing in this Guaranty or in any other Loan Document shall be deemed a waiver of or restriction on the right of setoff or banker’s lien of the Agent and the Lenders, or any of them. Each of the Guarantors hereby agrees that, to the fullest extent permitted by law, any affiliate or subsidiary of the Agent or any of the Lenders and any holder of a participation in any obligation of any Guarantor under this Guaranty, shall have the same rights of setoff as the Agent and the Lenders as provided in this Section (regardless of whether such affiliate or participant otherwise would be deemed a creditor of the Guarantor).

(b) Upon the occurrence and during the continuation of any default under any Guarantied Obligation beyond any applicable cure or grace period, if any amount shall be paid to any Guarantor by or for the account of Borrower, such amount shall be held in trust for the benefit of each Lender and Agent and shall forthwith be paid to the Agent to be credited and applied to the Guarantied Obligations when due and payable.

13. Construction. The sections and other headings contained in this Guaranty are for reference purposes only and shall not affect interpretation of this Guaranty in any respect. This Guaranty has been fully negotiated between the applicable parties, each party having the benefit of legal counsel, and accordingly neither any doctrine of construction of guaranties or suretyships in favor of the guarantor or surety, nor any doctrine of construction of ambiguities in agreement or instruments against the party controlling the drafting thereof, shall apply to this Guaranty.

14. Successors and Assigns. This Guaranty shall be binding upon each Guarantor, its successors and assigns, and shall inure to the benefit of and be enforceable by the Agent and the Lenders, or any of them, and their successors and permitted assigns provided, however, that no Guarantor may assign or transfer any of its rights or obligations hereunder or any interest herein and any such purported assignment or transfer shall be null and void. Without limitation of the foregoing, the Agent and the Lenders, or any of them (and any successive assignee or transferee), from time to time may assign or otherwise transfer all or any portion of its rights or obligations under the Loan Documents (including all or any portion of any commitment to extend credit), or any other Guarantied Obligations, to any other person and such Guarantied Obligations (including any Guarantied Obligations resulting from extension of credit by such other Person under or in connection with the Loan Documents) shall be and remain Guarantied Obligations entitled to the benefit of this Guaranty, and to the extent of its interest in such Guarantied Obligations such other Person shall be vested with all the benefits in respect thereof granted to the Agent and the Lenders in this Guaranty or otherwise.

15. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

(a) Governing Law. This Guaranty shall be governed by, construed, and enforced in accordance with the internal laws of the State of New York, without regard to conflict of laws principles.

(b) Certain Waivers. Each Guarantor hereby irrevocably:

(i) Certain Waivers; Submission to Jurisdiction. EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA SITTING IN PHILADELPHIA COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE EASTERN DISTRICT OF PENNSYLVANIA, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH PENNSYLVANIA STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE

JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE AGENT, ANY LENDER OR THE ISSUING LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT AGAINST ANY GUARANTOR OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. EACH GUARANTOR WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO THE BORROWER AT THE ADDRESS PROVIDED IN THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH GUARANTOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE.

(ii) Waives any objection to jurisdiction and venue of any action instituted against it as provided herein and agrees not to assert any defense based on lack of jurisdiction or venue; and

(iii) WAIVES TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS GUARANTY, THE CREDIT AGREEMENT, OR ANY OTHER LOAN DOCUMENT TO THE FULLEST EXTENT PERMITTED BY LAW.

16. Severability; Modification to Conform to Law.

(a) It is the intention of the parties that this Guaranty be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to conform to such law) of any provision or provisions hereof shall not render unenforceable, or impair, the remainder hereof. If any provision in this Guaranty shall be held invalid or unenforceable in whole or in part in any jurisdiction, this Guaranty shall, as to such jurisdiction, be deemed amended to modify or delete, as necessary, the offending provision or provisions and to alter the bounds thereof in order to render it or them valid and enforceable to the maximum extent permitted by applicable law, without in any manner affecting the validity or enforceability of such provision or provisions in any other jurisdiction or the remaining provisions hereof in any jurisdiction.

(b) Without limitation of the preceding subsection (a), to the extent that applicable law (including applicable laws pertaining to fraudulent conveyance or fraudulent or preferential transfer) otherwise would render the full amount of the Guarantor’s obligations hereunder invalid, voidable, or unenforceable on account of the amount of a Guarantor’s aggregate liability under this Guaranty, then, notwithstanding any other provision of this Guaranty to the contrary, the aggregate amount of such liability shall, without any further action by the Agent or any of the Lenders or such Guarantor or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding, which (without limiting the generality of the foregoing) may be an amount which is equal to the greater of:

(i) the fair consideration actually received by such Guarantor under the terms and as a result of the Loan Documents and the value of the benefits described in Section 16(b) hereof, including (and to the extent not inconsistent with applicable federal and state laws affecting the enforceability of guaranties) distributions, commitments, and advances made to or for the benefit of such Guarantor with the proceeds of any credit extended under the Loan Documents, or

(ii) the excess of (1) the amount of the fair value of the assets of such Guarantor as of the date of this Guaranty as determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors as in effect on the date hereof, over (2) the amount of all liabilities of such Guarantor as of the date of this Guaranty, also as determined on the basis of applicable federal and state laws governing the insolvency of debtors as in effect on the date hereof.

(c) Notwithstanding anything to the contrary in this Section or elsewhere in this Guaranty, this Guaranty shall be presumptively valid and enforceable to its full extent in accordance with its terms, as if this Section (and references elsewhere in this Guaranty to enforceability to the fullest extent permitted by law) were not a part of this Guaranty, and in any related litigation the burden of proof shall be on the party asserting the invalidity or unenforceability of any provision hereof or asserting any limitation on any Guarantor’s obligations hereunder as to each element of such assertion.

17. Additional Guarantors. At any time after the initial execution and delivery of this Guaranty to the Agent and the Lenders, additional Persons may become parties to this Guaranty and thereby acquire the duties and rights of being Guarantors hereunder by executing and delivering to the Agent and the Lenders a Guarantor Joinder and Assumption Agreement pursuant to the Credit Agreement. No notice of the addition of any Guarantor shall be required to be given to any pre-existing Guarantor and each Guarantor hereby consents thereto and each pre-existing Guarantor’s obligations shall continue hereunder undiminished.

18. Joint and Several Obligations. The obligations and additional liabilities of the Guarantors under this Agreement are joint and several obligations of the Guarantors, and each Guarantor hereby waives to the full extent permitted by law any defense it may otherwise have to the payment and performance of the Obligations that its liability hereunder is limited and not joint and several. Each Guarantor acknowledges and agrees that the foregoing waivers and those set forth below serve as a material inducement to the agreement of the Agent and the Lenders to make the Loans, and that the Agent and the Lenders are relying on each specific waiver and all such waivers in entering into this Guaranty. The undertakings of each Guarantor hereunder secure the obligations of itself and the other Guarantors. The Agent and the Lenders, or any of them, may, in their sole discretion, elect to enforce this Guaranty against any Guarantor without any duty or responsibility to pursue any other Guarantor and such an election by the Agent and the Lenders, or any of them, shall not be a defense to any action the Agent and the Lenders, or any of them, may elect to take against any Guarantor. Each of the Lenders and Agent hereby reserve all rights against each Guarantor.

19. Receipt of Credit Agreement, Other Loan Documents, Benefits.

(a) Each Guarantor hereby acknowledges that it has received a copy of the Credit Agreement and the other Loan Documents and each Guarantor certifies that the representations and warranties made therein with respect to such Guarantor are true and correct. Further, each Guarantor acknowledges and agrees to perform, comply with, and be bound by all of the applicable provisions of the Credit Agreement and the other Loan Documents.

(b) Each Guarantor hereby acknowledges, represents, and warrants that it receives synergistic benefits by virtue of its affiliation with Borrower and the other Guarantors and that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that such benefits, together with the rights of contribution and subrogation that may arise in connection herewith are a reasonably equivalent exchange of value in return for providing this Guaranty.

20. Miscellaneous. (a) Generality of Certain Terms. As used in this Guaranty, the terms “hereof,” “herein,” and terms of similar import refer to this Guaranty as a whole and not to any particular term or provision; the term “including,” as used herein, is not a term of limitation and means “including without limitation.” (b) Amendments, Waivers. No amendment to or waiver of any provision of this Guaranty, and no consent to any departure by any Guarantor herefrom, shall in any event be effective unless in a writing manually signed by or on behalf of the Agent and the Lenders. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No delay or failure of the Agent or the Lenders, or any of them, in exercising any right or remedy under this Guaranty shall operate as a waiver thereof; nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies of the Agent and the Lenders under this Guaranty are cumulative and not exclusive of any other rights or remedies available hereunder, under any other agreement or instrument, by law, or otherwise. (c) Telecommunications. Each Lender and Agent shall be entitled to rely on the authority of any individual making any telecopy or telephonic notice, request, or signature without the necessity of receipt of any verification thereof. (d) Expenses. Each Guarantor unconditionally agrees to pay all costs and expenses, including reasonable attorney’s fees incurred by the Agent or any of the Lenders in enforcing this Guaranty against any Guarantor and each Guarantor shall pay and indemnify each Lender and Agent for, and hold it harmless from and against, any and all obligations, liabilities, losses, damages, costs, expenses (including disbursements and reasonable legal fees of counsel to any Lender or Agent), penalties, judgments, suits, actions, claims, and disbursements imposed on, asserted against, or incurred by any Lender or Agent (A) relating to the preparation, negotiation, execution, administration, or enforcement of or collection under this Guaranty or any document, instrument, or agreement relating to any of the Obligations, including in any bankruptcy, insolvency, or similar proceeding in any jurisdiction or political subdivision thereof; (B) relating to any amendment, modification, waiver, or consent hereunder or relating to any telecopy or telephonic transmission purporting to be by any Guarantor or Borrower; (C) in any way relating to or arising out of this Guaranty, or

any document, instrument, or agreement relating to any of the Guarantied Obligations, or any action taken or omitted to be taken by any Lender or Agent hereunder, and including those arising directly or indirectly from the violation or asserted violation by any Guarantor or Borrower or Agent or any Lender of any law, rule, regulation, judgment, order, or the like of any jurisdiction or political subdivision thereof (including those relating to environmental protection, health, labor, importing, exporting, or safety) and regardless of whether asserted by any governmental entity or any other Person. (e) Prior Understandings. This Guaranty and the Credit Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede any and all other prior and contemporaneous understandings and agreements. (f) Survival. All representations and warranties of the Guarantors made in connection with this Guaranty shall survive, and shall not be waived by, the execution and delivery of this Guaranty, any investigation by or knowledge of the Agent and the Lenders, or any of them, any extension of credit, or any other event or circumstance whatsoever.

[SIGNATURE PAGE FOLLOWS]

[SIGNATURE PAGE 1 OF 2 OF CONTINUING AGREEMENT

OF GUARANTY AND SURETYSHIP]

IN WITNESS WHEREOF, each Guarantor intending to be legally bound, has executed this Guaranty as of the date first above written with the intention that this Guaranty shall constitute a sealed instrument.

SL POWER ELECTRONICS LTD.
By:	(SEAL)
Name:
Title:
INDUSTRIAS SL, S.A. DE C.V.
By:	(SEAL)
Name:
Title:
CONDOR POWER SUPPLIES DE MEXICO, S.A. DE C.V.
By:	(SEAL)
Name:
Title:
SL XIANGHE POWER ELECTRONICS CORP.
By:	(SEAL)
Name:
Title:
SL SHANGHAI POWER ELECTRONICS CORP.
By:	(SEAL)
Name:
Title:
SL SHANGHAI INTERNATIONAL TRADING CORP.
By:	(SEAL)
Name:
Title:

[SIGNATURE PAGE 2 OF 2 OF CONTINUING AGREEMENT

OF GUARANTY AND SURETYSHIP]

CEDRO DE MEXICO, S.A. DE C.V.
By:	(SEAL)
Name:
Title:
TPE DE MEXICO, S. DE R.L. DE C.V.
By:	(SEAL)
Name:
Title:

EXHIBIT 1.1(I)(2)

INTERCOMPANY SUBORDINATION AGREEMENT

EXHIBIT 1.1(I)(2)

FORM OF

INTERCOMPANY SUBORDINATION AGREEMENT

THIS INTERCOMPANY SUBORDINATION AGREEMENT is dated as of             , 2012 and is made by and among the entities listed on the signature page hereto and each Person who hereafter becomes a Guarantor under the Credit Agreement (defined below) (subsequently joining this agreement) (each being individually referred to herein as a “Company” and collectively as the “Companies”).

WITNESSETH THAT:

WHEREAS, each capitalized term used herein shall, unless otherwise defined herein, have the meaning specified in that certain Credit Agreement dated as of even date herewith (as it may be hereafter amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) by and among SL Industries, Inc., a New Jersey corporation, SL Power Electronics Corporation, a Delaware corporation, SL Montevideo Technology, Inc., a Minnesota corporation, RFL Electronics Inc., a Delaware corporation, Teal Electronics Corporation, a California corporation, MTE Corporation, a Wisconsin corporation, SL Delaware, Inc., a Delaware corporation, SL Delaware Holdings, Inc., a Delaware corporation, Cedar Corporation, a Nevada corporation, Mex Holdings LLC, a Delaware limited liability company, SLGC Holdings, Inc., a Delaware corporation and SL Surface Technologies, Inc., a New Jersey corporation (collectively, the “Borrower”), the Guarantors now or hereafter party thereto, the Lenders now or hereafter party thereto (the “Lenders”) and PNC Bank, National Association, as agent (the “Agent”) for the Lenders; and

WHEREAS, pursuant to the Credit Agreement and the other Loan Documents referred to and defined in the Credit Agreement, the Lenders intend to make Loans to the Borrower; and

WHEREAS, the Companies are or may become indebted to each other (the Indebtedness of each of the Companies to any other Company, now existing or hereafter incurred (whether created directly or acquired by assignment or otherwise), and interest and premiums, if any, thereon and other amounts payable in respect thereof are hereinafter collectively referred to as the “Intercompany Indebtedness”); and

WHEREAS, the obligations of the Lenders to maintain the Commitments and make Loans to the Borrower from time to time are subject to the condition, among others, that the Companies subordinate the Intercompany Indebtedness to the Obligations of the Borrower or any other Company to the Agent or the Lenders pursuant to the Credit Agreement, the other Loan Documents or any Lender-Provided Interest Rate Hedge (collectively, the “Senior Debt”) in the manner set forth herein.

NOW, THEREFORE, intending to be legally bound hereby, the parties hereto covenant and agree as follows:

1. Intercompany Indebtedness subordinated to Senior Debt. The recitals set forth above are hereby incorporated by reference. All Intercompany Indebtedness shall be subordinate and subject in right of payment to the prior indefeasible payment in full of all Senior Debt pursuant to the provisions contained herein.

2. Payment Over of Proceeds Upon Dissolution, Etc. Upon any distribution of assets of any Company in the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to any such Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of any such Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any marshalling of assets and liabilities of any such Company (a Company distributing assets as set forth herein being referred to in such capacity as a “Distributing Company”), then and in any such event, the Agent shall be entitled to receive, for the benefit of the Agent and the Lenders as their respective interests may appear, indefeasible payment in full of all amounts due or to become due (whether or not an Event of Default has occurred under the terms of the Loan Documents or the Senior Debt has been declared due and payable prior to the date on which it would otherwise have become due and payable) on or in respect of any and all Senior Debt before the holder of any Intercompany Indebtedness owed by the Distributing Company is entitled to receive any payment on account of the principal of or interest on such Intercompany Indebtedness, and to that end, the Agent shall be entitled to receive, for application to the payment of the Senior Debt, any payment or distribution of any kind or character, whether in cash, property or securities, which may be payable or deliverable in respect of the Intercompany Indebtedness owed by the Distributing Company in any such case, proceeding, dissolution, liquidation or other winding up event.

3. No Commencement of Any Proceeding. Each Company agrees that, so long as the Senior Debt shall remain unpaid, it will not commence, or join with any creditor other than the Lenders and the Agent in commencing, any proceeding referred to in Section 2 hereof against any other Company which owes it any Intercompany Indebtedness.

4. Prior Payment of Senior Debt Upon Acceleration of Intercompany Indebtedness. If any portion of the Intercompany Indebtedness owed by any Company becomes or is declared due and payable before its stated maturity, then and in such event the Agent and the Lenders shall be entitled to receive indefeasible payment in full of all amounts due and to become due on or in respect of the Senior Debt (whether or not an Event of Default has occurred under the terms of the Loan Documents or the Senior Debt has been declared due and payable prior to the date on which it would otherwise have become due and payable) before the holder of any such Intercompany Indebtedness is entitled to receive any payment thereon.

5. No Payment When Senior Debt in Default. If any Event of Default shall have occurred and be continuing, or such an Event of Default or Potential Default would result from or exist after giving effect to a payment with respect to any portion of the Intercompany Indebtedness, unless the Required Lenders shall have consented to or waived the same, so long as any of the Senior Debt shall remain outstanding, no payment shall be made by any Company owing such Intercompany Indebtedness on account of principal or interest on any portion of the Intercompany Indebtedness.

6. Payment Permitted if No Default. Nothing contained in this Agreement shall prevent any of the Companies, at any time except during the pendency of any of the conditions described in Sections 2, 4 and 5, from making payments at any time of principal of or interest on any portion of the Intercompany Indebtedness, or the retention thereof by any of the Companies of any money deposited with them for the payment of or on account of the principal of or interest on the Intercompany Indebtedness.

7. Receipt of Prohibited Payments. If, notwithstanding the foregoing provisions of Sections 2, 4, 5 and 6, a Company which is owed Intercompany Indebtedness by a Distributing Company shall have received any payment or distribution of assets from the Distributing Company of any kind or character, whether in cash, property or securities, then and in such event such payment or distribution shall be held in trust for the benefit of the Agent and the Lenders as their respective interests may appear, shall be segregated from other funds and property held by such Company, and shall be forthwith paid over to the Agent in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to or held as collateral (in the case of noncash property or securities) for the payment or prepayment of the Senior Debt in accordance with the terms of the Credit Agreement.

8. Rights of Subrogation. Each Company agrees that no payment or distribution to the Agent or the Lenders pursuant to the provisions of this Agreement shall entitle it to exercise any rights of subrogation in respect thereof until the Senior Debt shall have been indefeasibly paid in full and the Commitments shall have terminated and the Letters of Credit have expired.

9. Instruments Evidencing Intercompany Indebtedness. Each Company shall cause each instrument which now or hereafter evidences all or a portion of the Intercompany Indebtedness to be conspicuously marked as follows:

“This instrument is subject to the terms of an Intercompany Subordination Agreement dated as of             , 2012 in favor of PNC BANK, NATIONAL ASSOCIATION, as Agent for the Lenders referred to therein, which Intercompany Subordination Agreement is incorporated herein by reference. Notwithstanding any contrary statement contained in the within instrument, no payment on account of the principal thereof or interest thereon shall become due or payable except in accordance with the express terms of said Intercompany Subordination Agreement.”

Each Company will further mark its books of account in such a manner as shall be effective to give proper notice of the effect of this Agreement.

10. Agreement Solely to Define Relative Rights. The purpose of this Agreement is solely to define the relative rights of the Companies, on the one hand, and the Agent and the Lenders, on the other hand. Nothing contained in this Agreement is intended to or shall impair, as between any of the Companies and their creditors other than the Agent and the Lenders, the obligation of the Companies to each other to pay the principal of and interest on the Intercompany Indebtedness as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights among the Companies and their creditors other than the Agent and the Lenders, nor shall anything herein prevent any of the Companies from exercising all remedies otherwise permitted by applicable Law upon default under any agreement pursuant to which the Intercompany Indebtedness is created, subject to the rights, if any, under this Agreement of the Agent and the Lenders to receive cash, property or securities otherwise payable or deliverable with respect to the Intercompany Indebtedness.

11. No Implied Waivers of Subordination. No right of the Agent or any Lender to enforce subordination, as herein provided, shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Company or by any act or failure to act by the Agent or any Lender, or by any non-compliance by any Company with the terms, provisions and covenants of any agreement pursuant to which the Intercompany Indebtedness is created, regardless of any knowledge thereof with which the Agent or any Lender may have or be otherwise charged. Each Company by its acceptance hereof shall agree that, so long as there is Senior Debt outstanding or Commitments in effect under the Credit Agreement, such Company shall not agree to sell, assign, pledge, encumber or otherwise dispose of, or agree to compromise, the obligations of the other Companies with respect to their Intercompany Indebtedness, other than by means of payment of such Intercompany Indebtedness according to its terms, without the prior written consent of the Agent.

Without in any way limiting the generality of the foregoing paragraph, the Agent or any of the Lenders may, at any time and from time to time, without the consent of or notice to the Companies, without incurring responsibility to the Companies and without impairing or releasing the subordination provided in this Agreement or the obligations hereunder of the Companies to the Agent and the Lenders, do any one or more of the following: (i) change the manner, place or terms of payment, or extend the time of payment, renew or alter the Senior Debt or otherwise amend or supplement the Senior Debt or the Loan Documents; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing the Senior Debt; (iii) release any person liable in any manner for the payment or collection of the Senior Debt; and (iv) exercise or refrain from exercising any rights against any of the Companies and any other person.

12. Additional Subsidiaries. The Companies covenant and agree that they shall cause Subsidiaries created or acquired after the date of this Agreement, and any other Subsidiaries required to join this Agreement pursuant to Section 8.2.9 [Subsidiaries, Partnerships and Joint Ventures] or otherwise under the Credit Agreement, to execute a Guarantor Joinder in substantially the form of Exhibit 1.1(G)(1) to the Credit Agreement, whereby such Subsidiary joins this Agreement and subordinates all Indebtedness owed to any such Subsidiary by any of the Companies or other Subsidiaries hereafter created or acquired to the Senior Debt.

13. Continuing Force and Effect. This Agreement shall continue in force for so long as any portion of the Senior Debt remains unpaid and any Commitments or Letters of Credit under the Credit Agreement remain outstanding, it being contemplated that this Agreement be of a continuing nature.

14. Modification, Amendments or Waivers. Any and all agreements amending or changing any provision of this Agreement or the rights of the Agent or the Lenders hereunder, and any and all waivers or consents to Events of Default or other departures from the due performance of the Companies hereunder, shall be made only by written agreement, waiver or consent signed by the Agent, acting on behalf of all the Lenders, with the written consent of the Required Lenders, any such agreement, waiver or consent made with such written consent being effective to bind all the Lenders.

15. Expenses. The Companies unconditionally and jointly and severally agree upon demand to pay to the Agent and the Lenders the amount of any and all out-of-pocket costs, expenses and disbursements, including reasonable fees and expenses of counsel (including the allocated costs of staff counsel) for which reimbursement is customarily obtained, which the Agent or any of the Lenders may incur in connection with (a) the administration of this Agreement, (b) the exercise or enforcement of any of the rights of the Agent or the Lenders hereunder, or (c) the failure by the Companies to perform or observe any of the provisions hereof.

16. Severability. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.

17. Governing Law. This Agreement shall be a contract under the internal laws of the State of New York and for all purposes shall be construed in accordance with the internal laws of the State of New York without giving effect to its principles of conflict of laws.

18. Successors and Assigns. This Agreement shall inure to the benefit of the Agent and the Lenders and their respective successors and assigns, and the obligations of the Companies shall be binding upon their respective successors and permitted assigns, provided, that no company may assign or transfer its rights or obligations hereunder or any interest herein and any such purported assignment or transfer shall be null and void. The duties and obligations of the Companies may not be delegated or transferred by the Companies without the written consent of the Required Lenders and any such delegation or transfer without such consent shall be null and void. Except to the extent otherwise required by the context of this Agreement, the word “Lenders” when used herein shall include, without limitation, any holder of a Note or an assignment of rights therein originally issued to a Lender under the Credit Agreement, and each such holder of a Note or assignment shall have the benefits of this Agreement to the same extent as if such holder had originally been a Lender under the Credit Agreement.

19. Joint and Several Obligations. Each of the obligations of each and every Company under this Agreement is joint and several. The Agent and the Lenders, or any of them, may, in their sole discretion, elect to enforce this Agreement against any Company without any duty or responsibility to pursue any other Company and such an election by the Agent and the Lenders, or any of them, shall not be a defense to any action the Agent and the Lenders, or any of them, may elect to take against any Company. Each of the Lenders and Agent hereby reserve all right against each Company.

20. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when executed and delivered, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument.

21. Attorneys-in-Fact. Each of the Companies hereby authorizes and empowers the Agent, at its election and in the name of either itself, for the benefit of the Agent and the Lenders as their respective interests may appear, or in the name of each such Company as is owed Intercompany Indebtedness, to execute and file proofs and documents and take any other action the Agent may deem advisable to completely protect the Agent’s and the Lenders’ interests in the Intercompany Indebtedness and their right of enforcement thereof, and to that end each of the Companies hereby irrevocably makes, constitutes and appoints the Agent, its officers, employees and agents, or any of them, with full power of substitution, as the true and lawful attorney-in-fact and agent of such Company, and with full power for such Company, and in the name, place and stead of such Company for the purpose of carrying out the provisions of this Agreement, and taking any action and executing, delivering, filing and recording any instruments which the Agent may deem necessary or advisable to accomplish the purposes hereof, which power of attorney, being given for security, is coupled with an interest and is irrevocable. Each Company hereby ratifies and confirms, and agrees to ratify and confirm, all action taken by the Agent, its officers, employees or agents pursuant to the foregoing power of attorney.

22. Application of Payments. In the event any payments are received by the Agent under the terms of this Agreement for application to the Senior Debt at any time when the Senior Debt has not been declared due and payable and prior to the date on which it would otherwise become due and payable, such payment shall constitute a voluntary prepayment of the Senior Debt for all purposes under the Credit Agreement.

23. Remedies. In the event of a breach by any of the Companies in the performance of any of the terms of this Agreement, the Agent, on behalf of the Lenders, may demand specific performance of this Agreement and seek injunctive relief and may exercise any other remedy available at law or in equity, it being recognized that the remedies of the Agent on behalf of the Lenders at law may not fully compensate the Agent on behalf of the Lenders for the damages they may suffer in the event of a breach hereof.

24. Consent to Jurisdiction; Waiver of Jury Trial. Each of the Companies hereby irrevocably consents to the non-exclusive jurisdiction of the courts of the Commonwealth of Pennsylvania sitting in Philadelphia County and of the United States District Court of the Eastern District of Pennsylvania, and any appellate court from any thereof, waives personal service of any and all process upon it and consents that all such service of process be made by certified or registered mail directed to the Companies at the addresses set forth or referred to in Section 24 hereof and service so made shall be deemed to be completed upon actual receipt thereof. Each of the Companies waives any objection to jurisdiction and venue of any action instituted against it as provided herein and agrees not to assert any defense based on lack of jurisdiction or venue, AND EACH OF THE COMPANIES WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT TO THE FULL EXTENT PERMITTED BY LAW.

Each Company hereby agrees to receive service of copies of the summons and complaint and any other process which may be served in any action or proceeding by mail or delivery of a copy of such process to any of the Companies at the Companies’ address. Each Company agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions (or any political subdivision thereof) by suit on the judgment or in any other manner provided by law.

25. EXCEPT AS PROHIBITED BY LAW, EACH COMPANY, THE AGENT AND THE LENDERS HEREBY WAIVE TRIAL BY A JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULLEST EXTENT PERMITTED BY LAW.

26. Notices. All notices, statements, requests and demands and other communications given to or made upon the Companies, the Agent or the Lenders in accordance with the provisions of this Agreement shall be given or made as provided in Section 11.5 [Notices; Effectiveness; Electronic Communications] of the Credit Agreement.

27. Rules of Construction. The rules of construction set forth in Section 1.2 [Construction] of the Credit Agreement shall apply to this Agreement.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

[SIGNATURE PAGE 1 OF 1 TO INTERCOMPANY SUBORDINATION AGREEMENT]

WITNESS the due execution hereof as of the day and year first above written.

BORROWER:

SL INDUSTRIES, INC.

By:

Name:

Title:

SL DELAWARE, INC.

By:

Name:

Title:

SL DELAWARE HOLDINGS, INC.

By:

Name:

Title:

TEAL ELECTRONICS CORPORATION

By:

Name:

Title:

RFL ELECTRONICS INC.

By:

Name:

Title:

SL MONTEVIDEO TECHNOLOGY, INC.

By:

Name:

Title:

SL SURFACE TECHNOLOGIES, INC.

By:

Name:

Title:

CEDAR CORPORATION

By:

Name:

Title:

MTE CORPORATION

By:

Name:

Title:

MEX HOLDINGS LLC

By:

Name:

Title:

SL POWER ELECTRONICS COPORATION

By:

Name:

Title:

SLGC HOLDINGS, INC.

By:

Name:

Title:

GUARANTORS:

SL POWER ELECTRONICS LTD.

By:

Name:

Title:

INDUSTRIAS SL, S.A. DE C.V.

By:

Name:

Title:

CONDOR POWER SUPPLIES DE MEXICO, S.A. DE C.V.

By:

Name:

Title:

SL XIANGHE POWER ELECTRONICS CORP.

By:

Name:

Title:

SL SHANGHAI POWER ELECTRONICS CORP.

By:

Name:

Title:

SL SHANGHAI INTERNATIONAL TRADING CORP.

By:

Name:

Title:

CEDRO DE MEXICO, S.A. DE C.V.

By:

Name:

Title:

TPE DE MEXICO, S. DE R.L. DE C.V.

By:

Name:

Title:

EXHIBIT 1.1(N)(1)

REVOLVING CREDIT NOTE

REVOLVING CREDIT NOTE

$40,000,000	Pittsburgh, Pennsylvania
	August 9, 2012

FOR VALUE RECEIVED, the undersigned, SL INDUSTRIES, INC., a New Jersey corporation and each of the entities listed as a Borrower on the signature pages hereto (herein called the “Borrower”), hereby promises to pay to the order of PNC BANK, NATIONAL ASSOCIATION (the “Lender”), the lesser of (i) the principal sum of Forty Million Dollars (US$40,000,000), or (ii) the aggregate unpaid principal balance of all Revolving Credit Loans made by the Lender to the Borrower pursuant to the Credit Agreement, dated as of August 9, 2012, among the Borrower, the Guarantors now or hereafter party thereto, the Lenders now or hereafter party thereto, and PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent (hereinafter referred to in such capacity as the “Agent”) (as amended, restated, modified, or supplemented from time to time, the “Credit Agreement”), payable by 12:00 noon on the Expiration Date, together with interest on the unpaid principal balance hereof from time to time outstanding from the date hereof at the rate or rates per annum specified by the Borrower pursuant to, or as otherwise provided in, the Credit Agreement.

Interest on the unpaid principal balance hereof from time to time outstanding from the date hereof will be payable at the times provided for in the Credit Agreement. Upon the occurrence and during the continuation of an Event of Default, the Borrower shall pay interest on the entire principal amount of the then outstanding Revolving Credit Loans evidenced by this Revolving Credit Note (this “Note”) and all other obligations due and payable to the Lender pursuant to the Credit Agreement and the other Loan Documents at a rate per annum as set forth in Section 4.3 [Interest After Default] of the Credit Agreement. Such interest rate will accrue before and after any judgment has been entered.

Subject to the provisions of the Credit Agreement, payments of both principal and interest shall be made without setoff, counterclaim, or other deduction of any nature at the office of the Agent located at Commercial Loan Operations, P.O. Box 747046, Pittsburgh, Pennsylvania 15274-7046, unless otherwise directed in writing by the holder hereof, in lawful money of the United States of America in immediately available funds.

This Note is one of the revolving credit Notes referred to in, and is entitled to the benefits of, the Credit Agreement and other Loan Documents, including the representations, warranties, covenants, conditions, security interests, and Liens contained or granted therein. The Credit Agreement among other things contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayment, in certain circumstances, on account of principal hereof prior to maturity upon the terms and conditions therein specified. The Borrower waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Credit Agreement.

This Note shall bind the Borrower and its successors and assigns, and the benefits hereof shall inure to the benefit of the Lender and its successors and assigns. All references herein to the “Borrower” and the “Lender” shall be deemed to apply to the Borrower and the Lender, respectively, and their respective successors and assigns as permitted under the Credit Agreement.

This Note and any other documents delivered in connection herewith and the rights and obligations of the parties hereto and thereto shall for all purposes be governed by and construed and enforced in accordance with the internal laws of the State of New York without giving effect to its conflicts of law principles.

All capitalized terms used herein shall, unless otherwise defined herein, have the same meanings given to such terms in the Credit Agreement.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

IN WITNESS WHEREOF, and intending to be legally bound hereby, the undersigned has executed this Note by its duly authorized officer with the intention that it constitute a sealed instrument.

BORROWERS:	SL INDUSTRIES, INC.
	By:
	Name:
	Title:
	SL DELAWARE, INC. SL DELAWARE HOLDINGS, INC. TEAL ELECTRONICS CORPORATION RFL ELECTRONICS INC. SL MONTEVIDEO TECHNOLOGY, INC. SL SURFACE TECHNOLOGIES, INC. CEDAR CORPORATION MTE CORPORATION MEX HOLDINGS LLC SL POWER ELECTRONICS CORPORATION SLGC HOLDINGS, INC.
	By:
	Name:
	Title:

EXHIBIT 2.5

LENDER JOINDER

EXHIBIT 2.5

FORM OF

LENDER JOINDER AND ASSUMPTION AGREEMENT

This Lender Joinder and Assumption Agreement (the “Joinder”) is made as of             , 20            (the “Effective Date”) by             , (the “New Commitment Provider”).

Background

Reference is made to the Credit Agreement dated as of             , 2012 among SL Industries, Inc., a New Jersey corporation, SL Power Electronics Corporation, a Delaware corporation, SL Montevideo Technology, Inc., a Minnesota corporation, RFL Electronics Inc., a Delaware corporation, Teal Electronics Corporation, a California corporation, MTE Corporation, a Wisconsin corporation, SL Delaware, Inc., a Delaware corporation, SL Delaware Holdings, Inc., a Delaware corporation, Cedar Corporation, a Nevada corporation, Mex Holdings LLC, a Delaware limited liability company, SLGC Holdings, Inc., a Delaware corporation and SL Surface Technologies, Inc., a New Jersey corporation (collectively, the “Borrower”), the Lenders now or hereafter party thereto and PNC BANK, NATIONAL ASSOCIATION, as agent (the “Agent”) (as the same has been and may hereafter be modified, supplemented, amended or restated the “Agreement”). Capitalized terms defined in the Agreement are used herein as defined therein.

Agreement

In consideration of the Lenders’ permitting the New Commitment Provider to become a Lender under the Agreement, the New Commitment Provider agrees that effective as of the Effective Date it shall become, and shall be deemed to be, a Lender under the Agreement and each of the other Loan Documents and agrees that from the Effective Date and so long as the New Commitment Provider remains a party to the Agreement, such New Commitment Provider shall assume the obligations of a Lender under and perform, comply with and be bound by each of the provisions of the Agreement which are stated to apply to a Lender and shall be entitled to the benefits, rights and remedies set forth therein and in each of the other Loan Documents. The New Commitment Provider hereby acknowledges that it has heretofore received a true and correct copy of the Agreement (including any modifications thereof or supplements or waivers thereto) as in effect on the Effective Date and the executed original of its Note dated the Effective Date issued by the Borrower under the Agreement in the face amount of $            .

The Commitments and Ratable Shares of the New Commitment Provider and each of the other Lenders are as set forth on Schedule 1.1(B) to the Agreement. Schedule 1.1(B) to the Agreement is being amended and restated effective as of the Effective Date hereof to read as set forth on Schedule 1.1(B) hereto. Schedule 1 hereto lists as of the date hereof the amount of Loans under each outstanding Borrowing Tranche. Notwithstanding the foregoing on the date hereof, the Borrower shall repay all outstanding Loans to which either the Base Rate Option or the LIBOR RateOption applies and simultaneously reborrow a like amount of Loans under each such Interest Rate Option from the Lenders (including the New Commitment Provider) according to the Ratable Shares set forth on attached Schedule 1.1(B) and shall be subject to breakage fees and other indemnities provided in Section 5.10 [Indemnity].

The New Commitment Provider is executing and delivering this Joinder as of the Effective Date and acknowledges that it shall: (A) share ratably in all Loans subject to the Base Rate Option borrowed by the Borrower on and after the Effective Date; and (B) participate in all new Loans subject to the LIBOR Option borrowed by the Borrower on and after the Effective Date according to its Ratable Share.

[SIGNATURE PAGE FOLLOWS]

[SIGNATURE PAGE TO LENDER JOINDER AND ASSUMPTION AGREEMENT]

IN WITNESS WHEREOF, the New Commitment Provider has duly executed and delivered this Joinder as of the Effective Date.

[NEW COMMITMENT PROVIDER]

By:

Name:  

Title:

[ACKNOWLEDGEMENT TO LENDER JOINDER AND ASSUMPTION AGREEMENT]

ACKNOWLEDGED:

PNC BANK, NATIONAL ASSOCIATION,

as Agent

By:

Name:

Title:

BORROWER:

SL INDUSTRIES, INC.

By:

Name:

Title:

SL DELAWARE, INC.

By:

Name:

Title:

SL DELAWARE HOLDINGS, INC.

By:

Name:

Title:

TEAL ELECTRONICS CORPORATION

By:

Name:

Title:

RFL ELECTRONICS INC.

By:

Name:

Title:

SL MONTEVIDEO TECHNOLOGY, INC.

By:

Name:

Title:

SL SURFACE TECHNOLOGIES, INC.

By:

Name:

Title:

CEDAR CORPORATION

By:

Name:

Title:

MTE CORPORATION

By:

Name:

Title:

MEX HOLDINGS LLC

By:

Name:

Title:

SL POWER ELECTRONICS COPORATION

By:

Name:

Title:

SLGC HOLDINGS, INC.

By:

Name:

Title:

SCHEDULE 1.1(B)

COMMITMENTS OF LENDERS

Attached Schedule 1.1(B)

SCHEDULE 1

OUTSTANDING TRANCHES

EXHIBIT 2.5.1

LOAN REQUEST

EXHIBIT 2.5.1

FORM OF

LOAN REQUEST

TO:	PNC Bank, National Association, as Agent PNC Harborside Commercial Loan Administration C3-C411-04-1 One East Pratt Street, 4th Floor W Baltimore MD 21202 Telephone No.: 410-237-5283 Telecopier No.: 410-237-5256 Attention: Nancy Norris, Loan Support Analyst II, Baltimore Hub
FROM:
RE:	Credit Agreement (as it may be amended, restated, modified or supplemented, the “Agreement”) dated as of             , 2012 by and among SL Industries, Inc., a New Jersey corporation, SL Power Electronics Corporation, a Delaware corporation, SL Montevideo Technology, Inc., a Minnesota corporation, RFL Electronics Inc., a Delaware corporation, Teal Electronics Corporation, a California corporation, MTE Corporation, a Wisconsin corporation, SL Delaware, Inc., a Delaware corporation, SL Delaware Holdings, Inc., a Delaware corporation, Cedar Corporation, a Nevada corporation, Mex Holdings LLC, a Delaware limited liability company, SLGC Holdings, Inc., a Delaware corporation and SL Surface Technologies, Inc., a New Jersey corporation, the Guarantors party thereto, the Lenders party thereto and PNC Bank, National Association, as Agent for the Lenders (the “Agent”)

Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them by the Agreement.

A. Pursuant to Section 2.5 of the Agreement, the undersigned Borrower irrevocably requests [check one line under 1(a) below and fill in blank space next to the line as appropriate]:

1.(a)	—	A new Revolving Credit Loan OR
	—	Renewal of the LIBOR Rate Option applicable to an outstanding Revolving Credit Loan OR

— Conversion of the Base Rate Option applicable to an outstanding Revolving Credit Loan originally made on                     to a Loan to which the LIBOR Rate Option applies, OR

— Conversion of the LIBOR Rate Option applicable to an outstanding Revolving Credit Loan originally made on             ,         to a Loan to which the Base Rate Option applies.

SUCH NEW, RENEWED OR CONVERTED LOAN SHALL BEAR INTEREST:

[Check one line under 1(b) below and fill in blank spaces in line next to line]:

1.(b)(i)—	Under the Base Rate Option. Such Loan shall have a Borrowing Date of             ,         (which date shall be (i) be the same Business Day as the Business Day of receipt by the Agent by 10:00 a.m. of this Loan Request for making a new Revolving Credit Loan to which the Base Rate Option applies, or (ii) the last day of the preceding LIBOR Rate Interest Period if a Loan to which the LIBOR Rate Option applies is being converted to a Loan to which the Base Rate Option applies).
OR
(ii)—	Under the LIBOR Rate Option. Such Loan shall have a Borrowing Date of                     (which date shall be (i) three (3) Business Days subsequent to the Business Day of receipt by the Agent by 10:00 a.m. of this Loan Request for making a new Revolving Credit Loan to which the LIBOR Rate Option applies, renewing a Loan to which the LIBOR Rate Option applies, or converting a Loan to which the Base Rate Option applies to a Loan to which the LIBOR Rate Option applies, or (ii) the same Business Day as the last day of the preceding Interest Period if a Loan to which the LIBOR Rate Option applies is being convert to a Loan to which the Base Rate Option applies).
2.	Such Loan is in the principal amount of U.S. $            or the principal amount to be renewed or converted is U.S. $             [ for Revolving Credit Loans under Section 2.5 not to be less than $500,000 and in increments of $100,000 if in excess of $500,000 for each Borrowing Tranche to which the LIBOR Rate Option applies and not less than the lesser of $100,000 and in increments of $10,000 if in excess of $100,000 for each Borrowing Tranche to which the Base Rate Option applies]
3.	[Complete blank below if the Borrower is selecting the LIBOR Rate Option]: Such Loan shall have an Interest Period of one, two, three, or six Months.

B. As of the date hereof and the date of making of the above-requested Loan (and after giving effect thereto): the Borrower has performed and complied with all covenants and conditions of the Agreement; all of Borrower’s representations and warranties therein are true and correct (except representations and warranties which expressly relate solely to an earlier date or time, which representations and warranties were true and correct on and as of the specific dates or times referred to therein); no Event of Default or Potential Default has occurred and is continuing or shall exist; and the making of such Loan shall not contravene any Law applicable to the Borrower; the making of any Revolving Credit Loan shall not cause the aggregate Revolving Facility Usage to exceed the Revolving Credit Commitment.

[SIGNATURE PAGE FOLLOWS]

[SIGNATURE PAGE 1 OF 1 TO LOAN REQUEST]

The undersigned certifies to the Agent as to the accuracy of the foregoing.

Date:                     , 20         

SL INDUSTRIES, INC.

By:

Name:

Title:

SL DELAWARE, INC.

By:

Name:

Title:

SL DELAWARE HOLDINGS, INC.

By:

Name:

Title:

TEAL ELECTRONICS CORPORATION

By:

Name:

Title:

RFL ELECTRONICS INC.

By:

Name:

Title:

SL MONTEVIDEO TECHNOLOGY, INC.

By:

Name:

Title:

SL SURFACE TECHNOLOGIES, INC.

By:

Name:

Title:

CEDAR CORPORATION

By:

Name:

Title:

MTE CORPORATION

By:

Name:

Title:

MEX HOLDINGS LLC

By:

Name:

Title:

SL POWER ELECTRONICS CORPORATION

By:

Name:

Title:

SLGC HOLDINGS, INC.

By:

Name:

Title:

EXHIBIT 5.9.7(A)

[FORM OF]

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Credit Agreement dated as of [            ] (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among [            ], and each lender from time to time party thereto.

Pursuant to the provisions of Section 5.9 [Taxes] of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

[NAME OF LENDER]
By:
	Name: Title:

Date:             , 20[     ]

EXHIBIT 5.9.7(B)

[FORM OF]

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Credit Agreement dated as of [            ] (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among [            ], and each lender from time to time party thereto.

Pursuant to the provisions of Section 5.9 [Taxes] of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code].

The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

[NAME OF PARTICIPANT]
By:
	Name: Title:

Date:             , 20[     ]

EXHIBIT 5.9.7(C)

[FORM OF]

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Credit Agreement dated as of [            ] (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among [            ], and each lender from time to time party thereto.

Pursuant to the provisions of Section 5.9 [Taxes] of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

[NAME OF PARTICIPANT]
By:
	Name: Title:

Date:             , 20[     ]

EXHIBIT 5.9.7(D)

[FORM OF]

U.S. TAX COMPLIANCE CERTIFICATE

(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)

Reference is hereby made to the Credit Agreement dated as of [            ] (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among [            ], and each lender from time to time party thereto.

Pursuant to the provisions of Section 5.9 [Taxes] of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.

The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

[NAME OF LENDER]
By:
	Name: Title:

Date:             , 20[    ]

EXHIBIT 8.3.3

QUARTERLY COMPLIANCE CERTIFICATE

PNC Bank, National Association, as

            Administrative Agent

Page 2

EXHIBIT 8.3.3

FORM OF

QUARTERLY COMPLIANCE CERTIFICATE

This certificate is delivered pursuant to Section 8.3.3 of that certain Credit Agreement dated as of             , 20            (the “Credit Agreement”) by and among SL Industries, Inc. and certain affiliated entities listed therein as Borrowers (“Borrowers”), the Lenders from time to time party thereto (the “Lenders”), the Guarantors from time to time party thereto (the “Guarantors” and collectively with Borrowers, “Loan Parties”) and PNC Bank, National Association, as Administrative Agent for the Lenders (the “Administrative Agent”). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein with the same meanings.

The undersigned officer,             , the             [President/Chief Executive Officer/Chief Financial Officer] of the Parent Borrower and the [President/Chief Executive Officer/Chief Financial Officer/Secretary/Assistant Secretary] of the Borrowers (other than Parent Borrower), does hereby certify as of the quarter/year ended             , 20            (the “Report Date”), as follows:

1. Indebtedness. [Section 8.2.1].

(A) As of the Report Date, the aggregate amount of Indebtedness secured by Purchase Money Security Interests incurred by each of the Loan Parties and each of their respective Subsidiaries is $            , which amount is in compliance with Section 8.2.1(iii) of the Credit Agreement.

(B) As of the Report Date, each of the Loan Parties and each of their respective Subsidiaries has entered into the following Interest Rate Hedges and each of the following has been approved by the Administrative Agent:

(C) As of the Report Date, the amount of other unsecured Indebtedness is $            which does not exceed other amounts permitted by Section 8.2.1(vii).

2. Loans and Investments. [Section 8.2.4]. As of the Report Date, Loan Parties are in compliance with Section 8.2.4 of the Credit Agreement.

PNC Bank, National Association, as

            Administrative Agent

Page 3

3. Capital Expenditures. [Section 8.2.14]. As of the Report Date, the aggregate amount of payments made by each Loan Party and each of their Subsidiaries on account of the purchase or lease of any assets which if purchased would constitute fixed assets or which if leased would constitute a capitalized lease, is $            , which amount does not exceed $7,000,000, as required by Section 8.2.14 of the Credit Agreement.

4. Fixed Charge Coverage Ratio. [Section 8.2.15]. As of the Report Date, the Fixed Charge Coverage Ratio is             , which is not less than the Fixed Charge Coverage Ratio required to be maintained in Section 8.2.15 of the Credit Agreement.

5. Leverage Ratio. [Section 8.2.16]. As of the Report Date, the Leverage Ratio is             , which is not greater than 3.25: 1.0, as required by Section 8.2.16 of the Credit Agreement.

6. Representations, Warranties and Covenants. The representations and warranties contained in Section 6 of the Credit Agreement and in the other Loan Documents are true and correct on and as of the date of this certificate with the same effect as though such representations and warranties had been made on the date hereof, and each of the Borrower and the other Loan Parties has performed and complied with all covenants and conditions of the Credit Agreement and the other Loan Documents.

7. Event of Default or Potential Default. No Event of Default or Potential Default has occurred and is continuing or exists as of the date hereof.

[SIGNATURES FOLLOW]

PNC Bank, National Association, as

            Administrative Agent

Page 1

SIGNATURE PAGE 1 OF 1 TO

QUARTERLY COMPLIANCE CERTIFICATE

IN WITNESS WHEREOF, the undersigned has executed this Certificate this             day of             , 20            .

SL INDUSTRIES, INC.

By:

Name:

Title:

SL DELAWARE, INC.

SL DELAWARE HOLDINGS, INC.

TEAL ELECTRONICS CORPORATION

RFL ELECTRONICS INC.

SL MONTEVIDEO TECHNOLOGY, INC.

SL SURFACE TECHNOLOGIES, INC.

CEDAR CORPORATION

MTE CORPORATION

MEX HOLDINGS LLC

SL POWER ELECTRONICS CORPORATION

SLGC HOLDINGS, INC.

By:

Name:

Title:

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William T. Fejes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SL Industries, Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 14, 2012

By:	/s/ William T. Fejes
	Name: William T. Fejes
	Title:   President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Louis J. Belardi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SL Industries, Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 14, 2012

By:	/s/ Louis J. Belardi
	Name:	Louis J. Belardi
	Title:	Chief Financial Officer, Treasurer and Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of SL Industries, Inc., (the “Company”) on Form 10-Q for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William T. Fejes, the Chief Executive Officer of the Company, and I, Louis J. Belardi, the Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief that:

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.

August 14, 2012	/s/ William T. Fejes
	Name:	William T. Fejes
	Title:	President and Chief Executive Officer
August 14, 2012	/s/ Louis J. Belardi
	Name:	Louis J. Belardi
	Title:	Chief Financial Officer, Treasurer and Secretary

This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Inventories (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Inventories
Raw materials	$ 16,420,000	$ 16,219,000
Work in process	5,394,000	4,161,000
Finished goods	4,666,000	4,494,000
Gross Inventory	26,480,000	24,874,000
Less: allowances	(2,664,000)	(2,275,000)
Inventories, net	$ 23,816,000	$ 22,599,000

XML

Commitments and Contingencies (Details Textual) (USD $)			6 Months Ended			6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Operable Unit 1 (OU-1) [Member]	Jun. 30, 2012 Operable Unit 2 (OU-2) [Member]	Jun. 30, 2012 Camden Site [Member]	Jun. 30, 2012 Montevideo Minn [Member]	Jun. 30, 2012 Wayne Site [Member]	Jun. 30, 2012 Pennsauken Site (OU-1 and OU-2) [Member]
Commitments and Contingencies (Textual) [Abstract]
The estimated cost of the EPA selected remedy			$ 17,600,000	$ 20,700,000
Estimated time to complete EPA selected remedy, low estimate			5 years
Estimated time to complete selected EPA remedy				7 years
Estimated time to complete EPA selected remedy, high estimate			10 years
Estimated remediation costs, low estimate								20,118,000
Estimated remediation costs, high estimate								31,448,000
Total environmental accruals	23,347,000	23,209,000			2,088,000		620,000
Environmental accrual, long-term portion	19,033,000	18,533,000
Remediation costs component of continuing operations costs						82,000
Estimated expenditures for the remainder of the year					$ 700,000

XML

Goodwill and Intangible Assets (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Feb. 27, 2012	Dec. 31, 2011
Goodwill and Intangible Assets (Textual) [Abstract]
Purchase price for assets purchased					$ 1,050,000
Amount of earn-out liability					294,000
SLMTI recorded acquisition costs			422,000
Purchase price allocated to inventories	670,000		670,000
Purchase price allocated to equipment	202,000		202,000
Purchase price allocated to other current assets	10,000		10,000
Impairment charges warranted						0
Amortization expense for intangible assets	206,000	229,000	401,000	459,000
Amortization expense for software	41,000	42,000	79,000	78,000
Customer Relationships [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Purchase price allocated to other intangible assets	$ 168,000		$ 168,000
Estimated useful lives of intangible assets acquired			5 years
Patents [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired			20 years
Minimum [Member] | Licensing Fees [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired	5 years
Minimum [Member] | Customer Relationships [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired	5 years
Minimum [Member] | Patents [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired	5 years
Minimum [Member] | Developed technology [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired	5 years
Maximum [Member] | Licensing Fees [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired	10 years
Maximum [Member] | Customer Relationships [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired	8 years
Maximum [Member] | Patents [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired	20 years
Maximum [Member] | Developed technology [Member]
Goodwill and Intangible Assets (Textual) [Abstract]
Estimated useful lives of intangible assets acquired	6 years

XML

Segment Information (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net Sales
Net sales	$ 48,899,000	$ 56,266,000	$ 98,239,000	$ 108,860,000
Income from operations
Income from operations	2,345,000	5,614,000	4,717,000	10,653,000
SLPE [Member]
Net Sales
Net sales	18,824,000	22,581,000	37,167,000	44,306,000
Income from operations
Income from operations	479,000	2,055,000	268,000	4,370,000
High Power Group [Member]
Net Sales
Net sales	15,896,000	18,151,000	31,471,000	34,886,000
Income from operations
Income from operations	1,585,000	2,393,000	2,950,000	4,498,000
SL-MTI [Member]
Net Sales
Net sales	9,077,000	9,310,000	18,676,000	18,418,000
Income from operations
Income from operations	1,441,000	1,641,000	3,144,000	3,251,000
RFL [Member]
Net Sales
Net sales	5,102,000	6,224,000	10,925,000	11,250,000
Income from operations
Income from operations	578,000	895,000	1,636,000	1,333,000
Other [Member]
Income from operations
Income from operations	$ (1,738,000)	$ (1,370,000)	$ (3,281,000)	$ (2,799,000)

XML

Goodwill and Intangible Assets (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Amortization expense for intangible assets subject to amortization
2012	$ 759
2013	439
2014	401
2015	58
2016	$ 39

XML

Accrued Liabilities - Other (Tables)

6 Months Ended

Jun. 30, 2012

Accrued Liabilities Other [Abstract]

Accrued Liabilities - Other

	June 30,		December 31,
	2012		2011
	(in thousands)
Taxes (other than income) and insurance	$	400	$	332
Commissions		589		775
Litigation and legal fees		295		97
Other professional fees		400		519
Environmental		4,314		4,676
Warranty		896		1,318
Deferred revenue		170		101
Acquisition earn-out, current		179		—
Other (1)		6,346		1,745
Accrued liabilities—other	$	13,589	$	9,563

⁽¹⁾ The balance at June 30, 2012, includes the aggregate purchase price paid by the Company in connection with the Tender Offer of $4,147,000, excluding transaction costs. The total purchase price was recorded in other accrued liabilities since the expiration date of the Tender Offer was June 27, 2012 but payment was not made until July 5, 2012 according to the terms of the Tender offer (see Note 19 for additional information).

Summary of activity in accrued warranty and service liabilities

	Six Months Ended
	June 30, 2012
	(in thousands)
Liability, beginning of year	$	1,318
Expense for new warranties issued		441
Accruals related to preexisting warranties (1)		(274	)
Warranty claims		(589	)
Liability, end of period	$	896

⁽¹⁾  Includes adjustments related to changes in estimates.

XML

Segment Information (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012 Segment	Dec. 31, 2011
Goodwill and other intangible assets, net
Goodwill and other intangible assets, net	$ 25,762	$ 25,967
Segment Information (Textual) [Abstract]
Number of business segments	4
SLPE [Member]
Goodwill and other intangible assets, net
Goodwill and other intangible assets, net	4,624	4,733
High Power Group [Member]
Goodwill and other intangible assets, net
Goodwill and other intangible assets, net	15,595	15,820
SL-MTI [Member]
Goodwill and other intangible assets, net
Goodwill and other intangible assets, net	157
RFL [Member]
Goodwill and other intangible assets, net
Goodwill and other intangible assets, net	$ 5,386	$ 5,414

XML

Shareholders Equity

6 Months Ended

Jun. 30, 2012

Shareholders' Equity [Abstract]

Shareholders Equity

19. Shareholders’ Equity

On November 16, 2010, the Board of Directors authorized a plan that allows for the repurchase up to an aggregate of 470,000 shares of the Company’s outstanding common stock (the “2010 Repurchase Plan”). Any repurchases pursuant to the 2010 Repurchase Plan would be made in the open market or in negotiated transactions. During the first six months of 2012, the Company purchased approximately 140,000 shares of Company stock at an average price of $17.59 a share. As a result, as of June 30, 2012, approximately 330,000 shares remained available for purchase under the 2010 Repurchase Plan.

On May 30, 2012, the Company announced a modified “Dutch Auction” Tender Offer to purchase up to $10 million of its common shares (the “Tender Offer”). The Tender Offer expired on June 27, 2012. Under the terms of the Tender Offer, the Company’s shareholders had the option of tendering all or a portion of the Company’s common stock that they owned (1) at a price of not less than $12.00 and not greater than $13.50, in increments of $0.25 per share, or (2) without specifying a purchase price, in which case the common stock that they owned would have been purchased at the purchase price determined in accordance with the Tender Offer. All common stock purchased by the Company were purchased at the same price.

The Company accepted for purchase approximately 307,000 shares of its common stock at a purchase price of $13.50 per share. These shares represented approximately 6.9% of the total common stock outstanding as of June 27, 2012 prior to the purchase of shares pursuant to the Tender Offer. With the completion of the Tender Offer, the Company had approximately 4,121,000 shares of common stock outstanding at that time. The aggregate purchase price paid by the Company in connection with the Tender Offer was $4,147,000 excluding transaction costs. The total purchase price was recorded in other accrued liabilities since the expiration date of the Tender Offer was June 27, 2012 but payment was not made until July 5, 2012 according to the terms of the Tender Offer. The Company paid for the Tender Offer on July 5, 2012, with available cash on hand.

XML

Accrued Liabilities - Other (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Accrued Liabilities - Other
Taxes (other than income) and insurance	$ 400,000	$ 332,000
Commissions	589,000	775,000
Litigation and legal fees	295,000	97,000
Other professional fees	400,000	519,000
Environmental	4,314,000	4,676,000
Warranty	896,000	1,318,000
Deferred revenue	170,000	101,000
Acquisition earn-out, current	179,000
Other	6,346,000	1,745,000
Accrued liabilities - other	$ 13,589,000	$ 9,563,000

XML

Stock-Based Compensation (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Option activity under the principal option plans
Outstanding Options, Beginning Balance	148
Weighted Average Exercise Price, Outstanding Options, Beginning Balance	$ 12.17
Outstanding Options, Weighted Average Remaining Life, Beginning Balance	4 years 11 months 12 days
Outstanding Options, Aggregate Intrinsic Value, Beginning Balance	$ 608
Outstanding Options, Granted
Outstanding Options, Weighted Average Exercise Price, Granted
Outstanding Options, Exercised
Outstanding Options, Weighted Average Exercise Price, Exercised
Outstanding Options, Forfeited
Outstanding Options, Weighted Average Exercise Price, Forfeited
Outstanding Options, Expired
Outstanding Options, Weighted Average Exercise Price, Expired
Outstanding Options, Ending Balance	148
Weighted Average Exercise Price, Outstanding Options, Ending Balance	$ 12.17
Outstanding Options, Weighted Average Remaining Life, Ending Balance	4 years 5 months 12 days
Outstanding Options, Aggregate Intrinsic Value, Ending Balance	222
Outstanding Options, Exercisable as of June 30, 2012	85
Outstanding Options, Weighted Average Exercise Price, Exercisable	$ 11.56
Outstanding Options, Exercisable, Weighted average remaining contractual term	3 years 11 months 16 days
Outstanding Options, Aggregate Intrinsic Value, Exercisable	$ 163

XML

Derivative Instruments and Hedging Activities (Tables)

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Notional values of the Company's derivative financial instruments

Product	Number of Instruments		Notional
			(in thousands)
Mexican Peso (MXN) Forward Contracts		9		MXN 74,000
Chinese Yuan (CNH) Forward Contracts		9		CNH 73,000

Gain or loss recognized on foreign currency forward contracts

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in  Income on Derivative	Amount of Gain (Loss)  Recognized in Income on Derivative
		(in thousands)
Foreign Exchange Contracts	Other gain (loss), net	$	(170	)

XML

Accrued Liabilities - Other (Details Textual) (USD $)	Jun. 30, 2012
Accrued liabilities other (Textual) [Abstract]
Accrued tender offer cost excluding transaction cost	$ 4,147,000

XML

Fair Value Measurement and Financial Instruments (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Liabilities
Derivative financial instruments	$ 170
Fair Value, Inputs, Level 1 [Member]
Liabilities
Derivative financial instruments	0
Fair Value, Inputs, Level 2 [Member]
Liabilities
Derivative financial instruments	170
Fair Value, Inputs, Level 3 [Member]
Liabilities
Derivative financial instruments	$ 0

XML

Goodwill and Intangible Assets (Details 2) (USD $)	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Changes in goodwill balances by segment
Goodwill	$ 22,735,000	$ 22,738,000
Translation Adjustment	(3,000)
SLPE [Member]
Changes in goodwill balances by segment
Goodwill	4,242,000	4,245,000
Translation Adjustment	(3,000)
MTE Corporation [Member] | High Power Group [Member]
Changes in goodwill balances by segment
Goodwill	8,189,000	8,189,000
TEAL Electronics Corp. [Member] | High Power Group [Member]
Changes in goodwill balances by segment
Goodwill	5,055,000	5,055,000
RFL [Member]
Changes in goodwill balances by segment
Goodwill	$ 5,249,000	$ 5,249,000

XML

Inventories

6 Months Ended

Jun. 30, 2012

Inventories [Abstract]

Inventories

3. Inventories

Inventories consist of the following:

	June 30,			December 31,
	2012			2011 (1)
	(in thousands)
Raw materials	$	16,420		$	16,219
Work in process		5,394			4,161
Finished goods		4,666			4,494
Gross inventory		26,480			24,874
Less: allowances		(2,664	)		(2,275	)
Inventories, net	$	23,816		$	22,599

⁽¹⁾  Prior year reclassification for comparative purposes.

XML

Derivative Instruments and Hedging Activities (Details) (Not Designated as Hedging Instrument [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012 Instrument
Mexican Peso (MXN) Forward Contracts [Member]
Foreign Currency Forward Contracts
Number of Foreign Currency Forward Contracts Held	9
Notional Amount of Foreign Currency Forward Contracts	$ 74,000
Chinese Yuan (CNH) Forward Contracts [Member]
Foreign Currency Forward Contracts
Number of Foreign Currency Forward Contracts Held	9
Notional Amount of Foreign Currency Forward Contracts	$ 73,000

XML

Stock-Based Compensation (Details Textual) (USD $)	3 Months Ended		6 Months Ended			6 Months Ended	12 Months Ended			3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Jun. 30, 2012 Incentive Stock Plan (2008 plan) [Member]	Dec. 31, 2010 Incentive Stock Plan (2008 plan) [Member]	Dec. 31, 2008 Incentive Stock Plan (2008 plan) [Member]	Jun. 08, 2011 Incentive Stock Plan (2008 plan) [Member]	Jun. 30, 2012 Incentive Stock Plan (2008 plan) [Member] Director Restricted Stock [Member]	Jun. 30, 2012 Incentive Stock Plan (2008 plan) [Member] Director Restricted Stock [Member]	Jun. 30, 2012 2011 Long Term Incentive Plan [Member] Restricted Stock Units (RSUs) [Member]	Jun. 30, 2012 2011 Long Term Incentive Plan [Member] Restricted Stock Units (RSUs) [Member]	Jun. 30, 2011 2011 Long Term Incentive Plan [Member] Restricted Stock Units (RSUs) [Member]	Jun. 30, 2012 2012 Long Term Incentive Plan [Member] Restricted Stock Units (RSUs) [Member]	Jun. 30, 2012 2012 Long Term Incentive Plan [Member] Restricted Stock Units (RSUs) [Member]	Jun. 30, 2012 Director Plan [Member]	Mar. 31, 2011 2008 Incentive Stock Plan [Member]	Jun. 30, 2012 2008 Incentive Stock Plan [Member]	Jun. 30, 2011 2008 Incentive Stock Plan [Member]	May 14, 2008 2008 Incentive Stock Plan [Member]
Stock-Based Compensation (Textual) [Abstract]
Stock-based compensation cost, net of tax	$ 385,000	$ 61,000	$ 477,000	$ 106,000
Stock-based compensation cost, gross	595,000	99,000	744,000	173,000						431,000	431,000	40,000	78,000		43,000	71,000
Maturity of non-employee director nonqualified stock option plan																	Feb. 28, 2013
Common stock subject to the Incentive Stock Plan (2008)									450,000												315,000
Company granted incentive options to select executives and key employees under the 2008 Plan						0	160,000	155,000											0
Weighted-average price of these restricted stock grants
Shares Vested on Date of Grant							7,500
All stock options that were issued vest over a three year period except for one grant							15,000
Maximum number of achievable RSUs												36,000	36,000		55,000	55,000
Options outstanding	148,000		148,000		148,000												13,000		135,000
Options granted contractual term																			10 years
Aggregate exercise price exercised by option holders - principal option plans																			0	465,000
Stock options that were forfeited in connection with the departure of a certain executive																		5,000
Number of restricted shares awarded to each director											3,000
Number of restricted shares awarded to the Chairman										10,000	10,000
Weighted average price of restricted stock											$ 19.57			$ 23.00		$ 18.00
Total unrecognized compensation cost related to restricted stock units												242,000	242,000		505,000	505,000
Restricted stock units vesting period														3 years		3 years
Vest period for options issued							3 years	3 years
Stock options cancelled during 2010							135,000
Grant Date										Apr. 02, 2012	Apr. 02, 2012	Jun. 09, 2011	Jun. 09, 2011		Feb. 17, 2012	Feb. 17, 2012
Stock-Based Compensation (Additional Textual) [Abstract]
Weighted-average period of total unrecognized compensation cost related to stock options			1 year 1 month 6 days
Total unrecognized compensation cost related to stock options	362,000		362,000
Options exercised			0	52,000
Proceeds from stock options exercised				465,000
Tax benefit realized for tax deduction from option exercises of the share-based payment				$ 200,000

XML

Inventories (Tables)

6 Months Ended

Jun. 30, 2012

Inventories [Abstract]

Inventories

	June 30,			December 31,
	2012			2011 (1)
	(in thousands)
Raw materials	$	16,420		$	16,219
Work in process		5,394			4,161
Finished goods		4,666			4,494
Gross inventory		26,480			24,874
Less: allowances		(2,664	)		(2,275	)
Inventories, net	$	23,816		$	22,599

⁽¹⁾  Prior year reclassification for comparative purposes.

XML

Receivables (Tables)

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

Receivables

	June 30,			December 31,
	2012			2011
	(in thousands)
Trade receivables	$	27,897		$	30,447
Less: allowance for doubtful accounts		(599	)		(603	)
Trade receivables, net		27,298			29,844
Recoverable income taxes		7			202
Other		418			1,095
Receivables, net	$	27,723		$	31,141

XML

Segment Information (Details 1) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Total assets by segment
Total assets	$ 112,487,000	$ 111,226,000
SLPE [Member]
Total assets by segment
Total assets	35,800,000	39,205,000
High Power Group [Member]
Total assets by segment
Total assets	30,646,000	29,639,000
SL-MTI [Member]
Total assets by segment
Total assets	14,450,000	11,505,000
RFL [Member]
Total assets by segment
Total assets	13,099,000	13,973,000
Other [Member]
Total assets by segment
Total assets	$ 18,492,000	$ 16,904,000

XML

Income Tax (Details Textual) (USD $)	6 Months Ended				6 Months Ended			3 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Jun. 30, 2012 Research Tax Credit Carry forward [Member]	Jun. 30, 2012 Foreign tax credit carry forward [Member]	Jun. 30, 2012 Research definite carry forward [Member]	Jun. 30, 2012 State and Local Jurisdiction [Member]	Jun. 30, 2011 Foreign Tax Authority [Member]	Jun. 30, 2011 Foreign Tax Authority [Member] Elektro-Metall Export GmbH [Member]	Jun. 30, 2012 Domestic Tax Authority [Member]
Income Tax (Textual) [Abstract]
Effective income tax rate from continuing operations	36.00%	32.00%
Gross unrecognized tax benefits, excluding interest and penalties	$ 762,000		$ 722,000
Examination by IRS	The Company has been examined by the Internal Revenue Service (the “IRS”) for periods up to and including the calendar year 2004
Gross unrecognized tax benefits balance, Minimum	0
Gross unrecognized tax benefits balance, Maximum	366,000
Liability for unrecognized tax benefits							277,000			485,000
Liability for interest and penalties related to unrecognized tax benefits	133,000
Additional benefits from research and development tax credits	66,000
Company's gross research and development tax credit carry forwards				841,000		353,000
Period of company's gross research and development tax credit carry forward						15 years
Expiration of company's gross research and development tax credit carry forward, Minimum						2013
Expiration of company's gross research and development tax credit carry forward, Maximum						2026
Gross research and development tax credit indefinite carry forward				488,000
Expiration of company's gross Foreign tax credit carry forward					2012
Company's gross foreign tax credits					10,000
Recognized income tax								619,000	619,000
Recognized income interest								168,000	168,000
Recognized income from previously unrecognized tax position related to the settlement								$ 787,000	$ 787,000

XML

Income Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Income Per Share [Abstract]

Computation of basic and diluted net income per share

	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
	(in thousands, except per share amounts)
Basic net income available to common shareholders:
Net income available to common shareholders from continuing operations	$	1,410		$	3,616	$	2,854		$	7,218
Diluted net income available to common shareholders from continuing operations	$	1,410		$	3,616	$	2,854		$	7,218
Shares:
Basic weighted average number of common shares outstanding		4,444			4,523		4,501			4,507
Common shares assumed upon exercise of stock options		13			53		17			51
Diluted weighted average number of common shares outstanding		4,457			4,576		4,518			4,558
Basic net income (loss) per common share:
Income from continuing operations	$	0.32		$	0.80	$	0.64		$	1.60
(Loss) income from discontinued operations (net of tax)		(0.06	)		0.13		(0.10	)		0.09
Net income	$	0.26		$	0.93	$	0.54		$	1.69
Diluted net income (loss) per common share:
Income from continuing operations	$	0.32		$	0.79	$	0.63		$	1.58
(Loss) income from discontinued operations (net of tax)		(0.06	)		0.13		(0.10	)		0.09
Net income	$	0.26		$	0.92	$	0.53		$	1.67

XML

Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Option activity under the principal option plans

	Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Life		Aggregate Intrinsic Value
	(in thousands)						(in thousands)
Outstanding as of December 31, 2011		148	$	12.17		4.95	$	608
Granted		—		—
Exercised		—		—
Forfeited		—		—
Expired		—		—
Outstanding as of June 30, 2012		148	$	12.17		4.45	$	222
Exercisable as of June 30, 2012		85	$	11.56		3.96	$	163

XML

Receivables

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

Receivables

2. Receivables

Receivables consist of the following:

	June 30,			December 31,
	2012			2011
	(in thousands)
Trade receivables	$	27,897		$	30,447
Less: allowance for doubtful accounts		(599	)		(603	)
Trade receivables, net		27,298			29,844
Recoverable income taxes		7			202
Other		418			1,095
Receivables, net	$	27,723		$	31,141

XML

Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets [Abstract]

Goodwill and intangible assets

			June 30, 2012						December 31, 2011
	Amortizable Life (years)		Gross Value		Accumulated Amortization		Net Value		Gross Value		Accumulated Amortization		Net Value
			(in thousands)
Finite-lived intangible assets:
Customer relationships (1)		5 to 8	$	3,868	$	2,853	$	1,015	$	3,700	$	2,587	$	1,113
Patents (2)		5 to 20		1,281		1,170		111		1,250		1,154		96
Developed technology		5 to 6		1,700		1,608		92		1,700		1,517		183
Licensing fees		5 to 10		450		313		137		450		285		165
Total amortized finite-lived intangible assets				7,299		5,944		1,355		7,100		5,543		1,557
Indefinite-lived intangible assets:
Trademarks				1,672		—		1,672		1,672		—		1,672
Other intangible assets, net			$	8,971	$	5,944	$	3,027	$	8,772	$	5,543	$	3,229

⁽¹⁾  On February 27, 2012, the Company purchased certain assets of Astromec, a subsidiary of Pro-Dex. Included in the preliminary purchase price is a customer list valued at $168,000. The estimated useful life of the asset is 5 years.

⁽²⁾  During the first six months of 2012, the Company’s MTE division capitalized legal fees related to a new patent application. The estimated useful life of the asset is 20 years.

Amortization expense for intangible assets subject to amortization

	Amortization Expense (in thousands)
2012	$	759
2013	$	439
2014	$	401
2015	$	58
2016	$	39

Changes in goodwill balances by segment

	Balance					Balance
	December 31,		Translation			June 30,
	2011		Adjustment			2012
	(in thousands)
SL Power Electronics Corp.	$	4,245	$	(3	)	$	4,242
High Power Group:
MTE Corporation		8,189		—			8,189
Teal Electronics Corp.		5,055		—			5,055
RFL Electronics Inc.		5,249		—			5,249
Total	$	22,738	$	(3	)	$	22,735

XML

Income Per Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Basic net income available to common shareholders:
Net income available to common shareholders from continuing operations	$ 1,410,000	$ 3,616,000	$ 2,854,000	$ 7,218,000
Diluted net income available to common shareholders from continuing operations	$ 1,410,000	$ 3,616,000	$ 2,854,000	$ 7,218,000
Shares:
Basic weighted average number of common shares outstanding	4,444,000	4,523,000	4,501,000	4,507,000
Common shares assumed upon exercise of stock options	13,000	53,000	17,000	51,000
Diluted weighted average number of common shares outstanding	4,457,000	4,576,000	4,518,000	4,558,000
Basic net income (loss) per common share:
Income from continuing operations	$ 0.32	$ 0.80	$ 0.64	$ 1.60
(Loss) income from discontinued operations (net of tax)	$ (0.06)	$ 0.13	$ (0.10)	$ 0.09
Net income	$ 0.26	$ 0.93	$ 0.54	$ 1.69
Diluted net income (loss) per common share:
Income from continuing operations	$ 0.32	$ 0.79	$ 0.63	$ 1.58
(Loss) income from discontinued operations (net of tax)	$ (0.06)	$ 0.13	$ (0.10)	$ 0.09
Net income	$ 0.26	$ 0.92	$ 0.53	$ 1.67

XML

Other Long-Term Liabilities (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Other long-term liabilities
Environmental	$ 19,033,000	$ 18,533,000
Unrecognized tax benefits, interest and penalties	895,000	802,000
Long-term incentive plan	326,000	1,242,000
Acquisition earn-out, long-term	115,000
Other long-term liabilities	$ 20,369,000	$ 20,577,000

XML

Consolidated Balance Sheets (Unaudited) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 7,891,000	$ 5,632,000
Receivables, net	27,723,000	31,141,000
Inventories, net	23,816,000	22,599,000
Other current assets	3,069,000	2,074,000
Deferred income taxes, net	5,473,000	4,666,000
Total current assets	67,972,000	66,112,000
Property, plant and equipment, net	9,510,000	9,416,000
Deferred income taxes, net	8,134,000	8,648,000
Goodwill	22,735,000	22,738,000
Other intangible assets, net	3,027,000	3,229,000
Other assets and deferred charges, net	1,109,000	1,083,000
Total assets	112,487,000	111,226,000
Current liabilities:
Accounts payable	18,150,000	16,875,000
Accrued income taxes		14,000
Accrued liabilities:
Payroll and related costs	5,097,000	5,256,000
Other	13,589,000	9,563,000
Total current liabilities	36,836,000	31,708,000
Deferred compensation and supplemental retirement benefits	2,004,000	2,084,000
Other long-term liabilities	20,369,000	20,577,000
Total liabilities	59,209,000	54,369,000
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued
Common stock, $.20 par value; authorized, 25,000,000 shares; issued, 6,656,000 and 6,963,000 shares, respectively	1,332,000	1,393,000
Capital in excess of par value	21,630,000	25,002,000
Retained earnings	55,241,000	52,825,000
Accumulated other comprehensive (loss)	(443,000)	(349,000)
Treasury stock at cost, 2,535,000 and 2,395,000 shares, respectively	(24,482,000)	(22,014,000)
Total shareholders' equity	53,278,000	56,857,000
Total liabilities and shareholders' equity	$ 112,487,000	$ 111,226,000

XML

Goodwill and Intangible Assets (Details) (USD $)			6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended						3 Months Ended				3 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Customer Relationships [Member]	Dec. 31, 2011 Customer Relationships [Member]	Jun. 30, 2012 Customer Relationships [Member] Maximum [Member]	Jun. 30, 2012 Customer Relationships [Member] Minimum [Member]	Jun. 30, 2012 Patents [Member]	Dec. 31, 2011 Patents [Member]	Jun. 30, 2012 Patents [Member] Maximum [Member]	Jun. 30, 2012 Patents [Member] Minimum [Member]	Jun. 30, 2012 Trademarks [Member]	Dec. 31, 2011 Trademarks [Member]	Jun. 30, 2012 Developed technology [Member]	Dec. 31, 2011 Developed technology [Member]	Jun. 30, 2012 Developed technology [Member] Maximum [Member]	Jun. 30, 2012 Developed technology [Member] Minimum [Member]	Jun. 30, 2012 Licensing Fees [Member]	Dec. 31, 2011 Licensing Fees [Member]	Jun. 30, 2012 Licensing Fees [Member] Maximum [Member]	Jun. 30, 2012 Licensing Fees [Member] Minimum [Member]
Finite lived intangible assets:
Amortizable Life			5 years		8 years	5 years	20 years		20 years	5 years					6 years	5 years			10 years	5 years
Finite lived intangible assets, Gross Value	$ 7,299,000	$ 7,100,000	$ 3,868,000	$ 3,700,000			$ 1,281,000	$ 1,250,000					$ 1,700,000	$ 1,700,000			$ 450,000	$ 450,000
Finite lived intangible assets, Accumulated Amortization	5,944,000	5,543,000	2,853,000	2,587,000			1,170,000	1,154,000					1,608,000	1,517,000			313,000	285,000
Finite lived intangible assets, Net Value	1,355,000	1,557,000	1,015,000	1,113,000			111,000	96,000					92,000	183,000			137,000	165,000
Indefinite lived intangible assets:
Indefinite lived intangible assets											1,672,000	1,672,000
Other intangible assets, Gross	8,971,000	8,772,000
Other intangibles assets, net Accumulated Amortization	5,944,000	5,543,000	2,853,000	2,587,000			1,170,000	1,154,000					1,608,000	1,517,000			313,000	285,000
Other intangible assets, net	$ 3,027,000	$ 3,229,000

XML

Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
OPERATING ACTIVITIES:
Net income	$ 2,416,000	$ 7,621,000
Adjustments for loss (income) from discontinued operations	438,000	(403,000)
Income from continuing operations	2,854,000	7,218,000
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation	892,000	1,007,000
Amortization	480,000	537,000
Amortization of deferred financing costs	72,000	153,000
Stock-based compensation	744,000	173,000
Tax benefit from exercise of stock options		(200,000)
Loss on foreign exchange contracts	170,000
Non-cash fire related gain		(277,000)
Provisions for (recoveries of) losses on accounts receivable	40,000	(13,000)
Deferred compensation and supplemental retirement benefits	201,000	199,000
Deferred compensation and supplemental retirement benefit payments	(269,000)	(270,000)
Deferred income taxes	(293,000)	584,000
Loss on sale of equipment	11,000	12,000
Changes in operating assets and liabilities:
Accounts receivable	3,297,000	(2,136,000)
Inventories	(503,000)	(1,894,000)
Other assets	(1,004,000)	(1,671,000)
Accounts payable	1,216,000	2,575,000
Other accrued liabilities	3,333,000	(703,000)
Accrued income taxes	10,000	155,000
Net cash provided by operating activities from continuing operations	11,251,000	5,449,000
Net cash (used in) operating activities from discontinued operations	(513,000)	(823,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES	10,738,000	4,626,000
INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(879,000)	(1,934,000)
Acquisition of a business, net of cash acquired	(756,000)
Purchases of other assets	(155,000)	(301,000)
NET CASH (USED IN) INVESTING ACTIVITIES	(1,790,000)	(2,235,000)
FINANCING ACTIVITIES:
Proceeds from Revolving Credit Facility	3,900,000	10,300,000
Payments of Revolving Credit Facility	(3,900,000)	(11,100,000)
Payments of deferred financing costs	(43,000)	(1,000)
Repurchase and retirement of common stock	(4,177,000)
Treasury stock purchases	(2,468,000)
Proceeds from stock options exercised		465,000
Tax benefit from exercise of stock options		200,000
NET CASH (USED IN) FINANCING ACTIVITIES	(6,688,000)	(136,000)
Effect of exchange rate changes on cash	(1,000)	(16,000)
NET CHANGE IN CASH AND CASH EQUIVALENTS	2,259,000	2,239,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	5,632,000	1,374,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD	7,891,000	3,613,000
Cash paid during the period for:
Interest	32,000	140,000
Income taxes	$ 1,622,000	$ 3,356,000

XML

Fire Related Gain and Insurance Recovery (Details Textual) (USD $)	1 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Fire Related Gain (Loss) and Insurance Recovery (Textual) [Abstract]
Settled fire damage claims with its insurance carriers	$ 810,000
Fire related gain	277,000	277,000	277,000
Estimated insurance recoveries				$ 533,000

XML

Segment Information (Tables)

6 Months Ended

Jun. 30, 2012

Segment Information [Abstract]

Unaudited comparative results of segment information

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(in thousands)
Net sales
SLPE	$	18,824	$	22,581	$	37,167	$	44,306
High Power Group		15,896		18,151		31,471		34,886
SL-MTI		9,077		9,310		18,676		18,418
RFL		5,102		6,224		10,925		11,250
Net sales	$	48,899	$	56,266	$	98,239	$	108,860

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(in thousands)
Income from operations
SLPE	$	479		$	2,055		$	268		$	4,370
High Power Group		1,585			2,393			2,950			4,498
SL-MTI		1,441			1,641			3,144			3,251
RFL		578			895			1,636			1,333
Other		(1,738	)		(1,370	)		(3,281	)		(2,799	)
Income from operations	$	2,345		$	5,614		$	4,717		$	10,653

Total assets by segment

	June 30,		December 31,
	2012		2011
	(in thousands)
Total assets
SLPE	$	35,800	$	39,205
High Power Group		30,646		29,639
SL-MTI		14,450		11,505
RFL		13,099		13,973
Other		18,492		16,904
Total assets	$	112,487	$	111,226

\

Goodwill and intangibles assets, net

	June 30,		December 31,
	2012		2011
	(in thousands)
Goodwill and other intangible assets, net
SLPE	$	4,624	$	4,733
High Power Group		15,595		15,820
SL-MTI		157		—
RFL		5,386		5,414
Goodwill and other intangible assets, net	$	25,762	$	25,967

XML

Shareholder's Equity (Details) (USD $)	6 Months Ended		3 Months Ended
	Jun. 30, 2012 2010 Repurchase Plan [Member]	Nov. 16, 2010 2010 Repurchase Plan [Member]	Jun. 30, 2012 Dutch Auction Tender Offer [Member]	Jun. 27, 2012 Dutch Auction Tender Offer [Member]	May 30, 2012 Dutch Auction Tender Offer [Member]
Shareholders Equity (Textual) [Abstract]
Stock Repurchase Program, Number of Shares Authorized to be Repurchased		470,000
Repurchase of common stock number of shares purchased	140,000
Stock Repurchase Program, Remaining Number of Shares Authorized to be Repurchased	330,000
Treasury Stock Acquired, Average Cost Per Share	$ 17.59
Maximum limit of purchase					$ 10,000,000
Repurchase program maturity date			Jun. 27, 2012
Minimum tender price			$ 12.00
Maximum tender price			$ 13.50
Tender price increments			$ 0.25
Number of shares properly tendered			307,000
Approximate percentage of common stock outstanding				6.90%
Purchase price company accepts in accordance with terms of offer to purchase			$ 13.50
Shares outstanding with completion of tender offer			4,121,000
Purchase price paid by company in connection to tender offer excluding transaction costs			$ 4,147,000

XML

Discontinued Operations

6 Months Ended

Jun. 30, 2012

Discontinued Operations [Abstract]

Discontinued Operations

16. Discontinued Operations

For the three months ended June 30, 2012, total loss from discontinued operations before income taxes was $401,000 ($244,000 net of tax). For the six months ended June 30, 2012, total loss from discontinued operations before income taxes was $714,000 ($438,000 net of tax). The loss from discontinued operations relates to environmental remediation costs, consulting fees, and legal charges primarily associated with the past operations of the Company’s five environmental sites.

For the three months ended June 30, 2011, discontinued operations before income taxes was a loss of $298,000 while net income from discontinued operations, net of tax, equaled $593,000. For the six months ended June 30, 2011, discontinued operations before income taxes was a loss of $591,000 while net income from discontinued operations, net of tax, equaled $403,000. Net income from discontinued operations relates to a settlement with a foreign tax authority which was recorded as part of discontinued operations. The settlement was associated with the Company’s Elektro-Metall Export GmbH subsidiary, which was sold in January 2003. As a result, during the second quarter of 2011, the Company recognized a previously unrecognized tax position related to the settlement in the amount of $787,000 ($619,000 tax and $168,000 interest). The above favorable settlement was partially offset by environmental remediation costs, consulting fees, and legal charges associated with the past operations of the Company’s five environmental sites.

XML

Fair Value Measurement and Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Assets and liabilities measured at fair value on a recurring basis

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at 6/30/2012
	(in thousands)
Liabilities
Derivative financial instruments	$	—	$	170	$	—	$	170

XML

Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

18. Derivative Instruments and Hedging Activities

ASC Topic 815, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by ASC Topic 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to variability in expected future cash flows related to forecasted foreign exchange-based risk are considered economic hedges of the Company’s forecasted cash flows.

Risk Management Objective of Using Derivatives

The Company is a USD functional currency entity that manufactures products in the USA, Mexico and China. The Company’s sales are priced in U.S. dollars and its costs and expenses are priced in U.S. dollars, Mexican pesos (MXN) and Chinese Yuan (CNH). As a result, the Company has exposure to changes in exchange rates between the time when expenses in the non-functional currencies are initially incurred and the time when the expenses are ultimately paid. The Company’s objective in using derivatives is to add stability and to manage its exposure to foreign exchange risks. To accomplish this objective, the Company uses foreign currency forward contracts to manage its exposure to fluctuations in the exchange rates. Foreign currency forward contracts involve fixing the USD-MXN and USD-CNH exchange rates for delivery of a specified amount of foreign currency on a specified date.

During 2012, the Company entered into a series of foreign currency forward contracts to hedge its exposure to foreign exchange rate movements in its forecasted expenses in China and Mexico. The foreign currency forwards are not speculative and are being used to manage the Company’s exposure to foreign exchange rate movements. Foreign currency forward contracts involve fixing the USD-MXN and USD-CNH exchange rates for delivery of a specified amount of foreign currency on a specified date. The Company has elected not to apply hedge accounting to these derivatives and they are marked to market through earnings. Therefore, gains and losses resulting from changes in the fair value of these contracts are recognized at the end of each reporting period directly in earnings. The gains and losses associated with the foreign currency forward contracts are included in other gain (loss), net on the Consolidated Statements of Income. As of June 30, 2012, the fair value of the foreign currency forward contracts was recorded as a $170,000 liability in other current liabilities on the Consolidated Balance Sheets.

Non-designated Hedges of Foreign Exchange Risk

The notional amounts are used to measure the volume of foreign currency forward contracts and do not represent exposure to foreign currency losses. The following table summarizes the notional values of the Company’s derivative financial instruments as of June 30, 2012.

Product	Number of Instruments		Notional
			(in thousands)
Mexican Peso (MXN) Forward Contracts		9		MXN 74,000
Chinese Yuan (CNH) Forward Contracts		9		CNH 73,000

The following table details the location in the financial statements of the gain or loss recognized on foreign currency forward contracts that are marked to market for the six months ended June 30, 2012:

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in  Income on Derivative	Amount of Gain (Loss)  Recognized in Income on Derivative
		(in thousands)
Foreign Exchange Contracts	Other gain (loss), net	$	(170	)

The Company did not enter into foreign exchange contracts during fiscal 2011 and fiscal 2010.

XML

Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

1. Basis Of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereon included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Unless the context requires otherwise, the terms the “Company,” “SL Industries,” “we,” “us” and “our” mean SL Industries, Inc., a New Jersey corporation, and its consolidated subsidiaries.

Certain reclassifications have been made to the prior period Consolidated Statement of Cash Flows and footnotes to conform to the current year presentation.

XML

Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
Preferred stock, no par value
Preferred stock, shares authorized	6,000,000	6,000,000
Preferred stock, shares issued
Common stock, par value	$ 0.20	$ 0.20
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	6,656,000	6,963,000
Treasury stock, shares	2,535,000	2,395,000

XML

Other Long-Term Liabilities

6 Months Ended

Jun. 30, 2012

Other Long-Term Liabilities [Abstract]

Other Long-Term Liabilities

11. Other Long-Term Liabilities

Other long-term liabilities consist of the following:

	June 30,		December 31,
	2012		2011
	(in thousands)
Environmental	$	19,033	$	18,533
Unrecognized tax benefits, interest and penalties		895		802
Long-term incentive plan		326		1,242
Acquisition earn-out, long-term		115		—
Other long-term liabilities	$	20,369	$	20,577

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 06, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	SL INDUSTRIES INC
Entity Central Index Key	0000089270
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,121,000

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

12. Commitments and Contingencies

The Company is involved in certain legal and regulatory actions. Management believes that the ultimate resolution of such matters is unlikely to have a material adverse effect on the Company’s financial condition or results of operations, except as described below.

Litigation: The Company has been and is the subject of administrative actions that arise from its ownership of SL Surface Technologies, Inc. (“SurfTech”), a wholly-owned subsidiary, the assets of which were sold in November 2003. SurfTech formerly operated chrome-plating facilities in Pennsauken Township, New Jersey (the “Pennsauken Site”) and Camden, New Jersey (the “Camden Site”).

In 2006 the United States Environmental Protection Agency (the “EPA”) named the Company as a potential responsible party (a “PRP”) in connection with the remediation of the Puchack Well Field, which has been designated as a Superfund Site. The EPA has alleged that hazardous substances generated at the Company’s Pennsauken Site contaminated the Puchack Well Field. As a PRP, the Company is potentially liable, jointly and severally, for the investigation and remediation of the Puchack Well Field Superfund Site under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”).

The EPA is remediating the Puchack Well Field Superfund Site in two separate operable units. The first operable unit consists of an area of chromium groundwater contamination in three aquifers that exceeds the selected cleanup standard (“OU-1”). The second operable unit (“OU-2”) pertains to sites that are allegedly the sources of contamination for the first operable unit. The EPA advised the Company in October 2010 that OU-2 includes soil contamination in the immediate vicinity of the Company’s Pennsauken Site.

In September 2006, the EPA issued a Record of Decision (“ROD”) that selected a remedy for OU-1 to address the groundwater contamination. The estimated cost of the EPA selected remedy for OU-1, to be conducted over a five to ten year timeframe, was approximately $17,600,000, as stated in the ROD. In an October 2010 meeting with the EPA, the EPA informed the Company that the OU-1 remedy would be implemented in two phases. Prior to the issuance of the EPA’s ROD, the Company had retained an experienced environmental consulting firm to prepare technical comments on the EPA’s proposed remediation of the Puchack Well Field Superfund Site. In those comments, the Company’s consultant, among other things, identified flaws in the EPA’s conclusions and the factual predicates for certain of the EPA’s decisions and for the proposed selected remedy.

Following the issuance of its ROD for OU-1, in November 2006, the EPA sent another letter to the Company encouraging the Company to either perform or finance the remedial actions for OU-1 identified in the EPA’s ROD. In addition to paying for the OU-1 remediation, the EPA has sought payment of the past costs that the EPA has allegedly incurred. The Company responded to the EPA that it was willing to investigate the existence of other PRPs and to undertake the activities necessary to design a final remediation for the Superfund Site. In July 2007, the EPA refused the Company’s offer to perform the work necessary to design the remediation plan without first agreeing to assume responsibility for the full remediation of the Superfund Site. The EPA did encourage the Company to investigate the existence of other PRPs and to submit evidence thereof, if appropriate. In January 2008, the Company submitted to the EPA evidence demonstrating the existence of several other PRPs.

In June 2011, the EPA announced a proposed plan for “cleaning up the soil” at OU-2. The remedy proposed by the EPA is “Geochemical Fixation.” This remedy involves applying a chemical reductant to the contaminated soil to reduce hexavalent chromium by converting it to immobilized trivalent chromium. The EPA’s estimated cost for this remedy is $20,700,000 over seven years. The public comment period for the proposed plan expired on July 27, 2011. On September 26, 2011 the EPA issued a ROD selecting the Geochemical Fixation remedy. This remedy involves mixing a reducing agent to treat soils containing concentrations of hexavalent chromium greater than 20 parts per million. The remedy also requires post-remediation sampling, site restoration and implementing a groundwater sampling and analysis program. The Company intends to have its environmental consultants play an active role in the remediation design.

The Company has reached an agreement in principle with the DOJ related to its liability for both OU-1 and OU-2. The Company has agreed in principle to perform the remediation for OU-2. Also, the Company has agreed in principle to pay a fixed sum for the EPA’s past cost for OU-2 and a portion of the EPA’s past cost for OU-1. The payments are to be made annually in four equal payments. The first payment plus interest is to be made within 30 days of entry of the Consent Decree. Each of the next three payments plus interest is to be made on the anniversary date of the first payment. The Company has also agreed in principle to pay the EPA’s costs for oversight of the OU-2 remediation. This agreement is subject to the approval of both the DOJ and EPA’s management who are authorized to settle this matter. Also, the proposed agreement will be subject to a public comment period and finally must be approved by the Federal District Court which we expect to occur by the end of fiscal 2012. Based on the current available information, the Company has estimated a total combined potential liability for OU-1 and OU-2 to be in the range of $20,118,000 to $31,448,000. The estimated OU-2 remediation liability is based upon the EPA’s plan for remediation, and data from our environmental engineering consultants. The liability for past costs of OU-1 and OU-2 is based upon the current terms of the agreement. The Company in consultation with its consultants and legal counsel, has agreed to a Statement of Work (“SOW”) for the implementation of the remedy selected in the September 26, 2011 ROD for OU-2. The SOW will be incorporated into the Consent Decree and will be an enforceable part of the Consent Decree.

On August 8, 2012, the Company’s management along with its counsel met with the DOJ and EPA to commence negotiating the terms and conditions of the Consent Decree. The discussion with the DOJ and EPA are ongoing.

Other

The Company has been and is conducting an investigation to determine whether certain employees of SL Xianghe Power Electronics Corporation, SL Shanghai Power Electronics Corporation and SL Shanghai International Trading Corporation, three of the Company’s indirect wholly-owned subsidiaries incorporated and operating exclusively in China, may have improperly provided gifts and entertainment to government officials (the “China Investigation”). Based upon the investigation, which is nearing completion, the estimate of the amounts of such gifts and entertainment as uncovered by the China Investigation does not appear to be material to the Company’s financial statements. There can be no assurance, however, that when the investigation is completed, the actual amounts will not be in excess of what is currently estimated. Such estimate does not take into account the costs to the Company of the China Investigation or any other additional costs.

The China Investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. The Company’s outside counsel has contacted the DOJ and the Securities and Exchange Commission (the “SEC”) voluntarily to disclose that the Company was conducting an internal investigation, and agreed to cooperate fully and update the DOJ and SEC periodically on further developments. The Company’s counsel has done so, and the Company has continued to cooperate fully with the DOJ and the SEC.

The Company has retained outside counsel and forensic accountants to assist in the China Investigation. The Company cannot predict at this time whether any regulatory action may be taken or any other adverse consequences may result from this matter.

In the ordinary course of its business the Company is and may be subject to other loss contingencies pursuant to foreign and domestic federal, state and local governmental laws and regulations and maybe party to certain legal actions, frequently involving complaints by terminated employees and disputes with customers, suppliers and others. In the opinion of management, any such other loss contingencies are not expected to have a material adverse effect on the financial condition or results of operations of the Company.

Environmental Matters: Loss contingencies include potential obligations to investigate and eliminate or mitigate the effects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other facilities, whether or not they are currently in operation. The Company is currently participating in environmental assessments and cleanups at a number of sites and may in the future be involved in additional environmental assessments and cleanups. Based upon investigations completed to date by the Company and its independent engineering-consulting firms, management has provided an estimated accrual for all known costs believed to be probable and costs that can be reasonably estimated in the amount of $23,347,000, of which $19,033,000 is included as other long-term liabilities as of June 30, 2012. However, it is the nature of environmental contingencies that other circumstances might arise, the costs of which are indeterminable at this time due to such factors as changing government regulations and stricter standards, the unknown magnitude of cleanup costs, the unknown timing and extent of the remedial actions that may be required, the determination of the Company’s liability in proportion to other responsible parties, the divisibility of costs, and the extent, if any, to which such costs are recoverable from other parties. These other circumstances could result in additional expenses or judgments, or offsets thereto. The adverse resolution of any one or more of these other circumstances could have a material adverse effect on the business, operating results, financial condition or cash flows of the Company. Most of the Company’s environmental costs relate to discontinued operations and such costs have been recorded in discontinued operations, net of tax.

There are three sites on which the Company may incur material environmental costs in the future as a result of past activities of its former subsidiary, SurfTech. There are two Company owned sites related to its former subsidiary, SurfTech. These sites are located in Pennsauken, New Jersey (the “Pennsauken Site”) and in Camden, New Jersey (the “Camden Site”). There is also a third site, which is not owned by the Company, referred to as the “Puchack Well Field Site.” The Puchack Well Field Site and the Pennsauken Site are part of the Puchack Well Field Superfund Site.

With respect to the Camden Site, the Company has reported soil contamination and a groundwater contamination plume emanating from the site. Delineation of the soil and groundwater contamination is substantially complete. In the third quarter of 2009, pursuant to an Interim Response Action (“IRA”) Workplan approved by the New Jersey Department of Environmental Protection (“NJDEP”), the Company completed building demolition and excavated and disposed of some of the contaminated soil underlying the building’s foundation. Treatability studies for in-situ remediation of the remaining unsaturated contaminated soil were conducted in 2009. Based upon the treatability study results, our environmental consultants prepared an IRA Workplan Addendum (“IRAWA”) to implement a Phase I Pilot Study (“PIPS”), which involved injecting neutralizing chemicals into the unsaturated soil. The NJDEP approved the IRAWA, and the PIPS was implemented in November 2010. As required by the IRAWA, our consultants collected post-injection data for assessment of the overall success of the PIPS. Our consultants completed the assessment of the PIPS and indicated that the PIPS can be implemented as a full scale soil remedy to treat unsaturated contaminated soil. A Remedial Action Workplan for soils (“RAWP”) is being developed. The RAWP will select the PIPS remedy as the site wide remedy for unsaturated soils, along with demolition and proper disposal of the former concrete building slab and targeted excavation and disposal of impacted soil immediately underlying the slab. Additionally, the RAWP will address a small area of impacted soil off the property. The RAWP will be submitted to the NJDEP, by the Licensed Site Remediation Professional (“LSRP”) for the site. The RAWP is scheduled to be implemented in 2013. Also, the Company’s environmental consultants finalized an IRA Workplan Addendum II (“IRAWA II”) to implement a Phase II Pilot Study (“PIIPS”) to treat on-site contaminated groundwater. The IRAWA II was submitted to the NJDEP in May 2011. It proposed multiple sub-surface injections of a food-grade product, into the groundwater at the down gradient property boundary, to create a “bio-barrier.” The PIIPS would assess the ability to treat contaminated groundwater as it moves through the bio-barrier. The IRAWA II also required the collection of groundwater samples to assess the performance of the PIIPS. Due to the NJDEP’s transition into the LSRP Program, the NJDEP did not comment on the IRAWA II and permit application. The Company’s LSRP believes the IRAWA II complies with the applicable NJDEP regulations and guidance documents. The permit application was resubmitted to the NJDEP for approval in June 2012. Implementation of the PIIPS is scheduled to occur during 2012 and 2013, depending upon the NJDEP’s approval of the related permit. At June 30, 2012, the Company had an accrual of $2,088,000 to remediate the Camden Site. Of this amount, the Company anticipates expenditures of approximately $700,000 in 2012.

As previously reported, the Company is currently participating in environmental assessments and cleanups at a number of sites. One of these sites is a commercial facility, located in Wayne, New Jersey. Contaminated soil and groundwater has undergone remediation with NJDEP oversight, but contaminants of concern (“COCs”) in groundwater and surface water, which extend off-site, still remain above applicable NJDEP remediation standards. Certain COCs have also been detected in the indoor air of two commercial buildings, located on the property. One of the buildings (the “Main Building”) was outfitted with a sub-slab depressurization system as a mitigation measure. The source investigations under the Main Building were completed in June 2012. Soil and groundwater samples collected from underneath the Main Building identified COCs in excess of the NJDEP’s applicable remediation standards. Consequently, a soil contaminant source remains under the Main Building that is feeding the groundwater contamination. The Company’s consultants are in the process of assessing remedial options and that assessment is expected to be completed by the fourth quarter of 2012. The remedial investigation conducted in the second quarter of 2012 identified a new source of COCs, outside of a second building and two sub-grade anomalies near the building that need to be further investigated. One of the anomalies has an appearance of an underground storage tank. Additional investigations will be required to delineate the source area and identify the anomalies. A soil remedial action plan will be required in order to remove contamination that continues to impact groundwater, which likely serves as a potential source of vapor detected inside the second building. Our consultants will review data to determine what supplemental remedial action is necessary for soils, and whether to modify or expand the groundwater remedy that will likely consist of additional in-situ injections of food grade product into the groundwater. The Company has engaged a LSRP to oversee the remediation of the site. The future costs for possible additional remediation are not currently estimable. The accrual for remediation cost at June 30, 2012 for this site is $620,000. Costs related to this site are recorded as part of discontinued operations, net of tax.

The Company has reported soil and groundwater contamination at the facility of SL-MTI located on its property in Montevideo, Minnesota. An analysis of the contamination has been completed and a remediation plan has been implemented at the site pursuant to the remedial action plan approved by the Minnesota Pollution Control Agency. The remaining steps under this plan are the monitoring of samples. Based on the current information, the Company believes it will incur remediation costs at this site of approximately $82,000, which has been accrued for at June 30, 2012. These costs are recorded as a component of continuing operations.

As of June 30, 2012 and December 31, 2011, environmental accruals of $23,347,000 and $23,209,000, respectively, have been recorded by the Company in accrued liabilities – other and in other long-term liabilities, as appropriate (see Note 10 and 11).

XML

Consolidated Statements of Income (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements of Income [Abstract]
Net sales	$ 48,899,000	$ 56,266,000	$ 98,239,000	$ 108,860,000
Cost and expenses:
Cost of products sold	32,756,000	37,890,000	66,527,000	72,709,000
Engineering and product development	2,954,000	3,180,000	5,975,000	6,486,000
Selling, general and administrative	10,137,000	8,807,000	19,648,000	17,468,000
Depreciation and amortization	707,000	775,000	1,372,000	1,544,000
Total cost and expenses	46,554,000	50,652,000	93,522,000	98,207,000
Income from operations	2,345,000	5,614,000	4,717,000	10,653,000
Other income (expense):
Amortization of deferred financing costs	(39,000)	(77,000)	(72,000)	(153,000)
Interest income	2,000		3,000	1,000
Interest expense	(9,000)	(56,000)	(31,000)	(138,000)
Other gain (loss), net	(162,000)		(170,000)
Fire related gain		277,000		277,000
Income from continuing operations before income taxes	2,137,000	5,758,000	4,447,000	10,640,000
Income tax provision	727,000	2,142,000	1,593,000	3,422,000
Income from continuing operations	1,410,000	3,616,000	2,854,000	7,218,000
(Loss) income from discontinued operations, net of tax	(244,000)	593,000	(438,000)	403,000
Net income	$ 1,166,000	$ 4,209,000	$ 2,416,000	$ 7,621,000
Basic net income (loss) per common share
Income from continuing operations	$ 0.32	$ 0.80	$ 0.64	$ 1.60
(Loss) income from discontinued operations, net of tax	$ (0.06)	$ 0.13	$ (0.10)	$ 0.09
Net income	$ 0.26	$ 0.93	$ 0.54	$ 1.69
Diluted net income (loss) per common share
Income from continuing operations	$ 0.32	$ 0.79	$ 0.63	$ 1.58
(Loss) income from discontinued operations, net of tax	$ (0.06)	$ 0.13	$ (0.10)	$ 0.09
Net income	$ 0.26	$ 0.92	$ 0.53	$ 1.67
Shares used in computing basic net income (loss) per common share	4,444,000	4,523,000	4,501,000	4,507,000
Shares used in computing diluted net income (loss) per common share	4,457,000	4,576,000	4,518,000	4,558,000

XML

Income Tax

6 Months Ended

Jun. 30, 2012

Income Tax [Abstract]

Income Tax

6. Income Tax

The Company calculates its interim tax provision in accordance with the provisions of ASC 740-270 “Income Taxes – Interim Reporting.” For each interim period the Company estimates its annual effective income tax rate and applies the estimated rate to its year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items separately reported, such as discontinued operations, and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

For the six month periods ended June 30, 2012 and June 30, 2011, the estimated income tax rate from continuing operations was 36% and 32%, respectively. The increase in the effective tax rate in 2012 was primarily due to the effect of a federal tax rate change recognized in deferred taxes in 2011 that did not apply in 2012. The increase was also due to less foreign tax credits available to the Company in 2012 compared to 2011.

The Company has recorded gross unrecognized tax benefits, excluding interest and penalties, as of June 30, 2012 and December 31, 2011 of $762,000 and $722,000, respectively. Tax benefits are recorded pursuant to the provisions of ASC 740 “Income Taxes.” If such unrecognized tax benefits are ultimately recorded in any period, the Company’s effective tax rate would be reduced accordingly for such period.

The Company has been examined by the Internal Revenue Service (the “IRS”) for periods up to and including the calendar year 2004. During the third quarter of 2011 the Company was contacted by the IRS to examine the calendar year 2009 and 2010. The examination began in November 2011 and is still ongoing.

It is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months due to the expiration of the statutes of limitation of the federal government and various state governments by a range of zero to $366,000. The Company records such unrecognized tax benefits upon the expiration of the applicable statute of limitations or the settlement with tax authorities. As of June 30, 2012, the Company has a liability for unrecognized benefits of $485,000 and $277,000 for federal and state taxes, respectively. Such benefits relate primarily to expenses incurred in those jurisdictions.

The Company classifies interest and penalties related to unrecognized tax benefits as income tax expense. At June 30, 2012, the Company has accrued approximately $133,000 for the payment of interest and penalties.

During the six month period ended June 30, 2012, the Company recorded additional benefits from state research and development tax credits of $66,000. As of June 30, 2012, the Company’s gross research and development tax credit carryforwards totaled approximately $841,000. Of these credits, approximately $353,000 can be carried forward for 15 years and will expire between 2013 and 2026, and approximately $488,000 can be carried forward indefinitely. As of June 30, 2012, the Company’s gross deferred foreign tax credits totaled approximately $10,000, which are due to expire by December 31, 2012.

During the second quarter of 2011 the Company reached a settlement with a foreign tax authority which was recorded as part of discontinued operations. The settlement was associated with the Company’s Elektro-Metall Export GmbH subsidiary, which was sold in January 2003. As a result, during the second quarter of 2011, the Company recognized income of $787,000 ($619,000 tax and $168,000 interest) from a previously unrecognized tax position related to the settlement.

XML

Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

5. Stock-Based Compensation

At June 30, 2012, the Company had stock-based employee compensation plans as described below. The total compensation expense (included in selling, general and administrative expense) related to these plans for the three and six months ended June 30, 2012 was $595,000 and $744,000 ($385,000 and $477,000, net of tax), respectively. For the three and six months ended June 30, 2011, the total compensation expense was $99,000 and $173,000 ($61,000 and $106,000, net of tax), respectively.

The Company maintains a shareholder approved stock option plan that has expired: the Non-Employee Director Nonqualified Stock Option Plan (the “Director Plan”). As of June 30, 2012, 13,000 options were outstanding under the Director Plan, which are scheduled to expire on February 28, 2013.

On May 14, 2008, the shareholders approved the 2008 Incentive Stock Plan (the “2008 Plan”). The 2008 Plan was proposed to create an additional incentive to retain directors, key employees and advisors of the Company. Prior to the amendment of the 2008 Plan on June 8, 2011, as described below, up to 315,000 shares of the Company’s common stock were subject to the 2008 Plan. Options granted under the 2008 Plan are required to stipulate an exercise price per share of not less than the fair market value of the Company’s common stock on the business day immediately prior to the date of the grant. Options granted under the 2008 Plan are exercisable no later than ten years after the grant date.

During 2008, the Company granted 155,000 incentive options to select executives and a key employee under the 2008 Plan. The options issued vest in three equal installments, with the first installment vesting on the date of the grant and the remaining two installments each vesting on the second and third anniversary of the grant. During 2010, 135,000 of these options were cancelled in connection to the departure of certain executives in June 2010.

During 2010, the Company granted 160,000 stock options to select executives and key employees under the 2008 Plan. All stock options that were issued vest over a three year period except for one grant of 15,000 shares, in which 7,500 shares vested on the date of grant and the remainder vests on the first anniversary of the grant date. Compensation expense is recognized over the vesting period of the options. During 2011, 5,000 of these options were forfeited in connection with the departure of a certain executive in February 2011.

During 2011, the shareholders of the Company approved amendments to the 2008 Plan to: (a) increase the number of shares of the Company’s common stock subject to the 2008 Plan from 315,000 shares to 450,000 shares, and (b) require shareholder approval prior to the reduction of the exercise price of any outstanding options or stock appreciation rights, any repricing through cancellations and re-grants of new options or stock appreciation rights, or any cancellation of outstanding options or stock appreciation rights with an exercise price above the current stock price in exchange for cash or other securities. No stock options were granted to select executives and key employees under the 2008 Plan during the six months ended June 30, 2012. As of June 30, 2012, there were 135,000 options outstanding under the 2008 Plan.

During the second quarter of 2011, the Company implemented a Long-Term Incentive Plan (the “2011 LTIP”) pursuant to the 2008 Plan which awarded restricted stock units (“RSUs”) to eligible executives. Under the terms of the 2011 LTIP, the number of RSUs that may vest, if any, will be based on, among other things, the Company achieving certain sales and return on invested capital (“ROIC”) targets during the January 2011 to December 2013 performance period. Earned RSUs, if any, cliff vest at the end of fiscal 2013 (100% of earned RSUs vest at December 31, 2013). The final value of these RSUs will be determined by the number of shares earned. The value of these RSUs is charged to compensation expense on a straight-line basis over the three year vesting period with periodic adjustments to account for changes in anticipated award amounts. The weighted-average price for these RSUs was $23.00 per share based on the grant date of June 9, 2011. During the three months ended and six months ended June 30, 2012, $40,000 and $78,000 was charged to compensation expense, respectively. As of June 30, 2012, total unamortized compensation expense for this grant was $242,000. As of June 30, 2012, the maximum number of achievable RSUs under the 2011 LTIP was 36,000 RSUs.

During the first quarter of 2012, the Company implemented a Long-Term Incentive Plan (the “2012 LTIP”) pursuant to the 2008 Plan which awarded RSUs to eligible executives. Under the terms of the 2012 LTIP, the number of RSUs that may vest, if any, will be based on, among other things, the Company achieving certain sales and ROIC, as defined, targets during the January 2012 to December 2014 performance period. Earned RSUs, if any, cliff vest at the end of fiscal 2014 (100% of earned RSUs vest at December 31, 2014). The final value of these RSUs will be determined by the number of shares earned. The value of these RSUs is charged to compensation expense on a straight-line basis over the three year vesting period with periodic adjustments to account for changes in anticipated award amounts. The weighted-average price for these RSUs was $18.00 per share based on the grant date of February 17, 2012. During the three months ended and six months ended June 30, 2012, $43,000 and $71,000 was charged to compensation expense, respectively. As of June 30, 2012, total unamortized compensation expense for this grant was $505,000. As of June 30, 2012, the maximum number of achievable RSUs under the 2012 LTIP was 55,000 RSUs.

On April 2, 2012, the Company awarded each Director, except the Chairman, 3,000 restricted shares pursuant to the 2008 Plan. The Chairman was awarded 10,000 restricted shares pursuant to the 2008 Plan. The restricted shares vest on the earlier of one year from the date of grant or upon the recipient ending his continuous service as a director of the Company. Based on the terms of the awards the shares were immediately expensed and as a result the Company recognized $431,000 of stock compensation expense during the second quarter of 2012. The weighted-average price of these restricted stock grants was $19.57 per share based on the grant date of April 2, 2012.

Stock Options

Option activity under the principal option plans as of June 30, 2012 and changes during the three months ended June 30, 2012 were as follows:

	Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Life		Aggregate Intrinsic Value
	(in thousands)						(in thousands)
Outstanding as of December 31, 2011		148	$	12.17		4.95	$	608
Granted		—		—
Exercised		—		—
Forfeited		—		—
Expired		—		—
Outstanding as of June 30, 2012		148	$	12.17		4.45	$	222
Exercisable as of June 30, 2012		85	$	11.56		3.96	$	163

During the six months ended June 30, 2012, no options to purchase common stock were exercised by option holders. During the six months ended June 30, 2011, options to purchase approximately 52,000 shares of common stock with an aggregate exercise price of $465,000 were exercised by option holders.

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of fiscal 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2012. This amount changes based on the fair market value of the Company’s stock.

As of June 30, 2012, $362,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.1 years.

Tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options are classified as financing cash flows. There were no options exercised during the six months ended June 30, 2012. Cash received from option exercises for the six months ended June 30, 2011 was $465,000. The actual tax benefit realized for the tax deduction from option exercises of the share-based payment units totaled $200,000 for the six months ended June 30, 2011. The Company has applied the “Short-cut” method in calculating the historical windfall tax benefits. All tax shortfalls will be applied against this windfall before being charged to earnings.

XML

Fair Value Measurement and Financial Instruments

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurement and Financial Instruments

17. Fair Value Measurement and Financial Instruments

ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses foreign currency forward contracts to hedge its foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including spot rates and market forward points. The fair value of the foreign currency forward contracts is based on interest differentials between the currencies being traded, spot rates and market forward points.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees, where applicable.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2012, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

In conjunction with its implementation of updates to the fair value measurements guidance, the Company made an accounting policy election to measure derivative financial instruments subject to master netting agreements on a net basis.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall:

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at 6/30/2012
	(in thousands)
Liabilities
Derivative financial instruments	$	—	$	170	$	—	$	170

The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of June 30, 2012.

Credit Risk Contingent Features

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

XML

Segment Information

6 Months Ended

Jun. 30, 2012

Segment Information [Abstract]

Segment Information

13. Segment Information

The Company currently operates under four business segments: SL Power Electronics Corp. (“SLPE”), the High Power Group, SL Montevideo Technology, Inc. (“SL-MTI”) and RFL Electronics Inc. (“RFL”). Teal Electronics Corp. (“Teal”) and MTE Corporation (“MTE”) are combined into one business segment, which is reported as the High Power Group. The Company aggregates operating business subsidiaries into a single segment for financial reporting purposes if aggregation is consistent with the objectives of ASC 280 “Segment Reporting.” Business units are also combined if they have similar characteristics in each of the following areas:

• nature of products and services

• nature of production process

• type or class of customer

• methods of distribution

SLPE designs, manufactures and markets high-reliability power conversion products in internal and external footprints. The Company’s power supplies provide a reliable and safe power source for the customer’s specific equipment needs. SLPE, which sells products under three brand names (SL Power Electronics, Condor and Ault), is a major supplier to the original equipment manufacturers (“OEMs”) of medical, industrial/instrumentation, military and information technology equipment. The High Power Group sells products under two brand names (Teal and MTE). Teal designs and manufactures custom power conditioning and distribution units, which are developed and manufactured for custom electrical subsystems for OEMs of medical imaging, medical treatment, military aerospace, semiconductor, solar and advanced simulation systems. MTE designs and manufactures power quality products used to protect equipment from power surges, bring harmonics into compliance and improve the efficiency of variable speed motor drives. SL-MTI designs and manufactures high power density precision motors that are used in numerous applications, including military and commercial aerospace, oil and gas, and medical and industrial products. RFL designs and manufactures communication and power protection products/systems that are used to protect electric utility transmission lines and apparatus by isolating faulty transmission lines from a transmission grid. The Other segment includes corporate related items, financing activities and other costs not allocated to reportable segments, which includes but is not limited to certain legal, litigation and public reporting charges and certain legacy costs. The accounting policies for the business units are the same as those described in the summary of significant accounting policies. For additional information, see Note 1 of the Notes to the Consolidated Financial Statements included in Part IV of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Business segment operations are conducted through domestic subsidiaries. For all periods presented, sales between business segments were not material. Each of the segments has certain major customers, the loss of any of which would have a material adverse effect on such segment.

The unaudited comparative results for the three month periods and six month periods ended June 30, 2012 and June 30, 2011 are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(in thousands)
Net sales
SLPE	$	18,824	$	22,581	$	37,167	$	44,306
High Power Group		15,896		18,151		31,471		34,886
SL-MTI		9,077		9,310		18,676		18,418
RFL		5,102		6,224		10,925		11,250
Net sales	$	48,899	$	56,266	$	98,239	$	108,860

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(in thousands)
Income from operations
SLPE	$	479		$	2,055		$	268		$	4,370
High Power Group		1,585			2,393			2,950			4,498
SL-MTI		1,441			1,641			3,144			3,251
RFL		578			895			1,636			1,333
Other		(1,738	)		(1,370	)		(3,281	)		(2,799	)
Income from operations	$	2,345		$	5,614		$	4,717		$	10,653

Total assets as of June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
	2012		2011
	(in thousands)
Total assets
SLPE	$	35,800	$	39,205
High Power Group		30,646		29,639
SL-MTI		14,450		11,505
RFL		13,099		13,973
Other		18,492		16,904
Total assets	$	112,487	$	111,226

\

Goodwill and intangible assets, net, as of June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
	2012		2011
	(in thousands)
Goodwill and other intangible assets, net
SLPE	$	4,624	$	4,733
High Power Group		15,595		15,820
SL-MTI		157		—
RFL		5,386		5,414
Goodwill and other intangible assets, net	$	25,762	$	25,967

XML

Debt

6 Months Ended

Jun. 30, 2012

Debt [Abstract]

Debt

9. Debt

On October 23, 2008, the Company and certain of its subsidiaries entered into an Amended and Restated Revolving Credit Agreement, as amended (the “2008 Credit Facility”) with Bank of America, N.A., a national banking association, individually, as agent, issuer and a lender thereunder, and the other financial institutions party thereto. The 2008 Credit Facility was reset and amended on August 12, 2009, November 19, 2010, March 28, 2011, July 20, 2011 and May 29, 2012.

The 2008 Credit Facility, as amended, provides for maximum borrowings of up to $40,000,000 and includes a standby and commercial letter of credit sub-limit of $10,000,000. The 2008 Credit Facility was scheduled to expire on July 1, 2012, unless earlier terminated by the agent thereunder following an event of default. Borrowings under the 2008 Credit Facility bear interest, at the Company’s option, at the British Bankers Association LIBOR rate plus 1.5% to 3.0%, or an alternative rate, which is the higher of (i) the Federal Funds rate plus 0.5%, or (ii) Bank of America, N.A.’s publicly announced prime rate, plus a margin rate ranging from 0% to 0.75%. The margin rates are based on certain leverage ratios, as provided in the facility documents. The Company is subject to compliance with certain financial covenants set forth in the 2008 Credit Facility, including a maximum ratio of total funded indebtedness to EBITDA (as defined), minimum levels of interest coverage and net worth and limitations on capital expenditures, as defined. Availability under the 2008 Credit Facility is based upon the Company’s trailing twelve month EBITDA, as defined.

On May 29, 2012, the Company entered into a Fifth Amendment to the 2008 Credit Facility. The Fifth Amendment, among other things, (a) amends the definition of Maturity Date to extend the Maturity Date of the Credit Agreement to August 30, 2012, (b) amends the Minimum Net Worth financial covenant, and (c) amends the business covenants to permit the Company to issue one or more dividends and/or purchase its registered capital stock then issued and outstanding, in an amount not in excess, in the aggregate, of Twenty Million Dollars ($20,000,000), on a trailing twelve month basis. In consideration for these amendments, the Company agreed to pay the lenders $43,000, which was remitted in May 2012 and will be amortized over the remaining life of the 2008 Credit Facility.

As of June 30, 2012, and December 31, 2011, the Company had no outstanding balance under the 2008 Credit Facility. At June 30, 2012 and December 31, 2011, the Company had total availability under the 2008 Credit Facility of $39,510,000 and $39,527,000, respectively.

The Company’s obligations under the 2008 Credit Facility are secured by the grant of security interests in substantially all of its assets.

XML

Discontinued Operations (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 Site	Jun. 30, 2011
Discontinued Operations (Additional Textual) [Abstract]
(Loss) income from discontinued operations before income taxes	$ (401,000)	$ (298,000)	$ (714,000)	$ (591,000)
(Loss) income from discontinued operations, net of tax	(244,000)	593,000	(438,000)	403,000
Number of environmental sites			5
Foreign Tax Authority [Member]
Discontinued Operations (Textual) [Abstract]
Unrecognized tax position related to the settlement		787,000
Recognized income tax		619,000
Recognized interest income		168,000
Elektro-Metall Export GmbH [Member] | Foreign Tax Authority [Member]
Discontinued Operations (Textual) [Abstract]
Unrecognized tax position related to the settlement		787,000
Recognized income tax		619,000
Recognized interest income		$ 168,000

XML

Recently Adopted and Issued Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

Recently Adopted and Issued Accounting Pronouncements [Abstract]

Recently Adopted and Issued Accounting Pronouncements

7. Recently Adopted and Issued Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-4, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS,” which converges fair value measurement and disclosure guidance in U.S. GAAP with fair value measurement and disclosure guidance issued by the International Accounting Standards Board (“IASB”). The amendments in the authoritative guidance do not modify the requirements for when fair value measurements apply. The amendments generally represent clarifications on how to measure and disclose fair value under ASC 820, “Fair Value Measurement.” ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption not permitted. The adoption of the provisions of ASU No. 2011-4 did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income,” which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for fiscal years beginning on or after December 15, 2011 and interim periods within those years. As this new guidance is related to presentation only, the implementation in the first quarter of 2012 did not have a material impact on the Company’s results of operations, financial position or cash flows.

In September 2011, the FASB issued ASU 2011-08 “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” which amends the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors (such as changes in management, key personnel, strategy, key technology, or customers) to determine if it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. ASU 2011-08 is effective for the first annual period beginning after December 15, 2011, with early adoption permitted. The implementation of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

XML

Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets [Abstract]

Goodwill And Intangible Assets

8. Goodwill And Intangible Assets

Acquisitions in Fiscal 2012

On February 27, 2012, the Company purchased certain assets of Pro-Dex Astromec, Inc. (“Astromec”), a subsidiary of Pro-Dex Inc. (“Pro-Dex”), for approximately $1,050,000, which includes the assumption of liabilities for an estimated earn-out of $294,000. The acquisition was paid in cash. Astromec designs, develops and manufactures high-reliability, fractional horsepower motors and motion control accessories. Astromec provides custom motor and motion control solutions to the aerospace, defense, medical and commercial and industrial markets. SL-MTI recorded direct acquisition costs of approximately $422,000 during the first six months of 2012, which are recorded within selling, general and administrative expenses in the Consolidated Statements of Income.

At June 30, 2012, the financial statements reflect the preliminary purchase price based on estimated fair values at the date of acquisition, including $670,000 in inventories, $202,000 in equipment, and $10,000 in other current assets. The acquisition resulted in intangible assets of $168,000 while no goodwill was recognized. Intangible assets were composed of a customer list with a useful life of 5 years. The purchase price also includes $294,000 in liabilities related to an estimated earn-out, which is comprised of quarterly payments based on the performance of the acquired business over the three year period immediately following the date of acquisition.

The Company continues to evaluate certain assets and liabilities related to this business combination. Additional information, which existed as of the acquisition date but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill. The determination of the estimated fair values of all assets and liabilities acquired is expected to be completed during fiscal year 2012. The results from the acquisition date through June 30, 2012 are included in the SL-MTI segment.

Goodwill And Intangible Assets

Intangible assets consist of the following:

			June 30, 2012						December 31, 2011
	Amortizable Life (years)		Gross Value		Accumulated Amortization		Net Value		Gross Value		Accumulated Amortization		Net Value
			(in thousands)
Finite-lived intangible assets:
Customer relationships (1)		5 to 8	$	3,868	$	2,853	$	1,015	$	3,700	$	2,587	$	1,113
Patents (2)		5 to 20		1,281		1,170		111		1,250		1,154		96
Developed technology		5 to 6		1,700		1,608		92		1,700		1,517		183
Licensing fees		5 to 10		450		313		137		450		285		165
Total amortized finite-lived intangible assets				7,299		5,944		1,355		7,100		5,543		1,557
Indefinite-lived intangible assets:
Trademarks				1,672		—		1,672		1,672		—		1,672
Other intangible assets, net			$	8,971	$	5,944	$	3,027	$	8,772	$	5,543	$	3,229

⁽¹⁾  On February 27, 2012, the Company purchased certain assets of Astromec, a subsidiary of Pro-Dex. Included in the preliminary purchase price is a customer list valued at $168,000. The estimated useful life of the asset is 5 years.

⁽²⁾  During the first six months of 2012, the Company’s MTE division capitalized legal fees related to a new patent application. The estimated useful life of the asset is 20 years.

In accordance with ASC 350 “Intangibles – Goodwill and Other,” goodwill and other indefinite-lived intangible assets are not amortized, but are tested for impairment. Such impairment testing is undertaken annually, or more frequently upon the occurrence of some indication that an impairment has taken place. The Company conducted an annual impairment test as of December 31, 2011.

A two-step process is utilized to determine if goodwill has been impaired. In the first step, the fair value of each reporting unit is compared to the net asset value recorded for such unit. If the fair value exceeds the net asset value, the goodwill of the reporting unit is not adjusted. However, if the recorded net asset value exceeds the fair value, the Company performs a second step to measure the amount of impairment loss, if any. In the second step, the implied fair value of the reporting unit’s goodwill is compared with the goodwill recorded for such unit. If the recorded amount of goodwill exceeds the implied fair value, an impairment loss is recognized in the amount of the excess.

For the testing conducted as of December 31, 2011, the Company concluded that no impairment charge was warranted. Going forward there can be no assurance that economic conditions or other events may not have a negative material impact on the long-term business prospects of any of the Company’s reporting units. In such case, the Company may need to record an impairment loss, as stated above. The next annual impairment test will be conducted as of December 31, 2012, unless management identifies a triggering event in the interim.

Management has not identified any triggering events, as defined by ASC 350, during 2012. Accordingly, no interim impairment test has been performed.

Estimated future amortization expense for intangible assets subject to amortization in each of the next five fiscal years is as follows:

	Amortization Expense (in thousands)
2012	$	759
2013	$	439
2014	$	401
2015	$	58
2016	$	39

Total amortization expense, excluding the amortization of deferred financing costs, consists of amortization expense related to intangible assets and software. Amortization expense related to intangible assets for the three months ended June 30, 2012 and June 30, 2011 was $206,000 and $229,000 respectively. Amortization expense related to intangible assets for the six months ended June 30, 2012 and June 30, 2011 was $401,000 and $459,000, respectively. Amortization expense related to software for the three months ended June 30, 2012 and June 30, 2011 was $41,000 and $42,000, respectively. Amortization expense related to software for the six months ended June 30, 2012 and June 30, 2011 was $79,000 and $78,000, respectively.

Changes in goodwill balances by segment (defined below) are as follows:

	Balance					Balance
	December 31,		Translation			June 30,
	2011		Adjustment			2012
	(in thousands)
SL Power Electronics Corp.	$	4,245	$	(3	)	$	4,242
High Power Group:
MTE Corporation		8,189		—			8,189
Teal Electronics Corp.		5,055		—			5,055
RFL Electronics Inc.		5,249		—			5,249
Total	$	22,738	$	(3	)	$	22,735

XML

Accrued Liabilities - Other

6 Months Ended

Jun. 30, 2012

Accrued Liabilities Other [Abstract]

Accrued Liabilities - Other

10. Accrued Liabilities – Other

Accrued liabilities – other consist of the following:

	June 30,		December 31,
	2012		2011
	(in thousands)
Taxes (other than income) and insurance	$	400	$	332
Commissions		589		775
Litigation and legal fees		295		97
Other professional fees		400		519
Environmental		4,314		4,676
Warranty		896		1,318
Deferred revenue		170		101
Acquisition earn-out, current		179		—
Other (1)		6,346		1,745
Accrued liabilities—other	$	13,589	$	9,563

⁽¹⁾ The balance at June 30, 2012, includes the aggregate purchase price paid by the Company in connection with the Tender Offer of $4,147,000, excluding transaction costs. The total purchase price was recorded in other accrued liabilities since the expiration date of the Tender Offer was June 27, 2012 but payment was not made until July 5, 2012 according to the terms of the Tender offer (see Note 19 for additional information).

Included in the environmental accrual are estimates for all known costs believed to be probable and reasonably estimable for sites that the Company currently operates or operated at one time (see Note 12 for additional information).

A liability is established for estimated future warranty and service claims that relate to current and prior period sales. The Company estimates warranty costs based on historical claim experience and other factors including evaluating specific product warranty issues.

The following is a summary of activity in accrued warranty and service liabilities:

	Six Months Ended
	June 30, 2012
	(in thousands)
Liability, beginning of year	$	1,318
Expense for new warranties issued		441
Accruals related to preexisting warranties (1)		(274	)
Warranty claims		(589	)
Liability, end of period	$	896

⁽¹⁾  Includes adjustments related to changes in estimates.

XML

Derivative Instruments and Hedging Activities (Details Textual) (USD $)	Jun. 30, 2012
Derivative Instruments and Hedging Activities Disclosure (Textual) [Abstract]
Fair value of the foreign currency forward contracts	$ 170,000

XML

Subsequent Events (Details) (USD $)	1 Months Ended			1 Months Ended
	Aug. 31, 2012	Jul. 31, 2012 Employees	Aug. 06, 2012 Employees	Aug. 31, 2012 SLPE [Member]	Aug. 31, 2012 TEAL [Member]	Aug. 09, 2012 PNC Bank, National Association ("PNC") [Member] 2012 Credit Facility [Member]	Aug. 09, 2012 PNC Bank, National Association ("PNC") [Member] Letter of Credit [Member] 2012 Credit Facility [Member]	Aug. 09, 2012 Libor Rate [Member] Minimum [Member]	Aug. 09, 2012 Libor Rate [Member] Maximum [Member]	Aug. 09, 2012 Base Rate [Member] Minimum [Member]	Aug. 09, 2012 Base Rate [Member] Maximum [Member]	Aug. 09, 2012 Federal Funds Open Rate [Member] 2012 Credit Facility [Member]	Aug. 09, 2012 Daily Libor Rate [Member] 2012 Credit Facility [Member]
Subsequent Events (Textual) [Abstract]
Maximum borrowings						$ 40,000,000	$ 10,700,000
Maximum borrowings Under certain conditions						70,000,000
Standby and commercial letter of credit sublimit						5,000,000
Margin rate range								1.25%	2.00%	0.25%	1.00%	0.50%	1.00%
Maturity date of expiration						Aug. 09, 2016
Consolidated charge to earnings	$ 905,000			$ 847,000	$ 58,000
Number of employees terminated by the restructuring plan			55
The total number of employees affected by the restructuring plan		56
Subsequent Events (Additional Textual) [Abstract]
Expected months after termination to pay unpaid termination benefits - Minimum	1 month
Expected months after termination to pay unpaid termination benefits - Maximum	3 months

XML

Derivative Instruments and Hedging Activities (Details 1) (USD $)	6 Months Ended
	Jun. 30, 2012
Gain or loss recognized on foreign currency forward contracts
Gain or loss recognized on foreign currency forward contracts	$ (170,000)
Not Designated as Hedging Instrument [Member] | Foreign Exchange Contract [Member] | Other gain (loss), net [Member]
Gain or loss recognized on foreign currency forward contracts
Gain or loss recognized on foreign currency forward contracts	$ (170,000)

XML

Other Long-Term Liabilities (Tables)

6 Months Ended

Jun. 30, 2012

Other Long-Term Liabilities [Abstract]

Other long-term liabilities

	June 30,		December 31,
	2012		2011
	(in thousands)
Environmental	$	19,033	$	18,533
Unrecognized tax benefits, interest and penalties		895		802
Long-term incentive plan		326		1,242
Acquisition earn-out, long-term		115		—
Other long-term liabilities	$	20,369	$	20,577

XML

Accrued Liabilities - Other (Details 1) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Summary of activity in accrued warranty and service liabilities
Liability, Beginning of period	$ 1,318
Expense for new warranties issued	441
Accruals related to preexisting warranties	(274)
Warranty claims	(589)
Liability, end of period	$ 896

XML

Fire Related Gain and Insurance Recovery

6 Months Ended

Jun. 30, 2012

Fire Related Gain (Loss) and Insurance Recovery [Abstract]

Fire Related Gain And Insurance Recovery

15. Fire Related Gain And Insurance Recovery

On March 24, 2010, the Company sustained fire damage at its then leased manufacturing facility in Mexicali, Mexico. This facility manufactured products for both SLPE and MTE. The fire was contained to an area that manufactured MTE products. The Company was fully insured for the replacement of the assets damaged in the fire and for the loss of profits due to the business interruption and changed conditions caused by the fire.

The Company’s fire related loss includes the destruction of property and equipment, damaged inventory, cleanup costs and increased operating expenses incurred as a result of the fire. The Company’s insurance recovery represents the replacement cost of property and equipment damaged as a result of the fire, the fair market value of inventory damaged in the fire, cleanup costs and increased business expenses, net of applicable adjustments and deductibles.

During June 2011, the Company settled the fire damage claims with its insurance carriers for $810,000 and as a result the Company recorded a gain related to the fire of $277,000. The Company had recorded estimated insurance recoveries of $533,000.

XML

Subsequent Events

6 Months Ended

Jun. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

20. Subsequent Events

On August 9, 2012, the Company entered into a senior revolving credit facility (the “2012 Credit Facility”) with PNC Bank, National Association (“PNC Bank”) to replace its 2008 Credit Facility. The 2012 Credit Facility provides for borrowings up to $40,000,000 and under certain circumstances maximum borrowings up to $70,000,000. The 2012 Credit Facility includes a $5,000,000 sublimit for letters of credit and provides for a separate $10,700,000 letter of credit which expires one year from the date of closing, with annual extensions. The 2012 Credit Facility expires on August 9, 2016.

Borrowings under the 2012 Credit Facility bear interest, at the Company’s option, at the London interbank offering rate (“LIBOR”) plus a margin rate ranging from 1.25% to 2.0%, or the higher of a Base Rate plus a margin rate ranging from 0.25% to 1.0%. The Base Rate is equal to the highest of (i) the Federal Funds Open Rate plus 0.5% and (ii) the Prime Rate and (iii) the Daily Libor Rate plus 1%. The margin rates are based on certain leverage ratios, as defined. The Company is subject to compliance with certain financial covenants set forth in the 2012 Credit Facility, including, but not limited to, indebtedness to EBITDA, as defined, minimum levels of fixed charges and limitations on capital expenditures, as defined. Availability under the 2012 Credit Facility is based upon the Company’s trailing twelve month EBITDA, as defined.

During July 2012, the Company announced to its employees a restructuring plan to align its costs with current and projected sales activity. The costs reductions were primarily direct labor employees and engineering, selling and administration employees at SLPE and at TEAL, which is part of the High Power Group. As of August 6, 2012, there was a consolidated charge to earnings of $905,000, which was comprised of an $847,000 charge at SLPE and a $58,000 charge at TEAL. The charges are composed of severance and other employee related charges. The total number of employees affected by the restructuring plan to date is 56, of which 55 have been terminated as of August 6, 2012. The remaining unpaid termination benefits associated with the plan are expected to be paid one month to three months after termination.

XML

Debt (Details) (USD $)	6 Months Ended		6 Months Ended
	Jun. 30, 2012 2008 Credit Facility [Member]	Dec. 31, 2011 2008 Credit Facility [Member]	Jun. 30, 2012 2008 Credit Facility [Member] Maximum [Member]	Jun. 30, 2012 2008 Credit Facility [Member] Minimum [Member]	Jun. 30, 2012 Credit Facility Agreement Amendment Number Five [Member]	May 29, 2012 Credit Facility Agreement Amendment Number Five [Member]
Debt (Textual) [Abstract]
Maximum borrowings	$ 40,000,000
Standby and commercial letter of credit sublimit	10,000,000
Maturity date					Aug. 30, 2012
LIBOR rate plus variable basis point rate range			3.00%	1.50%
Basis Point over Federal Fund Rate	0.50%
Basis Point Range over Bank of America Prime Rate			0.75%	0.00%
Authorization by Bank to Issue Dividends and/or Repurchase Value of Stock Outstanding Prior to Maturity						20,000,000
Consideration paid for Amendment to Credit Facility						43,000
Balance under 2008 Credit Facility	0	0
Credit Availability under credit Facility	$ 39,510,000	$ 39,527,000
Maturity date	Jul. 01, 2012

XML

Income Per Share (Details Textual)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Income Per Share (Textual) [Abstract]
Anti-dilutive common share equivalents	6,000	0

XML

Consolidated Statements of Comprehensive Income (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 1,166,000	$ 4,209,000	$ 2,416,000	$ 7,621,000
Other comprehensive income, net of tax:
Foreign currency translation	(113,000)	93,000	(94,000)	102,000
Comprehensive income	$ 1,053,000	$ 4,302,000	$ 2,322,000	$ 7,723,000

XML

Income Per Share

6 Months Ended

Jun. 30, 2012

Income Per Share [Abstract]

Income Per Share

4. Income Per Share

The Company has presented net income per common share pursuant to Accounting Standards Codification (“ASC”) 260 “Earnings Per Share.” Basic net income per common share is computed by dividing reported net income available to common shareholders by the weighted average number of shares outstanding for the period.

Diluted net income per common share is computed by dividing reported net income available to common shareholders by the weighted average shares outstanding for the period, adjusted for the dilutive effect of common stock equivalents, which consist of stock options, using the treasury stock method.

The table below sets forth the computation of basic and diluted net income per share:

	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2011		2012			2011
	(in thousands, except per share amounts)
Basic net income available to common shareholders:
Net income available to common shareholders from continuing operations	$	1,410		$	3,616	$	2,854		$	7,218
Diluted net income available to common shareholders from continuing operations	$	1,410		$	3,616	$	2,854		$	7,218
Shares:
Basic weighted average number of common shares outstanding		4,444			4,523		4,501			4,507
Common shares assumed upon exercise of stock options		13			53		17			51
Diluted weighted average number of common shares outstanding		4,457			4,576		4,518			4,558
Basic net income (loss) per common share:
Income from continuing operations	$	0.32		$	0.80	$	0.64		$	1.60
(Loss) income from discontinued operations (net of tax)		(0.06	)		0.13		(0.10	)		0.09
Net income	$	0.26		$	0.93	$	0.54		$	1.69
Diluted net income (loss) per common share:
Income from continuing operations	$	0.32		$	0.79	$	0.63		$	1.58
(Loss) income from discontinued operations (net of tax)		(0.06	)		0.13		(0.10	)		0.09
Net income	$	0.26		$	0.92	$	0.53		$	1.67

For the six-months ended June 30, 2012, approximately 6,000 stock options were excluded from the dilutive computation because the option exercise prices were greater than the average market price of the Company’s common stock. No stock options were excluded from the dilutive computation for the six-months ended June 30, 2011, since all option exercise prices were less than the average market price of the Company’s common stock.

XML

Retirement Plans and Deferred Compensation (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Retirement Plans and Deferred Compensation (Textual) [Abstract]
Costs incurred under defined contribution pension plan	$ 346,000	$ 303,000	$ 669,000	$ 691,000
Amount charged to expenses in connection with agreements for supplemental retirement benefits	$ 101,000	$ 100,000	$ 201,000	$ 199,000
Minimum [Member]
Retirement Plans and Deferred Compensation (Textual) [Abstract]
Discount rates for supplemental retirement benefits plans			6.00%
Maximum [Member]
Retirement Plans and Deferred Compensation (Textual) [Abstract]
Discount rates for supplemental retirement benefits plans			12.00%

XML

Recently Adopted and Issued Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2012

Recently Adopted and Issued Accounting Pronouncements [Abstract]

Basis of Presentation

1. Basis Of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereon included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Unless the context requires otherwise, the terms the “Company,” “SL Industries,” “we,” “us” and “our” mean SL Industries, Inc., a New Jersey corporation, and its consolidated subsidiaries.

Certain reclassifications have been made to the prior period Consolidated Statement of Cash Flows and footnotes to conform to the current year presentation.

Income Per Share

The Company has presented net income per common share pursuant to Accounting Standards Codification (“ASC”) 260 “Earnings Per Share.” Basic net income per common share is computed by dividing reported net income available to common shareholders by the weighted average number of shares outstanding for the period.

Income Taxes - Interim Reporting

The Company calculates its interim tax provision in accordance with the provisions of ASC 740-270 “Income Taxes – Interim Reporting.” For each interim period the Company estimates its annual effective income tax rate and applies the estimated rate to its year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items separately reported, such as discontinued operations, and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

Recently Adopted and Issued Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-4, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS,” which converges fair value measurement and disclosure guidance in U.S. GAAP with fair value measurement and disclosure guidance issued by the International Accounting Standards Board (“IASB”). The amendments in the authoritative guidance do not modify the requirements for when fair value measurements apply. The amendments generally represent clarifications on how to measure and disclose fair value under ASC 820, “Fair Value Measurement.” ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption not permitted. The adoption of the provisions of ASU No. 2011-4 did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income,” which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for fiscal years beginning on or after December 15, 2011 and interim periods within those years. As this new guidance is related to presentation only, the implementation in the first quarter of 2012 did not have a material impact on the Company’s results of operations, financial position or cash flows.

In September 2011, the FASB issued ASU 2011-08 “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” which amends the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors (such as changes in management, key personnel, strategy, key technology, or customers) to determine if it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. ASU 2011-08 is effective for the first annual period beginning after December 15, 2011, with early adoption permitted. The implementation of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Intangibles - Goodwill and Other

In accordance with ASC 350 “Intangibles – Goodwill and Other,” goodwill and other indefinite-lived intangible assets are not amortized, but are tested for impairment. Such impairment testing is undertaken annually, or more frequently upon the occurrence of some indication that an impairment has taken place. The Company conducted an annual impairment test as of December 31, 2011.

Segment Information

The Company currently operates under four business segments: SL Power Electronics Corp. (“SLPE”), the High Power Group, SL Montevideo Technology, Inc. (“SL-MTI”) and RFL Electronics Inc. (“RFL”). Teal Electronics Corp. (“Teal”) and MTE Corporation (“MTE”) are combined into one business segment, which is reported as the High Power Group. The Company aggregates operating business subsidiaries into a single segment for financial reporting purposes if aggregation is consistent with the objectives of ASC 280 “Segment Reporting.” Business units are also combined if they have similar characteristics in each of the following areas:

• nature of products and services

• nature of production process

• type or class of customer

• methods of distribution

Fair Value Measurement and Financial Instruments

ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses foreign currency forward contracts to hedge its foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including spot rates and market forward points. The fair value of the foreign currency forward contracts is based on interest differentials between the currencies being traded, spot rates and market forward points.

To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees, where applicable.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2012, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

In conjunction with its implementation of updates to the fair value measurements guidance, the Company made an accounting policy election to measure derivative financial instruments subject to master netting agreements on a net basis.

Derivative Instruments and Hedging Activities

ASC Topic 815, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by ASC Topic 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to variability in expected future cash flows related to forecasted foreign exchange-based risk are considered economic hedges of the Company’s forecasted cash flows.

XML

Receivables (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Receivables
Trade receivables	$ 27,897,000	$ 30,447,000
Less: allowance for doubtful accounts	(599,000)	(603,000)
Trade receivables, net	27,298,000	29,844,000
Recoverable income taxes	7,000	202,000
Other	418,000	1,095,000
Receivables, net	$ 27,723,000	$ 31,141,000

XML

Retirement Plans and Deferred Compensation

6 Months Ended

Jun. 30, 2012

Retirement Plans and Deferred Compensation [Abstract]

Retirement Plans And Deferred Compensation

14. Retirement Plans And Deferred Compensation

During the six months ended June 30, 2012 and June 30, 2011, the Company maintained a defined contribution pension plan covering all full-time, U.S. employees of SLPE, Teal, MTE, SL-MTI, RFL and the corporate office. The Company’s contributions to this plan are based on a percentage of employee contributions and/or plan year gross wages, as defined. Costs incurred under these plans amounted to $346,000 and $669,000 during the three month and six month periods ended June 30, 2012 compared to $303,000 and $691,000 during the three month and six month periods ended June 30, 2011.

The Company has agreements with certain retired directors, officers and key employees providing for supplemental retirement benefits. The liability for supplemental retirement benefits is based on the most recent mortality tables available and discount rates ranging from 6% to 12%. The amount charged to expense in connection with these agreements amounted to $101,000 and $201,000 for the three month and six month periods ended June 30, 2012 compared to $100,000 and $199,000 for the three month and six month periods ended June 30, 2011.