(ii) 70% of the total amount of Eligible Special Accounts; provided that, the percentageshall be reduced on a point-for-point basis to the extent ERC US’s Dilution Rate exceeds 20%,plus     (iii) the lesser of (a) the Inventory Sublimit and (b) the sum of (i) the lesser of (A) 85% ofthe NOLV of Eligible Inventory and (B) (x) during each period commencing on February 1 andcontinuing through August 31 of each calendar year, 60% and (y) during each period commencing onSeptember 1 and continuing through January 31 of each calendar year, 55% of the total amount ofEligible Inventory, plus (ii) the lesser of (A) 85% of the NOLV of Eligible In-Transit Inventory,and (B) (x) during each period commencing on February 1 and continuing through August 31 of eachcalendar year, 60% and (y) during each period commencing on September 1 and continuing throughJanuary 31 of each calendar year, 55% of the total amount of Eligible In-Transit Inventory and (C)$6,000,000, plus (iii) the lesser of (A) 85% of the NOLV of Eligible licensed Inventory, and (B)(x) during each period commencing on February 1 and continuing through August 31 of each calendaryear, 60% and (y) during each period commencing on September 1 and continuing through January 31 ofeach calendar year, 55% of the total amount of Eligible Licensed Inventory and (C) (x) $3,000,0000through and including December 31, 2009, (y) $2,000,000 commencing January 1, 2010 through andincluding December 31, 2010 and $0 at all time thereafter, plus (iv) the lesser of (A) 85%of the NOLV of Eligible LC Inventory, and (B) (x) during each period commencing on February 1 andcontinuing through August 31 of each calendar year, 60% and (y) during each period commencing onSeptember 1 and continuing through January 31 of each calendar year, 55% of the total amount ofEligible LC Inventory, plus     (iv) 100% of the cash proceeds received by ER Hong Kong in connection with the SubsidiarySale and which proceeds are maintained at all times by ER Hong Kong in a Deposit Account at Bankpursuant to Section 5.15(a) hereof, plus     (v) 100% of cash of Borrowers maintained in Deposit Account #2000018631676 and #2000030536885with Bank (and such other Deposit Accounts agreed to by Borrowers and Bank); minus     (vi) any Reserves.“Excess Availability” means at a particular date, an amount equal to (a) for purposes ofSection 2.2.5, the Borrowing Base and for all other purposes, the lesser of (i) the RevolverCommitment or (ii) the Borrowing Base, minus (b) the sum of (i) the outstanding amount of
2

 
Loans plus (ii) Letter of Credit Obligations, plus (iii) all amountsdue and owing to Borrowers’ trade creditors which are outstandingbeyond normal trade terms except for those Properly Contested, plus(iv) fees and expenses for which Borrowers are liable under thisAgreement but which have not been paid, plus (v) all taxes due andowing to any federal, state or local governmental body except forthose Properly Contested.“Inventory Sublimit” means (a) for the period commencingJanuary 1 through and including March 31 of each calendar year, anamount equal to $9,000,000 and (b) for the period commencing April 1through and including December 31 of each calendar year, an amountequal to $10,500,000.“Revolver Commitment” means the commitment of Bank, subjectto the terms and conditions herein, to make Revolver Loans and issueLetters of Credit in accordance with the provisions of Section 2hereof in an aggregate amount not to exceed $15,000,000 at any onetime.          1.2 Adjustment of Interest Rate. Effective as of March 31, 2010, Section 2.2.5of the Loan Agreement is amended and restated in its entirety and shall read as follows:2.2.5 Adjustment of Interest Rate. Commencing on April 1,2010 (based upon prior calendar quarter’s average ExcessAvailability (as determined by Bank whose determination shall befinal and binding absent manifest error)) and thereafter on thefirst day of each succeeding Interest Adjustment Period, theApplicable Margin for each applicable Interest Adjustment Periodshall be determined based upon the prior calendar quarter’s averageExcess Availability (as determined by Bank whose determination shallbe final and binding absent manifest error), in accordance with thefollowing matrix:               **Letters of** **Letters of** **Purchase Order**  **Credit** **Credit** **Supported Letters of****Excess Availability** **(standby)** **(documentary)** **Credit**Less than $5,000,000  2.25%  2.25%  1.75%             Greater than orequal to $5,000,000but lessthan $15,00,000  2.00%  2.00%  1.50%             Greater than orequal $15,000,000  1.75%  1.75%  1.25%For purposes of the foregoing no downward rate adjustmentshall occur if an Event of Default has occurred and is continuing onthe applicable Interest Adjustment Date, such adjustment to takeeffect
3

 
only upon the cure or waiver in writing (if any) of such Event ofDefault. In addition to the foregoing and in addition to Bank’sother rights and remedies hereunder, if during an InterestAdjustment Period it is determined that an Event of Defaultexists upon Bank’s receipt of Borrowers’ quarterly financialstatements and compliance certificate for such fiscal quarter,then the interest rate for all Loans shall be retroactively resetas of the first day of such Interest Adjustment Period to theinterest rate as of the last day of the immediately precedingInterest Adjustment Period (if such interest rate was higher).          1.3 Letters of Credit. Clause (i) of Section 2.10.1 of the Loan Agreement isamended and restated in its entirety and shall read as follows:(i) the aggregate face amount of Letters of Credit issued byBank which are outstanding at any one time shall not exceed theRevolver Commitment and of such amount the aggregate face amountof Purchase Order Supported Letters of Credit issued by Bank whichare outstanding at any one time shall not exceed $10,000,000;          1.4 Letter of Credit Fees. Section 2.11.3 of the Loan Agreement is amended andrestated in its entirety and shall read as follows:2.11.3 Letter of Credit Fees. Borrowers shall pay to Bank,at such times as Bank shall require, Bank’s normal scheduled feesand charges in connection with Letters of Credit, as in effectfrom time to time, and (a) with respect to standby Letters ofCredit, at the time of issuance and renewal of each such Letter ofCredit, a fee equal to the Applicable Margin on a per annum basison the face amount of the Letter of Credit for the period of timethe Letter of Credit will be outstanding; (b) with respect todocumentary Letters of Credit (other than Purchase Order SupportedLetters of Credit), monthly in arrears on the first day of eachcalendar month, a fee equal to the Applicable Margin multiplied bythe average daily maximum face amount of all outstandingdocumentary Letters of Credit computed at a per annum rate foreach day; and (c) with respect to Purchase Order Supported Lettersof Credit, monthly in arrears on the first day of each calendarmonth, a fee equal to the Applicable Margin multiplied by theaverage daily maximum face amount of all outstanding documentaryLetters of Credit computed at a per annum rate for each day.          1.5 Inspection of Books and Records and Field Examinations. Section 5.5 of the LoanAgreement is amended and restated in its entirety and shall read as follows:5.5 Inspection of Books and Records and Field Examinations. Shall permitinspections of the Collateral and the records of such Person pertaining thereto and verification ofthe Accounts, at such times and in such manner as may be required by Bank (which except
4

 
upon the occurrence and during the continuance of any Event ofDefault, shall be upon reasonable notice and during reasonablebusiness hours) and shall further permit such inspections,collateral appraisals, reviews and field examinations of its otherbooks and records and properties (with such frequency and at suchtimes as Bank may desire) by Bank as Bank may deem necessary ordesirable from time to time. The cost of such field examinations,reviews, verifications, collateral appraisals, and inspections shallbe borne by Borrowers at Bank’s then current rate (currently at arate of $850 per examiner per day), plus Bank’s reasonableout-of-pocket expenses. Notwithstanding the foregoing, so long as noEvent of Default then exists, Borrowers shall be responsible forcosts and expenses associated with a maximum of one (1) examinationper year, two (2) examiners per examination and eight (8) daysmaximum per examination. In addition to the foregoing, Bankanticipates conducting Inventory appraisals (at Borrower’s sole costand expenses) on a semi-annual basis or in each case on a morefrequent basis as Bank may determine in its reasonable discretion.          1.6 Borrowing Base Reporting and Quarterly Financial Statements. Section 5.6(a) andSection 5.6(b) of the Loan Agreement are amended and restated in their entirety and shall read asfollows:(a) Periodic Borrowing Base Information. No later than 12:00noon on the first Business Day of each calendar month (or morefrequently if required by Bank), Borrowers shall deliver to Bank acompleted Borrowing Base Certificate certified by the chief financialofficer, controller or president of Borrower Agent to be accurate andcomplete and in compliance with the terms of the Loan Documents. Forthe avoidance of doubt, each Borrowing Base Certificate shall continueto include the specific information required in connection withAccounts, Eligible Accounts, Eligible Government Accounts, EligibleSpecial Accounts, Inventory, Eligible Inventory, Eligible In- TransitInventory, Eligible LC Inventory and Eligible Licensed Inventory ofBorrowers.(b) Interim Statements. Within fifty (50) days after the endof each fiscal quarter (i.e., March 31, June 30, September 30 orDecember 31), a consolidated and consolidating balance sheet ofBorrowers at the end of that period and a consolidated andconsolidating income statement, and a statement of cash flows on aconsolidated basis, for that period (and for the portion of the fiscalyear ending with such period), setting forth in comparative form thefigures for the same period of the preceding fiscal year. Theforegoing statements shall be certified by the chief financial officerof Borrower Agent as true and correct and fairly representing thefinancial condition of Borrowers and their Subsidiaries and that such
5

 
statements are prepared in accordance with GAAP, except withoutfootnotes and subject to normal year-end audit adjustments.          1.7 Financial Covenants. Notwithstanding anything to the contrary contained in theLoan Agreement, Borrowers shall not be required to comply with the financial covenants setforth in Sections 7.1 *(Fixed Charge Coverage Ratio),*7.2 *(Capital Expenditures)*or 7.3 *(FreeCash Flow)*of the Loan Agreement.          1.8 Cash Collateral. Borrowers shall at all times maintain on deposit in DepositAccount #2000018631676 and #2000030536885 with Bank (and such other Deposit Accounts agreed to byBorrowers and Bank) an aggregate amount equal to 105% of Bank’s maximum liability under alloutstanding Letters of Credit, to be held as cash Collateral for Borrowers’ reimbursementobligations and other Obligations.          1.9 Consent for March 2010 Dividend. Bank consents to the March 2010 Dividend solong as immediately prior to and immediately following such ERC US making such dividend no Event ofDefault or Default exists.          1.10 Credit Facility. Notwithstanding anything to the contrary contained in the LoanAgreement, Bank shall solely be obligated to issue Letters of Credit on behalf of Borrowers fromtime to time during the Term on the terms and conditions set forth in this Agreement and Borrowersshall have no ability to request or receive, nor shall Bank be obligated to make, any RevolverLoans.     **2. CONFIRMATION OF INDEBTEDNESS**          Each Borrower hereby confirms and agrees that, as of the close of business on the datehereof, the total principal amount of outstanding Revolver Loans under the Loan Agreement is $0,and the face amount of all outstanding Letters of Credit is $1,060,552.57 and that each Borroweris unconditionally liable to Bank for such amounts, together with all accrued and unpaid interestand expenses through the date hereof, without any set-off, deduction, counterclaim or defense.     **3. FURTHER ASSURANCES**          Each Borrower hereby agrees to take all such actions and to execute and/or deliver to Bankall such agreements, instruments, certificates, assignments, financing statements and otherdocuments, as Bank may reasonably require from time to time, to effectuate and implement thepurposes of this Amendment.     **4. CONFIRMATION OF COLLATERAL**          Each Borrower covenants, confirms and agrees that as security for the repayment of theObligations, Bank has, and shall continue to have, and is hereby granted a continuing lien on andsecurity interest in the Collateral (including the Smith Barney Securities), all whether now ownedor hereafter acquired, created or arising, including all proceeds thereof. Each Borroweracknowledges and agrees that nothing herein contained in any way impairs Bank’s existing rights andpriority in the Collateral.
6

 
     **5. REPRESENTATIONS AND WARRANTIES**          Each Borrower warrants and represents to Bank that:          5.1 By execution of this Amendment, Borrowers confirm that all representations and warrantiesmade by Borrowers to Bank shall be true and correct in all material respects, with the same effectas though the representations and warranties had been made on and as of the date hereof, except tothe extent such representation and warranty are made as of a specific prior date.          5.2 The execution and delivery by each Borrower of this Amendment and the performance of thetransactions herein contemplated (i) are and will be within its power, (ii) have been authorized byall necessary action, and (iii) are not and will not be in contravention of any order of court orother agency of government, of law, of any organization document of such Borrower or of anyindenture, agreement or undertaking to which such Borrower is a party or by which the property ofsuch Borrower is bound, or be in conflict with, result in a breach of or constitute (with duenotice and/or lapse of time) a default under any such indenture, agreement or undertaking, orresult in the imposition of any lien, charge or encumbrance of any nature on any of the propertiesof such Borrower.          5.3 This Amendment and any assignment or other instrument, document or agreement executed anddelivered in connection herewith, will constitute the legal, valid and binding obligations of eachBorrower, enforceable in accordance with their respective terms, subject only to bankruptcy andsimilar laws affecting creditors’ rights generally.          5.4 There are no outstanding Defaults or Events of Default under any of the Loan Documents.          5.5 There has been no change which could have a Material Adverse Effect on any Borrower sincethe date of the most recent financial statements of such Borrower delivered to Bank from time totime.     **6. EFFECTIVENESS CONDITIONS**          This Amendment shall not be effective until the following conditions have been met to thesole satisfaction of Bank (which satisfaction shall be evidenced by Bank’s counter-execution anddelivery to ERC US of a fully executed counterpart of this Amendment):               (i) Borrowers shall have executed and delivered to Bank thisAmendment.               (ii) Borrowers shall have paid to Bank, in immediately available funds, a non-refundablewaiver and amendment fee in an amount equal to $55,000, which fee is fully earned by Bank upon theexecution of this Amendment.     **7. REAFFIRMATION**          This Amendment shall be incorporated into and made part of the Loan Agreement. Except asexpressly modified by the terms hereof, all of the terms and conditions of the Loan Agreement, andall of the other Loan Documents, are hereby reaffirmed and shall continue in full force and effectas therein written.
7

 
     **8. RELEASE**          As further consideration for the agreement of Bank to enter into this Amendment, eachBorrower hereby waives, releases, and discharges Bank, all affiliates of Bank and all of thedirectors, officers, employees, attorneys and agents of Bank and all affiliates of such Persons,from any and all known claims, demands, actions or causes of action existing as of the datehereof, arising out of or in any way relating to this Amendment, the Loan Agreement, the LoanDocuments and/or any documents, agreements, instruments, dealings or other matters connectedwith this Amendment, the Loan Agreement, the Loan Documents or the administration thereof.     **9. MISCELLANEOUS**          9.1 Integrated Agreement. The Loan Documents and this Amendment shall be construed asintegrated and complementary of each other, and as augmenting and not restricting Bank’s rights,remedies and security. If, after applying the foregoing, an inconsistency still exists, theprovisions of this Amendment shall control.          9.2 Severability. Any provision hereof, or of the Loan Agreement or any other LoanDocument that is prohibited or unenforceable in any jurisdiction shall be, as to suchjurisdiction, ineffective to the extent of such prohibition or unenforceability withoutinvalidating the remaining provisions hereof, and any such prohibition or unenforceability in anyjurisdiction shall not invalidate or render unenforceable such provision in any otherjurisdiction.          9.3 Non-Waiver. No omission or delay by Bank in exercising any right or power underthis Amendment, or the Loan Documents or any related agreement will impair such right or poweror be construed to be a waiver of any Default or Event of Default or an acquiescence therein, andany single or partial exercise of any such right or power will not preclude other or furtherexercise thereof or the exercise of any other right, and no waiver will be valid unless inwriting and signed by Bank and then only to the extent specified. Bank’s rights and remedies arecumulative and concurrent and may be pursued singly, successively or together.          9.4 Headings. The headings of any paragraph of this Amendment are for convenienceonly and shall not be used to interpret any provision of this Amendment.          9.5 Survival. All warranties, representations and covenants made by Borrowersherein, or in any agreement referred to herein or on any certificate, document or otherinstrument delivered by it or on its behalf under this Amendment, shall be considered to havebeen relied upon by Bank. All statements in any such certificate or other instrument shallconstitute warranties and representations by Borrower hereunder. All warranties,representations, and covenants made by Borrowers hereunder or under any other agreement orinstrument shall be deemed continuing until the Obligations are indefeasibly paid and satisfiedin full.          9.6 Successors and Assigns. This Amendment shall be binding upon and shall inure tothe benefit of Borrowers and Bank, and their respective successors and assigns; provided, thatBorrowers may not assign any of its rights hereunder without the prior written consent of Bank,and any such assignment made without such consent will be void.          9.7 Governing Law. This Amendment, the Loan Agreement and the Loan Documentsshall be deemed contracts made under the laws of the State of the Jurisdiction and shall
8

 
be governed by and construed in accordance with the laws of said state (excluding its conflict oflaws provisions if such provisions would require application of the laws of another jurisdiction)except insofar as the laws of another jurisdiction may, by reason of mandatory provisions of law,govern the perfection, priority and enforcement of security interests in the Collateral.          9.8 **WAIVER OF JURY TRIAL****. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER BYEXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANYRIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISINGOUT OF, UNDER OR IN CONNECTION WITH THIS AMENDMENT, THE LOAN AGREEMENT, THE LOANDOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THISAMENDMENT OR THE LOAN AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISIONIS A MATERIAL INDUCEMENT TO BANK TO ENTER INTO AND ACCEPT THIS AMENDMENT.**          9.9 Counterparts. This Amendment may be executed in any number of counterparts andby different parties hereto in separate counterparts, each of which when so executed and deliveredshall be deemed an original and all of which when taken together shall constitute but one and thesame instrument. Any signature delivered by a party by facsimile transmission or .pdf shall bedeemed to be an original signature hereto.**[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]**
9

 
     IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered bytheir duly authorized officers as of the date first above written.     **BORROWERS:****EMERSON RADIO CORP.**