EXHIBIT 10.1



December 19, 1997
                                ACKNOWLEDGMENT COPY
                                -------------------

Mr. Joe O'Brien, CFO
Phoenix Gold International, Inc.
9300 North Decatur
Portland, OR 97203

Dear Joe:

I am pleased to advise you that U.S. Bank National  Association has renewed your
revolving line of credit subject to the following terms and conditions:

         BORROWER:                          Phoenix Gold International, Inc.

         GUARANTOR(S):                      None.


      REVOLVING LINE OF CREDIT:

         MAXIMUM LOAN AMOUNT:               $5,500,000.

         PURPOSE:                           Operating funds.

         INTEREST                           RATE: The interest rate is tied to a
                                            performance   matrix  based  on  the
                                            Borrower's    Time   Fixed    Charge
                                            Coverage and adjusted quarterly. The
                                            interest   rate   spread   will   be
                                            adjusted  either  upward or downward
                                            for  the  subsequent  quarter  after
                                            achieving  the  Times  Fixed  charge
                                            coverage   ratio,   based   on   the
                                            following matrix:
<TABLE>
<CAPTION>

                                                 TIMES FIXED
                                            LEVEL CHARGE COVERAGE                       PRIME +       LIBOR +
                                            -----------------------------------------------------------------
<S>                                           <C>                                        <C>           <C>
                                               1     Greater than 3.00:1                  0             2.25%
                                               2     Less than or equal to 3.00:1.0       0             2.75%
                                               3     Less than or equal to 2.50:1.0       0.50%         3.25%
                                               4     Less than or equal to 2.00:1.0       1.00%         3.75%
                                               5     Less than or equal to 1.51:1.0       1.50%         4.25%
                                               6     Less than 1.25:1.0                   Default       Default

</TABLE>
<PAGE>




                                            The LIBOR  option will be  available
                                            under the following conditions:

                                            a) Minimum  advances of $500,000 and
                                               increments       of      $100,000
                                               thereafter.

                                            b) LIBOR   contracts   may  vary in
                                               length  of time from one month up
                                               to three months.

                                            c) The  Bank may  require  up to two
                                               days prior written  notice before
                                               allowing LIBOR advances.

                                            d) No principal repayment during the
                                               fixed rate period.

                                            INITIAL  FUNDING  PRIOR TO  DECEMBER
                                            31, 1997, WILL BE UNDER LEVEL 4.

                                            THE   INTEREST   RATE   CHARGED   TO
                                            BORROWER  IS TIED TO THE PRIME  RATE
                                            OF U.S. BANK  NATIONAL  ASSOCIATION,
                                            COMPUTED  ON THE  BASIS OF A 360-DAY
                                            YEAR AND THE  ACTUAL  NUMBER OF DAYS
                                            ELAPSED.  BORROWER  IS ADVISED  THAT
                                            U.S.  BANK  NATIONAL   ASSOCIATION'S
                                            PRIME  RATE IS THE RATE OF  INTEREST
                                            WHICH  THE  BANK  FROM  TIME TO TIME
                                            IDENTIFIES AND PUBLICLY ANNOUNCES AS
                                            ITS   PRIME   RATE,   AND   IS   NOT
                                            NECESSARILY, FOR EXAMPLE, THE LOWEST
                                            RATE  OF  INTEREST  WHICH  THE  BANK
                                            COLLECTS  FROM ANY BORROWER OR GROUP
                                            OF BORROWERS.


         MATURITY DATE:                     Payable on demand.

         REVIEW DATE:                       December 31, 1998.

         REPAYMENT:                         Optional advance note; interest 
                                            payable  monthly, principal payable
                                            upon demand, automated credit sweep
                                            on prime based borrowings.


                                            REPAYMENT OF EACH  ADVANCE  RECEIVED
                                            BY THE  BORROWER  UNDER  THE LINE OF
                                            CREDIT  IS  SUBJECT  TO THE TERMS OF
                                            THE PROMISSORY  NOTE EVIDENCING THAT
                                            ADVANCE  AS  WELL AS ALL  TERMS  AND
                                            CONDITIONS  OF THIS  LETTER.  IN THE
                                            EVENT OF ANY  CONFLICT  BETWEEN  THE
                                            TWO, THE TERMS AND CONDITIONS OF THE
                                            PROMISSORY NOTE SHALL CONTROL.

         LOAN FEE:                          Upfront  annual  loan  fee of  1/8th
                                            of 1%  ($6,875),  plus all out of
                                            pocket expenses.

         COLLATERAL:                        Perfected  first  priority  security
                                            interest  in all of  Borrower's  now
                                            owned   and    hereafter    acquired
                                            accounts receivable,  inventory, and
                                            equipment.  (Except  equipment which
                                            is   currently   pledged   to  other
                                            lenders as security).

         COSTS:                             Borrower  shall be  responsible for
                                            all of the  Banks  costs,  expenses,
                                            fees,   including   attorneys  fees,
                                            associated  with the negotiation and
                                            documentation    of   these   credit
                                            facilities.

<PAGE>


                               FINANCIAL REPORTING
                               -------------------

1.        Annual CPA audited financial statement to be provided within 90 days
          of the end of each fiscal year.

2.        Monthly company prepared financial statements to be provided within
          30 days of the end of each  month.

3.        Quarterly compliance certificate to be provided within 30 days of the
          end of each quarter.


                               FINANCIAL COVENANTS
                               -------------------

As long as indebted to Bank,  Borrower is to be in compliance with the following
financial benchmarks, as described below:

         CURRENT RATIO:                     Maintain a ratio of Current Assets
                                            to Current  Liabilities  equal to or
                                            greater than 2.10:1.  Current  Ratio
                                            is defined as Current Assets divided
                                            by Current Liabilities

         TANGIBLE NET WORTH:                Maintain a Tangible Net Worth in
                                            excess of $10,700,000. Tangible Net
                                            Worth is defined as Net Worth minus
                                            any intangible assets.

         TIMES FIXED
         CHARGE COVERAGE:                   Maintain a ratio of Times Fixed 
                                            Charge  Coverage  equal to or
                                            greater  than  1.25:1.   Defined  as
                                            earnings  before  interest,   taxes,
                                            depreciation,    and    amortization
                                            (EBITDA)    divided   by   scheduled
                                            principal payments on long term debt
                                            and  capital  leases  plus  interest
                                            expense  plus  cash  funded  capital
                                            expenditures plus dividends.

All  computations  made to determine  compliance with the covenant  requirements
shall be made in  accordance  with  generally  accepted  accounting  principles,
applied  on a  consistent  basis and  certified  by  Borrower  as being true and
correct on a quarterly basis beginning December 31, 1997. The Times Fixed Charge
Coverage will be based on a rolling four quarter average.


                          GENERAL TERMS AND CONDITIONS
                          ----------------------------

1.   PRIME RATE:  U.S.  Bank's prime rate is the rate of interest  which Lender 
     from time to time  establishes  as its prime rate and is not, for example,
     the lowest rate of interest  which Lender  collects from any borrower
     or class of borrowers.

2.   LOAN  ADVANCES:  Advances may be requested by Borrower from time to time in
     accordance  with the terms of the promissory  note.  All advances shall be 
     made at the sole option of Lender.  Lender may decline to make any advance
     and may terminate the availability of advances at any time.

3.   INSURANCE:  Borrower  shall  maintain  insurance  in such  amounts and
     covering  such risks as Lender  shall  require.
<PAGE>

4.   FINANCIAL  REPORTING:  At any time  requested  by  Lender,  Borrower  shall
     furnish any additional information regarding Borrower's financial condition
     and business operations that Lender reasonably  requests.  This information
     may  include,  but is not limited to,  financial  statements,  tax returns,
     lists of assets  and  liabilities,  agings  of  receivables  and  payables,
     inventory schedules, budgets and forecasts.

5.   LOAN  DOCUMENTATION:   Borrower  shall  deliver  to  Lender  duly  executed
     promissory notes, deeds of trust, mortgages, security agreements, financing
     statements, loan agreements, guaranties, borrower authorizations,  attorney
     opinion  letters  and other  documents  ("Loan  Documents")  as required by
     Lender in form and substance satisfactory to Lender and its counsel.

6.   NON-ASSIGNABLE:  This credit accommodation may not be assigned by Borrower.
     No guarantor or any third party is intended as a third-party beneficiary
     or has any right to rely hereon.

7.   ARBITRATION:  Borrower and Lender hereby agree to be bound by the terms of
     the  Arbitration  clause  attached  hereto as Exhibit A.

8.   EXPENSES:  Borrower shall reimburse Lender for all  out-of-pocket  expenses
     incurred in connection with this credit accommodation upon demand,  whether
     or not this transaction  closes or is funded.  Such expenses shall include,
     without  limitation,  attorney fees,  title insurance  fees,  travel costs,
     examination expenses, and filing fees.

9.   EXPIRATION   DATE:  This  offer  will  expire  on  December 31,  1997  and
     the  revolving  credit facility contemplated by this letter must be
     documented and closed on or before December 31, 1997.

10.  ACCESS LAWS:  Without  limiting  the  generality  of any  provision of this
     agreement  requiring  Borrower to comply with applicable  laws,  rules, and
     regulations,  Borrower  agrees  that  it  will  at all  times  comply  with
     applicable laws relating to disabled access including,  but not limited to,
     all applicable titles of the Americans with Disabilities Act of 1990.


This letter summarizes  certain  principal terms and conditions  relating to the
loan and  supersedes  all prior  oral or written  negotiations,  understandings,
representations  and  agreements  with  respect to the loan.  However,  the Loan
Documents will include additional terms, conditions, covenants, representations,
warranties and other  provisions  which Lender  customarily  includes in similar
transactions or which Lender  determines to be appropriate to this  transaction.
Except to the extent  modified  by any other  agreement,  all terms,  condition,
covenants  and other  provisions of this letter shall remain in effect until the
revolving line of credit  (including any renewals,  extensions or modifications)
is  terminated  and the loan  balance  is paid in full,  and by  signing  below,
Borrower agrees to comply with all such provisions.

In addition to the events of default in any Loan Document, any failure to comply
with any term,  condition or obligation in this letter shall constitute an event
of default under each of the Loan Documents. The provisions of this letter shall
survive  the  closing of the loan and the  execution  and  delivery  of the Loan
Documents.  In the  event  of a  conflict  between  this  letter  and  the  Loan
Documents, the terms of the Loan Documents shall control.

<PAGE>


UNDER OREGON LAW,  MOST  AGREEMENTS,  PROMISES AND  COMMITMENTS  MADE BY LENDERS
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL,  FAMILY OR HOUSEHOLD  PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING,  EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER
TO BE ENFORCEABLE.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,  EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER OREGON LAW.


If the above terms and conditions are acceptable to you,  please sign,  date and
return the acknowledgment copy of this letter on or before the Expiration Date.

Sincerely,

/s/ Daniel A. Rice

Daniel A. Rice
Vice President
275-5175



Borrower hereby accepts  Lender's offer to extend credit on terms and conditions
stated  above.  Borrower  hereby agrees to the  Arbitration  clause set forth in
Exhibit A attached hereto.

PHOENIX GOLD INTERNATIONAL, INC.
--------------------------------

By:      /s/ Joseph K. O'Brien
         ---------------------------

Title:  Chief Financial Officer
        ----------------------------

Date:   December 22, 1997
        ----------------------------

<PAGE>


                                    EXHIBIT A


ARBITRATION.   Lender  and  Borrower   agree  that  all  disputes,   claims  and
controversies  between  them,  whether  individual,  joint,  or class in nature,
arising from this letter or the revolving line of credit or otherwise, including
without limitation  contract and tort disputes,  shall be arbitrated pursuant to
the Rules of the American Arbitration Association, upon request of either party.
No act to take or dispose of any collateral securing any loan shall constitute a
waiver  of this  arbitration  agreement  or be  prohibited  by this  arbitration
agreement. This includes,  without limitation,  obtaining injunctive relief or a
temporary  restraining  order;  foreclosing by notice and sale under any deed of
trust or mortgage;  obtaining a writ of  attachment or imposition of a receiver;
or exercising  any rights  relating to personal  property,  including  taking or
disposing of such property with or without  judicial process pursuant to Article
9 of the  Uniform  Commercial  Code.  Any  disputes,  claims,  or  controversies
concerning  the  lawfulness  or  reasonableness  or any act,  or exercise of any
right,  concerning  any  collateral  securing any loan,  including  any claim to
rescind,  reform,  or otherwise modify any agreement  relating to the collateral
securing any loan, shall also be arbitrated, provided however that no arbitrator
shall have the right or other power to enjoin or restrain  any act of any party.
Judgment upon any award  rendered by any  arbitrator may be entered in any court
having  jurisdiction.  Nothing  herein  shall  preclude  any party from  seeking
equitable  relief  from a  court  of  competent  jurisdiction.  The  statute  of
limitations,  estoppel,  waiver,  laches,  and  similar  doctrines  which  would
otherwise be applicable  in an action  brought by a party shall be applicable in
any arbitration  proceeding,  and the commencement of an arbitration  proceeding
shall be deemed the  commencement of any action for these purposes.  The Federal
Arbitration Act shall apply to the construction, interpretation, and enforcement
of this arbitration provision.