ALTERNATIVE RATE OPTIONS
                                 PROMISSORY NOTE
                               (PRIME RATE, LIBOR)

$5,500,000.00                                            DATED AS OF:  12-28-98 
---------------------------------------------------------            -----------
PHOENIX GOLD INTERNATIONAL, INC.                                    ("BORROWER")
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U.S. BANK NATIONAL ASSOCIATION                                        ("LENDER")
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1.  TYPE OF CREDIT. This note is given to evidence Borrower's obligation to 
repay all sums which Lender may from time to time advance to Borrower
("Advances") under a:

/ /      single  disbursement loan. Amounts loaned to Borrower hereunder will be
         disbursed in a single Advance in the amount shown in Section 2.

/X/      revolving  line of credit.  No  Advances  shall be made which  create a
         maximum  amount  outstanding  at any one time which exceeds the maximum
         amount shown in Section 2. However, Advances hereunder may be borrowed,
         repaid and reborrowed, and the aggregate Advances loaned hereunder from
         time to time may exceed such maximum amount.

/ /      non-revolving  line of  credit.  Each  Advance  made  from time to time
         hereunder shall reduce the maximum amount available shown in Section 2.
         Advances loaned hereunder which are repaid may not be reborrowed.

2.  PRINCIPAL BALANCE. The unpaid principal balance of all Advances outstanding 
under this note ("Principal Balance") at one time shall not exceed $5,500,000.00

3.  PROMISE TO PAY.  For value  received  Borrower  promises to pay to Lender or
order at COMMERCIAL  LOAN SERVICING  WEST,  the Principal  Balance of this note,
with interest thereon at the rate(s) specified in Sections 4 and 11 below.

4. INTEREST RATE.  The interest rate on the Principal  Balance  outstanding  may
vary from time to time pursuant to the  provisions of this note.  Subject to the
provisions  of this note,  Borrower  shall have the option  from time to time of
choosing to pay interest at the rate or rates and for the applicable  periods of
time based on the rate options provided  herein;  provided,  however,  that once
Borrower  notifies  Lender  of the rate  option  chosen in  accordance  with the
provisions of this note, such notice shall be irrevocable.  The rate options are
the Prime Borrowing Rate and the LIBOR Borrowing Rate, each as defined herein.

(a)      DEFINITIONS.  The following terms shall have the following meanings:

                "Business Day" means any day other than a Saturday,  Sunday,  or
other  day  that  commercial  banks in  Portland,  Oregon  or New York  City are
authorized  or required  by law to close;  provided,  however  that when used in
connection  with a LIBOR Rate,  LIBOR Amount or LIBOR Interest  Period such term
shall also  exclude any day on which  dealings in U.S.  dollar  deposits are not
carried on in the London interbank market.

                "LIBOR  Amount" means each  principal  amount for which Borrower
chooses to have the LIBOR  Borrowing Rate apply for any specified LIBOR Interest
Period.

                "LIBOR Interest  Period" means as to any LIBOR Amount,  a period
of 1, 2 OR 3 months  commencing  on the date the LIBOR  Borrowing  Rate  becomes
applicable  thereto;  PROVIDED,  however,  that: (i) the first day of each LIBOR
Interest  Period must be a Business Day; (ii) no LIBOR Interest  Period shall be
selected which would extend beyond EXPIRY ; (iii) no LIBOR Interest Period shall
extend beyond the date of any principal payment required under Section 6 of this
note,  unless the sum of the Prime Rate  Amount,  plus LIBOR  Amounts with LIBOR
Interest  Periods  ending  on or before  the  scheduled  date of such  principal
payment,  plus principal  amounts  remaining  unborrowed under a line of credit,
equals or exceeds the amount of such principal payment;  (iv) any LIBOR Interest
Period which would otherwise  expire on a day which is not a Business Day, shall
be  extended  to the next  succeeding  Business  Day,  unless the result of such
extension  would be to extend such LIBOR Interest  Period into another  calendar
month,  in which event the LIBOR  Interest  Period shall end on the  immediately
preceding  Business  Day; and (v) any LIBOR  Interest  Period that begins on the
last  Business  Day of a  calendar  month  (or on a day for  which  there  is no
numerically  corresponding  day in the  calendar  month at the end of such LIBOR
Interest Period) shall end on the last Business Day of a calendar month.


                                       20
<PAGE>

                "LIBOR Rate" means, for any LIBOR Interest Period,  the rate per
annum  (computed  on the basis of a 360-day  year and the actual  number of days
elapsed and rounded  upward to the nearest 1/16 of 1%)  established by Lender as
its LIBOR Rate, based on Lender's determination, on the basis of such factors as
Lender deems  relevant,  of the rate of interest at which U.S.  dollar  deposits
would be offered  to U.S.  Bank  National  Association  in the London  interbank
market at  approximately  11 a.m.  London time on the date which is two Business
Days prior to the first day of such LIBOR  Interest  Period for  delivery on the
first day of such  LIBOR  Interest  Period  for the  number  of months  therein;
provided,  however,  that the LIBOR Rate shall be adjusted to take into  account
the maximum reserves  required to be maintained for Eurocurrency  liabilities by
banks during each such LIBOR Interest Period as specified in Regulation D of the
Board of Governors of the Federal Reserve System or any successor regulation.

                "Prime  Rate" means 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.  When
the Prime Rate is  applicable  under  Section 4(b) or 11(b),  the interest  rate
hereunder shall be adjusted  without notice  effective on the day the Prime Rate
changes,  but in no event shall the rate of  interest be higher than  allowed by
law.

                "Prime Rate Amount" means any portion of the  Principal  Balance
bearing interest at the Prime Borrowing Rate.

(b)      THE PRIME BORROWING RATE.

         (i)  The Prime Borrowing Rate is a per annum rate equal to the Prime 
Rate plus 0.00%  per annum.
        ---------

         (ii) Whenever  Borrower desires to use the Prime Borrowing Rate option,
Borrower  shall give  Lender  notice  orally or in writing  in  accordance  with
Section 15 of this note, which notice shall specify the requested effective date
(which must be a Business Day) and  principal  amount of the Advance or increase
in the Prime Rate Amount, and whether Borrower is requesting a new Advance under
a line of credit or conversion of a LIBOR Amount to the Prime Borrowing Rate.

         (iii) Subject to Section 11 of this note,  interest shall accrue on the
unpaid  Principal  Balance at the Prime  Borrowing Rate unless and except to the
extent that the LIBOR Borrowing Rate is in effect.

(c)      THE LIBOR BORROWING RATE.

         (i) The LIBOR Borrowing Rate is the LIBOR Rate plus 2.50% per annum.
                                                             -----

         (ii)  Borrower  may obtain  LIBOR  Borrowing  Rate  quotes  from Lender
between 8:00 a.m. and 10:00 a.m.  (Portland,  Oregon time) on any Business  Day.
Borrower  may  request an Advance,  conversion  of any portion of the Prime Rate
Amount to a LIBOR Amount or a new LIBOR  Interest  Period for an existing  LIBOR
Amount,  at such rate only by giving Lender notice in accordance  with Section 4
(c) (iii) before 10:00 a.m. (Portland, Oregon time) on such day.

         (iii) Whenever Borrower desires to use the LIBOR Borrowing Rate option,
Borrower shall give Lender  irrevocable  notice (either in writing or orally and
promptly  confirmed  in writing)  between  8:00 a.m.  and 10:00 a.m.  (Portland,
Oregon time) two (2) Business Days prior to the desired  effective  date of such
rate. Any oral notice shall be given by, and any written notice or  confirmation
of an oral notice shall be signed by, the person(s)  authorized in Section 15 of
this note,  and shall specify the requested  effective  date of the rate,  LIBOR
Interest  Period and LIBOR  Amount,  and whether  Borrower is  requesting  a new
Advance at the LIBOR Borrowing Rate under a line of credit, conversion of all or
any portion of the Prime Rate Amount to a LIBOR Amount,  or a new LIBOR Interest
Period for an outstanding LIBOR Amount.  Notwithstanding  any other term of this
note,  Borrower  may elect the LIBOR  Borrowing  Rate in the  minimum  principal
amount of $  500,000.00  and in  multiples  of $  100,000.00  above such amount;
PROVIDED,  however, that no more than N/A separate LIBOR Interest Periods may be
in effect at any one time.

         (iv) If at any time the LIBOR Rate is unascertainable or unavailable to
Lender or if LIBOR Rate loans  become  unlawful,  the option to select the LIBOR
Borrowing Rate shall terminate immediately.  If the LIBOR Borrowing Rate is then
in  effect,  (A) it shall  terminate  automatically  with  respect  to all LIBOR
Amounts (i) on the last day of each then applicable  LIBOR Interest  Period,  if
Lender may lawfully  continue to maintain  such loans,  or (ii)  immediately  if
Lender may not lawfully  continue to maintain  such loans  through such day, and
(B) subject to Section 11, the Prime Borrowing Rate  automatically  shall become
effective as to such amounts upon such termination.


                                       21
<PAGE>

         (v) If at any  time  after  the  date  hereof  (A) any  revision  in or
adoption of any applicable law, rule, or regulation or in the  interpretation or
administration thereof (i) shall subject Lender or its Eurodollar lending office
to any tax,  duty, or other charge,  or change the basis of taxation of payments
to Lender with respect to any loans bearing interest based on the LIBOR Rate, or
(ii) shall impose or modify any reserve, insurance,  special deposit, or similar
requirements  against assets of,  deposits with or for the account of, or credit
extended by Lender or its Eurodollar  lending office, or impose on Lender or its
Eurodollar lending office any other condition  affecting any such loans, and (B)
the  result of any of the  foregoing  is (i) to  increase  the cost to Lender of
making or  maintaining  any such  loans or (ii) to reduce  the amount of any sum
receivable under this note by Lender or its Eurodollar lending office,  Borrower
shall pay Lender within 15 days after demand by Lender such additional amount as
will compensate  Lender for such increased cost or reduction.  The determination
hereunder by Lender of such additional amount shall be conclusive in the absence
of manifest error. If Lender demands  compensation  under this Section  4(c)(v),
Borrower  may upon three (3)  Business  Days'  notice to Lender pay the  accrued
interest on all LIBOR  Amounts,  together with any  additional  amounts  payable
under  Section  4(c)(vi).  Subject to Section  11, upon  Borrower's  paying such
accrued  interest and additional  costs,  the Prime  Borrowing Rate  immediately
shall be effective  with respect to the unpaid  principal  balance of such LIBOR
Amounts.

         (vi)  Borrower  shall pay to Lender,  on demand,  such amount as Lender
reasonably determines  (determined as though 100% of the applicable LIBOR Amount
had been  funded in the London  interbank  market) is  necessary  to  compensate
Lender for any direct or indirect losses, expenses, liabilities, costs, expenses
or  reductions  in  yield  to  Lender,   whether  incurred  in  connection  with
liquidation  or  re-employment  of funds or otherwise,  incurred or sustained by
Lender  as a  result  of:  (A) Any  payment  or  prepayment  of a LIBOR  Amount,
termination  of the LIBOR  Borrowing Rate or conversion of a LIBOR Amount to the
Prime  Borrowing Rate on a day other than the last day of the  applicable  LIBOR
Interest  Period  (including as a result of acceleration or a notice pursuant to
Section 4(c)(v));  or (B) Any failure of Borrower to borrow,  continue or prepay
any LIBOR  Amount or to convert  any portion of the Prime Rate Amount to a LIBOR
Amount after Borrower has given a notice thereof to Lender.

         (vii) If Borrower chooses the LIBOR Borrowing Rate,  Borrower shall pay
interest  based  on such  rate,  plus any  other  applicable  taxes  or  charges
hereunder,  even though  Lender may have  obtained  the funds loaned to Borrower
from sources other than the London interbank market.  Lender's  determination of
the LIBOR  Borrowing  Rate and any such taxes or charges  shall be conclusive in
the absence of manifest error.

         (viii)  Notwithstanding  any other term of this note,  Borrower may not
select the LIBOR  Borrowing  Rate if an event of default  hereunder has occurred
and is continuing.

         (ix) Nothing contained in this note,  including without  limitation the
determination  of any LIBOR Interest  Period or Lender's  quotation of any LIBOR
Borrowing  Rate,  shall be  construed to prejudice  Lender's  right,  if any, to
decline to make any requested Advance or to require payment on demand.

5.       COMPUTATION OF INTEREST.  All interest under  Section 4 and Section 11 
will be computed at the applicable rate based on a 360-day year and applied to 
the actual number of days elapsed.

6.       PAYMENT SCHEDULE

(a)      PRINCIPAL.  Principal shall be paid:

         /X/  on demand.
         / /  on demand, or if no demand, on **** .
         / /  on *** .
                -----
         / /  subject to Section 8, in installments of
              / /**** each, plus accrued interest, beginning on **** and on the
                 same day of each **** thereafter until *** when the entire
                 Principal Balance plus interest thereon shall be due and
                 payable.
             / / **** each, including accrued interest, beginning on **** and on
                 the same day of each *** thereafter until *** when the  entire
                 Principal  Balance plus interest thereon shall be due and
                 payable.
         / /   *****.
               -----


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<PAGE>

(b)      INTEREST.

         (i) Interest on the Prime Rate Amount shall be paid:

             /X/      on the FIRST day of JANUARY, 1999 and on the same day of 
                      each MONTH. thereafter prior to maturity and at maturity.
             / /      at maturity.
             / /      at the time each principal installment is due and at 
                      maturity.
             / /      ****.
                      ----

         (ii) Interest on all LIBOR Amounts shall be paid:

             /X/      on the last day of the applicable  LIBOR Interest  Period,
                      and if such  LIBOR  Interest  Period is longer  than three
                      months,  on  the  last  day of  each  three  month  period
                      occurring  during  such  LIBOR  Interest  Period,  and  at
                      maturity.
             / /      *** on the *** day of *** and on the same day of each *** 
                      thereafter prior to maturity and at maturity.
             / /      at maturity.
             / /      at the time each principal installment is due and at
                      maturity.
             / /      ****.
                      ----

7.    PREPAYMENT.

(a)   Prepayments of all or any part of the Prime Rate Amount may be made at
      any time without penalty.
(b)   Except as otherwise  specifically  set forth  herein,  Borrower may not
      prepay  all or any part of any  LIBOR  Amount  or  terminate  any LIBOR
      Borrowing Rate, except on the last day of the applicable LIBOR Interest
      Period.
(c)   Principal  prepayments  will not  postpone  the date of or  change  the
      amount of any regularly scheduled payment. At the time of any principal
      prepayment,  all accrued interest,  fees, costs and expenses shall also
      be paid.

8.    CHANGE IN PAYMENT AMOUNT. Each time the interest rate on this note changes
the holder of this note may,  from time to time,  in holder's  sole  discretion,
increase or decrease the amount of each of the installments  remaining unpaid at
the time of such change in rate to an amount holder in its sole discretion deems
necessary  to  continue  amortizing  the  Principal  Balance  at the  same  rate
established by the installment amounts specified in Section 6(a), whether or not
a "balloon"  payment may also be due upon  maturity of this note.  Holder  shall
notify  the  undersigned  of each such  change in  writing.  Whether  or not the
installment amount is increased under this Section 8, Borrower understands that,
as a result of increases in the rate of interest the final payment due,  whether
or not a  "balloon"  payment,  shall  include the entire  Principal  Balance and
interest  thereon  then  outstanding,  and may be  substantially  more  than the
installment specified in Section 6.

9.    ALTERNATE  PAYMENT DATE.  Notwithstanding  any other term of this note, if
in any month there is no day on which a scheduled  payment  would  otherwise be 
due (e.g. February 31), such payment shall be paid on the last banking day of 
that month.

10.   PAYMENT BY AUTOMATIC DEBIT.

/X/      Borrower hereby authorizes Lender to automatically deduct the amount of
all principal and interest payments from  account  number **** . If  there  are
insufficient funds in the account to pay the automatic deduction in full, Lender
may allow the account to become  overdrawn,  or Lender may reverse the automatic
deduction.  Borrower  will pay all the fees on the account which result from the
automatic deductions,  including any overdraft and non-sufficient funds charges.
If for any reason  Lender does not charge the  account  for a payment,  or if an
automatic payment is reversed,  the payment is still due according to this note.
If the account is a Money Market  Account,  the number of withdrawals  from that
account is limited as set out in the account agreement.  Lender may cancel the 
automatic deduction at any time in its discretion.

Provided, however, if no account number is entered above, Borrower does not want
to make payments by automatic debit.

                                       23
<PAGE>

11.   DEFAULT .

(a) Without  prejudice to any right of Lender to require payment on demand or to
decline to make any requested  Advance,  each of the following shall be an event
of default: (i) Borrower fails to make any payment when due. (ii) Borrower fails
to perform or comply with any term,  covenant or  obligation in this note or any
agreement  related to this note, or in any other  agreement or loan Borrower has
with  Lender.  (iii)  Borrower  defaults  under any loan,  extension  of credit,
security  agreement,  purchase or sales agreement,  or any other  agreement,  in
favor of any  other  creditor  or  person  that  may  materially  affect  any of
Borrower's  property  or  Borrower's  ability  to  repay  this  note or  perform
Borrower's  obligations  under  this  note or any  related  documents.  (iv) Any
representation  or  statement  made or  furnished  to Lender by  Borrower  or on
Borrower's  behalf is false or misleading in any material  respect either now or
at the time made or furnished. (v) Borrower dies, becomes insolvent,  liquidates
or  dissolves,  a receiver is  appointed  for any part of  Borrower's  property,
Borrower makes an assignment for the benefit of creditors,  or any proceeding is
commenced  either by  Borrower  or  against  Borrower  under any  bankruptcy  or
insolvency  laws. (vi) Any creditor tries to take any of Borrower's  property on
or in which Lender has a lien or security interest.  This includes a garnishment
of any of Borrower's accounts with Lender.  (vii) Any of the events described in
this default  section occurs with respect to any general  partner in Borrower or
any guarantor of this note, or any guaranty of Borrower's indebtedness to Lender
ceases to be, or is asserted  not to be, in full force and effect.  (viii) There
is any material  adverse  change in the  financial  condition or  management  of
Borrower  or Lender in good faith  deems  itself  insecure  with  respect to the
payment or  performance  of Borrower's  obligations  to Lender.  If this note is
payable  on demand,  the  inclusion  of  specific  events of  default  shall not
prejudice  Lender's right to require payment on demand or to decline to make any
requested Advance.

(b) Without prejudice to any right of Lender to require payment on demand,  upon
the  occurrence  of an event of default,  Lender may  declare the entire  unpaid
Principal  Balance on this note and all accrued unpaid interest  immediately due
and payable,  without notice. Upon default,  including failure to pay upon final
maturity,  Lender,  at its option,  may also, if permitted under applicable law,
increase the interest  rate on this note to a rate equal to the Prime  Borrowing
Rate plus 5%. The interest  rate will not exceed the maximum  rate  permitted by
applicable  law. In  addition,  if any payment of principal or interest is 19 or
more  days  past  due,  Borrower  will be  charged  a late  charge  of 5% of the
delinquent payment.

12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND. Holder's records shall, at
any time, be conclusive  evidence of the unpaid  Principal  Balance and interest
owing on this note.  Notwithstanding  any other  provisions of this note, in the
event  holder  makes  Advances  hereunder  which  result in an unpaid  Principal
Balance on this note which at any time exceeds the maximum  amount  specified in
Section 2,  Borrower  agrees that all such  Advances,  with  interest,  shall be
payable on demand.

13. LINE OF CREDIT PROVISIONS. If the type of credit indicated in Section 1 is a
revolving line of credit or a non-revolving line of credit, Borrower agrees that
Lender  is under  no  obligation  and has not  committed  to make  any  Advances
hereunder. Each Advance hereunder shall be made at the sole option of Lender.

14. DEMAND NOTE. If this note is payable on demand,  Borrower  acknowledges  and
agrees  that (a) Lender is entitled to demand  Borrower's  immediate  payment in
full of all amounts  owing  hereunder  and (b) neither  anything to the contrary
contained  herein or in any other loan documents  (including but not limited to,
provisions  relating to  defaults,  rights of cure,  default  rate of  interest,
installment  payments,  late charges,  periodic  review of Borrower's  financial
condition,  and covenants) nor any act of Lender pursuant to any such provisions
shall limit or impair Lender's right or ability to require Borrower's payment in
full of all amounts owing hereunder immediately upon Lender's demand.

15.  REQUESTS FOR ADVANCES.

(a) Any Advance may be made or interest rate option selected upon the request of
Borrower (if an individual),  any of the  undersigned  (if Borrower  consists of
more than one individual), any person or persons authorized in subsection (b) of
this Section 15, and any person or persons  otherwise  authorized to execute and
deliver promissory notes to Lender on behalf of Borrower.

                                       24
<PAGE>
(b) Borrower hereby  authorizes any ONE of the following  individuals to request
 Advances and to select interest  rate  options: **** unless Lender is otherwise
 instructed in writing.

(c) All Advances shall be disbursed by deposit directly to Borrower's account
number ****** of  Lender,  or  by cashier's check issued to Borrower.

(d) Borrower  agrees that Lender shall have no obligation to verify the identity
of any person  making any  request  pursuant to this  Section  15, and  Borrower
assumes  all  risks of the  validity  and  authorization  of such  requests.  In
consideration of Lender agreeing, at its sole discretion,  to make Advances upon
such  requests,  Borrower  promises  to  pay  holder,  in  accordance  with  the
provisions of this note, the Principal  Balance  together with interest  thereon
and other sums due hereunder, although any Advances may have been requested by a
person or persons not authorized to do so.

16.  PERIODIC  REVIEW.  Lender  will  review  Borrower's  credit  accommodations
periodically.  At the time of the review,  Borrower will furnish Lender with any
additional  information  regarding  Borrower's  financial condition and business
operations that Lender 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. If upon
review,  Lender,  in its  sole  discretion,  determines  that  there  has been a
material adverse change in Borrower's financial  condition,  Borrower will be in
default. Upon default, Lender shall have all rights specified herein.

17. NOTICES.  Any notice  hereunder may be given by ordinary mail,  postage paid
and  addressed  to  Borrower  at the last known  address of Borrower as shown on
holder's records. If Borrower consists of more than one person,  notification of
any of said persons shall be complete notification of all.

18.  ATTORNEY  FEES.  Whether or not  litigation  or  arbitration  is commenced,
Borrower  promises  to pay all  costs of  collecting  overdue  amounts.  Without
limiting the foregoing,  in the event that holder consults an attorney regarding
the  enforcement  of any of its rights under this note or any document  securing
the same,  or if this note is placed in the hands of an attorney for  collection
or if suit or  litigation  is  brought  to  enforce  this  note or any  document
securing the same,  Borrower  promises to pay all costs thereof  including  such
additional sums as the court or arbitrator(s) may adjudge reasonable as attorney
fees,  including  without  limitation,  costs and attorney  fees incurred in any
appellate  court,  in  any  proceeding  under  the  bankruptcy  code,  or in any
receivership and post-judgment attorney fees incurred in enforcing any judgment.

19. WAIVERS;  CONSENT. Each party hereto, whether maker, co-maker,  guarantor or
otherwise,  waives  diligence,   demand,  presentment  for  payment,  notice  of
non-payment,  protest  and notice of protest  and waives all  defenses  based on
suretyship or impairment of  collateral.  Without notice to Borrower and without
diminishing or affecting  Lender's rights or Borrower's  obligations  hereunder,
Lender may deal in any manner  with any person who at any time is liable for, or
provides  any real or personal  property  collateral  for, any  indebtedness  of
Borrower to Lender,  including the indebtedness  evidenced by this note. Without
limiting the foregoing,  Lender may, in its sole discretion: (a) make secured or
unsecured  loans to Borrower and agree to any number of waivers,  modifications,
extensions  and  renewals  of any  length  of such  loans,  including  the  loan
evidenced by this note; (b) impair, release (with or without substitution of new
collateral),  fail to perfect a security interest in, fail to preserve the value
of,  fail to  dispose of in  accordance  with  applicable  law,  any  collateral
provided by any person;  (c) sue, fail to sue,  agree not to sue,  release,  and
settle or compromise with, any person.

20. JOINT AND SEVERAL LIABILITY.  All undertakings of the undersigned  Borrowers
are joint and several and are binding upon any marital community of which any of
the undersigned are members.  Holder's rights and remedies under this note shall
be cumulative.

21.  SEVERABILITY.  If any term or provision of this note is declared by a court
of competent jurisdiction to be illegal, invalid or unenforceable for any reason
whatsoever, such illegality, invalidity or unenforceability shall not affect the
balance of the terms and provisions  hereof,  which terms and  provisions  shall
remain  binding and  enforceable,  and this note shall be  construed  as if such
illegal, invalid or unenforceable provision had not been contained herein.

22.  ARBITRATION.

(a)  Either  Lender  or  Borrower  may  require  that  all   disputes,   claims,
counterclaims and defenses, including those based on or arising from any alleged
tort  ("Claims")  relating in any way to this note or any  transaction  of which
this  note  is a part  (the  "Loan"),  be  settled  by  binding  arbitration  in

                                       25
<PAGE>
accordance  with the Commercial  Arbitration  Rules of the American  Arbitration
Association  and Title 9 of the U.S.  Code.  All  Claims  will be subject to the
statutes of limitation applicable if they were litigated. This provision is void
if the Loan, at the time of the proposed  submission to arbitration,  is secured
by real property  located  outside of Oregon or Washington,  or if the effect of
the  arbitration  procedure  (as opposed to any Claims of Borrower)  would be to
materially  impair  Lender's  ability to realize on any collateral  securing the
Loan.

(b) If  arbitration  occurs and each party's  Claim is less than  $100,000,  one
neutral  arbitrator will decide all issues;  if any party's Claim is $100,000 or
more, three neutral  arbitrators will decide all issues. All arbitrators will be
active Oregon State Bar members in good standing.  All arbitration hearings will
be held in Portland,  Oregon. In addition to all other powers, the arbitrator(s)
shall  have the  exclusive  right to  determine  all  issues  of  arbitrability.
Judgment on any arbitration award may be entered in any court with jurisdiction.

(c) If either party  institutes  any judicial  proceeding  relating to the Loan,
such  action  shall  not be a  waiver  of the  right  to  submit  any  Claim  to
arbitration.  In  addition,  each has the  right  before,  during  and after any
arbitration  to exercise any number of the following  remedies,  in any order or
concurrently:  (i)  setoff;  (ii)  self-help  repossession;  (iii)  judicial  or
non-judicial foreclosure against real or personal property collateral;  and (iv)
provisional remedies, including injunction, appointment of receiver, attachment,
claim and delivery and replevin.

23.  GOVERNING LAW. This note shall be governed by and construed and enforced in
accordance  with the laws of the State of Oregon  without regard to conflicts of
law principles;  PROVIDED,  however,  that to the extent that Lender has greater
rights or remedies  under  Federal law,  this  provision  shall not be deemed to
deprive  Lender of such rights and  remedies as may be available  under  Federal
law.

24. DISCLOSURE.

25. YEAR 2000.  Borrower has reviewed and assessed its business  operations  and
computer  systems and  applications to address the "year 2000 problem" (that is,
that  computer  applications  and equipment  used by the  Borrower,  directly or
indirectly   through  third   parties,   may  be  unable  to  properly   perform
date-sensitive  functions  before,  during and after January 1, 2000).  Borrower
reasonably  believes  that the year 2000  problem  will not result in a material
adverse  change in  Borrower's  business  condition  (financial  or  otherwise),
operations,  properties or prospects or ability to repay Lender. Borrower agrees
that this representation will be true and correct on and shall be deemed made by
Borrower on each date Borrower  requests any advance under this Note or delivers
any  information  to Lender.  Borrower  will  promptly  deliver  to Lender  such
information  relating to this  representation  as Lender  requests  from time to
time.

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.

EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES  RECEIPT OF A COMPLETED COPY OF THIS
DOCUMENT.

PHOENIX GOLD INTERNATIONAL, INC.                              
---------------------------------------------------------     
Borrower Name (Corporation, Partnership  or other Entity)

/S/ JOSEPH K. O'BRIEN                 CHIEF FINANCIAL OFFICER 
------------------------------------------------------------- 
By                                      Title


For  valuable  consideration,  Lender  agrees  to the  terms of the  arbitration
provision set forth in this note.

                                  Lender Name: U.S. Bank National Association
                                              -------------------------------

                                  By:   /S/ JEFF WOLF
                                     ----------------

                                  Title: ASSIST. VICE PRESIDENT & RELATIONSHIP
                                         MANAGER
                                         -------------------------------------

                                  Date: 12/29/98
                                        --------


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