December 1, 1999


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:  $5,000,000.

         PURPOSE:              Operating funds.

         INTEREST RATE:        Borrower will have the option of:

                               1) Fully floating variable interest rate equal
                                  to Lender's Prime Rate (currently 8.50%),

                               2) London  Inter-Bank  Offering Rate
                                  (LIBOR)+ 1.75%(currently 7.18%, based on a
                                  30-day LIBOR rate of 5.43%).

                       LIBOR advances are subject to:
                       ------------------------------
                       a) Minimum advance of $500,000, increments of $100,000
                          thereafter.
                       b) No prepayment is permitted.
                       c) Contracts may be fixed for 1, 2, or 3 months (not to
                          extend past
                          expiry date).
                       d) Two business days' notice  required with rates set
                          between 8:00 AM and 12:00 PM Pacific Coast Time.


<PAGE>

                                                                          PAGE 2
                                                PHOENIX GOLD INTERNATIONAL, INC.
                                                                DECEMBER 1, 1999

                       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, 2000.

         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% ($6,250),
                               plus  all out of pocket expenses.

         COLLATERAL:           Perfected  first  priority  security  interest in
                               all  of  Borrower's  now   owned   and  hereafter
                               acquired accounts receivable and inventory.

         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.



                               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.


<PAGE>


                                                                          PAGE 3
                                                PHOENIX GOLD INTERNATIONAL, INC.
                                                                DECEMBER 1, 1999

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

As long as indebted to Bank,  Borrower is to be in compliance with the following
financial  benchmarks,  as  described  below.  All  covenants  to be tested on a
quarterly basis.

         CURRENT RATIO:            Maintain a ratio of Current Assets to Current
                                   Liabilities  equal to or greater than  2.0:1.
                                   Current Ratio is  defined  as  Current Assets
                                   divided  by Current Liabilities

         TANGIBLE NET WORTH:       Maintain  a  Tangible  Net Worth in excess of
                                   $9,500,000.  Tangible Net Worth is defined as
                                   Net Worth minus any  intangible  assets.  The
                                   Bank   will   exclude   net  treasury   stock
                                   purchases  totaling  up  to $2,000,000 during
                                   the  period  beginning  December   1st,  1999
                                   through December 31st, 2000 from the Tangible
                                   Net Worth covenant calculation.

          PERMITTED STOCK
          REPURCHASE:              Beginning   December    1st,   1999,  through
                                   December  31st,  2000  up  to  a  maximum  of
                                   $2,000,000 worth of publicly  traded,  common
                                   stock  can   be   repurchased  without  prior
                                   written bank approval as long as the Borrower
                                   remains  in  compliance  with  all  financial
                                   covenants.  Limited  purchases of stock  held
                                   by the  Borrower's management or the board of
                                   directors is  permitted.   Total purchases of
                                   management  and board member stock not exceed
                                   $250,000.

          MAXIMUM FUNDED
          DEBT TO TANGIBLE NET
          WORTH:                   Maintain a Total Funded Debt to Tangible  Net
                                   Worth ratio of less than 0.25.  Total  Funded
                                   Debt is defined as all interest-bearing debt.
                                   Tangible  Net Worth is defined at  Net  Worth
                                   minus any intangible assets.

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.

                          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.


<PAGE>

                                                                          PAGE 4
                                                PHOENIX GOLD INTERNATIONAL, INC.
                                                                DECEMBER 1, 1999

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

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,  1999 and the
     revolving  credit  facility  contemplated by this letter must be documented
     and closed on or before January 15, 2000.

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>

                                                                          PAGE 5
                                                PHOENIX GOLD INTERNATIONAL, INC.
                                                                DECEMBER 1, 1999

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/ Jeffery Swift

Jeffery Swift
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 and Secretary
                ----------------------------------------
Date:           December 6, 1999
                ----------------

<PAGE>


                                                                          PAGE 6
                                                PHOENIX GOLD INTERNATIONAL, INC.
                                                                DECEMBER 1, 1999

                                    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.