<PAGE>
 
                             EXHIBIT 10.37
                                        
BANK OF AMERICA           BUSINESS LOAN AGREEMENT
National Trust and Savings Association

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This Agreement dated as of June 19, 1998, is between BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION (the "Bank") and SPORT CHALET, INC. (the
"Borrower").

1.  DEFINITIONS

In addition to the terms which are defined elsewhere in this Agreement, the
following terms have the meanings indicated for the purposes of this Agreement:

1.1 "APPLICABLE MARGIN" means with respect to the Reference Rate, the LIBOR
Rate, the Offshore Rate, and the Short Term Base Fixed Rate, the percentage
points indicated as being added thereto, as set forth in the chart below, based
on the Borrower's fixed charge coverage ratio:

<TABLE>
<CAPTION>
                          Fixed Charge Coverage Ratio
                          ---------------------------
             <S>                                     <C>
             Greater than or equal to 1.15 to 1.0    Less than 1.15 to 1.0
             ------------------------------------    ---------------------
 
             RR - .50                                RR - .25
             Fixed + 1.50                            Fixed + 1.75
             Offshore + 1.50                         Offshore + 1.75
             LIBOR + 1.50                            LIBOR + 1.75
</TABLE>

In this chart "fixed charge coverage ratio" refers to the cash flow calculation
under Paragraph 8.5 below; "RR" refers to the Reference Rate; "Fixed" refers to
the Short Term Based Fixed Rate; "Offshore" refers to the Offshore Rate; and
"LIBOR" refers to the LIBOR Rate.  Any change in the Applicable Margin shall
take effect on the date on which Bank gives notice thereof to Borrower based
upon the most recent financial statements delivered to the Bank pursuant to the
Agreement.

1.2 "LIEN" means: (a) any interest in property of the Borrower securing an
obligation owed to, or a claim by, anyone other than the owner of the property,
whether such interest is based on the common law, statute, or contract, and
including without limitation, a security interest, charge, claim, or lien
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, agreement, security agreement, conditional sale
or trust receipt or a lease, consignment or bailment for security purposes; and
(b) to the extent not included under clause (a) any reservation, exception,
encroachment, easement, right-of-way, covenant, condition, restriction, lease or
other title exception or encumbrance affecting property of the Borrower.

1.3 "PERMITTED LIENS" means: (a) Liens for taxes not yet payable or Liens for
taxes (in an amount not to exceed One Hundred Thousand Dollars ($100,000) being
contested in good faith by appropriate proceedings diligently pursued, provided
that a reserve or other appropriate provision, if any, as shall be required by
generally accepted accounting principles ("GAAP") shall have been made therefor
on the Borrower's financial statements and that a stay of enforcement of any
such Lien is in effect); (b) Liens in favor of the Bank or its affiliates; (c)
mechanics and materialmen's liens securing debt not yet past due; (d) Liens in
connection with worker's compensation or other unemployment insurance incurred
in the ordinary course of the Borrower's business; (e) Liens created by deposits
of cash to secure performance of bids, tenders, leases (to the extent permitted
under this Agreement), or trade contracts, incurred in the ordinary course of
business of the Borrower and not in connection with the borrowing of money; (f)
Liens arising by reason of cash deposit for surety or appeal bonds in the
ordinary course of business of the Borrower; (g) Liens of or resulting from any
judgment or award, the time for the appeal or the petition for rehearing of
which has not yet expired, or in respect of which the Borrower is in good faith
prosecuting an appeal or proceeding for a review, and in respect of which a stay
of execution pending such appeal or proceeding for review has been secured; (h)
with respect to any real

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property owned or occupied by the Borrower; easements, rights or way, zoning and
similar covenants and restrictions and similar encumbrances which customarily
exist on properties of corporations engaged in similar activities and similarly
situated and which in any event do not materially interfere with or impair the
use or operation of the collateral by the Borrower or the value of the Bank's
security interest therein, or materially interfere with the Bank's ordinary
conduct of the business of the Borrower; and (i) purchase money security
interests and Liens under capital leases to the extent that the acquisition or
lease of the underlying asset was permitted under Paragraph 8.7 (d), the
security interest for Lien only encumbers the asset purchased or leased, and so
long as the security interest or Lien only secures the purchase price of the
asset.

2.  LINE OF CREDIT AMOUNT AND TERMS

2.1 LINE OF CREDIT AMOUNT.

(a) During the availability period described below, the Bank will provide a line
    of credit to the Borrower.  The amount of the line of credit (the
    "Commitment") is Ten Million Dollars ($10,000,000).

(b) This is a revolving line of credit providing for cash advances and letters
    of credit.  During the availability period, the Borrower may repay principal
    amounts and reborrow them.

(c) The Borrower agrees not to permit the outstanding principal balance of
    advances under the line of credit plus the outstanding amounts of any
    letters of credit, including amounts drawn on letters of credit and not yet
    reimbursed to exceed the Commitment.

2.2 AVAILABILITY PERIOD.  The line of credit is available between the date of
this Agreement and August 31, 2000 (the "Expiration Date") unless the Borrower
is in default.

2.3 INTEREST RATE.

(a) Unless the Borrower elects an optional interest rate as described below, the
    interest rate is the Bank's Reference Rate plus the Applicable Margin.

(b) The Reference Rate is the rate of interest publicly announced from time to
    time by the Bank in San Francisco, California, as its Reference Rate.  The
    Reference Rate is set by the Bank based on various factors, including the
    Bank's costs and desired return, general economic conditions and other
    factors, and is used as a reference point for pricing some loans.  The Bank
    may price loans to its customers at, above, or below the Reference Rate.
    Any change in the Reference Rate shall take effect at the opening of
    business on the day specified in the public announcement of a change in the
    Bank's Reference Rate.

2.4 REPAYMENT TERMS.

(a) The Borrower will pay interest on May 31, 1998, and then monthly thereafter
    until payment in full of any principal outstanding under this line of
    credit.

(b) The Borrower will repay in full all principal and any unpaid interest or
    other charges outstanding under this line of credit no later than the
    Expiration Date.

(c) Any interest period for any optional interest rate (as described below)
    shall expire no later than the Expiration Date

2.5  OPTIONAL INTEREST RATES.  Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s) described
below during an interest period agreed to by the Bank and the Borrower.  Each
interest rate is a rate per year.  Interest will be paid on the last day of each
interest period, and on the last day of each month during the interest period.
At the end of any interest period, the interest rate will revert to the rate
based on the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion. Upon the occurrence of an event of default under
this Agreement, the Bank may terminate the availability of optional interest
rates for interest periods commencing after the default occurs.

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2.6  SHORT TERM FIXED RATE.  The Borrower may elect to have all or portions of
the principal balance of the line of credit bear interest at the Short Term
Fixed Rate, subject to the following requirements:

(a)  The "Short Term Fixed Rate" means the Short Term Base Fixed Rate plus the
     Applicable Margin.

(b)  The "Short Term Base Fixed Rate" means the fixed interest rate per annum,
     determined solely by the Bank on the first day of the applicable interest
     period for the Short Term Fixed Rate portion, as the rate at which the Bank
     would be able to borrow funds in the Money Market in the amount of the
     Short Term Fixed Rate portion and with an interest and principal payment
     schedule equal to the Short Term Fixed Rate portion and for a term equal to
     the applicable interest period.  The Short Term Base Fixed Rate shall
     include adjustments for reserve requirements, federal deposit insurance,
     interest accrual methods, and any other similar adjustment which the Bank
     deems appropriate.  The Short Term Base Fixed Rate is the Bank's estimate
     only and the Bank is under no obligation to actually purchase or match
     funds for any transaction.

(c)  "Money Market" means one or more wholesale funding markets available to the
     Bank, including domestic negotiable certificates of deposit, eurodollar
     deposits, bank deposit notes or other appropriate money market instruments
     selected by the Bank.

(d)  The interest periods during which the Short Term Fixed Rate will be in
     effect will be no shorter than 14 days and no longer than one year.

(e)  Each Short Term Fixed Rate portion will be for an amount not less than Five
     Hundred Thousand Dollars ($500,000).

(f)  Any portion of the principal balance of the line of credit already bearing
     interest at the Short Term Fixed Rate will not be converted to a different
     rate during its interest period.

(g)  Each prepayment of a Short Term Fixed Rate portion, whether voluntary, by
     reason of acceleration or otherwise, will be accompanied by the amount of
     accrued interest on the amount prepaid, and a prepayment fee as described
     below.  A "prepayment" is a payment of an amount on a date earlier than the
     scheduled payment date for such amount as required by this Agreement.  The
     prepayment fee shall be equal to the amount (if any) by which:

     (i)  the additional interest which would have been payable on the amount
          prepaid had it not been prepaid, exceeds

     (ii) the interest which would have been recoverable by the Bank by placing
          the amount prepaid on deposit in the Money Market for a period
          starting on the date on which it was prepaid and ending on the last
          day of the interest period for such portion (or the scheduled payment
          date for the amount prepaid, if earlier).

2.7  OFFSHORE RATE.  The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate plus
the Applicable Margin.

Designation of an Offshore Rate portion is subject to the following
requirements:

(a)  The interest period during which the Offshore Rate will be in effect will
     be no shorter than 30 days and no longer than one year.  The last day of
     the interest period will be determined by the Bank using the practices of
     the offshore dollar inter-bank market.

(b)  Each Offshore Rate portion will be for an amount not less than Five Hundred
     Thousand Dollars ($500,000).

(c)  The "Offshore Rate" means the interest rate determined by the following
     formula, rounded upward to the nearest 1/100 of one percent.  (All amounts
     in the calculation will be determined by the Bank as of the first day of
     the interest period.)

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<TABLE>
<CAPTION>
          <S>              <C> 
          Offshore Rate =      Grand Cayman Rate
                           __________________________
                           (1.00 - Reserve Percentage)
</TABLE>

     Where,

     (i)  "Grand Cayman Rate" means the interest rate (rounded upward to the
          nearest 1/16th of one percent) at which the Bank's Grand Cayman
          Branch, Grand Cayman, British West Indies, would offer U.S.  dollar
          deposits for the applicable interest period to other major banks in
          the offshore dollar inter-bank market.

     (ii) "Reserve Percentage" means the total of the maximum reserve
          percentages for determining the reserves to be maintained by member
          banks of the Federal Reserve System for Eurocurrency Liabilities, as
          defined in Federal Reserve Board Regulation D, rounded upward to the
          nearest 1/100 of one percent.  The percentage will be expressed as a
          decimal, and will include, but not be limited to, marginal, emergency,
          supplemental, special, and other reserve percentages.

(d)  The Borrower may not elect an Offshore Rate with respect to any portion of
     the principal balance of the line of credit which is scheduled to be repaid
     before the last day of the applicable interest period.

(e)  Any portion of the principal balance of the line of credit already bearing
     interest at the Offshore Rate will not be converted to a different rate
     during its interest period.

(f)  Each prepayment of an Offshore Rate portion, whether voluntary, by reason
     of acceleration or otherwise, will be accompanied by the amount of accrued
     interest on the amount prepaid; and a prepayment fee equal to the amount
     (if any) by which:

    (i)   the additional interest which would have been payable on the amount
          prepaid had it not been paid until the last day of the interest
          period, exceeds

    (ii)  the interest which would have been recoverable by the Bank by placing
          the amount prepaid on deposit in the offshore dollar market for a
          period starting on the date on which it was prepaid and ending on the
          last day of the interest period for such portion.

(g)  The Bank will have no obligation to accept an election for an Offshore Rate
     portion if any of the following described events has occurred and is
     continuing:

    (i)   Dollar deposits in the principal amount, and for periods equal to the
          interest period, of an Offshore Rate portion are not available in the
          offshore dollar inter-bank market; or

    (ii)  the Offshore Rate does not accurately reflect the cost of an Offshore
          Rate portion.

2.8   LIBOR Rate.  The Borrower may elect to have all or portions of the
principal balance bear interest at the LIBOR Rate plus the Applicable Margin.

Designation of a LIBOR Rate portion is subject to the following requirements:

(a)  The interest period during which the LIBOR Rate will be in effect will be
     one, two, or three weeks, or one, two, three, four, five, six, seven,
     eight, nine, ten, eleven, or twelve months.  The first day of the interest
     period must be a day other than a Saturday or a Sunday on which the Bank is
     open for business in California, New York and London and dealing in
     offshore dollars (a "LIBOR Banking Day").  The last day of the interest
     period and the actual number of days during the interest period will be
     determined by the Bank using the practices of the London inter-bank market.

(b)  Each LIBOR Rate portion will be for an amount not less than Five Hundred
     Thousand Dollars ($500,000) for periods of one month or longer.  For
     shorter maturities, each LIBOR Rate portion will be for an amount which,
     when multiplied by the number of days in the applicable interest period, is
     not less than fifteen million ($15,000,000) dollar-days.

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(c)  The "LIBOR Rate" means the interest rate determined by the following
     formula, rounded upward to the nearest 1/100 of one percent.  (All amounts
     in the calculation will be determined by the Bank as of the first day of
     the interest period.)

<TABLE>
<CAPTION>
               <S>                 <C>  
               LIBOR Rate =        London Inter-Bank Offered Rate
                                   ---------------------------------
                                      (1.00 - Reserve Percentage)
</TABLE>

     Where,

     (i)  "London Inter-Bank Offered Rate" means the interest rate at which the
          Bank's London Branch, London, Great Britain, would offer U.S. dollar
          deposits for the applicable interest period to other major banks in
          the London inter-bank market at approximately 11:00 a.m. London time
          two (2) London Banking Days before the commencement of the interest
          period.  A "London Banking Day" is a day on which the Bank's London
          Branch is open for business and dealing in offshore dollars.

     (ii) "Reserve Percentage" means the total of the maximum reserve
          percentages for determining the reserves to be maintained by member
          banks of the Federal Reserve System for Eurocurrency Liabilities, as
          defined in Federal Reserve Board Regulation D, rounded upward to the
          nearest 1/100 of one percent.  The percentage will be expressed as a
          decimal, and will include, but not be limited to, marginal, emergency,
          supplemental, special, and other reserve percentages.

(d)  The Borrower shall irrevocably request a LIBOR Rate portion no later than
     12:00 noon San Francisco time on the LIBOR Banking Day preceding the day on
     which the London Inter-Bank Offered Rate will be set, as specified above.
     For example, if there are no intervening holidays or weekend days in any of
     the relevant locations, the request must be made at least three days before
     the LIBOR Rate takes effect.

(e)  The Borrower may not elect a LIBOR Rate with respect to any principal
     amount which is scheduled to be repaid before the last day of the
     applicable interest period.

(f)  Any portion of the principal balance already bearing interest at the LIBOR
     Rate will not be converted to a different rate during its interest period.

(g)  Each prepayment of a LIBOR Rate portion, whether voluntary, by reason of
     acceleration or otherwise, will be accompanied by the amount of accrued
     interest on the amount prepaid and a prepayment fee as described below.  A
     "prepayment" is a payment of an amount on a date earlier than the scheduled
     payment date for such amount as required by this Agreement.  The prepayment
     fee shall be equal to the amount (if any) by which:

     (i)  the additional interest which would have been payable during the
          interest period on the amount prepaid had it not been prepaid, exceeds

     (ii) the interest which would have been recoverable by the Bank by placing
          the amount prepaid on deposit in the domestic certificate of deposit
          market, the eurodollar deposit market, or other appropriate money
          market selected by the Bank, for a period starting on the date on
          which it was prepaid and ending on the last day of the interest period
          for such portion (or the scheduled payment date for the amount
          prepaid, if earlier).

(h)  The Bank will have no obligation to accept an election for a LIBOR Rate
     portion if any of the following described events has occurred and is
     continuing:

     (i)  Dollar deposits in the principal amount, and for periods equal to the
          interest period, of a LIBOR Rate portion are not available in the
          London inter-bank market; or

     (ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate
          portion.

2.9 LETTERS OF CREDIT.  This line of credit may be used for financing:

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    (i)   commercial letters of credit with a maximum maturity of 120 days but
          not to extend beyond the Expiration Date. Each commercial letter of
          credit will require drafts payable at sight.

    (ii)  standby letters of credit with a maximum maturity of 365 days but not
          to extend beyond the Expiration Date.

    (iii) The amount of the letters of credit outstanding at any one time,
          (including amounts drawn on the letters of credit and not yet
          reimbursed), may not exceed One Million Five Hundred Thousand Dollars
          ($1,500,000).

    (iv)  The following letters of credit are outstanding from the Bank for the
          account of the Borrower:

                  Letter of Credit Number   Amount
                  -----------------------   ------
                  1034346                   $35,266.50
                  1034347                   $32,542.50

          As of the date of this Agreement, these letters of credit shall be
          deemed to be outstanding under this Agreement, and shall be subject to
          all the terms and conditions stated in this Agreement.

The Borrower agrees:

(a)  any sum drawn under a letter of credit may, at the option of the Bank, be
     added to the principal amount outstanding under this Agreement.  The amount
     will bear interest and be due as described elsewhere in this Agreement.

(b)  if there is a default under this Agreement, to immediately prepay and make
     the Bank whole for any outstanding letters of credit.

(c)  the issuance of any letter of credit and any amendment to a letter of
     credit is subject to the Bank's written approval and must be in form and
     content satisfactory to the Bank and in favor of a beneficiary acceptable
     to the Bank.

 (d) to sign the Bank's form Application and Agreement for Commercial Letter of
     Credit or Application and Agreement for Standby Letter of Credit.

(e)  to pay any issuance and/or other fees that the Bank notifies the Borrower
     will be charged for issuing and processing letters of credit for the
     Borrower.

(f)  to allow the Bank to automatically charge its checking account for
     applicable fees, discounts, and other charges.

2.10 CREDIT SWEEP.  The Borrower agrees:

(a)  If on any banking day there is a principal balance outstanding under this
     Agreement, then the Bank will automatically deduct from checking account
     number 14593-05000, (the "Account") and apply in repayment of such
     principal balance an amount equal to the lesser of such principal balance
     or the unrestricted ledger balance of the Account less (i) float, (ii) the
     total amount of checks presented for payment through the controlled
     disbursement account by the Bank on such banking day for payment against
     the account, and (iii) the sum of One Hundred Thousand Dollars ($100,000).
     The ledger balance of the Account will not be "unrestricted" if, in the
     reasonable determination of the Bank, it is subject to hold, dispute, or
     legal process preventing its withdrawal.

(b)  If on any banking day the Bank determines that there might be insufficient
     funds in the Account at the end of such banking day to pay (i) the total
     amount of checks presented for payment through the Borrower's controlled
     disbursement account on such banking day, (ii) the total amount of interest
     and principal payments scheduled to be paid by the Borrower on such banking
     day, and (iii) any other items to be debited against the Account on such
     banking day of which the Bank is aware, then the Bank will automatically
     make an advance under the line of credit in an amount equal to the lesser
     of the amount of the line of credit available to the Borrower under the
     line of credit or the amount estimated by the

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     Bank as being necessary, in addition to the balance of funds in the Account
     on such banking day, to pay the items mentioned above. The proceeds of
     these advances will be deposited into the Account. For purposes of this
     subparagraph (b), a levy, notice of lien, writ, or other legal process
     served by a third party upon the Bank shall not be construed as an
     instrument or other item to be debited against the Account, and the Bank
     shall be under no obligation to make an advance to make a payment in
     respect of such levy, notice of lien, writ, or other legal process.

(c)  In determining the beginning and the end of any banking day, the Bank may
     follow its customary practices for setting cutoff hours for the handling of
     money and items and the making of entries on its books.

(d)  The arrangement provided for in this Paragraph may be terminated by the
     Borrower or the Bank by giving to the other at least ten (10) banking days'
     written notice.

(e)  Except as provided above, nothing in this Paragraph shall be deemed or
     construed to alter or amend any other agreement between the Borrower and
     the Bank concerning the Account, and the Bank otherwise shall be entitled
     to follow its usual and customary procedures concerning the Account.

(f)  Notwithstanding any other provisions of this Paragraph, in the event of the
     commencement of a case pursuant to Title 11, United States Code, filed by
     or against the Borrower, or in the event of the commencement of any similar
     case under then applicable federal or state law providing for the relief of
     debtors or the protection of creditors by or against the Borrower, the Bank
     may act as the Bank deems necessary to comply with all applicable
     provisions of governing statutes and shall be held harmless from any claim
     of the Borrower for so doing.

 (g) The Borrower indemnifies and excuses the Bank (including its officers,
     employees, and agents) from all liability, loss, and costs in connection
     with any action or omission in connection with this Paragraph, except gross
     negligence or willful misconduct of the Bank. This indemnity and excuse
     will survive this Agreement's termination.

3.   FEES AND EXPENSES

3.1  UNUSED COMMITMENT FEE. The Borrower agrees to pay a fee on any difference
     between the Commitment and the amount of credit it actually uses,
     determined by the weighted average credit outstanding during the specified
     period. The fee will be calculated at .125% per year. This fee is due on
     June 30, 1998, and quarterly thereafter until the expiration of the
     availability period.

3.2  EXPENSES. The Borrower agrees to immediately repay the Bank for expenses
     that include, but are not limited to, filing, recording and search fees,
     appraisal fees, title report fees and documentation fees in an amount not
     exceeding Five Hundred Dollars ($500).

3.3  REIMBURSEMENT COSTS.

(a)  The Borrower agrees to reimburse the Bank for any expenses it incurs in the
     preparation of this Agreement and any agreement or instrument required by
     this Agreement in an amount not exceeding Four Thousand Dollars ($4,000).
     Expenses include, but are not limited to, reasonable attorneys' fees,
     including any allocated costs of the Bank's in-house counsel.

(b)  The Borrower agrees to reimburse the Bank for the cost of periodic audits
     and appraisals of the personal property collateral securing this Agreement,
     at such intervals as the Bank may reasonably require. The audits and
     appraisals may be performed by employees of the Bank or by independent
     appraisers. Unless a default has occurred hereunder, the maximum amount
     which the Borrower will be required to reimburse the Bank for any audit
     will be Three Thousand Dollars ($3,000).

4.   COLLATERAL

4.1  PERSONAL PROPERTY.  The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will own
in the future as listed below.  The collateral is further defined in security
agreement(s) executed by the Borrower.  In addition, all personal property
collateral securing this Agreement shall also secure all other present and
future obligations of the Borrower to the Bank

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(excluding any consumer credit covered by the federal Truth in Lending law,
unless the Borrower has otherwise agreed in writing). All personal property
collateral securing any other present or future obligations of the Borrower to
the Bank shall also secure this Agreement.

(a) Machinery and equipment.

(b) Inventory.

(c) Receivables.

5.  DISBURSEMENTS, PAYMENTS AND COSTS

5.1 REQUESTS FOR CREDIT.  Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.

5.2 DISBURSEMENTS AND PAYMENTS.  Each disbursement by the Bank and each payment
by the Borrower will be:

(a) made at the Bank's branch (or other location) selected by the Bank from time
    to time;

(b) made for the account of the Bank's branch selected by the Bank from time to
    time;

(c) made in immediately available funds, or such other type of funds as agreed
    by Bank and Borrower;

(d) evidenced by records kept by the Bank.  In addition, the Bank may, at its
    discretion, require the Borrower to sign one or more promissory notes.

5.3 TELEPHONE AND TELEFAX AUTHORIZATION.

(a) The Bank may honor telephone or telefax instructions for advances or
    repayments or for the designation of optional interest rates and telefax
    requests for the issuance of letters of credit given by any one of the
    individuals authorized to sign loan agreements on behalf of the Borrower, or
    any other individual designated by any one of such authorized signers.

(b) Advances will be deposited in and repayments will be withdrawn from the
    Account with the Bank as designated in writing by the Borrower.

(c) The Borrower indemnifies and excuses the Bank (including its officers,
    employees, and agents) from all liability, loss, and costs in connection
    with any act resulting from telephone or telefax instructions it reasonably
    believes are made by any individual authorized by the Borrower to give such
    instructions.  This indemnity and excuse will survive this Agreement's
    termination.

5.4 DIRECT DEBIT (PRE-BILLING).

(a) The Borrower agrees that the Bank will debit the Account with the Bank as
    designated in writing by the Borrower (the "Designated Account") on the date
    each payment of interest and any fees from the Borrower becomes due (the
    "Due Date").  If the Due Date is not a banking day, the Designated Account
    will be debited on the next banking day.

(b) Approximately 10 days prior to each Due Date, the Bank will mail to the
    Borrower a statement of the amounts that will be due on that Due Date (the
    "Billed Amount").  The calculation will be made on the assumption that no
    new extensions of credit or payments will be made between the date of the
    billing statement and the Due Date, and that there will be no changes in the
    applicable interest rate.

(c) The Bank will debit the Designated Account for the Billed Amount, regardless
    of the actual amount due on that date (the "Accrued Amount").

    If the Billed Amount debited to the Designated Account differs from the
    Accrued Amount, the discrepancy will be treated as follows:

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    (i)  If the Billed Amount is less than the Accrued Amount, the Billed Amount
         for the following Due Date will be increased by the amount of the
         discrepancy.  The Borrower will not be in default by reason of any such
         discrepancy.

    (ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount
         for the following Due Date will be decreased by the amount of the
         discrepancy.

    Regardless of any such discrepancy, interest will continue to accrue based
    on the actual amount of principal outstanding without compounding.  The Bank
    will not pay the Borrower interest on any overpayment.

(d) The Borrower will maintain sufficient funds in the Designated Account to
    cover each debit.  If there are insufficient funds in the Designated Account
    on the date the Bank enters any debit authorized by this Agreement, the
    debit will be reversed.

5.5 BANKING DAYS.  Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for business
in California.  For amounts bearing interest at an offshore rate (if any), a
banking day is a day other than a Saturday or a Sunday on which the Bank is open
for business in California and dealing in offshore dollars.  All payments and
disbursements which would be due on a day which is not a banking day will be due
on the next banking day.  All payments received on a day which is not a banking
day will be applied to the credit on the next banking day.

5.6 TAXES.  If any payments to the Bank under this Agreement are made from
outside the United States, the Borrower will not deduct any foreign taxes from
any payments it makes to the Bank.  If any such taxes are imposed on any
payments made by the Borrower (including payments under this paragraph), the
Borrower will pay the taxes and will also pay to the Bank, at the time interest
is paid, any additional amount which the Bank specifies as necessary to preserve
the after-tax yield the Bank would have received if such taxes had not been
imposed.  The Borrower will confirm that it has paid the taxes by giving the
Bank official tax receipts (or notarized copies) within 30 days after the due
date.

5.7 ADDITIONAL COSTS.  The Borrower will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks.  The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method.  The costs
include the following:

(a) any reserve or deposit requirements; and

(b) any capital requirements relating to the Bank's assets and commitments for
    credit.

5.8 INTEREST CALCULATION.  Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed.  This results in more interest or a higher
fee than if a 365-day year is used.  Instalments of principal which are not paid
when due under this Agreement shall continue to bear interest until paid.

5.9 DEFAULT RATE.  Upon the occurrence and during the continuation of any
default under this Agreement, principal amounts outstanding under this Agreement
will at the option of the Bank bear interest at a rate which is 2.00 percentage
point(s) higher than the rate of interest otherwise provided under this
Agreement.  This will not constitute a waiver of any default.

5.10  INTEREST COMPOUNDING.  At the Bank's sole option in each instance, any
interest, fees or costs which are not paid when due under this Agreement shall
bear interest from the due date at the Bank's Reference Rate plus 1.00
percentage point.  This may result in compounding of interest.

6.  CONDITIONS

The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement.

6.1 AUTHORIZATIONS.  Evidence that the execution, delivery and performance by
the Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.

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<PAGE>
 
6.2 GOVERNING DOCUMENTS.  A copy of the Borrower's articles of incorporation.

6.3 SECURITY AGREEMENTS.  Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest), which the Bank requires.

6.4 EVIDENCE OF PRIORITY.  Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except for Permitted Liens and other Liens the Bank consents to in
writing.

6.5 INSURANCE.  Evidence of insurance coverage, as required in the "Covenants"
section of this Agreement.

6.6 OTHER ITEMS.  Any other items that the Bank reasonably requires.

7.  REPRESENTATIONS AND WARRANTIES

When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties.  Each request
for an extension of credit constitutes a renewed representation.

7.1 ORGANIZATION OF BORROWER.  The Borrower is a corporation duly formed and
existing under the laws of the state where organized.

7.2 AUTHORIZATION.  This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.

7.3 ENFORCEABLE AGREEMENT.  This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.

7.4 GOOD STANDING.  In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes, except where the failure to be so licensed, in good
standing or in compliance would not have a material adverse effect on the
Borrower's financial condition or operations.

7.5 NO CONFLICTS.  This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound, except where any such conflict would
not have a material adverse effect on the Borrower's financial condition,
business, or operations.

7.6 FINANCIAL INFORMATION.  To the best of Borrower's knowledge, all financial
and other information that has been or will be supplied to the Bank is:

(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
    financial condition.

(b) in material compliance with all material government regulations that apply.

7.7 LAWSUITS.  To the best of the Borrower's knowledge, there is no lawsuit, tax
claim or other dispute pending or threatened against the Borrower, which, if
lost, would impair the Borrower's financial condition or ability to repay the
loan, except as have been disclosed in writing to the Bank.

7.8 COLLATERAL.  All collateral required in this Agreement is owned by the
grantor of the security interest free of any Liens other than Permitted Liens.

7.9 PERMITS, FRANCHISES.  To the best of the Borrower's knowledge, the Borrower
possesses all permits, memberships, franchises, contracts and licenses required
and all trademark rights, trade name rights, patent rights and fictitious name
rights necessary to enable it to conduct the business in which it is now
engaged.

7.10  OTHER OBLIGATIONS.  There is no default on any of the Borrower's
obligations for borrowed money, purchase money obligations, and other leases,
commitments, contracts, instruments or material obligations, 

______________________________________________________________________________
BULSA (2/97)- Revised 04/21/98        -10-                      1459 Bank Loan 
<PAGE>
 
which default would have a material adverse effect on the Borrower's financial
condition, business or operations.

7.11  INCOME TAX MATTERS.  The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.

7.12  NO EVENT OF DEFAULT.  There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.

7.13  ERISA PLANS.

(a)   Each Plan (other than a multiemployer plan) is in compliance in all
      material respects with the applicable provisions of ERISA, the Code and
      other federal or state law. Each Plan has received a favorable
      determination letter from the IRS and to the best knowledge of the
      Borrower, nothing has occurred which would cause the loss of such
      qualification. The Borrower has fulfilled its obligations, if any, under
      the minimum funding standards of ERISA and the Code with respect to each
      Plan, and has not incurred any liability with respect to any Plan under
      Title IV of ERISA.

(b)   There are no claims, lawsuits or actions (including by any governmental
      authority), and there has been no prohibited transaction or violation of
      the fiduciary responsibility rules, with respect to any Plan which has
      resulted or could reasonably be expected to result in a material adverse
      effect.

(c)   With respect to any Plan subject to Title IV of ERISA:

      (i)   No reportable event has occurred under Section 4043(c) of ERISA for
            which the PBGC requires 30 day notice.

      (ii)  No action by the Borrower or any ERISA Affiliate to terminate or
            withdraw from any Plan has been taken and no notice of intent to
            terminate a Plan has been filed under Section 4041 of ERISA.

      (iii) No termination proceeding has been commenced with respect to a Plan
            under Section 4042 of ERISA, and no event has occurred or condition
            exists which might constitute grounds for the commencement of such a
            proceeding.

(d)   The following terms have the meanings indicated for purposes of this
      Agreement:

      (i)   "Code" means the Internal Revenue Code of 1986, as amended from time
            to time.

      (ii)  "ERISA" means the Employee Retirement Income Security Act of 1974,
            as amended from time to time.

      (iii) "ERISA Affiliate" means any trade or business (whether or not
            incorporated) under common control with the Borrower within the
            meaning of Section 414(b) or (c) of the Code.

      (iv)  "PBGC" means the Pension Benefit Guaranty Corporation.

      (v)   "Plan" means a pension, profit-sharing, or stock bonus plan intended
            to qualify under Section 401(a) of the Code, maintained or
            contributed to by the Borrower or any ERISA Affiliate, including any
            multiemployer plan within the meaning of Section 4001(a) (3) of
            ERISA.

7.14  LOCATION OF BORROWER.  The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.

7.15  YEAR 2000 COMPLIANCE.  The Borrower has conducted a comprehensive review
and assessment of the Borrower's computer applications and made inquiry of the
Borrower's key suppliers, vendors and customers with respect to the "year 2000
problem" (that is, the risk that computer applications may not be able to
properly perform date-sensitive functions after December 31, 1999) and, based on
that review and inquiry, the Borrower 

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<PAGE>
 
does not believe the year 2000 problem will result in a material adverse change
in the Borrower's business condition (financial or otherwise), operations,
properties or prospects, or ability to repay the credit.

8.  COVENANTS

The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:

8.1 USE OF PROCEEDS.  To use the proceeds of the credit only for general
corporate purposes.

8.2 FINANCIAL INFORMATION.  To provide the following financial information and
statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:

(a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual
    financial statements.  These financial statements must be audited (with an
    unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to
    the Bank.

(b) Within 60 days of the period's end, the Borrower's quarterly financial
    statements.  These financial statements may be Borrower prepared.

(c) Within the periods provided in (a) and (b) above, a compliance certificate
    of the Borrower signed by an authorized financial officer of the Borrower
    setting forth (i) the information and computations (in sufficient detail) to
    establish that the Borrower is in compliance with all financial covenants at
    the end of the period covered by the financial statements then being
    furnished and (ii) whether there existed as of the date of such financial
    statements and whether there exists as of the date of the certificate, any
    default under this Agreement and, if any such default exists, specifying the
    nature thereof and the action the Borrower is taking and proposes to take
    with respect thereto.

(d) Financial projections for the following fiscal year no sooner than ninety
    (90) days and no less than thirty (30) days prior to such period.  These
    projections shall include a balance sheet, income statement and statements
    of cash flow.

8.3 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO.  To maintain a ratio of total
liabilities to tangible net worth not exceeding 1.00:1.0.

"Total liabilities" means the sum of current liabilities plus long term
liabilities.

"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, capitalized or deferred
research and development costs, deferred marketing expenses, deferred
receivables, and other like intangibles, and monies due from affiliates,
officers, directors, employees, or shareholders, members or managers of the
Borrower) less total liabilities, including but not limited to accrued and
deferred income taxes, and any reserves against assets.

8.4 INVENTORY DAYS.  Not to permit Quarterly Inventory Days for any of its
fiscal quarters to be greater than 185 days for quarters ending June 30 and
September 30, 165 days for the quarter ending December 31, and 150 days for the
quarter ending March 31.

"Quarterly Inventory Days" is defined as (A) the book value of Inventory,
                                                                         
divided by (B) total costs of goods sold multiplied by (C) 365 days, performing
------- --                               ---------- --                         
such calculation in alphabetical order; for the interim fiscal periods,
quarterly costs of goods sold will be annualized.

8.5 FIXED CHARGE COVERAGE RATIO.  To maintain a Fixed Charge Coverage ratio of
at least 1.00:1.0.

"Fixed Charge Coverage Ratio" is defined as net profit after taxes plus interest
expense, depreciation, amortization, less dividends, loans and advances to
parents, affiliates and officers divided by current portion long term debt,
interest expense, and non-financed capital expenditures.  This ratio will be
calculated at the end of each fiscal quarter, using the results of that quarter
and each of the 3 immediately preceding quarters.  The current portion of long
term debt will be measured as of the last day of the preceding fiscal year.

________________________________________________________________________________
BULSA (2/97)- Revised 04/21/98          -12-                     1459 Bank Loan 
<PAGE>
 
8.6   LIMITATION ON LOSSES. Not to incur a net loss after taxes in excess of One
Million Three Hundred Thousand Dollars ($1,300,000) in any one fiscal year
period .

8.7   OTHER DEBTS.  Not to have outstanding or incur any direct or contingent
liabilities (other than those to the Bank), or become liable for the liabilities
of others without the Bank's written consent.  This does not prohibit:

(a)   Acquiring goods, supplies, merchandise or services on normal trade credit.

(b)   Endorsing negotiable instruments received in the usual course of business.

(c)   Obtaining surety bonds in the usual course of business.

(d)   Additional debts and capital lease obligations for business purposes
      which, do not exceed a total principal amount of Three Hundred Thousand
      Dollars ($300,000) outstanding at any one time.

(e)   Indebtedness that is secured by Permitted Liens.

8.8   OTHER LIENS.  Not to create, assume, or allow any Lien on property the
Borrower now or later owns, except for Permitted Liens.

8.9   CAPITAL EXPENDITURES. Not to spend or incur obligations for more than Four
Million Five Hundred Thousand Dollars ($4,500,000) in any single fiscal year to
acquire fixed or capital assets.

8.10  REDUCTION OF DEBT PERIOD.  Not to permit the outstanding principal balance
of the line of credit to exceed Two Million Dollars ($2,000,000), for a period
of at least 30 consecutive days between April 1 and March 31 in each fiscal
year.

8.11  NOTICES TO BANK.  To promptly notify the Bank in writing of:

(a)   any lawsuit over Five Hundred Thousand Dollars ($500,000) against the
      Borrower.

(b)   any substantial dispute between the Borrower and any government authority,
      which, if resolved adversely to the Borrower, would have a material
      adverse effect on Borrower's financial condition, business or operations.

(c)   any failure to comply with this Agreement.

(d)   any material adverse change in the Borrower's business condition
      (financial or otherwise), operations, properties or prospects, or ability
      to repay the credit.

(e)   any change in the Borrower's name, legal structure, place of business, or
      chief executive office if the Borrower has more than one place of
      business.

8.12  BOOKS AND RECORDS.  To maintain adequate books and records.

8.13  AUDITS.  To allow the Bank and its agents to inspect the Borrower's
properties (including taking and removing samples for environmental testing) and
examine, audit and make copies of books and records at any reasonable time.  If
any of the Borrower's properties, books or records are in the possession of a
third party, the Borrower authorizes that third party to permit the Bank or its
agents to have access to perform inspections or audits and to respond to the
Bank's requests for information concerning such properties, books and
records.The Bank has no duty to inspect the Borrower's properties or to examine,
audit or copy books and records and the Bank shall not incur any obligation or
liability by reason of not making any such inspection or inquiry.  In the event
that the Bank inspects the Borrower's properties or examines, audits or copies
books and records, the Bank will be acting solely for the purposes of protecting
the Bank's security and preserving the Bank's rights under this Agreement.
Neither the Borrower nor any other party is entitled to rely on any inspection
or other inquiry by the Bank.  The Bank owes no duty of care to protect the
Borrower or any other party against, or to inform the Borrower or any other
party of, any adverse condition that may be observed as affecting the Borrower's
properties or premises, or the Borrower's business.  In the event that the Bank
has a duty or obligation under applicable laws, regulations or legal
requirements to disclose any report or findings 

________________________________________________________________________________
BULSA (2/97)- Revised 04/21/98        -13-                      1459 Bank Loan 
<PAGE>
 
made as a result of, or in connection with, any site visit, observation or
testing by the Bank, the Bank may make such a disclosure to the Borrower or any
other party.

8.14  COMPLIANCE WITH LAWS.  To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business, except where the failure to so comply would not
have a material adverse effect on the Borrower's financial condition, business
or operations.

8.15  PRESERVATION OF RIGHTS.  To maintain and preserve all rights, privileges,
and franchises the Borrower now has.

8.16  MAINTENANCE OF PROPERTIES.  To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.

8.17  PERFECTION OF LIENS.  To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.

8.18  COOPERATION.  To take any action reasonably requested by the Bank to carry
out the intent of this Agreement.

8.19  INSURANCE.

(a)   INSURANCE COVERING COLLATERAL. To maintain all risk property damage
      insurance policies covering the tangible property comprising the
      collateral. Each insurance policy must be in an amount acceptable to the
      Bank. The insurance must be issued by an insurance company acceptable to
      the Bank and must include a lender's loss payable endorsement in favor of
      the Bank in a form acceptable to the Bank.

(b)   GENERAL BUSINESS INSURANCE.  To maintain insurance as is usual for the
      business it is in.

(c)   EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the
      Bank a copy of each insurance policy, or, if permitted by the Bank, a
      certificate of insurance listing all insurance in force.

8.20  ADDITIONAL NEGATIVE COVENANTS.  Not to, without the Bank's written
consent:

(a)   engage in any business activities substantially different from the
      Borrower's present business.

(b)   liquidate or dissolve the Borrower's business.

(c)   enter into any consolidation, merger, or other combination, or become a
      partner in a partnership, a member of a joint venture, or a member of a
      limited liability company.

(d)   sell, assign, lease, transfer or otherwise dispose of any assets for less
      than fair market value, or enter into any agreement to do so.

(e)   sell, assign, lease, transfer or otherwise dispose of all or a substantial
      part of the Borrower's business or the Borrower's assets.

(f)   enter into any sale and leaseback agreement covering any of its fixed or
      capital assets.

(g)   acquire or purchase a business or its assets.

8.21  ERISA PLANS.  With respect to a Plan subject to Title IV of ERISA, to give
prompt written notice to the Bank of:

(a)   The occurrence of any reportable event under Section 4043(c) of ERISA for
      which the PBGC requires 30 day notice.

(b)   Any action by the Borrower or any ERISA Affiliate to terminate or withdraw
      from a Plan or the filing of any notice of intent to terminate under
      Section 4041 of ERISA.

(c)   The commencement of any proceeding with respect to a Plan under Section
      4042 of ERISA.

________________________________________________________________________________
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<PAGE>
 
9.    DEFAULT

If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice.  If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.

9.1   FAILURE TO PAY.  The Borrower fails to make a payment under this Agreement
when due.

9.2   LIEN PRIORITY. The Bank fails to have an enforceable first lien (except
for Permitted Liens or any prior Liens to which the Bank has consented in
writing) on or security interest in any property given as security for this
Agreement.

9.3   FALSE INFORMATION.  Any financial or other information delivered by the
Borrower to Bank proves to be false or misleading in any material respect.

9.4   BANKRUPTCY. The Borrower files a bankruptcy petition, a bankruptcy
petition is filed against the Borrower or the Borrower makes a general
assignment for the benefit of creditors.

9.5   RECEIVERS.  A receiver or similar official is appointed for the Borrower's
business, or the business is terminated.

9.6   JUDGMENTS.  Any final judgments or arbitration awards are entered against
the Borrower, or the Borrower enters into any settlement agreements with respect
to any litigation or arbitration, in an aggregate amount of Five Hundred
Thousand Dollars ($500,000) or more in excess of any insurance coverage during
each fiscal year period.

9.7   GOVERNMENT ACTION.  Any government authority takes action that the Bank
reasonably believes materially adversely affects the Borrower's financial
condition or ability to repay.

9.8   MATERIAL ADVERSE CHANGE. A material adverse change occurs, or is
reasonably likely to occur, in the Borrower's business condition (financial or
otherwise), operations, properties or prospects, or ability to repay the credit.

9.9   CROSS-DEFAULT.  Any default occurs under any agreement in connection with
any credit the Borrower has obtained from anyone else or which the Borrower has
guaranteed in the amount of Five Hundred Thousand Dollars ($500,000) or more in
the aggregate if the default consists of failing to make a payment when due or
gives the other lender the right to accelerate the obligation.

9.10  DEFAULT UNDER RELATED DOCUMENTS.  Any security agreement or other document
required by this Agreement is violated or no longer in effect.

9.11  OTHER BANK AGREEMENTS.  The Borrower fails to meet the conditions of, or
fails to perform any obligation under any other agreement the Borrower has with
the Bank or any affiliate of the Bank.

9.12  ERISA PLANS.  The occurrence of any one or more of the following events
with respect to a Plan subject to Title IV of ERISA, provided such event or
events could reasonably be expected, in the judgment of the Bank, to subject the
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of the Borrower:

(a)   A reportable event shall occur under Section 4043(c) of ERISA with respect
      to a Plan.

(b)   Any Plan termination (or commencement of proceedings to terminate a Plan)
      or the full or partial withdrawal from a Plan by the Borrower or any ERISA
      Affiliate.

9.13  OTHER BREACH UNDER AGREEMENT.  The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.  This includes any failure or
anticipated failure by the Borrower to comply with any financial covenants set
forth in this Agreement, 

________________________________________________________________________________
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<PAGE>
 
whether such failure is evidenced by financial statements delivered to the Bank
or is otherwise known to the Borrower or the Bank. If, in the Bank's opinion,
the breach is capable of being remedied, the breach will not be considered an
event of default under this Agreement for a period of thirty (30) days after the
date on which the Bank gives written notice of the breach to the Borrower;
provided, however, that the Bank will not be obligated to extend any additional
credit to the Borrower during that period.

10.   ENFORCING THIS AGREEMENT; MISCELLANEOUS

10.1  GAAP.  Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
GAAP, consistently applied.

10.2  CALIFORNIA LAW.  This Agreement is governed by California law.

10.3  SUCCESSORS AND ASSIGNS.  This Agreement is binding on the Borrower's and
the Bank's successors and assignees.  The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent.  The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees.  If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.

10.4  ARBITRATION.

(a)   This paragraph concerns the resolution of any controversies or claims
      between the Borrower and the Bank, including but not limited to those that
      arise from:

      (i)    This Agreement (including any renewals, extensions or modifications
             of this Agreement);

      (ii)   Any document, agreement or procedure related to or delivered in
             connection with this Agreement;

      (iii)  Any violation of this Agreement; or

      (iv)   Any claims for damages resulting from any business conducted
             between the Borrower and the Bank, including claims for injury to
             persons, property or business interests (torts).

(b)   At the request of the Borrower or the Bank, any such controversies or
      claims will be settled by arbitration in accordance with the United States
      Arbitration Act. The United States Arbitration Act will apply even though
      this Agreement provides that it is governed by California law.

(c)   Arbitration proceedings will be administered by the American Arbitration
      Association and will be subject to its commercial rules of arbitration.

(d)   For purposes of the application of the statute of limitations, the filing
      of an arbitration pursuant to this paragraph is the equivalent of the
      filing of a lawsuit, and any claim or controversy which may be arbitrated
      under this paragraph is subject to any applicable statute of limitations.
      The arbitrators will have the authority to decide whether any such claim
      or controversy is barred by the statute of limitations and, if so, to
      dismiss the arbitration on that basis.

(e)   If there is a dispute as to whether an issue is arbitrable, the
      arbitrators will have the authority to resolve any such dispute.

(f)   The decision that results from an arbitration proceeding may be submitted
      to any authorized court of law to be confirmed and enforced.

(g)   The procedure described above will not apply if the controversy or claim,
      at the time of the proposed submission to arbitration, arises from or
      relates to an obligation to the Bank secured by real property located in
      California. In this case, both the Borrower and the Bank must consent to
      submission of the claim or controversy to arbitration. If both parties do
      not consent to arbitration, the controversy or claim will be settled as
      follows:

________________________________________________________________________________
BULSA (2/97)- Revised 04/21/98        -16-                      1459 Bank Loan 
<PAGE>
 
      (i)   The Borrower and the Bank will designate a referee (or a panel of
            referees) selected under the auspices of the American Arbitration
            Association in the same manner as arbitrators are selected in
            Association-sponsored proceedings;

      (ii)  The designated referee (or the panel of referees) will be appointed
            by a court as provided in California Code of Civil Procedure Section
            638 and the following related sections;

      (iii) The referee (or the presiding referee of the panel) will be an
            active attorney or a retired judge; and

      (iv)  The award that results from the decision of the referee (or the
            panel) will be entered as a judgment in the court that appointed the
            referee, in accordance with the provisions of California Code of
            Civil Procedure Sections 644 and 645.

(h)   This provision does not limit the right of the Borrower or the Bank to:

      (i)   exercise self-help remedies such as setoff;

      (ii)  foreclose against or sell any real or personal property collateral;
            or

      (iii) act in a court of law, before, during or after the arbitration
            proceeding to obtain:

            (A)  an interim remedy; and/or

            (B)  additional or supplementary remedies.

(i)   The pursuit of or a successful action for interim, additional or
      supplementary remedies, or the filing of a court action, does not
      constitute a waiver of the right of the Borrower or the Bank, including
      the suing party, to submit the controversy or claim to arbitration if the
      other party contests the lawsuit. However, if the controversy or claim
      arises from or relates to an obligation to the Bank which is secured by
      real property located in California at the time of the proposed submission
      to arbitration, this right is limited according to the provision above
      requiring the consent of both the Borrower and the Bank to seek resolution
      through arbitration.

(j)   If the Bank forecloses against any real property securing this Agreement,
      the Bank has the option to exercise the power of sale under the deed of
      trust or mortgage, or to proceed by judicial foreclosure.

10.5  SEVERABILITY; WAIVERS.  If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced.  The Bank retains all rights, even if
it makes a loan after default.  If the Bank waives a default, it may enforce a
later default.  Any consent or waiver under this Agreement must be in writing.

10.6  ADMINISTRATION COSTS.  The Borrower shall pay the Bank for all reasonable
costs incurred by the Bank in connection with administering this Agreement (in
addition to expenses that the Borrower is obligated to pay pursuant to the
provisions of 3.2 of this Agreement) in an amount not exceeding Five Thousand
Dollars ($5,000) per year.

10.7  ATTORNEYS' FEES.  The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement.  In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator.  In
the event that any case is commenced by or against the Borrower under the
Bankruptcy Code (Title 11, United States Code) or any similar or successor
statute, the Bank is entitled to recover costs and reasonable attorneys' fees
incurred by the Bank related to the preservation, protection, or enforcement of
any rights of the Bank in such a case.  As used in this paragraph, "attorneys'
fees" includes the allocated costs of in-house counsel.

10.8  ONE AGREEMENT.  This Agreement and any related security or other
agreements required by this Agreement, collectively: 

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<PAGE>
 
(a)   represent the sum of the understandings and agreements between the Bank
      and the Borrower concerning this credit; and

(b)   replace any prior oral or written agreements between the Bank and the
      Borrower concerning this credit; and

(c)   are intended by the Bank and the Borrower as the final, complete and
      exclusive statement of the terms agreed to by them.

In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.

10.9   INDEMNIFICATION.  The Borrower will indemnify and hold the Bank harmless
from any loss, liability, damages, judgments, and costs of any kind relating to
or arising directly or indirectly out of (a) this Agreement or any document
required hereunder, (b) any credit extended or committed by the Bank to the
Borrower hereunder, and (c) any litigation or proceeding related to or arising
out of this Agreement, any such document, or any such credit.  This indemnity
includes but is not limited to attorneys' fees (including the allocated cost of
in-house counsel).  This indemnity extends to the Bank, its parent, subsidiaries
and all of their directors, officers, employees, agents, successors, attorneys,
and assigns.  This indemnity will survive repayment of the Borrower's
obligations to the Bank.  All sums due to the Bank hereunder shall be
obligations of the Borrower, due and payable immediately without demand.

10.10  NOTICES.  All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.

10.11  HEADINGS.  Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.

10.12  COUNTERPARTS.  This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.

10.13  PRIOR AGREEMENT SUPERSEDED.  This Agreement supersedes the Business Loan
Agreement (Inventory) entered into as of March 25, 1997, between the Bank and
the Borrower, and any credit outstanding thereunder shall be deemed to be
outstanding under this Agreement.

10.14  CONFIDENTIAL INFORMATION.  The Bank agrees to maintain the
confidentiality of all information identified as "confidential" or "secret" by
the Borrower and provided to it by or on behalf of the Borrower, under or in
connection with this Agreement.  Neither the Bank nor any of its affiliates
shall use such information other than in connection with or in enforcement of
this Agreement and any other agreement required hereunder, except to the extent
that such information (i) was or becomes generally available to the public other
than as a result of disclosure by the Bank, or (ii) was or becomes available on
a non-confidential basis from a source other than the Borrower or any of its
subsidiaries or affiliates, provided that such source is not bound by a
confidentiality agreement with the Borrower known to the Bank; provided,
                                                               -------- 
however, that the Bank may disclose such information (A) at the request or
-------                                                                   
pursuant to any requirement of any public authority to which the Bank is subject
or in connection with an examination of the Bank by any such public authority;
(B) pursuant to subpoena or other court process; (C) when required to do so in
accordance with the provisions of any applicable requirement of law; (D) with
notice to the Borrower, to the extent reasonably required in connection with any
litigation or proceeding to which the Bank or its affiliates may be party and
which arises out of or in connection with the transactions contemplated by this
Agreement; (E) to the extent reasonably required in connection with the exercise
of any remedy hereunder or under any other agreement required hereunder; (F) to
the Bank's independent auditors, accountants, attorneys and other professional
advisors; (G) to any affiliate of the Bank, or to any participant or assignee,
actual or potential, provided that such affiliate, participant, or assignee
agrees to keep such information confidential to the same extent required of the
Bank hereunder; and (H) as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Borrower is party
or is deemed to be a party with the Bank.

This Agreement is executed as of the date stated at the top of the first page.

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BANK OF AMERICA                                 
NATIONAL TRUST AND SAVINGS ASSOCIATION          SPORT CHALET, INC.

X    /s/ Jeff Thom                              X  /s/ Howard K. Kaminsky
     -------------------------------               -----------------------------
BY:      JEFF THOM                              BY:    HOWARD K. KAMINSKY
Title:   VICE PRESIDENT                         TITLE: SENIOR VICE PRESIDENT-
                                                       FINANCE, CHIEF FINANCIAL
                                                       OFFICER AND SECRETARY
  
ADDRESS WHERE NOTICES TO THE BANK               ADDRESS WHERE NOTICES TO THE 
ARE TO BE SENT:                                 BORROWER ARE TO BE SENT:
                                                          
525 South Flower Street                         920  Foothill Boulevard 
Los Angeles, California  90071                  La Canada, California 91011  

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