
<PAGE>
                                                                  EXHIBIT 10.8.1
 
                           SANTA BARBARA BANK & TRUST
                                 LOAN AGREEMENT

<TABLE>
<CAPTION> 
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          PRINCIPAL               LOAN DATE       MATURITY      LOAN NO     CALL     COLLATERAL     ACCOUNT     OFFICER     INITIALS
<S>                             <C>             <C>             <C>        <C>      <C>            <C>         <C>         <C>
       $9,000,000.00             03-23-1998      04-01-2000      16450       4A         910          14492        PWM
-----------------------------------------------------------------------------------------------------------------------------------
 References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
 or item.
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<S>                                                                    <C> 
 BORROWER:  THE BALANCE BAR COMPANY                                    LENDER:  SANTA BARBARA BANK & TRUST
            1015 MARK AVENUE                                                    MAIN OFFICE
            CARPINTERIA, CA 93013                                               C/O LOAN SERVICES
                                                                                P.O. BOX 1173
                                                                                SANTA BARBARA CA 93102-1173
====================================================================================================================================

</TABLE>


THIS LOAN AGREEMENT BETWEEN THE BALANCE BAR COMPANY ("BORROWER") AND SANTA
BARBARA BANK & TRUST ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
CONDITIONS.  BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS
APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
SCHEDULE ATTACHED TO THIS AGREEMENT.  ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS".  BORROWER UNDERSTANDS AND AGREES THAT:  (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.

TERM.  This Agreement shall be effective as of MARCH 23, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.

DEFINITIONS.  The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.

   AGREEMENT.  The word "Agreement" means this Loan Agreement, as this Loan
   Agreement may be amended or modified from time to time, together with all
   exhibits and schedules attached to this Loan Agreement from time to time.

   ACCOUNT.  The word "Account" means a trade account, account receivable, or
   other right to payment for goods sold or services rendered owing to Borrower
   (or to a third party grantor acceptable to Lender).

   ACCOUNT DEBTOR.  The words "Account Debtor" mean the person or entity
   obligated upon an Account.

   ADVANCE.  The word "Advance" means a disbursement of Loan funds under this
   Agreement.

   BORROWER.  The word "Borrower" means The Balance Bar Company.  The word
   "Borrower" also includes, as applicable, all subsidiaries and affiliates of
   Borrower as provided below in the paragraph titled "Subsidiaries and
   Affiliates."

   BORROWING BASE.  The words "Borrowing Base" mean, as determined by Lender
   from time to time, the lesser of (a) $9,000,000.00; or (b) 75.000% of the
   aggregate amount of Eligible Accounts.

   BUSINESS DAY.  The words "Business Day" mean a day on which commercial banks
   are open for business in the State of California.

   CERCLA.  The word "CERCLA" means the Comprehensive Environmental Response,
   Compensation, and Liability Act of 1980, as amended.

   CASH FLOW.  The words "Cash Flow" mean net income after taxes, and exclusive
   of extraordinary gains and income, plus depreciation and amortization.

   COLLATERAL.  The word "Collateral" means and includes without limitation all
   property and assets granted as collateral security for a Loan, whether real
   or personal property, whether granted directly or indirectly, whether granted
   now or in the future, and whether granted in the form of a security interest,
   mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
   factor's lien, equipment trust, conditional sale, trust receipt, lien,
   charge, lien or title retention contract, lease or consignment intended as a
   security device, or any other security or lien interest whatsoever whether
   created by law, contract, or otherwise.  The word "Collateral" includes
   without limitation all collateral described below in the section titled
   "COLLATERAL."

   DEBT.  The word "Debt" means all of Borrower's liabilities excluding
   Subordinated Debt.

   ELIGIBLE ACCOUNTS.  The words "Eligible Accounts" mean, at any time, all of
   Borrower's Accounts which contain selling terms and conditions acceptable to
   Lender.  The net amount of any Eligible Account against which Borrower may
   borrow shall exclude all returns, discounts, credits, and offsets of any
   nature.  Unless otherwise agreed to by Lender in writing, Eligible Accounts
   do not include:
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 2
LOAN NO 16450                        (CONTINUED)

================================================================================

      (a) Accounts with respect to which the Account Debtor is an officer, an
      employee or agent of Borrower.

      (b) Accounts with respect to which the Account Debtor is a subsidiary of,
      or affiliated with or related to Borrower or its shareholders, officers,
      or directors.

      (c) Accounts with respect to which goods are placed on consignment,
      guaranteed sale, or other terms by reason of which the payment by the
      Account Debtor may be conditional.

      (d) Accounts with respect to which the Account Debtor is not a resident of
      the United States, except to the extent such Accounts are supported by
      insurance, bonds or other assurances satisfactory to Lender.

      (e) Accounts with respect to which Borrower is or may become liable to the
      Account Debtor for goods sold or services rendered by the Account Debtor
      to Borrower.

      (f) Accounts which are subject to dispute, counterclaim, or setoff.

      (g) Accounts with respect to which the goods have not been shipped or
      delivered, or the services have not been rendered, to the Account Debtor.

      (h) Accounts with respect to which Lender, in its sole discretion, deems
      the creditworthiness or financial condition of the Account Debtor to be
      unsatisfactory.

      (i) Accounts of any Account Debtor who has filed or has had filed against
      it a petition in bankruptcy or an application for relief under any
      provision of any state or federal bankruptcy, insolvency, or debtor-in-
      relief acts; or who has had appointed a trustee, custodian, or receiver
      for the assets of such Account Debtor; or who has made an assignment for
      the benefit of creditors or has become insolvent or fails generally to pay
      its debts (including its payrolls) as such debts become due.

      (j) Accounts with respect to which the Account Debtor is the United States
      government or any department or agency of the United States.

      (k) Accounts which have not been paid in full within 90 DAYS from the
      invoice date.

      (l) That portion of the Accounts of any single Account Debtor which
      exceeds 20.000% of all of Borrower's Accounts.

   ERISA.  The word "ERISA" means the Employee Retirement Income Security Act of
   1974, as amended.

   EVENT OF DEFAULT.  The words "Event of Default" mean and include without
   limitation any of the Events of Default set forth below in the section titled
   "EVENTS OF DEFAULT."

   EXPIRATION DATE.  The words "Expiration Date" mean the date of termination of
   Lender's commitment to lend under this Agreement.

   GRANTOR.  The word "Grantor" means and includes without limitation each and
   all of the persons or entities granting a Security Interest in any Collateral
   for the Indebtedness, including without limitation all Borrowers granting
   such a Security Interest.

   GUARANTOR.  The word "Guarantor" means and includes without limitation each
   and all of the guarantors, sureties, and accommodation parties in connection
   with any Indebtedness.

   INDEBTEDNESS.  The word "Indebtedness" means and includes without limitation
   all Loans, together with all other obligations, debts and liabilities of
   Borrower to Lender, or any one or more of them, as well as all claims by
   Lender against Borrower, or any one or more of them; whether now or hereafter
   existing, voluntary or involuntary, due or not due, absolute or contingent,
   liquidated or unliquidated; whether Borrower may be liable individually or
   jointly with others; whether Borrower may be obligated as a guarantor,
   surety, or otherwise; whether recovery upon such Indebtedness may be or
   hereafter may become barred by any statute of limitations; and whether such
   Indebtedness may be or hereafter may become otherwise unenforceable.

   LENDER.  The word "Lender" means Santa Barbara Bank & Trust, its successors
   and assigns.

   LINE OF CREDIT.  The words "Line of Credit" mean the credit facility
   described in the Section titled "LINE OF CREDIT" below.

   LIQUID ASSETS.  The words "Liquid Assets" mean Borrower's cash on hand plus
   Borrower's readily marketable securities.

   LOAN.  The word "Loan" or "Loans" means and includes without limitation any
   and all commercial loans and financial accommodations from Lender to
   Borrower, whether now or hereafter existing, and however evidenced, including
   without limitation those loans and financial accommodations described herein
   or described on any exhibit or schedule attached to this Agreement from time
   to time.
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 3
LOAN NO 16450                        (CONTINUED)

================================================================================

   NOTE.  The word "Note" means and includes without limitation Borrower's
   promissory note or notes, if any, evidencing Borrower's Loan obligations in
   favor of Lender, as well as any substitute, replacement or refinancing note
   or notes therefor.

   PERMITTED LIENS.  The words "Permitted Liens" mean: (a) liens and security
   interests securing Indebtedness owed by Borrower to Lender; (b) liens for
   taxes, assessments, or similar charges either not yet due or being contested
   in good faith; (c) liens of materialmen, mechanics, warehousemen, or
   carriers, or other like liens arising in the ordinary course of business and
   securing obligations which are not yet delinquent; (d) purchase money liens
   or purchase money security interests upon or in any property acquired or held
   by Borrower in the ordinary course of business to secure indebtedness
   outstanding on the date of this Agreement or permitted to be incurred under
   the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens
   and security interests which, as of the date of this Agreement, have been
   disclosed to and approved by the Lender in writing; and (f) those liens and
   security interests which in the aggregate constitute an immaterial and
   insignificant monetary amount with respect to the net value of Borrower's
   assets.

   RELATED DOCUMENTS.  The words "Related Documents" mean and include without
   limitation all promissory notes, credit agreements, loan agreements,
   environmental agreements, guaranties, security agreements, mortgages, deeds
   of trust, and all other instruments, agreements and documents, whether now or
   hereafter existing, executed in connection with the Indebtedness.

   SECURITY AGREEMENT.  The words "Security Agreement" mean and include without
   limitation any agreements, promises, covenants, arrangements, understandings
   or other agreements, whether created by law, contract, or otherwise,
   evidencing, governing, representing, or creating a Security Interest.

   SECURITY INTEREST.  The words "Security interest" mean and include without
   limitation any type of collateral security, whether in the form of a lien,
   charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
   chattel trust, factor's lien, equipment trust, conditional sale, trust
   receipt, lien or title retention contract, lease or consignment intended as a
   security device, or any other security or lien interest whatsoever, whether
   created by law, contract, or otherwise.

   SARA.  The word "SARA" means the Superfund Amendments and Reauthorization Act
   of 1986 as now or hereafter amended.

   SUBORDINATED DEBT.  The words "Subordinated Debt" mean indebtedness and
   liabilities of Borrower which have been subordinated by written agreement to
   indebtedness owed by Borrower to Lender in form and substance acceptable to
   Lender.

   TANGIBLE NET WORTH.  The words "Tangible Net Worth" mean Borrower's total
   assets excluding all intangible assets (i.e., goodwill, trademarks, patents,
   copyrights, organizational expenses, and similar intangible items, but
   including leaseholds and leasehold improvements) less total Debt.

   WORKING CAPITAL.  The words "Working Capital" mean Borrower's current assets,
   excluding prepaid expenses, less Borrower's current liabilities.

LINE OF CREDIT.  Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base.  Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.

   CONDITIONS PRECEDENT TO EACH ADVANCE.  Lender's obligation to make any
   Advance to or for the account of Borrower under this Agreement is subject to
   the following conditions precedent, with all documents, instruments,
   opinions, reports, and other items required under this Agreement to be in
   form and substance satisfactory to Lender:

      (a) Lender shall have received evidence that this Agreement and all
      Related Documents have been duly authorized, executed, and delivered by
      Borrower to Lender.

      (b) Lender shall have received such opinions of counsel, supplemental
      opinions, and documents as Lender may request.

      (c) The security interests in the Collateral shall have been duly
      authorized, created, and perfected with first lien priority and shall be
      in full force and effect.

      (d) All guaranties required by Lender for the Line of Credit shall have
      been executed by each Guarantor, delivered to Lender, and be in full force
      and effect.

      (e) Lender, at its option and for its sole benefit, shall have conducted
      an audit of Borrower's Accounts, books, records, and operations, and
      Lender shall be satisfied as to their condition.

      (f) Borrower shall have paid to Lender all fees, costs, and expenses
      specified in this Agreement and the Related Documents as are then due and
      payable.

      (g) There shall not exist at the time of any Advance a condition which
      would constitute an Event of Default under this Agreement, and Borrower
      shall have delivered to Lender the compliance certificate called for in
      the paragraph below titled "Compliance Certificate."

MAKING LOAN ADVANCES.  Advances under the credit facility, as well as directions
for payment from Borrower's accounts, may be requested orally or in writing by
authorized persons.  Lender may, but need not, require that all oral requests be
confirmed in writing.  Each Advance shall be conclusively
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 4
LOAN NO 16450                        (CONTINUED)

================================================================================

deemed to have been made at the request of and for the benefit of Borrower (a)
when credited to any deposit account of Borrower maintained with Lender or (b)
when advanced in accordance with the instructions of an authorized person.
Lender, at its option, may set a cutoff time, after which all requests for
Advances will be treated as having been requested on the next succeeding
Business Day.

MANDATORY LOAN REPAYMENTS.  If at any time the aggregate principal amount of the
outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
immediately upon written or oral notice from Lender, shall pay to Lender an
amount equal to the difference between the outstanding principal balance of the
Advances and the Borrowing Base.  On the Expiration Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other applicable
fees, costs and charges, if any, not yet paid.

LOAN ACCOUNT.  Lender shall maintain on its books a record of account in which
Lender shall make entries for each Advance and such other debits and credits as
shall be appropriate in connection with the credit facility.  Lender shall
provide Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively binding on
Borrower unless Borrower notifies Lender to the contrary within thirty (30) days
after Borrower's receipt of any such statement which Borrower deems to be
incorrect.

COLLATERAL.  To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts and general intangibles.
Lender's Security Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance.  With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:

   PERFECTION OF SECURITY INTERESTS.  Borrower agrees to execute such financing
   statements and to take whatever other actions are requested by Lender to
   perfect and continue Lender's Security Interests in the Collateral.  Upon
   request of Lender, Borrower will deliver to Lender any and all of the
   documents evidencing or constituting the Collateral, and Borrower will note
   Lender's interest upon any and all chattel paper if not delivered to Lender
   for possession by Lender.  Contemporaneous with the execution of this
   Agreement, Borrower will execute one or more UCC financing statements and any
   similar statements as may be required by applicable law, and will file such
   financing statements and all such similar statements in the appropriate
   location or locations.  Borrower hereby appoints Lender as its irrevocable
   attorney-in-fact for the purpose of executing any documents necessary to
   perfect or to continue any Security Interest.  Lender may at any time, and
   without further authorization from Borrower, file a carbon, photograph,
   facsimile, or other reproduction of any financing statement for use as a
   financing statement.  Borrower will reimburse Lender for all expenses for the
   perfection, termination, and the continuation of the perfection of Lender's
   security interest in the Collateral.  Borrower promptly will notify Lender of
   any change in Borrower's name including any change to the assumed business
   names of Borrower.  Borrower also promptly will notify Lender of any change
   in Borrower's Social Security Number or Employer Identification Number.
   Borrower further agrees to notify Lender in writing prior to any change in
   address or location of Borrower's principal governance office or should
   Borrower merge or consolidate with any other entity.

   COLLATERAL RECORDS.  Borrower does now, and at all times hereafter shall,
   keep correct and accurate records of the Collateral, all of which records
   shall be available to Lender or Lender's representative upon demand for
   inspection and copying at any reasonable time.  With respect to the Accounts,
   Borrower agrees to keep and maintain such records as Lender may require,
   including without limitation information concerning Eligible Accounts and
   Account balances and agings.  The following is an accurate and complete list
   of all locations at which Borrower keeps or maintains business records
   concerning Borrower's Accounts: 1015 MARK AVENUE, CARPINTERIA, CA 93013.

   COLLATERAL SCHEDULES.  Concurrently with the execution and delivery of this
   Agreement, Borrower shall execute and deliver to Lender a schedule of
   Accounts and Eligible Accounts, in form and substance satisfactory to the
   Lender.  Thereafter Borrower shall execute and deliver to Lender such
   supplemental schedules of Eligible Accounts and such other matters and
   information relating to Borrower's Accounts as Lender may request.
   Supplemental schedules shall be delivered according to the following
   schedule: BORROWING CERTIFICATE, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
   AGINGS WITHIN 10 DAYS OF EACH MONTH END.

   REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS.  With respect to the
   Accounts, Borrower represents and warrants to Lender: (a) Each Account
   represented by Borrower to be an Eligible Account for purposes of this
   Agreement conforms to the requirements of the definition of an Eligible
   Account; (b) All Account information listed on schedules delivered to Lender
   will be true and correct, subject to immaterial variance; and (c) Lender, its
   assigns, or agents shall have the right at any time and at Borrower's expense
   to inspect, examine, and audit Borrower's records and to confirm with Account
   Debtors the accuracy of such Accounts.

ADDITIONAL CREDIT FACILITIES.  In addition to the Line of Credit facility, the
following credit accommodations are either in place or will be made available to
Borrower:

REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

   ORGANIZATION.  Borrower is a corporation which is duly organized, validly
   existing, and in good standing under the laws of the State of Delaware, and
   is validly existing and in good standing in all states in which Borrower is
   doing business.  Borrower has the full power and authority to own
   its properties and to transact the businesses in which it is presently
   engaged or presently proposes to engage.  Borrower also is duly qualified as
   a foreign corporation and is in good standing in all states in which the
   failure to so qualify would have a material adverse effect on its businesses
   or financial condition.
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 5
LOAN NO 16450                        (CONTINUED)

================================================================================

   AUTHORIZATION.  The execution, delivery, and performance of this Agreement
   and all Related Documents by Borrower, to the extent to be executed,
   delivered or performed by Borrower, have been duly authorized by all
   necessary action by Borrower; do not require the consent or approval of any
   other person, regulatory authority or governmental body; and do not conflict
   with, result in a violation of, or constitute a default under (a) any
   provision of its articles of incorporation or organization, or bylaws, or any
   agreement or other instrument binding upon Borrower or (b) any law,
   governmental regulation, court decree, or order applicable to Borrower.

   FINANCIAL INFORMATION.  Each financial statement of Borrower supplied to
   Lender truly and completely disclosed Borrower's financial condition as of
   the date of the statement, and there has been no material adverse change in
   Borrower's financial condition subsequent to the date of the most recent
   financial statement supplied to Lender.  Borrower has no material contingent
   obligations except as disclosed in such financial statements.

   LEGAL EFFECT.  This Agreement constitutes, and any instrument or agreement
   required hereunder to be given by Borrower when delivered will constitute,
   legal, valid and binding obligations of Borrower enforceable against Borrower
   in accordance with their respective terms.

   PROPERTIES.  Except for Permitted Liens, Borrower owns and has good title to
   all of Borrower's properties free and clear of all Security Interests, and
   has not executed any security documents or financing statements relating to
   such properties.  All of Borrower's properties are titled in Borrower's legal
   name, and Borrower has not used, or filed a financing statement under, any
   other name for at least the last five (5) years.

   HAZARDOUS SUBSTANCES.  The terms "hazardous waste," "hazardous substance,"
   "disposal," "release," and "threatened release," as used in this Agreement,
   shall have the same meanings as set forth in the "CERCLA," "SARA," the
   Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
   Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
   Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
   Code, Section 25100, et seq., or other applicable state or Federal laws,
   rules, or regulations adopted pursuant to any of the foregoing.  Except as
   disclosed to and acknowledged by Lender in writing, Borrower represents and
   warrants that: (a) During the period of Borrower's ownership of the
   properties, there has been no use, generation, manufacture, storage,
   treatment, disposal, release or threatened release of any hazardous waste or
   substance by any person on, under, about or from any of the properties. (b)
   Borrower has no knowledge of, or reason to believe that there has been (i)
   any use, generation, manufacture, storage, treatment, disposal, release, or
   threatened release of any hazardous waste or substance on, under, about or
   from the properties by any prior owners or occupants of any of the
   properties, or (ii) any actual or threatened litigation or claims of any kind
   by any person relating to such matters. (c) Neither Borrower nor any tenant,
   contractor, agent or other authorized user of any of the properties shall
   use, generate, manufacture, store, treat, dispose of, or release any
   hazardous waste or substance on, under, about or from any of the properties;
   and any such activity shall be conducted in compliance with all applicable
   federal, state, and local laws, regulations, and ordinances, including
   without limitation those laws, regulations and ordinances described above.
   Borrower authorizes Lender and its agents to enter upon the properties to
   make such inspections and tests as Lender may deem appropriate to determined
   compliance of the properties with this section of the Agreement.  Any
   inspections or tests made by Lender shall be at Borrower's expense and for
   Lender's purposes only and shall not be construed to create any
   responsibility or liability on the part of Lender to Borrower or to any other
   person.  The representations and warranties contained herein are based on
   Borrower's due diligence in investigating the properties for hazardous waste
   and hazardous substances.  Borrower hereby (a) releases and waives any future
   claims against Lender for indemnity or contribution in the event Borrower
   becomes liable for cleanup or other costs under any such laws, and (b) agrees
   to indemnify and hold harmless Lender against any and all claims, losses,
   liabilities, damages, penalties, and expenses which Lender may directly or
   indirectly sustain or suffer resulting from a breach of this section of the
   Agreement or as a consequence of any use, generation, manufacture, storage,
   disposal, release or threatened release occurring prior to Borrower's
   ownership or interest in the properties, whether or not the same was or
   should have been known to Borrower.  The provisions of this section of the
   Agreement, including the obligation to indemnify, shall survive the payment
   of the Indebtedness and the termination or expiration of this Agreement and
   shall not be affected by Lender's acquisition of any interest in any of the
   properties, whether by foreclosure or otherwise.

   LITIGATION AND CLAIMS.  No litigation, claim, investigation, administrative
   proceeding or similar action (including those for unpaid taxes) against
   Borrower is pending or threatened, and no other event has occurred which may
   materially adversely affect Borrower's financial condition or properties,
   other than litigation, claims, or other events, if any, that have been
   disclosed to and acknowledged by Lender in writing.

   TAXES.  To the best of Borrower's knowledge, all tax returns and reports of
   Borrower that are or were required to be filed, have been filed, and all
   taxes, assessments and other governmental charges have been paid in full,
   except those presently being or to be contested by Borrower in good faith in
   the ordinary course of business and for which adequate reserves have been
   provided.

   LIEN PRIORITY.  Unless otherwise previously disclosed to Lender in writing,
   Borrower has not entered into or granted any Security Agreements, or
   permitted the filing or attachment of any Security Interests on or affecting
   any of the Collateral directly or indirectly securing repayment of Borrower's
   Loan and Note, that would be prior or that may in any way be superior to
   Lender's Security Interests and rights in and to such Collateral.

   BINDING EFFECT.  This Agreement, the Note, all Security Agreements directly
   or indirectly securing repayment of Borrower's Loan and Note and all of the
   Related Documents are binding upon Borrower as well as upon Borrower's
   successors, representatives and assigns, and are legally enforceable in
   accordance with their respective terms.

   COMMERCIAL PURPOSES.  Borrower intends to use the Loan proceeds solely for
   business or commercial related purposes.

   EMPLOYEE BENEFIT PLANS.  Each employee benefit plan as to which Borrower may
   have any liability complies in all material respects with all applicable
   requirements of law and regulations, and (i) no Reportable Event nor
   Prohibited Transaction (as defined in ERISA) has occurred with respect to any
   such plan, (ii) Borrower has not withdrawn from any such plan or initiated
   steps to do so, (iii) no steps have been taken to terminate any such plan,
   and (iv) there are no unfunded liabilities other than those previously
   disclosed to Lender in writing.
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 6
LOAN NO 16450                        (CONTINUED)

================================================================================

   LOCATION OF BORROWER'S OFFICES AND RECORDS.  Borrower's place of business, or
   Borrower's Chief executive office, if Borrower has more than one place of
   business, is located at 1015 Mark Avenue, Carpinteria, CA 93013.  Unless
   Borrower has designated otherwise in writing this location is also the office
   or offices where Borrower keeps its records concerning the Collateral.

   INFORMATION.  All information heretofore or contemporaneously herewith
   furnished by Borrower to Lender for the purposes of or in connection with
   this Agreement or any transaction contemplated hereby is, and all information
   hereafter furnished by or on behalf of Borrower to Lender will be, true and
   accurate in every material respect on the date as of which such information
   is dated or certified; and none of such information is or will be incomplete
   by omitting to state any material fact necessary to make such information not
   misleading.

   SURVIVAL OF REPRESENTATIONS AND WARRANTIES.  Borrower understands and agrees
   that Lender, without independent investigation, is relying upon the above
   representations and warranties in extending Loan Advances to Borrower.
   Borrower further agrees that the foregoing representations and warranties
   shall be continuing in nature and shall remain in full force and effect until
   such time as Borrower's Indebtedness shall be paid in full, or until this
   Agreement shall be terminated in the manner provided above, whichever is the
   last to occur.

AFFIRMATIVE COVENANTS.  Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

   LITIGATION.  Promptly inform Lender in writing of (a) all material adverse
   changes in Borrower's financial condition, and (b) all existing and all
   threatened litigation, claims, investigations, administrative proceedings or
   similar actions affecting Borrower or any Guarantor which could materially
   affect the financial condition of Borrower or the financial condition of any
   Guarantor.

   FINANCIAL RECORDS.  Maintain its books and records in accordance with
   generally accepted accounting principles, applied on a consistent basis, and
   permit Lender to examine and audit Borrower's books and records at all
   reasonable times.

   FINANCIAL STATEMENTS.  Furnish Lender with, as soon as available, but in no
   event later than ninety (90) days after the end of each fiscal year,
   Borrower's balance sheet and income statement for the year ended, audited by
   a certified public accountant satisfactory to Lender, and, as soon as
   available, but in no event later than thirty (30) days after the end of each
   fiscal quarter, Borrower's balance sheet and profit and loss statement for
   the period ended, prepared and certified as correct to the best knowledge and
   belief by Borrower's chief financial officer or other officer or person
   acceptable to Lender.  All financial reports required to be provided under
   this Agreement shall be prepared in accordance with generally accepted
   accounting principles, applied on a consistent basis, and certified by
   Borrower as being true and correct.

   ADDITIONAL INFORMATION.  Furnish such additional information and statements,
   list of assets and liabilities, agings of receivables and payables, inventory
   schedules, budgets, forecasts, tax returns, and other reports with respect to
   Borrower's financial condition and business operations as Lender may request
   from time to time.

FINANCIAL COVENANTS AND RATIOS.  Comply with the following covenants and ratios:

   NET WORTH RATIO.  Maintain a ratio of Total Liabilities to Tangible Net Worth
   of less than 2.00 TO 1.00.

   CURRENT RATIO.  Maintain a ratio of Current Assets to Current Liabilities in
   excess of 1.75 TO 1.00.  Except as provided above, all computations made to
   determine compliance with the requirements contained in this paragraph shall
   be made in accordance with generally accepted accounting principles, applied
   on a consistent basis, and certified by Borrower as being true and correct.

   INSURANCE.  Maintain fire and other risk insurance, public liability
   insurance, and such other insurance as Lender may require with respect to
   Borrower's properties and operations, in form, amounts, coverages and with
   insurance companies reasonably acceptable to Lender.  Borrower, upon request
   of Lender, will deliver to Lender from time to time the policies or
   certificates of insurance in form satisfactory to Lender, including
   stipulations that coverages will not be cancelled or diminished without at
   least ten (10) days' prior written notice to Lender.  Each insurance policy
   also shall include an endorsement providing that coverage in favor of Lender
   will not be impaired in any way by any act, omission or default of Borrower
   or any other person.  In connection with all policies covering assets in
   which Lender holds or is offered a security interest for the Loans, Borrower
   will provide Lender with such loss payable or other endorsements as Lender
   may require.

INSURANCE REPORTS.  Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy.  In addition, upon request of Lender (however not
more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral.  The cost of such appraisal shall be paid by
Borrower.

OTHER AGREEMENTS.  Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.

LOAN PROCEEDS.  Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.

TAXES, CHARGES AND LIENS.  Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed upon
Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower's properties, income, or profits.  Provided
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 7
LOAN NO 16450                        (CONTINUED)

================================================================================

however, Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the same shall
be contested in good faith by appropriate proceedings, and (b) Borrower shall
have established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices.  Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.

PERFORMANCE.  Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.

OPERATIONS.  Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee benefit
plans.

INSPECTION.  Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records.  If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.

COMPLIANCE CERTIFICATE.  Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer or
person acceptable to Lender, certifying that the representations and warranties
set forth in this Agreement are true and correct as of the date of the
certificate and further certifying that, as of the date of the certificate, no
Event of Default exists under this Agreement.

ENVIRONMENTAL COMPLIANCE AND REPORTS.  Borrower shall comply in all respects
with all environmental protection federal, state and local law, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.

ADDITIONAL ASSURANCES.  Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests.

NEGATIVE COVENANTS.  Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

   INDEBTEDNESS AND LIENS.  (a) Except for trade debt incurred in the normal
   course of business and indebtedness to Lender contemplated by this Agreement,
   create, incur or assume indebtedness for borrowed money, including capital
   leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage,
   assign, pledge, lease, grant a security interest in, or encumber any of
   Borrower's assets, or (c) sell with recourse any of Borrower's accounts,
   except to Lender.

   CONTINUITY OF OPERATIONS.  (a) Engage in any business activities
   substantially different than those in which Borrower is presently engaged,
   (b) cease operations, liquidate, merge, transfer, acquire or consolidate with
   any other entity, change ownership, change its name, dissolve or transfer or
   sell Collateral out of the ordinary course of business, (c) pay any dividends
   on Borrower's stock (other than dividends payable in its stock), provided,
   however that notwithstanding the foregoing, but only so long as no Event of
   Default has occurred and is continuing or would result from the payment of
   dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
   Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
   on its stock to its shareholders from time to time in amounts necessary to
   enable the shareholders to pay income taxes and make estimated income tax
   payments to satisfy their liabilities under federal and state law which arise
   solely from their status as Shareholders of a Subchapter S Corporation
   because of their ownership of shares of stock of Borrower, or (d) purchase or
   retire any of Borrower's outstanding shares or alter or amend Borrower's
   capital structure.

   LOANS, ACQUISITIONS AND GUARANTIES.  (a) Loan, invest in or advance money or
   assets, (b) purchase, create or acquire any interest in any other enterprise
   or entity, or (c) incur any obligation as surety or guarantor other than in
   the ordinary course of business.

CESSATION OF ADVANCES.  If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 8
LOAN NO 16450                        (CONTINUED)

================================================================================

change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; (d) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in
good faith deems itself insecure, even though no Event of Default shall have
occurred.

ADDITIONAL COVENANTS.

1) A/R and Inventory audits as of July 1, of each year, with cost paid by 
   Borrower.

2) No payment of dividends or repurchase of common shares without prior written
approval from the Bank, except as defined under the change of ownership section
described below.

CHANGE IN OWNERSHIP.  Any change in ownership of twenty-five percent (25%) or
more of the common and/or preferred stock of Borrower, excluding any percentage
change related to the sale of stock through a public stock offering.

EVENTS OF DEFAULT.  Each of the following shall constitute an Event of Default
under this Agreement:

   DEFAULT ON INDEBTEDNESS.  Failure of Borrower to make any payment when due on
   the Loans.

   OTHER DEFAULTS.  Failure of Borrower or any Grantor to comply with or to
   perform when due any other term, obligation, covenant or condition contained
   in this Agreement or in any of the Related Documents, or failure of Borrower
   to comply with or to perform any other term, obligation covenant or condition
   contained in any other agreement between Lender and Borrower.

   DEFAULT IN FAVOR OF THIRD PARTIES.  Should Borrower or any Grantor default
   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 or any
   Grantor's ability to repay the Loans or perform their respective obligations
   under this Agreement or any of the Related Documents.

   FALSE STATEMENTS.  Any warranty, representation or statement made or
   furnished to Lender by or on behalf of Borrower or any Grantor under this
   Agreement or the Related Documents is false or misleading in any material
   respect at the time made or furnished, or becomes false or misleading at any
   time thereafter.

   DEFECTIVE COLLATERALIZATION.  This Agreement or any of the Related Documents
   ceases to be in full force and effect (including failure of any Security
   Agreement to create a valid and perfected Security Interest) at any time and
   for any reason.

   INSOLVENCY.  The dissolution or termination of Borrower's existence as a
   going business, the insolvency of Borrower, the appointment of a receiver for
   any part of Borrower's property, any assignment for the benefit of creditors,
   any type of creditor workout, or the commencement of any proceeding under any
   bankruptcy or insolvency laws by or against Borrower.

   CREDITOR OR FORFEITURE PROCEEDINGS.  Commencement of foreclosure or
   forfeiture proceedings, whether by judicial proceeding, self-help,
   repossession or any other method, by any creditor of Borrower, any creditor
   of any Grantor against any collateral securing the Indebtedness, or by any
   governmental agency.  This includes a garnishment, attachment, or levy on or
   of any of Borrower's deposit accounts with Lender.  However this Event of
   Default shall not apply if there is a good faith dispute by Borrower or
   Grantor, as the case may be, as to the validity or reasonableness of the
   claim which is the basis of the creditor or forfeiture proceeding, and if
   Borrower or Grantor gives Lender written notice of the creditor or forfeiture
   proceeding and furnishes reserves or a surety bond for the creditor or
   forfeiture proceeding satisfactory to Lender.

   EVENTS AFFECTING GUARANTOR.  Any of the preceding events occurs with respect
   to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
   incompetent, or revokes or disputes the validity of, or liability under, any
   Guaranty of the Indebtedness.  Lender, at its option, may, but shall not be
   required to, permit the Guarantor's estate to assume unconditionally the
   obligations arising under the guaranty in a manner satisfactory to Lender,
   and, in doing so, cure the Event of Default.

   ADVERSE CHANGE.  A material adverse change occurs in Borrower's financial
   condition, or Lender believes the prospect of payment or performance of the
   Indebtedness is impaired.

   INSECURITY.  Lender, in good faith, deems itself insecure.

   RIGHT TO CURE.  If any default, other than a Default on Indebtedness, is
   curable and if Borrower or Grantor, as the case may be, has not been given a
   notice of a similar default within the preceding twelve (12) months, it may
   be cured (and no Event of Default will have occurred) if Borrow or Grantor,
   as the case may be, after receiving written notice from Lender demanding cure
   of such default: (a) cures the default within fifteen (15) days; or (b) if
   the cure requires more than fifteen (15) days, immediately initiates steps
   which Lender deems in Lender's sole discretion to be sufficient to cure the
   default and thereafter continues and completes all reasonable and necessary
   steps sufficient to produce compliance as soon as reasonably practical.

EFFECT OF AN EVENT OF DEFAULT.  If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 9
LOAN NO 16450                        (CONTINUED)

================================================================================

above, such acceleration shall be automatic and not optional. In addition,
Lender shall have all the rights and remedies provided in the Related Documents
or available at law, in equity, or otherwise. Except as may be prohibited by
applicable law, all of Lender's rights and remedies shall be cumulative and may
be exercised singularly or concurrently. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Borrower or of any
Grantor shall not affect Lender's right to declare a default and to exercise its
rights and remedies.

MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of
this Agreement:

   AMENDMENTS.  This Agreement, together with any Related Documents, constitutes
   the entire understanding and agreement of the parties as to the makers set
   forth in this Agreement.  No alteration of or amendment to this Agreement
   shall be effective unless given in writing and signed by the party or parties
   sought to be charged or bound by the alteration or amendment.

   APPLICABLE LAW.  THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
   LENDER IN THE STATE OF CALIFORNIA.  IF THERE IS A LAWSUIT, BORROWER AGREES
   UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF SANTA
   BARBARA COUNTY, THE STATE OF CALIFORNIA.  THIS AGREEMENT SHALL BE GOVERNED BY
   AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

   CAPTION HEADINGS.  Caption headings in this Agreement are for convenience
   purposes only and are not to be used to interpret or define the provisions of
   this Agreement.

   MULTIPLE PARTIES; CORPORATE AUTHORITY.  All obligations of Borrower under
   this Agreement shall be joint and several, and all references to Borrower
   shall mean each and every Borrower.  This means that each of the persons
   signing below is responsible for all obligations in this Agreement.

   CONSENT TO LOAN PARTICIPATION.  Borrower agrees and consents to Lender's sale
   or transfer, whether now or later, of one or more participation interests in
   the Loans to one or more purchasers, whether related or unrelated to Lender.
   Lender may provide, without any limitation whatsoever, to any one or more
   purchasers, or potential purchasers, any information or knowledge Lender may
   have about Borrower or about any other matter relating to the Loan, and
   Borrower hereby waives any rights to privacy it may have with respect to such
   matters.  Borrower additionally waives any and all notices of sale of
   participation interests, as well as all notices of any repurchase of such
   participation interests.  Borrower also agrees that the purchasers of any
   such participation interests will be considered as the absolute owners of
   such interests in the Loans and will have all the rights granted under the
   participation agreement or agreements governing the sale of such
   participation interests.  Borrower further waives all rights of offset or
   counterclaim that it may have now or later against Lender or against any
   purchaser of such a participation interest and unconditionally agrees that
   either Lender or such purchaser may enforce Borrower's obligation under the
   Loans irrespective of the failure or insolvency of any holder of any interest
   in the Loans.  Borrower further agrees that the purchaser of any such
   participation interests may enforce its interests irrespective of any
   personal claims or defenses that Borrower may have against Lender.

   COSTS AND EXPENSES.  Borrower agrees to pay upon demand all of Lender's
   expenses, including without limitation attorneys' fees, incurred in
   connection with the preparation, execution, enforcement, modification and
   collection of this Agreement or in connection with the Loans made pursuant to
   this Agreement.  Lender may pay someone else to help collect the Loans and to
   enforce this Agreement, and Borrower will pay that amount.  This includes,
   subject to any limits under applicable law, Lender's attorneys' fees and
   Lender's legal expenses, whether or not there is a lawsuit, including
   attorneys' fees for bankruptcy proceedings (including efforts to modify or
   vacate any automatic stay or injunction), appeals, and any anticipated post-
   judgment collection services.  Borrower also will pay any court costs, in
   addition to all other sums provided by law.

   NOTICES.  All notices required to be given under this Agreement shall be
   given in writing, may be sent by telefacsimile (unless otherwise required by
   law), and shall be effective when actually delivered or when deposited with a
   nationally recognized overnight courier or deposited in the United States
   mail, first class, postage prepaid, addressed to the party to whom the notice
   is to be given at the address shown above.  Any party may change its address
   for notices under this Agreement by giving formal written notice to the other
   parties, specifying that the purpose of the notice is to change the party's
   address.  To the extent permitted by applicable law, if there is more than
   one Borrower, notice to any Borrower will constitute notice to all Borrowers.
   For notice purposes, Borrower will keep Lender informed at all times of
   Borrower's current address(es).

   SEVERABILITY.  If a court of competent jurisdiction finds any provision of
   this Agreement to be invalid or unenforceable as to any person or
   circumstance, such finding shall not render that provision invalid or
   unenforceable as to any other persons or circumstances.  If feasible, any
   such offending provision shall be deemed to be modified to be within the
   limits of enforceability or validity; however, if the offending provision
   cannot be so modified, it shall be stricken and all other provisions of this
   Agreement in all other respects shall remain valid and enforceable.

   SUBSIDIARIES AND AFFILIATES OF BORROWER.  To the extent the context of any
   provisions of this Agreement makes it appropriate, including without
   limitation any representation, warranty or covenant, the word "Borrower" as
   used herein shall include all subsidiaries and affiliates of Borrower.
   Notwithstanding the foregoing however, under no circumstances shall this
   Agreement be construed to require Lender to make any Loan or other financial
   accommodation to any subsidiary or affiliate of Borrower.

   SUCCESSORS AND ASSIGNS.  All covenants and agreements contained by or on
   behalf of Borrower shall bind its successors and assigns and shall inure to
   the benefit of Lender, its successors and assigns.  Borrower shall not,
   however, have the right to assign its rights under this Agreement or any
   interest therein, without the prior written consent of Lender.

   SURVIVAL.  All warranties, representations, and covenants made by Borrower in
   this Agreement or in any certificate or other instrument delivered by
   Borrower to Lender under this Agreement shall be considered to have been
   relied upon by Lender and will survive the making of the Loan and delivery to
   Lender of the Related Documents, regardless of any investigation made by
   Lender or on Lender's behalf.
<PAGE>
 
03-23-1998                          LOAN AGREEMENT                    PAGE 10
LOAN NO 16450                        (CONTINUED)

================================================================================

   TIME IS OF THE ESSENCE.  Time is of the essence in the performance of this
   Agreement.

   WAIVER.  Lender shall not be deemed to have waived any rights under this
   Agreement unless such waiver is given in writing and signed by Lender. No
   delay or omission on the part of Lender in exercising any right shall operate
   as a waiver of such right or any other right.  A waiver by Lender of a
   provision of this Agreement shall not prejudice or constitute a waiver of
   Lender's right otherwise to demand strict compliance with the provision or
   any other provision of this Agreement.  No prior waiver by Lender, nor any
   course of dealing between Lender and Borrower, or between Lender and any
   Grantor, shall constitute a waiver of any of Lender's rights or of any
   obligations of Borrower or of any Grantor as to any future transactions.
   Whenever the consent of Lender is required under this Agreement, the granting
   of such consent by Lender in any instance shall not constitute continuing
   consent in subsequent instances where such consent is required, and in all
   cases such consent may be granted or withheld in the sole discretion of
   Lender.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO IT TERMS. THIS AGREEMENT IS DATED AS OF MARCH 23, 1998.

BORROWER:

The Balance Bar Company


By:  _________________________________________
     James A. Wolfe, Chief Executive Officer


By:  _________________________________________
     Thomas J. Flahie, Senior Vice President,
     Finance & Administration


LENDER:

Santa Barbara Bank & Trust


By:  _________________________________________
     Authorized Officer
