EXHIBIT 10.36






                           THIRD AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

                  Executed to be effective as of March 27, 1997
                                 by and between

                    MARTIN COLOR-FI, INC., STAR FIBERS CORP.,
               CUSTOM COLORANTS, INC., BUCHANAN INDUSTRIES, INC.,
                          PALMETTO SPINNING CORPORATION

                                       AND

                                NATIONSBANK, N.A.
          AS SUCCESSOR TO NATIONSBANK, NATIONAL ASSOCIATION (CAROLINAS)
                     AND NATIONSBANK OF SOUTH CAROLINA, N.A.

















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                    THIS AGREEMENT IS SUBJECT TO THE FEDERAL
               ARBITRATION ACT AND THE SOUTH CAROLINA ARBITRATION
                 ACT SECTION 15-48-10, ET. SEQ. CODE OF LAWS OF
                         SOUTH CAROLINA 1976 AS AMENDED




                                TABLE OF CONTENTS

Preliminary Statement..........................................................1

1.       DEFINITIONS

         1.1.     Defined Terms................................................2
         1.2.     Other Definitional Provisions...............................11

2.       THE REVOLVING CREDIT LOAN

         2.1.     General Terms of the Revolving Credit Loan..................12
         2.2.     Disbursements of the Revolving Credit Loan..................12
         2.3.     The Revolving Credit Note...................................13
         2.4.     Adjustments to Revolving Credit Loan Amount.................13
         2.5.     Margin Requirements under the Revolving Credit Loan.........13
         2.6.     Termination of the Revolving Credit Loan....................13
         2.7.     Fees........................................................13
         2.8.     Conditional Consent to Inclusion of Assets of
                   any Approved Subsidiary....................................14
         2.9.     Account Warranties..........................................14
         2.10.    Lock Box/Collateral Account.................................14
         2.11.    Documentation and Security for Revolving Credit Loan........15
         2.12.    Disbursement to MCF.........................................15
         2.13.    Verification of Accounts....................................15

3.       TERM LOAN

         3.1.     Term Loan Terms.............................................15
         3.2.     Repayment of Term Loan......................................15
         3.3.     Balance.....................................................16

3.1.A. 1997 TERM LOAN.........................................................16

         3.1.A. 1997 Term Loan Terms..........................................16
         3.2.A. Repayment of 1997 Term Loan...................................16
         3.3.A. Disbursements Under 1997 Term Loan............................16
         3.4.A. Draw Requests for 1997 Term Loan..............................17
         3.5.A. Amount of Each Disbursement...................................17
         3.6.A. Fee...........................................................17

4.       CONDITIONS FOR DISBURSEMENTS AND OTHER AGREEMENTS

         4.1.     Conditions Precedent to Disbursements.......................17

                  4.1.1.   Loan Documents.....................................17
                  4.1.2.   Lessor's Waivers/Mortgage's Waivers................17
                  4.1.3.   Wachovia Participation.............................17
                  4.1.4.   Authority Documents................................17
                  4.1.5.   Attorney's Opinion.................................18
                  4.1.6.   Miscellaneous......................................18
                  4.1.7.   No Defaults........................................18
                  4.1.8.   Draw Request.......................................18

         4.2.     Payment to Bank.............................................18
         4.3.     Risk of Loss................................................18

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         4.4.     Waivers.....................................................19
         4.5.     Intangible Taxes............................................19

5.       ADDITIONAL COLLATERAL SECURITY

         5.1.     Nature of Collateral........................................19
         5.2.     Rights in Property Held by Bank.............................19
         5.3.     Rights in Property Held by Borrowers........................19
         5.4.     Financing Statements........................................20

6.       REPRESENTATIONS AND WARRANTIES.

         6.1.     Original....................................................20
         6.2.     Survival....................................................24

7.       BORROWERS' COVENANTS

         7.1.     Affirmative Covenants.......................................24
         7.2.     Negative Covenants..........................................29
         7.3.     Agreements, Representations and Covenants
                   of Any Approved Subsidiary.................................30
         7.4.     Additional Covenants........................................31

8.       BANK'S RIGHTS

         8.1      Appraisal...................................................31
         8.2.     Remedies Cumulative; Nonwaiver..............................31
         8.3.     No Liability of Bank........................................31
         8.4.     Environmental Assessments...................................31
         8.5.     Audits......................................................31

9.       DEFAULT.

         9.1.     Events of Default...........................................32
         9.2.     Acceleration................................................34
         9.3.     Remedies after Acceleration.................................34
         9.4.     Remedies Alternative to Acceleration........................35


10.      MISCELLANEOUS

         10.1.    Construction................................................35
         10.2.    Further Assurances..........................................35
         10.3.    Enforcement and Waiver......................................35
         10.4.    Bank's Expenses.............................................35
         10.5.    Notices.....................................................36
         10.6.    Waiver and Release by Borrowers.............................36
         10.7.    Participation...............................................36

         10.8.    Governing Law...............................................36
         10.9.    Amendment Agreement.........................................37
         10.10.   Assignment..................................................37
         10.11.   Benefit; Binding............................................37
         10.12.   Severability................................................37
         10.13.   Counterparts................................................37
         10.14.   Entire Agreement............................................37
         10.15.   Arbitration.................................................37
         10.16.   Amendment and Restatement...................................38

LIST OF EXHIBITS AND SCHEDULES

EXHIBIT 2-2       -        Form of Collateral Certificate
EXHIBIT 2-3       -        Form of Monthly Borrowing Base Certificate
Schedule 6-1(a)   -        List of Jurisdictions
Schedule 6-1(h)   -        List of Indebtedness
Schedule 6-1(s)   -        List of Collateral Locations
Schedule 6-1(t)   -        List of Trade Names

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                           THIRD AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT


     THIS  THIRD  AMENDED  AND  RESTATED  LOAN  AND  SECURITY   AGREEMENT   (the
"Agreement")  made and entered to be effective as of this day of March,  1997 by
and between MARTIN COLOR-FI,  INC. ("MCF"), a South Carolina  corporation,  STAR
FIBERS CORP., a South Carolina  special  purpose  corporation  and  wholly-owned
subsidiary of MCF ("Star  Fibers"),  CUSTOM  COLORANTS,  INC., a South  Carolina
corporation  and  wholly-owned  subsidiary of MCF ("CC"),  BUCHANAN  INDUSTRIES,
INC., a South Carolina  corporation and  wholly-owned  subsidiary of MCF ("BI"),
and PALMETTO SPINNING CORPORATION, a South Carolina corporation and wholly-owned
subsidiary of MCF ("PS").  (MCF, Star Fibers,  CC, BI and PS are individually or
collectively,  as  the  context  requires,  referred  to as  the  "Borrower"  or
"Borrowers")  and  NATIONSBANK,  N.A.,  as  successor to  NATIONSBANK,  NATIONAL
ASSOCIATION  (CAROLINAS) and  NATIONSBANK OF SOUTH  CAROLINA,  N.A., a federally
chartered banking association ("Bank").

PRELIMINARY STATEMENT.

     A.  Borrowers have requested Bank to continue to extend credit to Borrowers
in the  principal  amount of up to  $25,000,000  on a revolving  loan basis (the
"Revolving  Credit  Loan"),  the  proceeds  of which will be used (i) to satisfy
Borrowers'  working  capital  needs;  (ii) to issue  letters  of  credit  in the
aggregate  principal amount  outstanding at any one time not to exceed $750,000;
(iii) to pay, on a one-time basis, the cost of settlement by MCF of that certain
lawsuit captioned Georgallos v. Martin Color-Fi,  Inc. and James F. Martin in an
amount  not to  exceed  $1,150,000  and (iv) to pay  Bank  approved  soft  costs
incurred  by  Borrowers  in  connection  with  the  making  and the  closing  of
modifications to the Revolving Credit Loan.

     B.  Borrowers  also have  requested  Bank to continue  to extend  credit to
Borrowers on a cumulative line of credit/term loan basis in the principal amount
of  $36,310,000.00  (the "Term  Loan"),  the  proceeds of which have been (i) to
satisfy  existing term  indebtedness  of MCF and Star Fibers in the  approximate
amount of  $21,310,000.00;  (ii) to  purchase  the assets of  Palmetto  Spinning
Corporation and Buchanan Industries,  Inc. in the approximate,  aggregate amount
of  $6,000,000.00;  (iii) to finance  fiscal year 1994 capital  expenditures  of
Borrowers in the  approximate  amount of  $3,000,000.00;  (iv) to finance fiscal
year 1995  capital  expenditures  and  equipment  purchases  in an amount not to
exceed  $3,000,000.00;  (v) to finance fiscal year 1996 capital  expenditure and
equipment  purchases in an amount not to exceed  $3,000,000.00;  and (vi) to pay
Bank approved soft costs incurred by Borrowers in connection with the making and
the closing of the modifications Term Loan.

     C. Borrowers further have requested Bank to extend a loan to Borrowers on a
cumulative  line of  credit/term  loan  basis in the  principal  amount of up to
$5,000,000  (the "1997 Term  Loan"),  the  proceeds of which will be used (i) to
finance fiscal year 1996 capital  expenditures and equipment purchases and up to
$3,000,000 of fiscal year 1997 capital expenditures and equipment purchases; and
(ii) to pay Bank  approved soft costs  incurred by Borrowers in connection  with
the closing of the 1997 Term Loan.

     D. Bank has agreed to continue to extend to Borrowers the Revolving  Credit
Loan and the Term Loan and to extend to the 1997 Term Loan pursuant to the terms
and conditions of this Agreement.

     E. The  Revolving  Credit Loan and the Term Loan were extended to Borrowers
pursuant to (i) that certain Loan and Security  Agreement dated July 14, 1994 as
previously amended pursuant to that

certain First  Amendment to Loan Documents and Agreement dated February 15, 1995
by and between  Borrowers  and Bank and that  certain  Second  Amendment to Loan
Documents and Agreement  dated April 7, 1995; and (ii) that certain  Amended and
Restated  Loan and  Security  Agreement  dated August 9, 1995,  as  subsequently
amended by other certain letter modification agreements dated December 18, 1995,
February 12, 1996 and October 25, 1996 and respectively;  and (iii) that certain
Second Amended and Restated Loan and Security Agreement dated as of December 16,
1996 as amended by that certain letter modification agreement dated February 18,
1997.

     NOW, THEREFORE, Borrowers and Bank agree as follows:

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<PAGE>

1.   DEFINITIONS.

     1.1. DEFINED TERMS. As used herein:

         "1997 Term Loan" shall mean the  cumulative  line of  credit/term  loan
extended  by  Bank  to  Borrowers  in the  original  principal  amount  of up to
$5,000,000.00  pursuant to the terms of, and as more particularly  described in,
Article 3A. of this Agreement.

         "1997 Term Loan Documents" shall mean and refer to,  collectively,  all
those certain  documents and  instruments  executed in connection  with the 1997
Term Loan,  including this  Agreement,  the 1997 Term Note,  the Mortgages,  the
Security Agreements,  the Assignment of Leases, the Assignment of Contracts, the
Financing  Statements and any other  documents  executed in connection  with the
1997 Term Loan as such documents and instruments may be amended,  substituted or
renewed from time to time.

         "1997 Term Note" shall mean that certain 1997 Term Loan Promissory Note
in the original principal amount of up to $5,000,000.00  dated as of the Closing
Date  executed by Borrowers in favor of Bank  evidencing  the 1997 Term Loan, as
the same may be amended, substituted, modified or renewed from time to time.

         "Adjusted LIBOR" means a rate per annum equal to the quotient  obtained
(rounded upwards,  if necessary,  to the next higher 1/100ths of one percent) by
dividing (i) LIBOR by (ii) one minus the LIBOR Reserve Percentage.

         "Account Debtor" shall mean any Person who is obligated on or under any
Account.

         "Accounts"  shall mean any of the  Borrowers'  presently  existing  and
hereafter arising or acquired accounts,  accounts  receivable,  margin accounts,
futures positions, book debts, instruments, notes, drafts, acceptances,  chattel
paper,  and other  forms of  obligations  now or  hereafter  owned or held by or
payable to any of the Borrowers relating in any way to Inventory or arising from
the sale of  Inventory or the  rendering of services by any of the  Borrowers or
howsoever  otherwise arising,  including the right to payment of any interest or
finance charges with respect thereto,  together with all merchandise represented
by  any of  the  Accounts;  all  such  merchandise  that  may  be  reclaimed  or
repossessed or returned to any of the Borrowers; all of the Borrowers' rights as
an unpaid vendor,  including  stoppage in transit,  reclamation,  replevin,  and
sequestration;  all pledged assets and all letters of credit,  guaranty  claims,
liens,  and  security  interests  held by or granted to any of the  Borrowers to
secure  payment  of  any  Accounts;  all  proceeds  and  products  of all of the
foregoing described properties and interests in properties;  and all proceeds of
insurance with respect thereto,  including the proceeds of any applicable credit
insurance or fidelity bond, whether payable in cash or in kind; and all ledgers,
books of account,  records,  computer  programs,  computer  disks or tape files,
computer  printouts,  computer  runs, and other  computer  prepared  information
relating to any of the foregoing.

         "Affiliate"  shall mean any Person (as  hereinafter  defined)  (i) that
directly  or  indirectly,  through  one or more  intermediaries,  controls or is
controlled by, or is under common control with any of the Borrowers,  including,
without limitation, the officers and directors of any of the Borrowers (ii) that
directly or beneficially  owns or holds 5% or more of any equity interest in any
of the Borrowers, or (iii) 5% or more of whose voting stock (or in the case of a
Person which is not a corporation,  5% or more of any equity  interest) is owned
directly or  beneficially  by any of the  Borrowers.  As used  herein,  the term
"control" shall mean possession,  directly or indirectly, of the power to direct
or cause the  direction  of the  management  or  policies  of a Person,  whether
through ownership of securities, by contract or otherwise.

         "Approved  Subsidiary"  or  "Approved   Subsidiaries"  shall  mean  the
individual or collective  reference as the context  requires to any wholly-owned
subsidiary of MCF acceptable to Bank in its sole discretion.

         "Assignment of Contracts" means the Assignment of Contracts in form and
content  acceptable to Bank executed by Borrowers as of July 14, 1994  providing
to Bank a perfected,  first priority assignment of all Borrowers' contracts,  as
amended or modified.

         "Assignment  of  Lease"  means  the  Assignment  of  Leases in form and
content acceptable to Bank executed by Star Fibers as of July 14, 1994 providing
to Bank a perfected,  first  priority  security  interest and  assignment of all
leases related to the Star Fibers Property, as amended or modified.

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<PAGE>

         "Business Day" shall mean any day other than Saturday,  Sunday or other
day on which banks in Columbia,  South Carolina are authorized or required to be
closed.

         "Chattel  Paper,"  "Contracts,"   "Documents,"  "General  Intangibles,"
"Goods," "Instruments" and "Proceeds" shall have the same respective meanings as
are given to those  terms in the  Secured  Transactions  chapter of the  Uniform
Commercial Code as adopted by the State of South Carolina.

         "Closing  Date"  shall  mean  the date as of which  this  Agreement  is
executed by Borrowers and Bank.

         "Code"  shall mean the Internal  Revenue Code of 1986,  as amended from
time to time.

         "Collateral" shall mean, collectively, all real or personal property on
which a lien is placed or in which a security  interest is granted to secure the
Loans  pursuant to this Agreement or pursuant to any of the other Loan Documents
which includes all assets of Borrowers.

         "Collateral  Account" shall mean that certain  account  established and
maintained  pursuant to section 2.10 hereof and any substitute accounts therefor
or replacement accounts thereof;

         "Collateral  Certificate" shall mean the weekly collateral  certificate
delivered  by  Borrower  to Bank  pursuant  to  sections  2.2 and 7.1(k) of this
Agreement  substantially  in the form  attached  hereto as Exhibit  2-2, as such
certificate may be amended from time to time.

         "Commitment  Letter" shall mean Bank's commitment letter dated November
25, 1996 the terms of which are  incorporated  herein by  reference,  but to the
extent of any conflict between the terms of this Agreement or Loan Documents and
the Commitment  Letter,  the terms of this Agreement or the Loan Documents shall
control.

         "Dalton   Property"   shall  mean  that  certain  real   property  more
particularly  described  on  Exhibit  A-1 to the  Security  Agreement,  and  all
improvements located or to be located thereon.

         "Debt Service Ratio" shall mean, for the period in question,  the ratio
of (net income after taxes plus  depreciation  plus  amortization  plus interest
expense plus non-cash  expenditures  less  dividends)  TO (prior year's  current
maturities of long term debt plus interest expense plus net capital expenditures
that are not financed  under  financing  arrangements  acceptable to Bank in its
sole  discretion),  all computed in accordance with GAAP. The "Income  Recapture
Payment" as required in section 3.2 of this Agreement and in the Term Note shall
not be  included in the  definition  of "prior  year's  current  maturities  and
long-term debt" for purposes of calculating the Debt Service Ratio.

         "Default  Condition" shall mean the occurrence or existence of an event
or condition  which,  upon the giving of notice or the passage of time, or both,
would constitute an Event of Default.

         "Determination Date" shall mean the first Business Day of each calendar
month.

         "Dollars" and "$" shall mean dollars and lawful  currency of the United
States of America.

         "Edgefield  Property"  shall mean the real property  more  particularly
described on Exhibit A-2 to the Security Agreement, and all improvements located
or to be located thereon.

         "Elkhart  Property"  shall  mean the real  property  more  particularly
described on Exhibit A-3 to the Security Agreement, and all improvements located
or to be located thereon.

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         "Eligible  Accounts  Receivable"  shall  mean  Accounts,   Instruments,
Documents,  Chattel Paper, Contracts,  and General Intangibles from customers of
Borrowers  or any  Approved  Subsidiary  in  which  Bank has a  perfected  first
priority security interest subject to Bank's credit approvals thereof other than
the following:  (i) Accounts which remain unpaid ninety (90) days after the date
of the  applicable  invoice;  (ii)  Accounts  with  respect to which the Account
Debtor is an  Affiliate  of any of the  Borrowers,  or a  director,  officer  or
employee  of any of the  Borrowers;  (iii)  Accounts  with  respect to which the
Account  Debtor is the United  States of America  or any  department,  agency or
instrumentality  thereof,  unless  filings in accordance  with the Assignment of
Claims Act have been completed and filed in a manner  satisfactory  to the Agent
or, as to any government contract entered into after the date of this Agreement,
concurrently with the execution and delivery of that government  contract;  (iv)
Accounts  with  respect to which the  Account  Debtor is not a  resident  of the
United States or Canada  except if such Accounts (1) are secured by  irrevocable
trade  letter(s) of credit in form and content  acceptable to Bank and confirmed
by a United States financial institution  acceptable to Bank, (2) are secured by
standby  letters of credit  with an  expiration  of date of at least one hundred
twenty  (120) days from the date of  shipment  confirmed  by United  States Bank
acceptable to Bank and otherwise in form and content  acceptable to Bank, or (3)
are insured by a company acceptable to Bank, which insurance covers business and
political  risk; (v) Accounts  arising with respect to goods which have not been
shipped and delivered to and accepted as  satisfactory  by the Account Debtor or
arising  with  respect  to  services  which have not been  fully  performed  and
accepted as  satisfactory  by the Account  Debtor;  (vi)  Accounts for which the
prospect  of payment in full or  performance  in a timely  manner by the Account
Debtor  is or is  likely to become  impaired  as  determined  by the Bank in its
reasonable  discretion;  (vii)  Accounts which are not invoiced (and dated as of
the date of such  invoice) and sent to the Account  Debtor  within  fifteen (15)
days after delivery of the underlying goods to, or performance of the underlying
services  for, the Account  Debtor;  (viii)  Accounts with respect to which Bank
does not have a first and valid fully perfected security interest; (ix) Accounts
with  respect to which the  Account  Debtor is the  subject of  bankruptcy  or a
similar  insolvency  proceeding  or has made an  assignment  for the  benefit of
creditors or whose assets have been conveyed to a receiver or trustee, except if
Bank is delivered  evidence  acceptable to Bank as to the  collectability in the
normal course of business of such  Accounts;  (x) Accounts with respect to which
the  Account  Debtor's  obligation  to pay the Account is  conditional  upon the
Account Debtor's approval or is otherwise  subject to any repurchase  obligation
or  return  right,  as with  sales  made on a  bill-and-hold,  guaranteed  sale,
sale-and-  return,  sale  on  approval  (except  with  respect  to  Accounts  in
connection with which Account Debtors are entitled to return Inventory solely on
the basis on the quality of such Inventory) or consignment  basis; (xi) Accounts
with  respect to which the  Account  Debtor is located in  Minnesota  unless the
applicable  Borrower has filed a Notice of Business  Activities  Report with the
Secretary of State of Minnesota for the then current year; (xiv) all Accounts of
any Account  Debtor if  twenty-five  percent  (25.0%) or more of all Accounts of
such Account Debtor have ceased to be Eligible  Accounts  Receivable;  and (xii)
Accounts  with respect to which the Account  Debtors are  residents of Canada to
the extent the  aggregate  sum exceeds  $750,000.00.  The  approvals  of Account
Debtors and Accounts  shall be for Bank purposes  only and shall not  constitute
any  representation  by Bank as to the  credit  worthiness  of any such  Account
Debtor or the  advisability or profitability of doing business with such Account
Debtor.

         "Eligible  Inventory"  shall mean Inventory (but not including  prepaid
Inventory)  which the Bank  reasonably  determines  to meet all of the following
requirements:  (a) such Inventory (i) is owned by one of the Borrowers;  (ii) is
subject to a perfected,  first priority  security interest in favor of Bank; and
(iii) is subject to no other lien or encumbrance whatsoever other than Permitted
Liens;  (b) such Inventory is in good condition and meets all standards  imposed
by any governmental agency, or department or division thereof, having regulatory
authority  over such goods,  their use or sale;  (c) such Inventory is currently
either  usable or salable in the normal  course of the  businesses of Borrowers;
(d)  such  Inventory  is  located  at one of the  locations  set  forth  in this
Agreement;  (e) such Inventory is located within the continental  United States;
and (f) such  Inventory is not determined by Bank in good faith to be ineligible
for any other reason.

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         "Environmental  Laws" shall mean any and all foreign,  federal,  state,
local or municipal  laws,  rules,  orders,  regulations,  statutes,  ordinances,
codes,  decrees,  requirements of any Governmental  Authority or requirements of
law  (including  common law)  regulating,  relating to or imposing  liability or
standards of conduct  concerning  protection of human health or the environment,
as now or may anytime hereafter be in effect.

         "Equipment" shall mean all furniture,  fixtures, equipment,  apparatus,
motor vehicles,  tractors,  rolling stock,  fittings and other tangible personal
property (other than Inventory) of every kind and description used in any of the
Borrowers' business operations or owned by any of the Borrowers and all proceeds
and products thereof.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.

         "Event of Default" shall mean the occurrence of any event  specified in
section 9 hereof or as set forth in any of the other Loan Documents.

         "Financing Statements" shall mean the Uniform Commercial Code financing
statements  executed and delivered by all of the Borrowers,  as debtors,  naming
Bank, as secured  party,  to be filed in the  applicable  recording  offices any
jurisdiction  (State  and  County)  that  Borrowers  conduct  business  or where
collateral is located.

         "Funded  Debt"  shall  mean (i)  Indebtedness,  including  Subordinated
Indebtedness, for borrowed money or Indebtedness for the deferred purchase price
of property or services,  (ii) obligations evidenced by bonds, notes, debentures
or other similar instruments, and (iii) obligations as lessee under leases which
have been or should be, in accordance with GAAP, recorded as capital leases.

         "Funded Debt Ratio"  shall mean the ratio,  for the period in question,
of  Funded  Debt  to  (earnings   before  interest,   taxes,   depreciation  and
amortization), computed in accordance with GAAP.

         "GAAP"  shall mean  generally  accepted  accounting  principals  in the
United  States of America in effect from time to time,  applied on a consistency
basis.

         "Governmental Authority" shall mean any nation or government, any state
or other  political  subdivision  thereof and any entity  exercising  executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government.

         "Indebtedness"   shall  mean,  as  to   Borrowers,   and  any  Approved
Subsidiary, all items of indebtedness, obligation, or liability thereof, whether
matured or unmatured, liquidated or unliquidated, direct or contingent, joint or
several, and interest due thereon and costs due in connection therewith.

         "Indemnification  Agreement"  shall mean that  certain  Indemnification
Agreement  executed  by  and  among  inter  alia  Cookson  America,  Inc.,  S.F.
Liquidation,  Inc. and Federal Pacific Electric  Company (whose  obligations are
guaranteed by Reliance Electric Company) related to the Star Fibers Property.

         "Interest  Period"  shall  mean  each  period of time  commencing  on a
Determination  Date and ending the day before the next successive  Determination
Date.

         "Inventory" shall have the same meaning as is given to that term in the
Secured  Transactions chapter of the Uniform Commercial Code as adopted by South
Carolina,  S.C.  Code Ann.  36-9-109  (4)  (1976),  and shall  include  customer
returns,  manufacturers'  trade-ins,  and repossessions  from customers,  except
"inventory"  does not  include any  hazardous  or toxic  substance,  by-product,
waste, or other material.

         "Land" or "Lands" shall mean,  individual  or collective  references to
those  parcels of real  property  more  particularly  described  in Exhibits A-1
through A-6 to the Security Agreement and the Whitecrest Land.

         "Laurens   Property"   shall  mean  that  certain  real  property  more
particularly  described  on  Exhibit  A-4 to the  Security  Agreement,  and  all
improvements located or to be located thereon.

                                      108
<PAGE>

         "Laws"  shall  mean  all  ordinances,  statutes,  regulations,  orders,
injunctions,  writs, or decrees of any governmental or political  subdivision or
agency thereof, or any court or similar entity established by any thereof.

         "Leverage  Ratio"  shall  mean the  ratio of  (total  liabilities  less
Subordinated   Indebtedness)   TO   (Tangible   Net  Worth   plus   Subordinated
Indebtedness), as computed in accordance with GAAP.

         "LIBOR" shall mean, for each Interest  Period,  (i) the arithmetic mean
(rounded  upwards,  if necessary,  to the nearest 1/100th of one percent) of the
90-day London Interbank Offered Rates for U. S. Dollar deposits appearing on the
Reuters Screen LIBOR page (or such other display as may replace such page on the
Reuter's Screen) as of 11:00 a.m. London time on the Determination Date included
in such Interest  Period,  or (ii) if no such rate appears on the Reuters Screen
LIBOR page on such  Determination  Date,  LIBOR will be the  arithmetic  average
(rounded  upward,  if necessary,  to the next higher  1/100th of one percent) of
rates quoted by not less than two major banks in New York City,  selected by the
Bank  at  approximately  10:00  a.m.,  Columbia,  South  Carolina  time  on such
Determination  Date for  deposits in U.S.  Dollars  offered to leading  European
Banks,  or (iii) if none of the above  methods  for  determining  LIBOR shall be
available,  a rate determined by a substitute method of determination  agreed on
by Borrower  and Bank;  provided,  if such  agreement  is not  reached  within a
reasonable period of time (in Bank's judgment),  a rate reasonably determined by
Bank as a rate being paid, as of each Determination Date, by first class banking
organizations  (as determined by Bank) in the London  interbank market for U. S.
Dollar deposits.

         "LIBOR Reserve  Percentage"  means the maximum  aggregate rate at which
reserves (including, without limitation, any marginal, supplemental or emergency
reserves)  are required to be maintained  under  Regulation D by member banks of
the  Federal  Reserve  System  with  respect  to dollar  funding  in the  London
interbank  market.  Without  limiting  the  effect of the  foregoing,  the LIBOR
Reserve Percentage shall reflect any other reserves required to be maintained by
such member banks by reason of any applicable  regulatory change against (i) any
category of liability which includes deposits by reference to which the Adjusted
LIBOR is to be  determined or (ii) any category of extensions or credit or other
assets related to LIBOR.

         "Loan" or "Loans" shall mean the individual or collective reference, as
the context requires,  to the Revolving Credit,  the Term Loan and the 1997 Term
Loan.

         "Loan Documents" shall mean the collective reference to this Agreement,
the Notes,  the Mortgages,  the Security  Agreements,  the Assignment of Leases,
Assignment of Contracts,  the Financing Statements,  the Swap Agreement, and any
other documents or instruments executed in connection with the Loans.

         "Material  Environmental Amount" shall mean an amount payable by any of
the Borrowers in excess of $100,000.00  for remedial  costs,  compliance  costs,
compensatory damages,  punitive damages,  fines, penalties or any combination of
these.

         "Materials  of  Environmental  Concern"  shall  mean  any  gasoline  or
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances,  materials or waste,  defined or regulated as
such in or under any Environmental Law (including, without limitation, asbestos,
polychlorinated biphenyls and ureaformaldehyde insulation.

         "Monthly  Borrowing  Base  Certificate"  shall mean the borrowing  base
certificate submitted by Borrower to Bank pursuant to sections 2.2 and 7.1(k) of
this Agreement, substantially in the form attached hereto as Exhibit 2-3, as the
same may be amended from time to time.

         "Mortgage"  or  "Mortgages"  shall mean the  individual  or  collective
reference as the context  requires to those certain  mortgages,  deeds to secure
debt,  deeds of trust or other  documents  executed by the  applicable  Borrower
pursuant to which Bank is granted a  title-insured,  first  priority lien on the
Properties, as may be amended or modified.

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<PAGE>

         "Multiemployer Plan" shall mean a Plan which is a Multiemployer Plan as
defined in Section 4001(a)(3) of ERISA.

         "Notes" shall mean and refer to,  collectively,  the  Revolving  Credit
Note,  the  Term  Note,  the  1997  Term  Note  and any  other  notes  as may be
outstanding  from  time to  time,  under  this  Agreement,  which  are  properly
executed, completed, and delivered to Bank, as the same may be amended from time
to time, and all other notes delivered in  substitution,  addition,  or exchange
for any thereof.

         "Obligations" means the joint and several obligations of Borrowers: (a)
to pay the principal of and interest on the Notes in  accordance  with the terms
thereof,  to reimburse Bank for Bank's expenses pursuant to section 10.4, and to
pay or  satisfy  all of its  other  obligations  of  Borrowers  to Bank  whether
hereunder or otherwise  including  obligations under any Swap Agreement with the
Bank, whether now existing or hereafter incurred,  matured or unmatured,  direct
or contingent,  joint or several,  including any extensions,  modifications,  or
renewals thereof;  (b) to repay Bank all amounts advanced hereunder or otherwise
on behalf of Borrowers,  including without limitation  advances for principal or
interest to prior secured parties, mortgagees, or lienors, or for taxes, levies,
rent, insurance,  repairs to or maintenance or storage of any of the Collateral;
and (c) to  reimburse  Bank,  on demand,  for all of Bank's  expenses and costs,
including the reasonable  fees and expenses of its counsel,  in connection  with
any proceeding brought to enforce payment of any of the obligations  referred to
in the  foregoing  paragraph  (a) or (b) or  otherwise  in  connection  with the
enforcement or maintenance of the Loans.

         "PBGC" shall mean the Pension Benefit Guaranty Corporation  established
pursuant to Subtitle A of Title IV of ERISA.

         "Permitted  Encumbrances" shall mean all existing  encumbrances against
any of the Collateral,  including the Properties,  specifically approved by Bank
in writing  which  include  the  encumbrances  set forth in  Exhibit  B's to the
Mortgages.

         "Person"  shall  mean an  individual,  any  entity,  or  government  or
political subdivision or agency thereof, as may be appropriate.

         "Plan" shall mean at a particular time, any employee benefit plan which
is covered by ERISA and in  respect of which  Borrower  is (or if such Plan were
terminated  at such  time,  would be under  Section  4069 of  ERISA  deemed)  an
"Employer" as defined in Section 3(5) of ERISA.

         "Properties"  shall  mean  the  collective   reference  to  the  Dalton
Property,  the Edgefield Property,  the Elkhart Property,  the Laurens Property,
the Star Fibers Property, the Sumter Property and the Whitecrest Property.

         "Reportable  Event"  shall  mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty (30) day notice
period is waived under  Subsection  .13,  .14, .16, .18, .19 or .20 of PBGC Reg.
ss. 2615.

         "Revolving  Credit  Loan" shall mean the  revolving  credit loan in the
maximum principal amount of up to $25,000,000.00 pursuant to the terms of and as
more particularly set forth in Article 2 of this Agreement.

         "Revolving   Credit   Loan   Documents"   shall   mean  and  refer  to,
collectively, all those certain documents and instruments executed in connection
with the Revolving  Credit Loan including this Agreement,  the Revolving  Credit
Note,  the  Mortgages,  the  Security  Agreements,  the  Assignment  of  Leases,
Assignment of Contracts,  Financing  Statements and any other documents executed
in connection  with the Revolving  Credit Loan as such documents and instruments
may be amended, substituted or renewed from time to time.

         "Revolving  Credit  Note" shall mean and refer to that  certain  second
amended and restated  revolving credit promissory note in the original principal
amount of up to $25,000,000.00  dated December 16, 1996 executed by Borrowers in
favor of Bank  evidencing  the  Revolving  Credit Loan which is an amendment and
restatement  of that certain  Revolving  Credit Note in the  original  principal
amount of  $28,000,000  dated as of July 14, 1994 and that  certain  Amended and
Restated  Revolving Credit  Promissory Note in the original  principal amount of
$25,000,000  dated as of August 9, 1995 as the same may be  amended,  renewed or
substituted from time to time.
                                      110
<PAGE>

         "Security Agreement" or "Security Agreements" shall mean the individual
or  collective  reference  as the  context  requires to those  certain  security
agreements  executed  by the  Borrowers  pursuant  to which  Bank is  granted  a
perfected,  first  priority  security  interest  in  all  personal  property  of
Borrowers,  now owned or hereafter  acquired and  wherever  located,  including,
Accounts, Inventory and Equipment, as may be amended, modified, or restated from
time to time.

         "Single Employer Plan" shall mean any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.

         "Star  Fibers  Property"  shall mean that certain  real  property  more
particularly  described  on  Exhibit  A-5 to the  Security  Agreement,  and  all
improvements located or to be located thereon.

         "Subordinated Debt" shall mean Subordinated Indebtedness of MCF owed to
(a) William Fred Davis,  Jr.,  Mary Brown Davis,  Natalie Lynn Davis and William
Fred Davis,  Jr., as Custodian for Shelly Leigh Davis, a Minor, and (b) Buchanan
Industries,  Inc., a Georgia  corporation,  its shareholders or their successors
and assigns.

         "Subordinated Indebtedness" shall mean all Indebtedness incurred at any
time by any of the  Borrowers  and owed to  Affiliates  of  Borrowers  any other
Indebtedness  required to be  subordinated  by Bank  pursuant  to  subordination
agreements acceptable to Bank.

         "Sumter   Property"   shall  mean  that  certain  real   property  more
particularly  described  on  Exhibit  A-6 to the  Security  Agreement,  and  all
improvements located or to be located thereon.

         "Swap  Agreement"  shall  mean  any  swap  agreement  executed  by  the
Borrowers and a provider of an interest rate swap, the form,  terms and provider
of such  agreement  to be in form and content  acceptable  to Bank,  pursuant to
which Borrowers "swap" all or a portion of the risk associated with the variable
interest rates provided for under the Notes with a fixed rate, as such agreement
may be amended or modified from time to time.

         "Tangible  Net Worth"  shall  mean  stockholder's  equity of  Borrowers
prepared on a consolidated  basis  determined in accordance  with GAAP,  with no
adjustment due to re-evaluation of assets, except as required by GAAP, minus the
sum of the book value  assets  which are  treated  as  intangibles  under  GAAP,
including,  but not limited to, leasehold  improvements,  good will, tradenames,
trademarks,  copy rights,  patents,  franchise  agreements and unamortized  debt
expenses.

         "Term Loan" shall mean the term loan  extended by Bank to  Borrowers in
the original  principal amount of up to $36,310,000.00  pursuant to the terms of
and as more particularly described in Article 3 of this Agreement.

         "Term Loan Documents" shall mean and refer to, collectively,  all those
certain  documents and  instruments  executed in  connection  with the Term Loan
including this Agreement, the Term Note, the Mortgages, the Security Agreements,
the Assignment of Leases, the Assignment of Contracts,  the Financing  Statement
and any  other  documents  executed  in  connection  with the Term  Loan as such
documents and  instruments  may be amended,  substituted or renewed from time to
time.

         "Term Note" shall mean that certain  second  amended and restated  term
loan promissory note in the original principal amount of $36,310,000.00 dated as
of December 16, 1996 executed by Borrowers in favor of Bank  evidencing the Term
Loan which is an amendment and  restatement of that certain Term Loan Promissory
Note in the original principal amount of $36,310,000.00  dated July 14, 1994 and
that certain  Amended and  Restated  Term Loan  Promissory  Note in the original
principal  amount of $36,310,000  dated as of August 9, 1995, as the same may be
amended, substituted, modified or renewed from time to time.

         "Value" means with respect to any Inventory, the lesser of (i) the fair
market value of such Inventory;  and (ii) the cost of such Inventory  calculated
in accordance with the "specific identification" method.

         "Wachovia"  shall mean Wachovia Bank of South  Carolina,  N. A. and its
successors and assigns.

         "Whitecrest  Land" shall mean that certain  approximately 4 acre parcel
of real property located on Brookhollow Industrial Boulevard, Dalton, Georgia.

         "Whitecrest   Property"   shall  mean  the  Whitecrest   Land  and  all
improvements located or to be located thereon.

                                      111
<PAGE>


         1.2.     OTHER DEFINITIONAL PROVISIONS:

         (a)      Unless otherwise specified therein,  all terms defined in this
                  Agreement  shall have the  defined  meanings  when used in the
                  Notes or any other of the Loan  Documents  unless the  context
                  would specifically require otherwise.

         (b)      As used herein and in the Notes,  and in any of the other Loan
                  Documents,  accounting  terms relating to any of the Borrowers
                  not defined in  Subsection  1.1 and  accounting  terms  partly
                  defined in  Subsection  1.1, to the extent not defined,  shall
                  have the respective meanings given to them under GAAP.

         (c)      The words  "hereof",  "herein"  and  "hereunder"  and words of
                  similar import when used in this Agreement shall refer to this
                  Agreement as a whole and not to any  particular  provisions of
                  this Agreement.

         (d)      The meanings  given to terms  defined  herein shall be equally
                  applicable  to both  the  singular  and  plural  forms of such
                  terms.

2.       THE REVOLVING CREDIT LOAN.

         2.1.   General  Terms  of  the  Revolving   Credit  Loan.   During  the
continuation of this Agreement and subject to the terms of this Agreement,  Bank
will lend, on a revolving  credit basis,  to Borrower and Borrowers  will borrow
from Bank such sums as  Borrowers  may from time to time  request but which will
not exceed an aggregate  principal amount  outstanding at any one time, equal to
the lesser of (a) the amount  available to be outstanding in accordance with the
margin requirements stated in section 2.5 hereof, or (b) Twenty-Five Million and
No/100  Dollars  ($25,000,000.00),  which amount may be subject to adjustment as
provided in this Agreement.  The proceeds of the Revolving  Credit Loan shall be
used for the  purposes  set forth in  Paragraph A of the  Preliminary  Statement
section of this Agreement.  The face amount of any letter(s) of credit issued by
Bank  naming any of the  Borrowers  as account  party  shall be  included in the
principal amount outstanding under the Revolving Credit Loan.  Borrowers will be
required to make repayments of principal under the Revolving  Credit Loan (i) as
and when and in amounts necessary such that the margin requirements contained in
Section 2.5 of this Agreement are satisfied at all times,  (ii) immediately upon
demand by Bank in connection with an  acceleration of the Revolving  Credit Loan
pursuant  to  Section  9.2 of this  Agreement,  and (iii)  immediately  upon the
termination  of Article 2 of this  Agreement in  accordance  with Section 2.6 of
this Agreement.

         2.2. Disbursements of the Revolving Credit Loan. During the continuance
of Article 2 of this Agreement,  disbursements  of principal under the Revolving
Credit Loan may be made on any Business Day,  provided  that, in addition to all
other terms of this  Agreement:  (A) Borrowers shall have delivered to Bank oral
or written  notice in form and  content  acceptable  to Bank no later than 11:00
a.m. (Columbia,  South Carolina time) on the proposed funding date, which notice
shall specify the proposed  funding day, the amount  requested and contain other
information  required by Bank. (B) Borrowers and any Approved  Subsidiary  shall
have  delivered to Bank an executed,  properly  completed  then current  Monthly
Borrowing Base  Certificate  and a then current weekly  Collateral  Certificate,
with the then current  Collateral  Certificate  governing the availability under
the Revolving  Credit Loan for the current week;  and (C) no Event of Default or
Default  Condition  has  occurred.  Each  delivery of an executed  and  properly
completed  Monthly  Borrowing Base Certificate and Collateral  Certificate shall
constitute a representation  by the Borrowers and any Approved  Subsidiary that,
as of the  date  of  such  Monthly  Borrowing  Base  Certificate  or  Collateral
Certificate,  (1)  all  material  representations  and  warranties  made  by the
Borrowers or any Approved  Subsidiary  in this  Agreement  are true and correct,
unless  otherwise  disclosed  to Bank in  writing  and  approved  by  Bank,  (2)
Borrowers  or any  Approved  Subsidiary  have not failed to  observe  any of its
undertakings  hereunder,  (3) no Event of Default has occurred, and (4) no fact,
condition,  or event has occurred or exists  that,  with the giving of notice or
the passage of time or both, could become an Event of Default.  Bank will credit
the  proceeds  of all  disbursements  under  the  Revolving  Credit  Loan to the
Collateral  Account.  Bank shall not incur any liability to any of the Borrowers
(i) for acting upon any  telephonic  notice or other oral notice for a requested
disbursement  that Bank believes in good faith was given by the Controller,  the
Chief Financial Officer or another officer deemed acceptable to Bank in its sole
discretion, or (ii) for otherwise acting good faith in disbursing proceeds under
the Revolving Credit Loan.

         2.3. The  Revolving  Credit Note.  The  Revolving  Credit Loan shall be
evidenced by and repaid in accordance  with the Revolving  Credit Note the terms
of which are  incorporated  herein by reference,  and the Revolving  Credit Loan
shall be repaid in  accordance  with the terms of this  Agreement  or  Revolving
Credit Note.

                                      112
<PAGE>

         2.4.  Adjustments  to  Revolving  Credit  Loan  Amount.  Bank  may,  at
Borrowers  request and at Bank's sole discretion,  consent to an increase in the
amount of the Revolving Credit Loan. If such increase is temporary, all payments
received by Bank shall be applied in Bank's  discretion  to the reduction of the
balance  evidenced by the Revolving Credit Note or any other note in addition to
the Revolving Credit Note evidencing the Revolving Credit Loan.

         2.5. Margin  Requirements  under the Revolving Credit Loan. In addition
to the limitations  set forth in Section 2.01 of this  Agreement,  the aggregate
principal amount outstanding at any one time under the Revolving Credit Loan may
not  exceed,  as  determined  in  accordance  with the most  current  Collateral
Certificate,  the sum of:  (a)  ninety  percent  (90.0%)  of the  face  value of
Borrowers and any Approved  Subsidiary's  Eligible Accounts Receivable which are
subject to factoring agreements with NationsBanc Commercial Corporation that are
acceptable to Bank; plus (b) 80% of the face value of Borrowers and any Approved
Subsidiary's  Eligible  Accounts  Receivable  which are not subject to factoring
agreements with  NationsBanc  Capital  Corporation  that are acceptable to Bank;
plus (c) fifty  percent  (50.0%)  of the  Value of  Borrowers  and any  Approved
Subsidiary's Eligible Inventory; provided, however, that the aggregate principal
amount  outstanding  under the Revolving Credit Loan supported by Borrowers' and
any Approved Subsidiaries' Eligible Inventory shall not exceed, at any one time,
(i) fifty percent (50%) of the total principal  outstanding  under the Revolving
Credit  Loan at all times  except as  provided  in (ii)  below;  and (ii)  sixty
percent (60%) of the total principal outstanding under the Revolving Credit Loan
during the period of time  commencing  on December  16, 1996 and ending on April
30, 1997. The  availability  under the Revolving Credit Loan for each week shall
be determined by the then current Collateral Certificate delivered in accordance
with Section 7.1(k).

         2.6.  Termination  of the Revolving  Credit Loan.  This Agreement as it
relates to the Revolving Credit Loan shall be terminated:  (a) by Bank on notice
to Borrower at any time in connection with any acceleration  pursuant to section
9.2;  or (b) if not  sooner  demanded  on  June  2,  1998.  Termination  of this
Agreement as it relates to the  Revolving  Credit Loan shall in no way affect or
impair any right of Bank arising  prior thereto or by reason  hereof,  nor shall
any such termination  relieve  Borrowers of any Obligations  under the Revolving
Credit Loan until all Obligations under the Revolving Credit Loan are fully paid
and performed, nor shall any such termination affect any right or remedy of Bank
arising  from  any  other   Obligations.   All   agreements,   warranties,   and
representations of Borrowers shall survive termination.

         2.7. Fees. In connection with Bank providing the renewal commitment for
the  Revolving  Credit  Loan,  Borrowers  shall  pay a  commitment  fee equal to
$20,000.  Bank acknowledges  receipt of this fee.  Borrowers further shall pay a
user fee under the Revolving  Credit Loan on a quarterly  basis, to be assessed,
and due and payable on the 2nd day of each January,  April,  July,  and October,
during the term of the Revolving Credit Loan, which fee will equal one-eighth of
one percent  (0.125%) per annum of the average  unused  portion of the Revolving
Credit Loan calculated on a daily basis.

         2.8.  Conditional  Consent  to  Inclusion  of  Assets  of any  Approved
Subsidiary.  Bank and Borrowers  contemplate  that Borrowers will include on its
Monthly Borrowing Base Certificate and Collateral  Certificate certain assets of
Approved Subsidiaries.  Prior to any such inclusion and as a condition to Bank's
obligation  to fund  proceeds  under  the  Revolving  Credit  Loan  based on the
inclusion of such assets,  Borrower shall cause any such Approved  Subsidiary to
execute any documents and instruments  reasonably  required by Bank,  including,
without  limitation,  documents  and  instruments  (a) to perfect  Bank's  first
priority  security  interest in any such  assets;  (b) to confirm  that any such
Approved Subsidiary agrees and consents to the terms of this Agreement;  and (c)
to provide Bank the Approved Subsidiary's  unconditional guaranty of or become a
co-obligor under the Obligations.

         2.9. Account Warranties.  With respect to Accounts scheduled, listed or
referred to on any Collateral Certificate or Monthly Borrowing Base Certificate,
the  Borrowers  warrant  and  represent  to the Bank that,  except as  otherwise
disclosed:  (i) the Accounts are genuine,  are in all respects what they purport
to be, and are not evidenced by a judgment; (ii) they represent undisputed, bona
fide  transactions  completed  in  accordance  with  the  terms  and  provisions
contained in the documents  delivered to the Agent with respect  thereto;  (iii)
the amounts shown on the applicable Collateral  Certificate or Monthly Borrowing
Base  Certificate  and on the Borrowers'  books and records and all invoices and
statements  which may be delivered to the Bank with respect thereto are actually
and absolutely  owing to one of the Borrowers and are not in any way contingent;
(iv) there are no setoffs,  counterclaims or disputes  existing or asserted with
respect  thereto and the Borrowers  have not made any agreement with any Account
Debtor  for any  deduction  therefrom  except a  discount  or  allowance  in the
ordinary  course  of  business  for  prompt  payment;  (v)  to the  best  of the


                                      113
<PAGE>

Borrowers'  knowledge there are no facts, events or occurrences which in any way
impair the validity or enforcement  thereof or tend to reduce the amount payable
thereunder  as  shown  on  the  respective  Collateral  Certificate  or  Monthly
Borrowing Base Certificate the Borrowers' books and records and all invoices and
statements delivered to the Agent with respect thereto;  (vi) to the best of the
Borrowers'  knowledge as of the date any certificate or report delivered to Bank
pursuant to this  Agreement,  all Account  Debtors have the capacity to contract
and are  solvent;  (vii) the  services  furnished  and/or goods sold giving rise
thereto are not subject to any lien,  claim,  encumbrance  or security  interest
except that of the  Borrowers',  or Bank,  and except as expressly  contemplated
hereby; and (viii) except as otherwise disclosed to Bank in writing, to the best
of  the  Borrowers'  knowledge  as of the  date  of any  certificate  or  report
delivered  to Bank  pursuant  to this  Agreement,  there are no  proceedings  or
actions which are  threatened or pending  against any Account Debtor which might
result  in any  material  adverse  change  in such  Account  Debtor's  financial
condition.

         2.10.   Lock   Box/Collateral   Account.   Borrowers  must  direct  all
collections to a Bank lock box. Additionally,  Bank shall continue to maintain a
Collateral  Account  into which  Borrower  will  deposit all  payments and other
income  received by Borrowers,  except such  payments and other income,  if any,
that Bank may exclude in writing  from time to time.  Bank shall have  exclusive
possession,  custody  and  control of and over the  balances  in the  Collateral
Account,  as they may exist from time to time,  except as  provided  hereinafter
with  respect  to joint  control  over  certain  disbursements  therefrom.  Such
deposits  will be made no later than the first  business day  following  receipt
thereof by Borrower or receipt by Bank from the lock box. All such deposits will
be in the original form received by Borrowers  except for such  endorsements  as
may  be  necessary,   and  Borrowers  hereby  authorize  Bank  to  execute  such
endorsement  on behalf of Borrowers.  Pending such deposit,  Borrowers will hold
such payment,  checks, drafts, and income separate from other funds and property
and upon  express  trust for Bank.  Funds may be withdrawn  from the  Collateral
Account  only by Borrower  with Bank's  consent,  except that Bank may  withdraw
funds at any time for  application  against  any  Obligations  in the  order and
method desired by Bank,  and Bank shall give Borrowers  notice of any withdrawal
within a reasonable period of time after such withdrawal.  Each such deposit and
the proceeds  thereof shall  continue to be  Collateral  hereunder and shall not
constitute the payment of any Obligations until specifically applied thereto.

         2.11.  Documentation  and Security for Revolving Credit Loan. The terms
and provisions of the other  Revolving  Credit Loan  Documents are  incorporated
herein by  reference  and are still in full force and  effect.  All of the other
Revolving  Credit Loan Documents  which grant liens in favor of or assign rights
to Bank also are in full  force  and  effect.  The  security  interests  granted
pursuant to the other  Revolving  Credit Loan  Documents  are in addition to the
security  interest and  assignments  granted in favor of Bank  elsewhere in this
Agreement  or any of the other  Loan  Documents  to secure  the  Obligations  of
Borrower under the Revolving Credit Loan.

         2.12.  Disbursement to MCF. Borrowers agree that all disbursements made
by Bank under the  Revolving  Credit Loan shall be made to or for the benefit of
MCF as described  in Section 2.2 of this  Agreement  and any such  disbursements
made to MCF shall be made for the benefit of the other Borrowers if so stated in
Borrowers'  written  request  pursuant to section  2.02.  Borrowers  further (A)
consent to any and all  disbursements  made by Bank to MCF;  (B) agree that Bank
shall incur no liability in  connection  with the  Revolving  Credit Loan or any
disbursements  made under the  Revolving  Credit Loan;  (C) will not contest any
disbursement  made by Bank; (D)  acknowledge the direct benefit of the Revolving
Credit Loan and  disbursements  of proceeds  under the Revolving  Credit Loan to
MCF;  and (E)  acknowledge  and  agree  to their  liability  for and  under  the
Revolving Credit Loan and all Obligations.

         2.13.  Verification of Accounts.  The Bank shall have the right, during
the pendency of an Event of Default, in the Bank's name, to verify the validity,
amount or any other matter relating to any Account,  by mail,  telephone,  or in
person.

3.       TERM LOAN.

         3.1.  Term Loan Terms.  The Bank has fully  disbursed to Borrowers  all
proceeds  available  under the Term Loan. The Term Loan is evidenced by the Term
Note.  The proceeds of the Term Loan were used by Borrowers for the purposes set
forth in Paragraph B of the Preliminary Statement section of this Agreement.

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         3.2.  Repayment of Term Loan. The outstanding  principal balance of the
Term Loan shall bear interest and  principal and interest  shall be repayable in
accordance  with the terms of the Term Note.  In addition to the  scheduled  and
other  repayments of the Term Loan as set forth in the Term Note or elsewhere in
this Agreement,  Borrowers must make an additional annual repayment as set forth
in the Term Note (each,  an "Income  Recapture  Payment") which shall be due and
payable  on the  earlier  of (i)  thirty  (30)  days  after  receipt  by Bank of
Borrowers'  audited financial  statements  required to be delivered  pursuant to
Section 7.1(i) of this Agreement, or (ii) July 30th of each year during the term
of the Term Loan. The amount of each Income Recapture  Payment shall be equal to
twenty-five percent (25%) of Borrowers'  consolidated net income as reflected on
such current  audited  financial  statement or as estimated by Bank if Borrowers
have not  received  such  statement.  So long as no Event of Default  shall have
occurred or is  continuing,  each Income  Recapture  Payment shall be applied to
principal  outstanding  under  the Term Loan  evidenced  by the Term Note in the
inverse order of scheduled maturities. Borrowers, however, shall not be required
to make an Income  Recapture  Payment in a year when,  based on the then current
audited financial statements of Borrowers for the fiscal year ending immediately
preceding such year, the Leverage Ratio is less than or equal to 1.75 to 1.00.

         3.3. Balance. The Borrowers and the Bank acknowledge and agree that the
principal  balance  of the  Term  Loan  as of the  date  of  this  Agreement  is
$27,283,100.

3.A.     1997 TERM LOAN.

         3.1.A.  1997 Term Loan Terms.  Subject to the terms and  conditions  of
this  Agreement,  Bank will lend and Borrowers will borrow up to a principal sum
of the lesser of: (A)  $5,000,000.00;  or (B) the difference of (i) seventy-five
percent  (75.0%)  of the value  determined  by Bank of  Collateral  (other  than
Accounts and Inventory)  owned by Borrowers and otherwise  acceptable to Bank at
any one time;  and (ii) the  principal  outstanding  under  the 1997 Term  Loan.
Borrowings under the 1997 Term Loan shall be on a cumulative line of credit/term
basis and will be evidenced by the 1997 Term Note. The proceeds of the 1997 Term
Loan will be used by Borrowers  for the purposes set forth in Paragraph C of the
Preliminary Statement section of this Agreement.

         3.2.A.  Repayment of 1997 Term Loan. The outstanding  principal balance
of the 1997 Term Loan shall bear interest and  principal  and interest  shall be
repayable in accordance with the terms of the 1997 Term Note.

         3.3.A. Disbursements Under 1997 Term Loan. Subject to the terms of this
Agreement,  Bank shall  disburse,  upon the request of  Borrower,  to or for the
benefit of Borrowers  proceeds  available  under the 1997 Term Loan. Bank agrees
that it will,  from  time to time,  but no more  frequently  than  once a month,
disburse  proceeds of the 1997 Term Loan under the following  conditions  and so
long as all of the following items have been satisfied in a manner acceptable to
Bank: (i) no Default Condition or Event of Default exists; (ii) Borrowers are in
compliance  with all covenants of this Agreement and the Loan  Documents;  (iii)
Bank approves  Borrowers'  capital  expenditure  budget for fiscal year 1997 and
other  information  deemed  necessary by Bank,  including  the business  plan of
Borrowers, which justifies the need for such expenditures and outlines projected
increases in revenues based on such expenditures; and (iv)

principal  outstanding under the 1997 Term Loan does not and will not exceed the
amounts set forth in Section 3.1.A above. Proceeds of the 1997 Term Loan will be
available to  Borrowers  only for the period of time  commencing  on the Closing
Date and ending on December 31, 1997,  and Bank will not be obligated to advance
to Borrowers any unfunded portion of the 1997 Term Loan after December 31, 1997.

         3.4.A.  Draw Requests for 1997 Term Loan. At least one (1) day prior to
each 1997 Term Loan disbursement by the Bank,  Borrowers must submit to the Bank
a draw request in the form  acceptable to Bank,  which shall include a completed
request for  disbursement  in a format  acceptable to the Bank setting forth the
amount of 1997 Term Loan proceeds desired, together with such certifications and
additional  information  as the Bank may  require,  including  invoices for that
portion of the Equipment to be purchased (or other  approved  expenditures  made
(or for which  Borrowers  shall request to be  reimbursed))  with such 1997 Term
Loan proceeds,  signed by an appropriate  representative for the Borrowers,  for
the purpose of submitting any such draw requests.

         3.5.A.  Amount of Each Disbursement.  Subject to the provisions of this
Agreement,  Bank shall disburse  proceeds under the 1997 Term Loan in the amount
of 75% at an aggregate  value of invoices  submitted  with each draw request for
Equipment  or  other  approved   expenditures   made  by  the  Borrowers   which
expenditures  previously  have not been funded with proceeds under the 1997 Term
Loan.

         3.6.A.  Fee. Borrower shall pay a fee equal to $12,500.00 in connection
with  the  1997  Term  Loan,  which  fee  shall  be due on the day  the  initial
disbursement of such proceeds is made.

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4.       CONDITIONS FOR DISBURSEMENTS AND OTHER AGREEMENTS

         4.1. Conditions Precedent to Disbursements. Bank shall not be obligated
to consummate  the  transaction  contemplated  by this  Agreement or to make any
further disbursements under the Revolving Credit Loan until all of the following
conditions have been satisfied by proper evidence,  execution and/or delivery to
Bank of the following items, all in form and substance  reasonably  satisfactory
to Bank and Bank's counsel:

         4.1.1. Loan Documents. The Loan Documents.

         4.1.2 Lessor's  Waivers/Mortgage's  Waivers:  Fully  executed  Lessor's
Waivers and Mortgagee's  Waivers in form and content  acceptable to Bank for all
locations,  other  than  the  Properties,  where  any  Collateral  is or will be
located.

         4.1.3  Wachovia   Participation.   Bank  receives  the  fully  executed
Amendment  and Restated  Participation  Agreement,  from  Wachovia,  in form and
content  acceptable to Bank,  related to the  consummation  of the  transactions
contemplated  by this Agreement and otherwise  outlining the rights between Bank
and Wachovia.

         4.1.4 Authority Documents:  (a) Articles of incorporation  certified by
the office of the Secretary of State of South Carolina of Borrowers;  (b) Bylaws
of Borrowers,  certified by an officer of the Borrowers; (c) current Certificate
of Existence of Borrowers issued by the Secretary of State of South Carolina and
Tax Compliance Letters on Borrowers issued by the South Carolina Tax Commission;
(d) Affidavit on behalf of Borrowers;  (e) Officer's and Incumbency  Certificate
of Borrowers;  (f) Corporate  Resolutions of Borrowers and (f)  Certificates  of
Foreign  Qualification  from the applicable office in any State where any of the
Borrowers conduct business.

         4.1.5 Attorney's Opinion:  The written opinion of Sinkler & Boyd, P.A.,
counsel to Borrowers as to the following matters:

         (a)      Enforceability: The Loan Documents have been properly executed
                  by  the  persons  authorized  to do so and  establish  legally
                  binding and enforceable obligations on the part of Borrowers:

         (b)      Litigation:  As of the Closing Date,  Borrowers is not, to the
                  best  knowledge  of  Borrower's   counsel,   a  party  to  any
                  litigation,  which, if adversely determined,  would impair the
                  right of Borrowers to carry on its business  substantially  as
                  now conducted or  contemplated or would  materially  adversely
                  affect the  financial  conditions,  business or  operations of
                  Borrowers:

         (c)      Usury:  The fees and  interest  charged by Bank in  connection
                  with the Loans do not violate any usury or other  similar laws
                  of the  State of  South  Carolina  or the  laws of the  United
                  States;

         (d)      Miscellaneous: As to such other matters as Bank may reasonably
                  request.

         4.1.6  Miscellaneous:  All Loan Documents or items that are customarily
provided in loan transactions of this type and all other loan documents or items
set forth in the Commitment.

         4.1.7 No  Defaults:  No Default  Condition  or Event of  Default  shall
exist.

         4.1.8 Draw Request: Bank shall have received the Borrowers' request for
disbursement under the Revolving Credit Loan.



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<PAGE>

         4.2. Payment to Bank. All sums payable to Bank under the Loans shall be
paid  directly  to Bank in  immediately  available  funds  prior to 12:00  Noon,
Columbia,  South Carolina  time, on the due date of any such sums payable.  Bank
shall  send  to  Borrowers  statements  of  all  amounts  due  hereunder,  which
statements shall be deemed correct and  conclusively  binding on Borrower unless
Borrower  notifies  Bank in writing to the  contrary  within one (1) year of the
date of the statement  which Borrower  considers  incorrect.  Alternatively,  at
Bank's discretion and with prior notice to Borrower, Bank may charge against any
deposit account of Borrower all or any part of any amount due hereunder.

         4.3. Risk of Loss. As between Borrowers and Bank,  Borrowers shall bear
all risk of loss of or fluctuation in value of each item of Collateral.

         4.4.  Waivers.  Borrowers  hereby waive and forever  release from,  and
agree to indemnify and hold the Bank harmless for, any and all claims, causes of
action or any other  loss that  Bank may incur in  connection  with the  making,
closing or administration of the Loans.

         4.5 Intangible Taxes. Borrower has paid intangible taxes (i) related to
the Dalton  Property  Deed to Secure Debt held by Bank based on the value of the
Dalton Property being equal to $2,000,000.00  and (ii) related to the Whitecrest
Property  Deed to Secure Debt held by Bank based on the value of the  Whitecrest
Property  being equal to  $1,310,000.00.  From time to time,  Borrowers upon the
demand of Bank must pay any  additional  intangible  taxes related to the Dalton
Property Deed to Secure Debt or the Whitecrest  Property Deed to Secure Debt (i)
based on an  increase  in the value of the  Dalton  Property  or the  Whitecrest
Property,  as  applicable,  as  reflected on any current  appraisal,  or (ii) as
otherwise required under the laws of the State of Georgia.

5.       ADDITIONAL COLLATERAL SECURITY.

         5.1. Nature of Collateral.  In addition to all other liens, assignments
and all other rights of Bank granted pursuant to any of the Loan Documents,  the
Collateral,  together with all of Borrowers'  other property of any kind held by
Bank,  shall  stand  as one  general,  continuing  collateral  security  for all
Obligations  and may be  retained  by  Bank  until  all  Obligations  have  been
satisfied in full.

         5.2.  Rights in  Property  Held by Bank.  As  security  for the  timely
satisfaction of all Obligations and in addition to all other liens,  assignments
and all other  rights of Bank  granted  pursuant  to any of the Loan  Documents,
Borrowers  hereby continue to assign,  transfer,  and set over to Bank a lien on
and a security  interest in all  amounts  that may be owing from time to time by
Borrowers to Bank in any capacity,  including without  limitation any balance or
share of Borrower in or of the Collateral  Account or any other deposit or other
account with Bank, which lien and security  interest shall be independent of and
in addition to any right of set-off which Bank may have.

         5.3. Rights in Property Held by Borrowers.  As further security for the
prompt satisfaction of all Obligations,  Borrowers hereby continues to assign to
Bank all of their right, title, and interest in and to, and grant to Bank a lien
and security  interest in, all personal  property whether tangible or intangible
including  the  following,  wherever  located,  whether  now owned or  hereafter
acquired,  together  with  all  replacements  and  Proceeds  (including  without
limitation  insurance proceeds) thereof including,  without  contribution to the
following:  (a)  Accounts;  (b) Chattel  Paper;  (c)  Contracts,  including  the
Indemnification  Agreement;  (d)  Documents;  (e) equipment,  (f) fixtures,  (g)
furniture, (h) General Intangibles, including the Indemnification Agreement; (i)
Instruments;  (j) Inventory; (k) Rights as seller or lessor of Goods or services
and rights to returned or repossessed  Goods; (l) Proceeds of public  liability,
fire,  and extended  coverage  insurance and returned and unearned  premiums for
such  insurance;  (m) all  records  pertaining  to any  other  item or matter of
Collateral;  (n) all securities,  guaranties,  and deposits  received or held by
Borrower  in respect to Goods sold or leased or services  rendered by  Borrower;
(o) all other  rights to payment for Goods sold or leased or services  rendered,
regardless of whether or not the same has been earned by performance;  or (p) if
any of the Inventory consists of items which are subject to a patent, copyright,
trademark,  or other  intellectual  property right, all of Borrower's  rights to
exploit such patent, copyright, trademark, or other intellectual property right.



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         5.4.  Financing  Statements.  Borrowers  will:  (a) join  with  Bank in
executing  such  financing   statements   (including   amendments   thereto  and
continuation  statements  thereof)  in form  satisfactory  to  Bank as Bank  may
specify;  (b) pay or  reimburse  Bank  for all  costs  and  taxes of  filing  or
recording the same in such public  offices as Bank may  designate;  and (c) take
such other steps as Bank may direct,  including making notations of Bank's lien,
to perfect Bank's interest in the Collateral.  In addition to the foregoing, (d)
the  parties  hereto  agree  that a  photocopy  or  other  reproduction  of this
Agreement  shall be sufficient as a financing  statement and may be filed in any
appropriate  office in lieu  thereof;  and (e) to the extent  lawful,  Borrowers
hereby appoint Bank as Borrowers' attorney-in-fact (without requiring Bank so to
act) to execute any  financing  statement in any of the  Borrowers'  name and to
perform  all other  acts and deeds that Bank deems  appropriate  to perfect  and
continue its security interest in, and to preserve and protect, the Collateral.

6.       REPRESENTATIONS AND WARRANTIES.

         6.1. Original.  To induce Bank to enter into this Agreement,  Borrowers
represent and warrant to Bank as follows:

         (a)      Borrowers are corporations  duly organized,  validly existing,
                  and in good  standing  under  the  Laws of the  State of South
                  Carolina  and are duly  qualified  and in good  standing to do
                  business  in each  jurisdiction  where such  qualification  is
                  necessary. All jurisdictions where MCF or any of the Borrowers
                  are  qualified or should be  qualified  are listed on Schedule
                  6-1(a) attached to this Agreement.

         (b)      None of the Borrowers is in default with respect to any of its
                  existing  Indebtedness,  and the making or performance of this
                  Agreement will not  (immediately,  with the passage of time or
                  giving of notice,  or both): (i) violate the provisions of the
                  charter  or bylaws of any of the  Borrowers,  or  violate  any
                  Laws, or result in a default under any contract, agreement, or
                  instrument  to which  any of the  Borrowers  are a party or by
                  which any of the Borrowers or any of their property are bound,
                  except in  connection  with  indebtedness  satisfied  with the
                  proceeds  of the  Loan;  or (ii)  result  in the  creation  or
                  imposition of any security interest in, or lien or encumbrance
                  upon, any assets of any of the  Borrowers,  except as same may
                  be in favor of Bank.

         (c)      Borrowers have full right,  power, and authority to enter into
                  and perform the Loan  Documents,  and to incur the Obligations
                  herein and therein  provided for, and have taken all corporate
                  action and obtained all  consents  necessary to authorize  the
                  execution, delivery, and performance thereof.

         (d)      This Agreement and the remainder of the Loan  Documents,  when
                  delivered,  will be valid,  binding,  and enforceable  against
                  Borrowers, as applicable,  in accordance with their respective
                  terms.

         (e)      Except  as  set  forth  in  a  written  disclosure   statement
                  delivered to the Bank within ten (10)  business  days prior to
                  the execution of this  Agreement,  no litigation,  proceeding,
                  arbitration,  or  investigation  is  in  process,  pending  or
                  threatened  against any of the Borrowers  which, if determined
                  adversely  to such  Borrowers,  would have a material  adverse
                  effect on the business,  properties, or financial condition of
                  Borrowers.

         (f)      Borrowers  have  good  and  marketable  title  to all of their
                  assets, subject to no security interest,  encumbrance or lien,
                  or any  other  claim  except:  (i)  such  claims  specifically
                  disclosed in the application  for the Loans,  (ii) such claims
                  created by this  Agreement  in favor of Bank,  (iii) liens for
                  real  property  taxes  not yet due and  payable  and  (iv) the
                  Permitted Encumbrances.

         (g)      Borrowers'  financial  statements  provided  to  Bank  for the
                  fiscal year ended December 31, 1995, and the interim financial
                  statements  for the ten (10) months  ended  October 31,  1996,
                  have been prepared in accordance  with GAAP and fairly reflect
                  the  financial  condition of Borrowers  and the results of its
                  operations as of the dates and for the periods stated therein.
                  No  material  adverse  changes  have  since  occurred  or  are
                  threatened.

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<PAGE>

         (h)      As of the date hereof,  Borrowers,  in the aggregate,  have no
                  material  Indebtedness in excess of $100,000.00 of any nature,
                  including  without   limitation   liabilities  for  taxes  and
                  interest or penalties  relating  thereto,  except:  (i) to the
                  extent  reflected  and  reserved  against  in the most  recent
                  financial statements prior to the date hereof; (ii) as created
                  in this  Agreement,  or (iii) as  listed  on  Schedule  6-1(h)
                  attached hereto and incorporated herein by reference.

         (i)      Borrowers have filed all federal, state, and local tax returns
                  and  reports it is required  by all Laws  (including  the Fair
                  Labor  Standards  Act)  to  file  prior  to the  date  of this
                  Agreement  and  have  paid or  caused  to be paid  all  taxes,
                  interest and penalties due and payable therein. Borrowers have
                  not agreed to an  extension,  of the period  within  which the
                  Internal Revenue Service may audit Borrowers tax returns.

         (j)      All information and  representations  made and any information
                  or documents  submitted in connection with the application for
                  the Loans were true,  complete  and  correct as of the date of
                  such   submission   and   (except  for   financial   statement
                  information  provided with  reference to a specific  date) are
                  true,  complete  and  correct  as of the  date  hereof  unless
                  otherwise   modified   or   altered  by   subsequent   written
                  information and representations made to Bank.

         (k)      No   representation  or  warranty  by  any  of  the  Borrowers
                  contained  herein  or in any  certificate  or  other  document
                  furnished  by  or  on  behalf  of  Borrowers  pursuant  hereto
                  contains  any untrue  statement  of material  fact or omits to
                  state a material fact necessary to make such representation or
                  warranty not  misleading in light of the  circumstances  under
                  which it was made.

         (l)      No  Reportable  Event has  occurred  during the 5-year  period
                  prior to the Closing Date with respect to any Plan, any of the
                  Borrower   and  each  Plan  has   complied  and  all  material
                  specifications  with  applicable  provisions  of ERISA and the
                  Code.  The present  value of all accrued  benefits  under each
                  Single Employer Plan maintained by any of the Borrowers (based
                  on those  assumptions  used to fund the Plans) did not,  as of
                  the  last  annual  evaluation  date  prior to the date of this
                  Agreement,  exceed  the  value  of the  assets  of  such  Plan
                  allocable  to  such  accrued   benefits.   The  present  value
                  (determined  using actuarial and other  assumptions  which are
                  reasonable  in  respect  of  the  benefits  provided  and  the
                  employees  participating)  of  the  liability  of  any  of the
                  Borrowers for post retirement benefits to be provided to their
                  current  and former  employees  under  Plans which are welfare
                  benefits  (as  defined  in  Section  3(1) of ERISA)  equals or
                  exceeds  the  assets  under  such  Plans   allocable  to  such
                  benefits.

         (m)      The  proceeds of the Loans shall be used by  Borrowers  in the
                  ordinary course of Borrowers' and for the particular  purposes
                  set forth elsewhere in this Loan Agreement.

         (n)      Except  as to the  Star  Fibers  Property  and  to the  extent
                  disclosed to Bank in writing,  the  Properties do not contain,
                  and  have  not   previously   contained,   any   Materials  of
                  Environmental  Concern in amounts or concentrations  which (i)
                  constitute a violation of, or (ii) could be  reasonably  given
                  rise to liability under  Environmental  Laws. Except as to the
                  Star Fibers  Property  and to the extent  disclosed to Bank in
                  writing,  the  Properties and all operations of the Properties
                  are in  compliance,  and have in the past  two  years  been in
                  material  compliance  and  specifications  with all applicable
                  Environmental  Laws,  there is no  contamination  at, under or
                  about the Properties (except as disclosed to Bank in writing),
                  or  violation  of any  Environmental  Law with  respect to the
                  Properties which could interfere with the continued  operation
                  of the Properties or materially  impair the fair salable value
                  thereof. None of the Borrowers have not received any notice of
                  violation,  alleged  violation,  non-compliance,  liability or


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                  potential   liability  regarding   environmental   matters  or
                  compliance with  Environmental  Laws with regard to any of the
                  Properties,  nor do any of the  Borrowers  have  knowledge  or
                  reason to believe  that any such notice will be received or is
                  being threatened except so far as such notice or threat notice
                  or any  aggregation  thereof,  does not  involve  a matter  or
                  matters  that is or are  reasonably  likely  to  result in the
                  payment by any of the  Borrowers  of a Material  Environmental
                  Amount.  To the best knowledge of Borrowers,  after reasonable
                  investigation,  Materials  of  Environmental  Concern have not
                  been  transported  or  disposed  of  from  the  Properties  in
                  violation  of, or in a manner  or to a  location  which  could
                  reasonably  give rise to liability under  Environmental  Laws,
                  nor  have  any   Materials  of   Environmental   Concern  have
                  generated,  treated, stored or disposed of at, on or under any
                  of the  Properties  in violation of, or in a manner that could
                  give rise to liability  under,  any  applicable  Environmental
                  Laws except  insofar as any such  violation  or  liability  is
                  referred  to  above,  or  any  aggregation   thereof,  is  not
                  reasonably  likely to result in the payment by  Borrowers of a
                  Material  Environmental  Amount.  No  judicial  proceeding  or
                  governmental or administrative  action is pending,  or, to the
                  knowledge of Borrowers,  threatened,  under any  Environmental
                  Law to which  Borrowers  are or will be named as a party which
                  respect to the  Properties,  nor are there any consent decrees
                  or other decrees,  consent  orders,  administrative  orders or
                  other orders, or other administrative or judicial requirements
                  outstanding under any  Environmental  Laws with respect to the
                  Properties except insofar as such proceeding,  action, decree,
                  order or other  requirement or any aggregation  thereof is not
                  reasonably  likely  to  result  in  the  payment  of  Material
                  Environmental  Amounts. There has been no release or threat of
                  release of Materials of  Environmental  Concern at or from the
                  Properties, or arising from or related to the operation of any
                  of  the  Borrowers  in  connection   with  the  Properties  in
                  violation of or in amounts or in a manner that could give rise
                  to liability under  Environmental  Laws except insofar as such
                  violation or liability  referred to above,  or any aggregation
                  thereof,  is not reasonably likely to result in the payment of
                  Material Environmental Amounts. The representations  contained
                  in  this  Subsection   6.1(n)  are  subject  to  Materials  of
                  Environmental    Concern   or   other   matters   related   to
                  Environmental Laws specifically  disclosed in writing to Bank,
                  including  the  environmental  condition  of the  Star  Fibers
                  Property.

         (o)      Borrowers  maintain  with one or more  financially  sound  and
                  reputable  insurance  companies,  with  premiums  at all times
                  currently  paid,  insurance  upon fixed assets and  inventory,
                  including public liability insurance, fire and all other risks
                  insured against by extended coverage,  fidelity bond coverage,
                  business  interruption   insurance  and  all  other  insurance
                  required by law, all in a form and amount  required by law and
                  customary  to  the  respective  nature  of the  businesses  of
                  Borrowers and  Borrowers'  properties,  except in a case where
                  failure  to  maintain   such   insurance   will  not  have  or
                  potentially  have an adverse effect on the Borrowers or any of
                  Borrowers' properties or assets.

         (p)      All of the  Properties  and  the use of the  Properties  shall
                  comply and shall  continue to comply in all material  respects
                  with  all  applicable  Laws,   including  zoning  resolutions,
                  building  codes,  Environmental  Laws  (except as disclosed in
                  writing to Bank), subdivision and other applicable laws, rules
                  and regulations and are covered by existing valid certificates
                  of occupancy and all those  certificates  and permits required
                  by applicable  laws,  rules,  regulations and ordinances or in
                  connection  with  the  use,  occupancy  and  operation  of the
                  Properties.  No material  portion of any of the Properties has
                  been  damaged in any  respect as a result of fire,  explosion,
                  accident,  flood or other casualty. No condemnation or eminent
                  domain  proceeding  has been  commenced or to the knowledge of
                  Borrowers are about to be commenced against any portion of the
                  Properties.  No notice of violation  of any federal,  state or
                  local law or ordinance or order or requirement has been issued
                  with respect to any Properties.

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         (q)      Each of the  Borrowers  is  solvent  as defined or used in the
                  Bankruptcy  Act of the United  States,  as  amended,  and will
                  continue  to be solvent  as defined or used in the  Bankruptcy
                  Act of the United  States  following the  consummation  of the
                  transactions contemplated by this Agreement.

         (r)      Borrowers are in compliance with all applicable  Laws,  rules,
                  regulations,   and  orders  of  all  governmental  authorities
                  (federal,  state,  local or foreign,  and  including,  without
                  limitation,   Environmental  Laws,  rules,  regulations,   and
                  orders)  a breach  of which  would  materially  and  adversely
                  affect any of the  Borrowers'  business,  credit,  operations,
                  financial condition, or prospects.

         (s)      As of the  date of this  Agreement,  the  principal  place  of
                  business and chief executive office of all of the Borrowers is
                  306  Main  Street,  Edgefield,   South  Carolina.   Borrowers'
                  additional  place  of  business  or  places  where  assets  of
                  Borrowers  are located are set forth on Schedule  6-1(s).  The
                  location  of  the  principal  places  of  business  and  chief
                  executive  offices of the  Borrowers  and the locations of any
                  Collateral shall not be changed nor shall there be established
                  additional  places of business or additional  locations  where
                  Collateral is stored,  kept or processed  without Bank's prior
                  written  consent,  and  prior to  making  any such  change  or
                  establishing such new location, Borrowers agree to execute any
                  additional  financing statements or other documents or notices
                  required by Bank. As of the date of this Agreement,  the books
                  and records of  Borrowers  and all records  and  accounts  are
                  located  and  hereafter  shall  continue  to be located at the
                  principal  place of  business  and chief  executive  office of
                  Borrower.

         (t)      Business  conducted by Borrowers has not been  conducted by or
                  under any corporate, trade or fictitious name other than those
                  listed on  Schedule  6-1(t)  attached to this  Agreement,  and
                  following  the  date  of this  Agreement,  Borrower  will  not
                  conduct  their  business  under any trade or  fictitious  name
                  other than the duly  registered  names  listed on Schedule 6-1
                  (t) attached to this Agreement,  except with the prior consent
                  of Bank.

         (u)      As  of  the  date  of  this   Agreement,   Borrowers  have  no
                  investments  in any  Person,  and is not  engaged in any joint
                  venture or partnership with any other Person.

         (v)      All  representations  and  warranties  contained  in the  Loan
                  Documents are incorporated  herein by reference and constitute
                  a part hereof as fully as if the same were set forth herein.

         6.2. Survival. All of the representations and warranties in section 6.1
shall survive until all Obligations are satisfied.



7.       BORROWERS' COVENANTS.

         Borrowers  do hereby  covenant  and agree with Bank that,  unless  Bank
specifically  consents  in  writing  to the  contrary  and  for as  long  as any
Obligations  have not been  satisfied  in full,  Borrowers  will comply with the
following covenants:

         7.1.  Affirmative Covenants.

         (a)      Borrowers,  as applicable,  will use the proceeds of the Loans
                  only for valid  business  purposes  and for the  purposes  set
                  forth in this Agreement and will furnish to Bank such evidence
                  as Bank may reasonably request with respect to such use;

         (b)      Borrowers will maintain,  or cause to be maintained (1) public
                  liability, fire, and extended coverage insurance on all assets
                  owned by it or used by it in its  business,  all in such  form
                  and amounts as are  reasonably  satisfactory  to Bank, (2) all
                  workmen's compensation or similar insurance as may be required
                  under  Laws   applicable   to   Borrower,   and  (3)  business
                  interruption  insurance  as may be required by Bank.  Borrower
                  will  furnish  Bank such  evidence  of  insurance  as Bank may
                  reasonably require;

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<PAGE>

         (c)      Borrowers   will   cause  to  be  paid  when  due  all  taxes,
                  assessments,  charges,  and levies imposed upon them or any of
                  their properties  which they are required to pay over,  except
                  when  contested in good faith by appropriate  proceeding  with
                  adequate  reserves therefor having been set aside on its books
                  and  segregated  where  required  by  GAAP;   provided,   that
                  Borrowers  shall either pay or cause to be paid  forthwith all
                  taxes,  assessments,  levies, and charges whenever foreclosure
                  of any lien that attaches (or other security therefor) appears
                  threatened or have such encumbrances "bonded off";

         (d)      Borrowers  will  take  all  necessary  steps to  preserve  its
                  corporate  existence,   rights,  contracts,   franchises,  and
                  tradenames necessary or desirable in the conduct of Borrowers'
                  business,  and  comply  with  all  present  and  future  Laws,
                  including Environmental Laws, applicable to Borrowers and with
                  all material agreements to which or by which any of Borrowers'
                  property is bound;

         (e)      Borrowers  will  give  immediate  notice  to  Bank  of (1) any
                  litigation  or  proceedings  in which  either one of them is a
                  party if an adverse  decision  therein would require it to pay
                  money or  deliver  assets in an  aggregate  amount or value in
                  excess   of  One   Hundred   Thousand   and   No/100   Dollars
                  ($100,000.00)  (regardless  of  whether  or not the  claim  is
                  considered to be covered by insurance); (2) the institution of
                  any other suit or proceeding  involving  Borrowers  that might
                  materially and adversely  affect their  operations,  financial
                  condition, property, or business; or (3) the occurrence of any
                  casualty  which  might have a material  adverse  effect on the
                  businesses of Borrowers;

         (f)      Borrowers  will pay when due, or within the  applicable  grace
                  period,  all Indebtedness  due third parties,  except when the
                  amount, applicability,  or validity thereof is being contested
                  in good faith by  appropriate  proceedings  and with  adequate
                  reserves therefor being set aside on its books;

         (g)      Borrowers   will  (1)   maintain  its   Inventory,   supplies,
                  Equipment, real property, and other properties,  including the
                  Properties, in good condition and repair (normal wear and tear
                  excepted),  (2) pay and  discharge  or  cause  to be paid  and
                  discharged  when due the cost of repairs to or  maintenance of
                  the same,  (3) pay or cause to be paid all rental,  lease,  or
                  mortgage  payments due with respect to same,  (4) maintain and
                  keep  any  of  their  tangible   personal  property  at  their
                  principal  places of business or at one of the  locations  set
                  forth on Schedule  6-1(h),  and (5) not change their principal
                  places of business or the location of any Collateral in such a
                  manner as to cause Bank's  first  priority  perfected  lien on
                  such Collateral to be lost or jeopardized;

         (h)      Borrowers, as applicable, shall endorse without limitation, or
                  otherwise properly assign to Bank, all negotiable  Instruments
                  and other Chattel Paper received by it in connection  with any
                  payment on account of any item of Collateral;

         (i)      Borrowers will furnish to Bank, and deliver to Bank within one
                  hundred  twenty  (120)  days from the  closing  date  thereof,
                  Borrowers   consolidated  fiscal  year-end  audited  financial
                  statements  (including without limitation,  its balance sheet,
                  income  statement,  statement of cash flows,  and accountant's
                  comments),   fiscal  year  end  audit  management  letter  and
                  Borrowers  consolidating  year-end company prepared  financial
                  statements (including,  without limitation,  its balance sheet
                  and  income  statement)  and  otherwise  in form  and  content
                  acceptable  to Bank (all such  statements  to be  prepared  in
                  accordance  with  GAAP)  and,  with  respect  to  the  audited
                  financial   statements,   certified  by  a  certified   public
                  accountant acceptable to Bank simultaneously with the delivery
                  to Bank of each fiscal-year end audited financial statement;

         (j)      Borrowers will furnish to Bank, within forty-five (45) days of
                  the end of each fiscal  quarter,  its then current  internally
                  prepared  consolidated and consolidating  financial statements
                  for each fiscal quarter and year-to-date, signed by an officer
                  of Borrowers  as  applicable  certifying  the accuracy of such
                  statement,  all in such form as is reasonably  satisfactory to
                  Bank. In connection  with the financial  statements  delivered
                  pursuant  to  subsection  7.1(i) and this  subsection  7.1(j),
                  Borrowers  must furnish to Bank, a Compliance  Certificate  in
                  form and content  acceptable to Bank executed by an officer of
                  the   Borrowers,   which   Certificate   includes   Borrower's
                  computation of all restrictive  and other covenants  contained
                  in this  Agreement  and  list of all  contingent  liabilities;
                  provided,  Borrowers  shall be required  to disclose  only the
                  contingent  or  threatened  liabilities  arising  from claims,


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                  causes of action or litigation  against any of the  Borrowers'
                  under  which  such  of  the  Borrowers'  exposure  may  exceed
                  $500,000.00,  with such  disclosure  to be made in  connection
                  with  delivery  of  the  financial   statement  which  is  due
                  immediately  after  the first to occur of the  following:  (i)
                  Borrowers,  in good  faith,  believe  such  claim,  action  or
                  litigation  will be  prosecuted;  or (ii) the  filing  of such
                  claim,  cause  of  action  or  litigation  against  any of the
                  Borrowers by the claimant  with the court,  tribunal or agency
                  having jurisdiction over such matter;

         (k)      Borrowers will furnish to Bank within fifteen (15) days of the
                  end of  each  month  a then  current  Monthly  Borrowing  Base
                  Certificate executed by an officer of Borrower,  along with an
                  aged  Accounts   Receivable  Report  and  summary  reports  on
                  Inventory.  Borrowers further must furnish to Bank on a weekly
                  basis then  current  Collateral  Certificates  executed  by an
                  officer or corporate controller of Borrowers.  Borrowers shall
                  submit to Bank  accounts  payable  reports upon the request of
                  Bank.  All  such  information  must  be in  form  and  content
                  acceptable to Bank;

         (l)      As and when  requested  by Bank  which  will not be more often
                  than twice in any one year, Borrowers will provide to Bank (1)
                  a  certificate  signed by an  officer  of the  Borrowers  that
                  summarizes  the  property,  casualty and  liability  insurance
                  policies carried by the Borrowers and that certifies that Bank
                  is loss payee of all property and casualty  insurance policies
                  (such  certificate  to be in form and  content  acceptable  to
                  Bank), and (2) written notification of any cancellation or any
                  material change of such insurance by Borrowers within five (5)
                  Business Days after receipt of any such notice (whether formal
                  or  informal) of such  cancellation  or change by any of their
                  insurers;

         (m)      Borrowers  will operate their  businesses  in full  compliance
                  with all applicable federal,  state, and local Laws, including
                  specifically without limitation the Fair Labor Standards Act;

         (n)      Borrowers will notify Bank  immediately upon receipt by any of
                  the Borrowers of oral or written notice that any of Borrowers'
                  customers contests the amount, validity, or due date of any of
                  Borrowers'  Accounts,  Contracts,  Chattel Paper,  or Contract
                  Rights, which disputed amount exceeds Two Hundred Thousand and
                  No/100 Dollars ($200,000.00);

         (o)      Borrowers,  on a consolidated  basis, must maintain a Leverage
                  Ratio  of less  than or  equal  to 3.00  to  1.00,  with  such
                  Leverage Ratio to be computed and tested as of the end of each
                  fiscal quarter;

         (p)      Borrowers  will maintain  executive  personnel and  management
                  reasonably satisfactory to Bank;

         (q)      Borrowers will notify Bank  immediately if it becomes aware of
                  the  occurrence of any Event of Default or Default  Condition,
                  or the failure of Borrowers to observe any of its undertakings
                  hereunder;

         (r)      Borrowers,  on a  consolidated  basis,  must  achieve  a  Debt
                  Service  Ratio  greater  than or equal to 1.00 to 1.00 (i) for
                  each period of time  commencing on January 1 and ending on the
                  next  successive June 30; and (ii) for each fiscal year during
                  the term of this Agreement including any renewal terms.

         (s)      Subject to the  limitation  on costs to Borrowers as set forth
                  in Section 8.5 below,  Borrower will permit any representative
                  or agent of Bank to  examine  and audit any of the  Borrowers'
                  books and records when reasonably requested by Bank;

         (t)      The  operation of the  Properties  do not and will not violate
                  any  Environmental  Laws and Borrowers  will not use or permit
                  any other party to use any Materials of Environmental  Concern
                  on the  Properties  except such materials as are incidental to
                  Borrowers' normal course of business,  maintenance and repairs


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<PAGE>

                  and do not violate any Environmental Laws. Borrowers agrees to
                  permit Bank, its agents,  contractors and employees,  to enter
                  and  inspect the  Properties  at any  reasonable  time for the
                  purpose  of  conducting   Environmental   Investigation  Audit
                  (including  physical  samples)  to insure that  Borrowers  are
                  complying  with this covenant.  Borrowers  shall provide Bank,
                  its agents, contractors,  employees and representatives,  with
                  access to and copies of all data and documents  relating to or
                  dealing with any  Materials  of  Environmental  Concern  used,
                  generated,  manufactured or stored or disposed of on, under or
                  about the Properties  within five (5) business days of request
                  for such information by Bank;

         (u)      Borrowers shall immediately  advise Bank in writing of (i) any
                  and all  enforcement,  cleanup,  remedial,  removal  or  other
                  government  or  regulatory  actions  instituted,  completed or
                  threatened  pursuant  to any  Environmental  Laws  relating to
                  Materials of Environmental  Concern  affecting the Properties;
                  and  (ii)  all  claims  made or  threatened  by and any  third
                  parties  against  any of the  Borrowers  relating  to damages,
                  contribution,  cost,  recovery  compensation,  loss or  injury
                  resulting from Materials of Environmental  Concern.  Borrowers
                  shall immediately  notify Bank of any remedial action taken by
                  Borrowers with respect to the Properties;

         (v)      Borrowers  shall jointly and severally  indemnify,  defend and
                  hold Bank and its  successors  and assigns  harmless  from and
                  against any and all claims,  demands,  suits, losses, damages,
                  assessments,   fines,  penalties,   costs  or  other  expenses
                  (including attorney's fees and court costs) arising from or in
                  any  way  related  to  actual  or  threatened  damage  to  the
                  environmental,  agency cost or investigation,  personal injury
                  or death or  property  damage  due to the  release  or alleged
                  release of Materials of Environmental  Concern on or about the
                  Properties  or in the  surface or ground  water  located on or
                  under the Properties or gaseous  emissions from the Properties
                  or any other  condition  existing on the Properties  resulting
                  from  the  use or  existence  of  Materials  of  Environmental
                  Concern,  whether  such  claim  proves  to be true or false or
                  further  agrees that its indemnity  obligation  shall include,
                  but not be limited to,  liability for damages  resulting  from
                  personal  injury  or  death  of an  employee  of  any  of  the
                  Borrowers  regardless  of  whether  Borrowers  have  paid  the
                  employee under Workers'  Compensation  Laws or any other state
                  or  other  similar  federal  or  state   legislation  for  the
                  protection  of  employees.  Borrowers'  obligation  under this
                  Section  7.1(v) shall  survive the  repayment of the Loans and
                  any  deed  in  lieu  of  foreclosure  of any of the  mortgages
                  securing the Loans;

         (w)      Borrowers  will  continue  to engage in  business  of the same
                  general type as now conducted by Borrowers and preserve, renew
                  and keep in full force and effect its corporate  existence and
                  take all reasonable action to maintain all rights,  privileges
                  and franchises  necessary or desirable in the normal course of
                  Borrowers business;

         (x)      Borrowers    acknowledge    that    the    Loans    shall   be
                  cross-collateralized and cross-defaulted,  and Borrowers agree
                  to execute any documents required by Bank, before, on or after
                  the Closing Date, to effectuate  this  cross-collateralization
                  and cross-default;

         (y)      Star Fibers is and will remain a special  purpose wholly owned
                  subsidiary  of MCF and its  only  business  shall  consist  of
                  owning, and leasing to MCF, the Star Fibers Property; and

         (z)      Borrowers,  on a consolidated basis, must achieve and maintain
                  a  consolidated  Tangible  Net  Worth  equal to a  minimum  of
                  $24,240,000  at fiscal year 1996 which Tangible Net Worth must
                  increase  by a minimum  of  $3,000,000  for each  fiscal  year
                  thereafter.

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<PAGE>

         (aa)     Borrowers,  on a  consolidated  basis,  must maintain a Funded
                  Debt  Ratio  of less  than or  equal  to 3.00 to 1.00  (i) for
                  fiscal year 1997;  and (ii) for each twelve (12) month  period
                  ending  on the  closing  date  of each  of  Borrowers'  fiscal
                  quarters  commencing  with the first fiscal  quarter of fiscal
                  year 1998.

         7.2. Negative Covenants.  Without Bank's written consent, Borrowers, as
applicable, will not:

         (a)      Enter   into  any   merger,   consolidation,   reorganization,
                  recapitalization, reclassification of its capital stock;

         (b)      Change its  primary  ownership  such that James F.  Martin and
                  Henry M.  Poston in the  aggregate  own less than 52.0% of the
                  full and legal  interest  of the  outstanding  common  (or any
                  other  type,  class or  series  of)  stock of MCF,  or  change
                  control or key management of Borrowers;

         (c)      Sell,  transfer,  lease or otherwise dispose of, directly,  or
                  indirectly, in one or more transactions, all or (except in the
                  ordinary  course of business) any material part of its assets,
                  including the Collateral;

         (d)      Become  liable,  directly  or  indirectly,   as  guarantor  or
                  endorser or otherwise, for any obligation of any other Person,
                  except for the endorsement of commercial  paper for deposit or
                  collection in the ordinary course of business;

         (e)      Except for  current  Indebtedness  listed on  Schedule  6-1(h)
                  attached hereto and incorporated  herein by reference,  incur,
                  create, assume, or permit to exist any Indebtedness, including
                  purchase  money  obligations,  in excess of the  aggregate  of
                  $100,000.00 of unsecured debt of Borrowers in any fiscal year,
                  except: (i) the Loans; (ii) trade indebtedness incurred in the
                  ordinary course of business;  and (iii) indebtedness permitted
                  under this Agreement;

         (f)      Enter into any stock  repurchase,  retirement,  or  redemption
                  programs  except for the repurchase  program  pursuant to that
                  certain Corporate  Buy-Sell Agreement dated May 3, 1993, or in
                  connection with (i) MCF's qualified 401K plan approved by Bank
                  or (ii)  other  Bank  approved  repurchases  of MCF  stock  in
                  connection  with similar stock  repurchase  plans  approved by
                  MCF's executive committee;

         (g)      Make  any  loans  or  advances  to any  officer,  stockholder,
                  director,  employee,  subsidiaries  or Affiliates of Borrowers
                  except  for  temporary  advances  in the  ordinary  course  of
                  business;

         (h)      Make capital expenditures,  in the aggregate, in excess of (i)
                  6,700,000  in fiscal  year 1996;  and (ii)  $7,000,000  in any
                  fiscal year after fiscal year 1996.

         (i)      Directly or  indirectly  apply any part of the proceeds of the
                  Loans for the immediate,  incidental,  or ultimate  purpose of
                  carrying any "margin  stocks" within the meaning of Regulation
                  U of the Board of Governors of the Federal Reserve System,  or
                  any regulation, interpretations, or rulings thereunder;

         (j)      Except in  connection  with the  permitted  liens set forth in
                  section  7.2(m) below,  execute or file in any  jurisdiction a
                  financing  statement  (including   amendments  and  extensions
                  thereof) under the Uniform  Commercial Code which names any of
                  the Borrowers as debtor, or execute any security  agreement or
                  other  document  authorizing  any secured party  thereunder to
                  file any  such  financing  statement,  except  such  financing
                  statement as may be necessary for the perfection of a security
                  interest in favor of Bank;

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<PAGE>

         (k)      Pay  bonuses  to  officers,   directors  or   shareholders  of
                  Borrowers, except for bonuses in the aggregate amount of up to
                  20% of income  before income taxes and any such bonuses in any
                  fiscal year so long as the payment of such  bonuses  would not
                  cause a violation of any covenants of this Agreement.

         (l)      Change (i) the name under which any of the  Borrowers  conduct
                  business;  (ii) the nature of any of  Borrowers  business;  or
                  (iii) the locations  where tangible  Collateral will be stored
                  or located;

         (m)      Grant liens,  pledge or grant security interests in any assets
                  of Borrowers or incur purchase money  obligations,  except for
                  subordinate   liens   granted   to   NationsBanc    Commercial
                  Corporation related to Borrowers' delinquent Accounts, and

         (n)      Pay cash dividends or distributions in an amount such that the
                  Tangible  Net Worth  requirements  of Section  7.1(z) would be
                  violated.

         7.3   Agreements,   Representations   and  Covenants  of  Any  Approved
Subsidiary. Borrowers acknowledge and agree that any Approved Subsidiary will be
bound  by  the  terms  and   conditions   of  this   Agreement,   including  all
representations  and  covenants,  to the same extent that Borrowers are bound by
this  Agreement.  Borrowers  further will cause any such Approved  Subsidiary to
execute documentation necessary to effectuate this provision; provided, however,
this Section is deemed to be  self-operative  and  enforceable  without  further
writing or agreement signed by any Approved Subsidiary.

         7.4.  Additional  Covenants.  All  covenants,  whether  affirmative  or
negative,  contained in the Loan Documents are incorporated  herein by reference
and constitute a part hereof as fully as if the same were set forth herein.

8.       BANK'S RIGHTS.

In addition to all other rights and remedies  contained herein in favor of Bank,
Bank  shall  have  the  following  rights  and  be  governed  by  the  following
provisions:

         8.1. Appraisal.  From time to time during the terms of the Loans, Bank,
as required under any applicable federal law or regulation,  shall order and pay
for then current  appraisals,  in form and content acceptable to Bank, on any of
the Collateral, including the Properties. Borrowers agree to reimburse Bank upon
the demand of Bank for all costs and  expenses  incurred  by Bank in  connection
with any such  appraisals.  Within a reasonable  period of time after receipt by
Bank  of the  reimbursement  by  Borrowers  of the  costs  and  expenses  of any
Appraisal, Bank shall deliver to Borrowers a copy of such Appraisal.

         8.2. Remedies Cumulative;  Nonwaiver. All remedies of Bank provided for
in the Loan  Documents  are  cumulative  and shall be in addition to any and all
rights and remedies provided for or available under any Loan Documents or at law
or in equity. The exercise of any right or remedy by Bank hereunder shall not in
any way  constitute  a cure or  waiver  of a  default  condition  or an event of
default  hereunder  or under any of the Loan  Documents or validate any act done
pursuant to any notice of the  occurrence  of default  condition  or an event of
default or prejudice  the Bank in the exercise of any of its rights under any of
the Loan  Documents  unless,  in the exercise of said rights,  Bank realizes all
amounts owed to Bank under the Loan Documents.

         8.3. No Liability of Bank. Whether or not Bank elects to employ any and
all  remedies  available  to it in  the  event  of an  occurrence  of a  Default
Condition  or an Event of  Default,  Bank shall not be liable for the payment of
any expense  incurred in connection with the exercise of any remedy available to
Bank or the performance or nonperformance of any obligation of Borrowers.

         8.4. Environmental  Assessments.  Updated Environmental  Assessments of
the  Properties  shall be prepared at  Borrowers'  expense and submitted to Bank
upon  Bank's  reasonable  request  at any time or times  during the terms of the
Loans,  including  upon  the  occurrence  of an Event  of  Default  or as may be
required by any Environmental Laws or if Materials of Environmental  Concern are
discovered or potentially exist on any of the Properties.



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<PAGE>

         8.5.  Audits.   Audits  of  Inventory  and  Accounts,   Chattel  Paper,
Contracts,  Documents,  General Intangibles and other right to receive money for
goods received of Borrowers or any Approved Subsidiary will be conducted by Bank
or Bank's agents or  representatives  no less  frequently than two (2) times per
fiscal year.  Borrowers will bear the expenses of all normally  scheduled audits
in the amount of up to $5,000.00 per audit.

9.       DEFAULT.

         9.1.  Events of Default.  An "Event of Default" shall be the occurrence
or  existence of any one of the  following  conditions  described in  subsequent
subsections of this Section 9.1 and the  continuance  thereof for either (i) the
specific  period  of time,  if any,  specified  with  respect  to such  event or
condition,  (ii) a period of five (5) days after  delivery of written  notice to
Borrowers  from Bank if no period is  specified  and the event or condition is a
failure  to pay money to Bank as and when due;  provided  that Bank shall not be
required to give  notice  more than twice in any twelve (12) month  period or at
maturity  of any of the Loans;  or (iii) a period of thirty  (30) days after (x)
delivery of written  notice to  Borrowers  from Bank or (y) the date Bank should
have been  notified by Borrowers of such  condition  pursuant to Section  7.1(q)
(which date,  for defaults that the Borrower are made aware by the annual audit,
shall be deemed to be the date that MCF receives the final, completed audit), if
no period is  specified  and if the event or  condition  is not a failure to pay
money;  provided,  however,  notwithstanding  anything  contained  herein to the
contrary,  there shall be no  obligation  of Bank to give notice and no right of
Borrowers  to cure if the event or  condition  is either  the  institution  of a
voluntary  bankruptcy,  insolvency  or  receivership  action,  the giving of any
material false or fraudulent  representation to Bank, the failure to keep any of
the  Collateral  free  and  clear  of  any  liens,   except  for  the  Permitted
Encumbrances  and for disputed  liens that are "bonded  off" within  thirty (30)
days after  Borrower has notice of such lien, not approved in writing in advance
by Bank;

         (a)      Borrowers'  failure to pay when due any payment of  principal,
                  interest,  fee, or other charge payable under this  Agreement,
                  the  Notes  or any of the  other  Loan  Documents  except  for
                  Borrowers'  failure to pay principal as required in accordance
                  with Section 2.1(i) of this Agreement;

         (b)      The  failure  of  Borrowers',  as  applicable,  to  observe or
                  perform any other obligation required, directly or indirectly,
                  to be observed or performed by it hereunder or under the Notes
                  or under the other Loan Documents, or the failure of any party
                  to any subordinate  agreement with respect to any Subordinated
                  Indebtedness  to breach  any  condition  of or to comply  with
                  terms of such subordination agreement;

         (c)      Any of the Borrowers  shall (i) fail to pay when due including
                  applicable  grace period any  Indebtedness  due to Bank or any
                  third  Person,  or (ii)  suffer to exist  any  other  event of
                  default  under  any  material   agreement   binding  upon  the
                  applicable Borrowers or any of their properties;

         (d)      Any  financial   statement,   representation,   warranty,   or
                  certificate  made or  furnished to Bank by or on behalf of any
                  of the  Borrowers  in  connection  with this  Agreement or the
                  Loans, or any separate  statement or document  delivered or to
                  be delivered to Bank hereunder, shall be discovered by Bank to
                  have been materially false, incorrect, incomplete or otherwise
                  misleading when made;

         (e)      Any of the  Borrowers  shall  admit its  inability  to pay its
                  debts as they  mature  or shall  make any  assignment  for the
                  benefit of any of its creditors;

         (f)      Proceedings in bankruptcy, or for reorganization of any of the
                  Borrowers,  or for the adjustment or readjustment of the debts
                  of any one or more of  them,  under  the  Bankruptcy  Act,  as
                  amended, or under any other Laws for the relief of debtors, or
                  any part of any  thereof,  whether now  existing or  hereafter
                  effective,  shall  be  commenced  by or  against  any  of  the
                  Borrowers;

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         (g)      Proceedings  shall  be  instituted  for the  appointment  of a
                  receiver  or  trustee  for  any of the  Borrowers  or for  any
                  substantial   part  of  their   respective   assets,   or  any
                  proceedings shall be instituted for the dissolution or full or
                  partial  liquidation of any one or more of them, or any one or
                  more of them shall discontinue or materially change the nature
                  of  its  business  or  sell  all or  substantially  all of its
                  assets;

         (h)      Any of the Borrowers  shall suffer one or more final judgments
                  for the  payment of money or the  delivery of property or both
                  with the sum of such  money  and the  value  of such  property
                  aggregating   at  least  Fifty  Thousand  and  No/100  Dollars
                  ($50,000.00), unless execution has been effectively stayed;

         (i)      Any Person other than Borrowers or any person acting on behalf
                  of Bank shall obtain  possession  of any of the  Collateral by
                  any means,  including  without  limitation,  levy,  distraint,
                  replevin, or self-help;

         (j)      Any obligee of Subordinated Debt shall fail to comply with the
                  subordination  provisions of the  instrument  evidencing  such
                  Subordinated Debt or contained in any subordination agreement;

         (k)      Any loss, theft,  substantial damage, or destruction of all or
                  any part of the Collateral in excess of  $100,000.00  which is
                  not adequately covered by insurance;

         (l)      A default under any obligation,  whether now owed or hereafter
                  owing,  by  any  of  the  Borrowers  to  Bank  or  any  of its
                  affiliates or related entities; or

         (m)      Borrowers'  failure to pay principal as required under Section
                  2.1(i) of this  Agreement  or  otherwise  to  comply  with the
                  requirements of Section 2.5 of this Agreement and such failure
                  together with any subsequent  failures under Section 2.1(i) or
                  Section 2.5 occurring  within  fourteen  (14) days  thereafter
                  (collectively,  a "Margin Failure")  continues for a period of
                  time more than fourteen (14) days after the effective  date of
                  the Collateral  Certificate  which first  reflects  Borrowers'
                  initial  failure to comply with the  provisions of Section 2.5
                  of this Agreement;  provided and  notwithstanding  anything to
                  the  contrary  contained  in this  Section 9.1 or elsewhere in
                  this Agreement,  Borrowers must cure immediately,  and without
                  notice,  any such  failures to comply with the  provisions  of
                  Section  2.1(i) or Section  2.5 which  occur  after the second
                  (2nd) Margin Failure in any twelve (12) month period.

The Events of Default  set forth in this  section  9.1 are in  addition to those
Events of Default set forth and defined elsewhere in the Loan Documents.  In the
event of any  direct  conflict  in  provisions  related  to Events  of  Default,
including the requirements or  applicability of any grace periods,  contained in
this Agreement and in the other Loan Documents, the terms and provisions of this
Agreement shall govern and control.

         9.2.  Acceleration.  Immediately and without notice upon the occurrence
of an Event of Default,  at Bank's option,  all of Bank's duties and obligations
hereunder  shall terminate and all Obligations or any part thereof as determined
by Bank shall  immediately  become due and payable without further action of any
kind.

         9.3. Remedies after Acceleration. After any acceleration as provided in
section 9.2, Bank shall have, in addition to the rights and remedies given,  all
of those remedies allowed by all applicable Laws,  including without  limitation
the Uniform Commercial Code, enacted in any jurisdiction in which any Collateral
may be  located  or  otherwise  applicable  to the Loans or  Borrowers.  Without
limiting  the  generality  of  the  foregoing,  Bank  may,  at  any  time  after
acceleration,  without  any demand or notice  (except as may be required by this
Agreement or applicable  Laws) to any of the Borrowers,  all of which are hereby
expressly waived, and with or without  advertisement,  sell at public or private
sale or otherwise  realize upon the whole or, from time to time, any part of the
Collateral or any interest of any of the  Borrowers.  After  deducting  from the
proceeds of such sale or disposition  of the Collateral all expenses  (including
reasonable expenses for professional  services),  Bank shall apply such proceeds


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toward  satisfying  so much of the  Obligations  as  were  so  accelerated.  Any
remainder of such proceeds after  satisfaction in full of such Obligations shall
be distributed as required by applicable Laws.  Notice of any such sale or other
disposition  shall be given where practicable to Borrower at least five (5) days
prior to the date of any  intended  public  sale or of the time after  which any
intended  private sale or other  disposition is to be made, and Borrowers  agree
that such  notice is and shall be deemed to be  reasonable.  Borrowers  agree to
assemble,  or cause to be assembled,  at its own expense the  Collateral at such
place or places as Bank may  designate.  At any such sale or other  disposition,
Bank may, to the extent permissible under applicable Laws, purchase the whole or
any part of the  Collateral,  free of any right of redemption on the part of any
of the  Borrowers,  which  right is hereby  waived and  released  by  Borrowers.
Without  limiting the  generality  of any rights and remedies  available to Bank
under this section,  Bank may at its option and  discretion,  to the full extent
permitted by applicable Laws:

         (a)      Enter upon any of the Properties, exclude therefrom Borrowers,
                  or any Affiliate,  employee, or other representative  thereof,
                  and  take  immediate  possession  of  the  Collateral,  either
                  personally or by use of a receiver appointed by a court, using
                  all necessary force to do so;

         (b)      Use, operate,  manage, sell, lease, and control the Collateral
                  in any lawful manner;

         (c)      Collect  and  receive all rents,  income,  revenue,  earnings,
                  issues, and profits from the Collateral; and

         (d)      Maintain, repair, renovate, alter, or remove the Collateral.

         9.4.  Remedies  Alternative to Acceleration.  In each instance in which
the Event of Default  involves  the failure to pay when due a sum of money or to
perform  when  required  one or more  particular  Obligations,  Bank may, at its
option and in lieu of  accelerating as permitted in section 9.2, pay such sum or
sums or cause to be  performed  such  obligation  or  obligations  on  behalf of
Borrowers  and  collect  the  amount  of  Bank's  costs in so  doing  (including
reasonable professional expenses) (a) as principal hereunder upon which interest
accrues at the then-applicable rate set forth in the Term Note, or (b) by direct
charge to any deposit  accounts of any of the  Borrowers  maintained  with Bank.
Bank's  exercise of such option at any time shall not obligate  Bank to exercise
such option  upon the  subsequent  occurrence  of the same or any other Event of
Default.

10.      MISCELLANEOUS.

         10.1.  Construction.

         (a)      The  provision(s)  of this  Agreement  shall be in addition to
                  those of the  other  Loan  Documents,  the  terms of such Loan
                  Documents are incorporated herein by reference,  held by or in
                  favor  of  Bank,   all  of  which   shall  be   construed   as
                  complementary  to each other.  Nothing  contained herein shall
                  prevent  Bank  from  enforcing  any  or  all  other  notes  or
                  guaranty,   pledge  or  security  agreements,  or  other  such
                  evidences  of liability in  accordance  with their  respective
                  terms.

         (b)      Where appropriate, the reference herein to any gender, whether
                  masculine,  feminine,  or  neuter,  shall  include  the  other
                  genders, and the reference herein to the singular number shall
                  include the plural and vice versa.

         10.2. Further Assurances. From time to time, Borrowers will execute and
deliver or have  executed and  delivered to Bank such  additional  documents and
will provide such additional information as Bank may reasonably require to carry
out the terms of this  Agreement  and be informed of the  respective  status and
affairs of Borrowers.



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<PAGE>

         10.3. Enforcement and Waiver. Bank shall have the right at all times to
enforce the  provisions of this Agreement and the other Loan Documents in strict
accordance  with the terms  hereof and thereof,  notwithstanding  any conduct of
Bank in refraining from so doing at any time or times. Bank's failure to enforce
any  such  provision  or to  exercise  any  right  available  to Bank  upon  the
occurrence of an Event of Default shall not  constitute a waiver of, or bar Bank
from  enforcing or  exercising,  any such provision or right upon the subsequent
occurrence of the same or any other Event of Default. All rights and remedies of
Bank are  cumulative  and  concurrent,  and the  exercise of any right or remedy
shall not be deemed a waiver or release of any other right or remedy.

         10.4.  Bank's Expenses.  Borrowers will, on demand,  reimburse Bank for
all costs and expenses,  including  reasonable fees and expenses of Bank caused,
incurred or paid by Bank in  connection  with the  preparation,  administration,
amendment, modification, enforcement, or attempted enforcement of this Agreement
other than the collection or attempted collection of the Notes.

         10.5. Notices. Any notices or consents required or permitted under this
Agreement shall be in writing,  sent prepaid, by person, by telegram,  or by any
form of U. S. Mail which  provides a receipt  therefore,  to the  parties at the
following addresses except as any such address is changed by written notice:

         (a)      To Borrowers:               306 Main Street
                                              Post Office Box 469
                                              Edgefield, South Carolina 29824

         (b)      To Bank:                    NationsBank, N.A.
                                              1901 Main Street
                                              Columbia, South Carolina 29222

                                              Location Code:  SC 3 240-03-07
                                              Attention:  Mary H. "Mze" Wilkins

The same shall be deemed to be  delivered  as of the time of personal  delivery,
the time stated on the telegram,  or the third (3rd)  business day after the day
of deposit thereof in the U.S. Mail Depository.

         10.6. Waiver and Release by Borrowers.  To the maximum extent permitted
by  applicable  Laws,  Borrowers  (a) waive in  addition  to any other  items or
matters waived herein: (i) all notices of any kind connected with any commercial
paper at any  time  held by Bank on which  any of the  Borrowers  are in any way
liable; and (ii) notice or opportunity to be heard, after acceleration  pursuant
to section 9.2 hereof,  before  Bank's  exercise of any  remedies of  self-help,
set-off or any other summary  procedures  permitted by any applicable Laws or by
any agreement with any of the Borrowers, and, except where required hereby or by
any applicable  Laws,  notice of any other action taken by Bank; and (b) release
Bank and its officers,  directors,  agents,  attorneys,  servants, and employees
from all claims of loss or damage  caused by any act or  omission on the part of
any of them except willful misconduct.

         10.7.  Participation.  Notwithstanding any other provision hereof, Bank
may at any time enter into one or more agreements with one or more  participants
whereby  Bank agrees to allocate a certain  percentage  or Dollar  amount of the
Loans to them.  Borrowers  acknowledge that, for the convenience of all parties,
this  Agreement  is being  entered  into  with  Bank  only  and that  Borrowers'
obligations  hereunder are  undertaken  for the benefit of, and as an inducement
to, any such participant as well as Bank.  Borrowers,  hereby grant to each such
participant,  to the  extent of its  participation  in the  Loans,  the right to
set-off in accordance with applicable Laws deposit  accounts  maintained by them
with such participant.  Borrowers hereby consent to the delivery by Bank, to any
such  participant or prospective  participant,  of any  information and document
submitted by or on behalf of either or both of them to Bank under this Agreement
or otherwise in connection  with the Loans.  For all purposes where  applicable,
any reference to Bank in this Agreement shall include any such  participant,  to
the extent of its participation in the Loan.

         10.8.  Governing  Law.  This  Agreement,  and all  other  documents  in
connection  therewith  shall be governed by and construed in accordance with the
Laws of the State of South Carolina.

         10.9.  Amendment  Agreement.  This  Agreement  may be  amended  only in
writing signed by, at least,  the party against whom such amendment is sought to
be enforced.  This Agreement,  and the documents executed and delivered pursuant
hereto, constitute the entire agreement between the parties.

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<PAGE>

         10.10.  Assignment.  Borrowers  may not  assign  any of  their  rights,
duties, or obligations hereunder without Bank's prior written consent.

         10.11. Benefit; Binding. This Agreement shall be binding upon and inure
to the benefit of the parties hereto,  their respective  successors,  authorized
assigns, and legal representatives.

         10.12.  Severability.  If any provision of this Agreement shall be held
to be invalid under any applicable  Laws, such  invalidity  shall not affect any
other  provision  hereof that can be given effect without the invalid  provision
and, to this end, the provisions hereof are severable.

         10.13.  Counterparts.  This  Agreement  may  be  executed  in  multiple
counterparts,  each of which shall constitute an original and all of which shall
constitute a single instrument.

         10.14  Entire  Agreement.  This  Agreement,   including  all  exhibits,
schedules and other  documents  attached to this  Agreement or  incorporated  by
reference,  constitute  the entire  agreement of the parties with respect to the
subject matter of this Agreement and supersede all other understandings, oral or
written, with respect to the subject matter of this Agreement.

         10.15  Arbitration.  ANY  CONTROVERSY  OR CLAIM BETWEEN THE BANK OR THE
BORROWERS  INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT,  SHALL BE DETERMINED BY BINDING  ARBITRATION IN
ACCORDANCE  WITH  THE  FEDERAL  ARBITRATION  ACT  (OR  IF  NOT  APPLICABLE,  THE
APPLICABLE  STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE  ARBITRATION
OF COMMERCIAL  DISPUTES OF JUDICIAL  ARBITRATION  AND MEDIATION  SERVICES,  INC.
(J.A.M.S.),  AND THE  "SPECIAL  RULES"  SET  FORTH  BELOW.  IN THE  EVENT OR ANY
INCONSISTENCY,  THE SPECIAL RULES SHALL CONTROL.  JUDGMENT UPON ANY  ARBITRATION
AWARD  MAY BE  ENTERED  IN ANY  COURT  HAVING  JURISDICTION.  ANY  PARTY TO THIS
AGREEMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,  TO
COMPEL  ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT  APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.

         A. SPECIAL  RULES.  THE  ARBITRATION  SHALL BE CONDUCTED IN THE CITY OF
COLUMBIA,  SOUTH  CAROLINA  AND  ADMINISTERED  BY J.A.M.S.  WHO WILL  APPOINT AN
ARBITRATOR;  IF J.A.M.S.  IS UNABLE OR LEGALLY PRECLUDED FROM  ADMINISTERING THE
ARBITRATION,   THEN  THE  AMERICAN  ARBITRATION   ASSOCIATION  WILL  SERVE.  ALL
ARBITRATION  HEARINGS  WILL  BE  COMMENCED  WITHIN  90 DAYS  OF THE  DEMAND  FOR
ARBITRATION;  FURTHER,  THE ARBITRATOR  SHALL ONLY,  UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE  COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.

         B. RESERVATION OF RIGHTS.  NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE  APPLICABLE  STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS  CONTAINED IN THIS AGREEMENT;  (II) BE A WAIVER BY THE
BANK  OF  THE  PROTECTION  AFFORDED  TO IT  BY  12  U.S.C.  SECTION  91  OR  ANY
SUBSTANTIALLY  EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP  REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF;  (B) TO
FORECLOSE  AGAINST ANY REAL OR PERSONAL  PROPERTY  COLLATERAL;  OR (C) TO OBTAIN
FROM A COURT  PROVISIONAL  OR  ANCILLARY  REMEDIES  SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE  RELIEF OR THE APPOINTMENT OF A RECEIVER.  THE BANK MAY EXERCISE SUCH
SELF HELP RIGHTS,  FORECLOSURE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY  REMEDIES  BEFORE,  DURING OR AFTER THE  PENDENCY  OR ANY  ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.

         10.16 Amendment and  Restatement.  It is the intent of the parties that
this  Agreement  constitutes  a  modification  and  restatement  of a prior loan
agreement  and  under  no  circumstances  shall  constitute  a  novation  of the
Revolving  Credit  Loan or the Term  Loan.  All Loan  Documents,  including  all
Mortgages  and Security  Agreements,  are  modified as  necessary  such that the
Collateral  securing  the  Obligations  shall  secure and continue to secure the
Obligations  (including all obligations  under the 1997 Term Loan) and the liens
in  favor of Bank on such  Collateral  will  maintain  the  priority  originally
granted.



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         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed and  delivered  to be  effective  as of the day and year first  written
above.

                                           BORROWERS:

                                           MARTIN COLOR-FI, INC.         (SEAL)
                                           STAR FIBERS CORP.             (SEAL)
                                           CUSTOM COLORANTS, INC.        (SEAL)
                                           BUCHANAN INDUSTRIES, INC.     (SEAL)
                                           PALMETTO SPINNING CORPORATION (SEAL)

                                           BANK:

                                           NATIONSBANK, N. A.            (SEAL)



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                         LIST OF EXHIBITS AND SCHEDULES

EXHIBIT 2-2       -        Form of Collateral Certificate
EXHIBIT 2-3       -        Form of Monthly Borrowing Base Certificate
Schedule 6-1(a)   -        List of Jurisdictions
Schedule 6-1(h)   -        List of Indebtedness
Schedule 6-1(s)   -        List of Collateral Locations
Schedule 6-1(t)   -        List of Trade Names


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