EXHIBIT 10.32







                           SECOND AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

                Executed to be effective as of December 16, 1996
                                 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.



















                    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

                                       55
<PAGE>
                                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..................11
         2.2.     Disbursements of the Revolving Credit Loan..................12
         2.3.     The Revolving Credit Note...................................12
         2.4.     Adjustments to Revolving Credit Loan Amount.................12
         2.5.     Margin Requirements under the Revolving Credit Loan.........12
         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.................................13
         2.9.     Account Warranties..........................................13
         2.10.    Lock Box/Collateral Account.................................14
         2.11.    Documentation and Security for Revolving Credit Loan........14
         2.12.    Disbursement to MCF.........................................14
         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.....................................................15

4.       CONDITIONS FOR DISBURSEMENTS AND OTHER AGREEMENTS

         4.1.     Conditions Precedent to Disbursements.......................15

                  4.1.1.   Loan Documents.....................................16
                  4.1.2.   Lessor's Waivers/Mortgage's Waivers................16
                  4.1.3.   Wachovia Participation.............................16
                  4.1.4.   Authority Documents................................16
                  4.1.5.   Attorney's Opinion.................................16
                  4.1.6.   Miscellaneous......................................16
                  4.1.7.   No Defaults........................................16
                  4.1.8.   Draw Request.......................................17

         4.2.     Payment to Bank.............................................17
         4.3.     Risk of Loss................................................17
                                       1-1
         4.4.     Waivers.....................................................17
         4.5.     Intangible Taxes............................................17

5.       ADDITIONAL COLLATERAL SECURITY

         5.1.     Nature of Collateral........................................17
         5.2.     Rights in Property Held by Bank.............................17
         5.3.     Rights in Property Held by Borrowers........................18
         5.4.     Financing Statements........................................18

                                       56
<PAGE>

6.       REPRESENTATIONS AND WARRANTIES.

         6.1.     Original....................................................18
         6.2.     Survival....................................................23

7.       BORROWERS' COVENANTS

         7.1.     Affirmative Covenants.......................................23
         7.2.     Negative Covenants..........................................27
         7.3.     Agreements, Representations and Covenants
                   of Any Approved Subsidiary.................................29
         7.4.     Additional Covenants........................................29

8.       BANK'S RIGHTS

         8.1      Appraisal...................................................29
         8.2.     Remedies Cumulative; Nonwaiver..............................29
         8.3.     No Liability of Bank........................................29
         8.4.     Environmental Assessments...................................30
         8.5.     Audits......................................................30

9.       DEFAULT.

         9.1.     Events of Default...........................................30
         9.2.     Acceleration................................................32
         9.3.     Remedies after Acceleration.................................32
         9.4.     Remedies Alternative to Acceleration........................33

10.      MISCELLANEOUS

         10.1.    Construction................................................33
         10.2.    Further Assurances..........................................33
         10.3.    Enforcement and Waiver......................................33
         10.4.    Bank's Expenses.............................................34
         10.5.    Notices.....................................................34
         10.6.    Waiver and Release by Borrowers.............................34
         10.7.    Participation...............................................34


                                       57

<PAGE>



                                       1-2
         10.8.    Governing Law...............................................35
         10.9.    Amendment Agreement.........................................35
         10.10.   Assignment..................................................35
         10.11.   Benefit; Binding............................................35
         10.12.   Severability................................................35
         10.13.   Counterparts................................................35
         10.14.   Entire Agreement............................................35
         10.15.   Arbitration.................................................35
         10.16.   Amendment and Restatement...................................36

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

                                1-3


                                       58
<PAGE>
                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

       THIS  SECOND  AMENDED  AND  RESTATED  LOAN AND  SECURITY  AGREEMENT  (the
"Agreement")  made and entered to be  effective as of this 16th day of December,
1996 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 to Borrowers
on a  cumulative  line of  credit/term  loan  basis in the  principal  amount of
$36,310,000.00,  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. Bank has  agreed to  continue  to extend to  Borrowers  the  Revolving
Credit  Loan and the Term Loan  pursuant  to the terms  and  conditions  of this
Agreement.

       D. The Loans (as defined  below) 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.

                                       59
<PAGE>

       NOW, THEREFORE, Borrowers and Bank agree as follows:

I. DEFINITIONS.

       1.1.   DEFINED TERMS. As used herein:

         "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.

       "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.

                                       60

<PAGE>

       "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.

                                       61

<PAGE>

       "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

                                       62
<PAGE>

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.

       "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.

                                       63

<PAGE>

       "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.

       "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.


                                       64

<PAGE>

       "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 content requires, to the Revolving Credit and the 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.

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

                                       65

<PAGE>

       "Notes" shall mean and refer to, collectively, the Revolving Credit Note,
the Term Note, the 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
satisfy all of its other  obligations  to Bank whether  hereunder or  otherwise,
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  as of  the  Closing  Date  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.

       "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

                                      66

<PAGE>

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 Loans
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
the Closing Date 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.

                                       67
<PAGE>

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

       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.

II.      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.

                                       68

<PAGE>

       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.

       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.

                                       69

<PAGE>

       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 any  December  16,  1996 and ending on
January 31, 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.  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


                                       70
<PAGE>

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
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.

                                       71
<PAGE>

       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.

       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
$28,150,100.00.

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.

                                       72
<PAGE>

       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.

       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.


                                       73
<PAGE>

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.

       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.

                                       74
<PAGE>

       (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.

       (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.

                                       75
<PAGE>

       (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
              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,


                                       76
<PAGE>

              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.

       (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.

                                       77
<PAGE>

       (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;

       (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;

                                       78
<PAGE>

       (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,  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;

                                       79
<PAGE>

       (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 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;

                                       80
<PAGE>

       (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.

       (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;

                                       81
<PAGE>

       (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)
              6,7000,000 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;

       (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.

                                       82
<PAGE>

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.

       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;

                                       83
<PAGE>

       (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;

       (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


                                       84
<PAGE>

              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
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.

                                       85
<PAGE>

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.

       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.

                                       86
<PAGE>

       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.

       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.



                                       87
<PAGE>

       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 Loans.
All Loan  Documents,  including  all  Mortgages  and  Security  Agreements,  are
modified as necessary such that the Collateral  securing the  Obligations  shall
continue  to  secure  the  Obligations  and the  liens  in favor of Bank on such
Collateral will maintain the priority originally granted.

       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
                                               BANK:
                                               NATIONSBANK, N. A. (SEAL)



                                       88
<PAGE>

                         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

                                       89