10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2001                       

                                       OR
[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

For the transition period from                      to                     
Commission file number   0 -19703          

                               Farrel Corporation                        
             (Exact name of registrant as specified in its charter)

           Delaware                                         22-2689245          

(State or other jurisdiction of                  (I.R.S. Employer
 incorporation or organization)                   Identification No.)

                   25 Main Street, Ansonia, Connecticut, 06401
               (Address of principal executive offices) (Zip Code)

                                 (203) 736-5500
              (Registrant's telephone number, including area code)


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

Yes         No     
                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

          CLASS                          OUTSTANDING AT AUGUST 10, 2001

    Common Stock (Voting), $.01 par value                5,228,461



                               Farrel Corporation


                                      Index

                                                                          Page

Part I.  Financial Information

              Consolidated Balance Sheets -
              July 1, 2001 and December 31, 2000                            3

              Consolidated Statements of Operations -
              Three and six months ended July 1, 2001
              and July 2, 2000                                              4

              Consolidated Statements of Cash Flows -
              Six months ended July 1, 2001
              and July 2, 2000                                              5

              Notes to Consolidated Financial Statements                    6

              Management's Discussion and Analysis of Financial
              Condition and Results of Operations                           8



Part II.      Other Information                                            12

              Exhibit 11 - Computation of Earnings Per Share               13


                                  Page 2 of 14



                         Part I - Financial Information
                               FARREL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
                                                                                                      July 1,   December 31,
                                                                                                       2001         2000
ASSETS                                                                                             (Unaudited)
           Current Assets:
                 Cash and cash equivalents ......................................................    $  4,559     $  2,486
                 Accounts receivable, net of allowance for
                    doubtful accounts of  $98 and $139, respectively ............................       6,262       13,607
                 Inventory ......................................................................      14,187       12,411
                 Deferred income taxes ..........................................................         793          793
                 Other current assets ...........................................................       1,635        1,284
                                                                                                     --------     --------
                               Total current assets .............................................      27,436       30,581
                 Property, plant and equipment - net of accumulated
                    depreciation of  $14,510 and $14,037, respectively ..........................       8,578        9,538
                 Prepaid pension costs ..........................................................       3,589        3,514
                 Other assets ...................................................................         212          299
                                                                                                     --------     --------
                 Total Assets ...................................................................    $ 39,815     $ 43,932
                                                                                                     ========     ========
LIABILITIES & STOCKHOLDERS' EQUITY
           Current Liabilities:
                 Accounts payable ...............................................................    $  5,606     $  6,400
                 Accrued expenses & taxes payable ...............................................         870        1,660
                 Advances from customers ........................................................       5,746        5,948
                 Accrued warranty costs .........................................................         834        1,075
                 Short — term debt ..............................................................         661        1,194
                                                                                                     --------     --------
                                Total current liabilities .......................................      13,717       16,277
           Long — term debt .....................................................................       1,320        1,194
           Postretirement benefit obligation ....................................................       1,097        1,118
           Deferred income taxes ................................................................       1,391        1,380
           Commitments and contingencies ........................................................        --           --
                                                                                                     --------     --------
                                Total Liabilities ...............................................      17,525       19,969
                                                                                                     --------     --------
           Stockholders' Equity:
                 Preferred stock, par value $100, 1,000,000
                      shares authorized, no shares issued
                 Common stock, par value $.01,
                      10,000,000 shares authorized,
                      6,142,106 shares issued ...................................................          61           61
                 Paid in capital ................................................................      19,295       19,295
                 Treasury stock, 913,645 shares at
                    July 1, 2001 and 912,045 shares at December 31, 2000 ........................      (2,534)      (2,529)
                 Retained earnings ..............................................................       7,150        8,330
                 Accumulated other comprehensive expense ........................................      (1,682)      (1,194)
                                                                                                     --------     --------
                                Total Stockholders' Equity ......................................      22,290       23,963
                                                                                                     --------     --------
           Total Liabilities and Stockholders’ Equity ...........................................    $ 39,815     $ 43,932
                                                                                                     ========     ========
           See Accompanying Notes to Consolidated Financial Statements


                                  Page 3 of 14



                               FARREL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share and share data)

                                                  Three Months Ended               Six Months Ended
                                                July 1,         July 2,         July 1,         July 2,
                                                 2001            2000            2001            2000
                                                     (Unaudited)                     (Unaudited)
Net sales ...............................    $    12,355     $    15,270     $    23,435     $    26,825

Cost of sales ...........................          9,937          11,273          18,545          20,751
                                             -----------     -----------     -----------     -----------

Gross margin ............................          2,418           3,997           4,890           6,074

Operating expenses:

    Selling .............................          1,260           1,912           2,562           3,499

    General & administrative ............          1,611           1,939           3,322           4,071

    Research & development ..............            376             412             820             849
                                             -----------     -----------     -----------     -----------

Total operating expenses ................          3,247           4,263           6,704           8,419
                                             -----------     -----------     -----------     -----------

Operating  loss .........................           (829)           (266)         (1,814)         (2,345)

Interest income .........................             36              63              88             148

Interest expense ........................            (36)            (72)            (78)           (144)

Other income (expense), net .............            (68)             44             (49)            (56)
                                             -----------     -----------     -----------     -----------

Loss before income taxes ................           (897)           (231)         (1,853)         (2,397)

Benefit for income taxes ................           (324)            (99)           (673)           (785)
                                             -----------     -----------     -----------     -----------

Net loss ................................    $      (573)    $      (132)    $    (1,180)    $    (1,612)
                                             ===========     ===========     ===========     ===========

Per share data:

Basic and Diluted loss per
  common share ..........................    $     (0.11)    $     (0.03)    $     (0.23)    $     (0.31)
                                             ===========     ===========     ===========     ===========
Average shares outstanding:
  Basic .................................      5,228,563       5,250,061       5,229,251       5,250,061
                                             ===========     ===========     ===========     ===========
  Diluted ...............................      5,228,563       5,250,061       5,229,251       5,250,061
                                             ===========     ===========     ===========     ===========
  Dividends per share ...................    $      0.00     $      0.04     $      0.00     $      0.08
                                             ===========     ===========     ===========     ===========
           See Accompanying Notes to Consolidated Financial Statements


                                  Page 4 of 14



                               FARREL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                                                                Six Months Ended
                                                                                July 1,    July 2,
                                                                                 2001       2000
                                                                             (Unaudited) (Unaudited)
Cash flows from operating activities:
  Net loss ................................................................   $(1,180)    $(1,612)
  Adjustments to reconcile net loss to net
  cash provided by (used in) operating activities:
    Gain on disposal of fixed assets ......................................      (152)       --
    Depreciation and amortization .........................................       859       1,037
    Decrease  in accounts receivable ......................................     7,099       4,003
    (Increase) in inventory ...............................................    (2,088)     (6,078)
    (Increase) in prepaid pension costs ...................................      (227)       (621)
    (Decrease) in accounts payable ........................................      (625)       (934)
    (Decrease) increase  in customer advances .............................        (2)      3,793
    (Decrease) in accrued expenses & taxes ................................      (913)     (1,036)
    Increase (decrease) in accrued warranty costs .........................      (221)         20
    Increase (decrease) in deferred income taxes ..........................        71         (49)
    (Increase) decrease in other ..........................................      (264)        245
                                                                              -------     -------
    Total adjustments .....................................................     3,537         380
                                                                              -------     -------
    Net cash (used in) provided by operating activities ...................     2,357      (1,232)
                                                                              -------     -------
Cash flows from investing activities:
    Proceeds from disposal of fixed assets ................................       374        --
    Purchases of property, plant and equipment ............................      (290)       (306)
                                                                              -------     -------
    Net cash (used in) provided by investing activities ...................        84        (306)
Cash flows from financing activities:
    Repayment of long-term borrowings .....................................    (2,264)       (629)
    Bank borrowings .......................................................     1,981        --
    Purchase of treasury stock ............................................        (5)       --
    Dividends paid ........................................................      --          (420)
                                                                              -------     -------
    Net cash (used in) financing activities ...............................      (288)     (1,049)
Effect of foreign currency exchange rate changes on cash ..................       (80)       (199)
                                                                              -------     -------
Net increase (decrease) in cash and cash equivalents ......................     2,073      (2,786)
    Cash and cash equivalents — Beginning of period .......................     2,486       6,069
                                                                              -------     -------
    Cash and cash equivalents — End of period .............................   $ 4,559     $ 3,283
                                                                              =======     =======
Income taxes paid .........................................................   $    32     $    82
                                                                              =======     =======
Interest paid .............................................................   $    77     $   139
                                                                              =======     =======
           See Accompanying Notes to Consolidated Financial Statements


                                  Page 5 of 14



                               Farrel Corporation
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

Note 1 - Basis of Presentation

         In the opinion of management,  the accompanying  unaudited consolidated
financial  statements have been prepared in accordance  with generally  accepted
accounting   principles  for  interim   financial   information   and  with  the
instructions to Form 10-Q and Article 10 of regulation S-X. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments,  consisting only of normal recurring adjustments,  necessary to
present fairly in accordance with generally accepted accounting principles,  the
consolidated   financial  position  of  Farrel  Corporation  ("Farrel"  or  "the
Company") as of July 1, 2001, and the consolidated results of its operations and
its cash  flows for the three  and/or six month  periods  ended July 1, 2001 and
July 2, 2000.  These  results are not  necessarily  indicative  of results to be
expected for the full fiscal year. The statements  should be read in conjunction
with the  financial  statements  and notes  thereto,  included in the  Company’s
Annual Report and Form 10-K for the year ended December 31, 2000.

Note 2 - Inventory

         Inventory is comprised of the following:
                                                        July 1,   December 31,
                                                         2001         2000
                                                           (In thousands)
         Stock and raw materials.................       $ 7,776     $ 7,997
         Work-in process.........................         6,411       4,414
                                                        -------     -------
         Total...................................       $14,187     $12,411
                                                        =======     =======

Note 3 - Comprehensive Income (Expense)

         The components of other comprehensive income (expense) are as follows:

                                                    Three Months Ended     Six Months Ended
                                                     July 1,   July 2,    July 1,    July 2,
                                                      2001      2000       2001       2000
                                                                 (In thousands)

         Net loss ...............................    $ (573)   $ (132)   $(1,180)   $(1,612)
         Foreign currency translation adjustments        (1)     (538)      (488)      (709)
                                                     ------    ------    -------    -------
         Other comprehensive expense ............    $ (574)   $ (670)   $(1,668)   $(2,321)
                                                     ======    ======    =======    =======

         Accumulated  other  comprehensive  expense consists of foreign currency
translation adjustments at July 1, 2001 and December 31, 2000.

Note 4 - Segment Information

         The Company's  operations  are considered  one operating  segment.  The
Company’s  products  consist of new  machines,  aftermarket  and spare parts and
repair  related  services.  The  Company’s  products  and  services  are sold to
commercial   manufacturers   in  the   plastic   and  rubber   industries.   The
manufacturing,   assembly  and  distribution  of  the  Company’s   products  are
essentially the same.


                                  Page 6 of 14



Note 5 - Impact of Recently Issued Accounting Standards

         In June  1998,  the FASB  issued  Statement  No.  133,  Accounting  for
Derivative Instruments and Hedging Activities, which the Company was required to
adopt on January 1, 2001. The Statement  provides a new method of accounting for
derivatives  and  hedges.  The  adoption  of  this  Statement  did  not  have  a
significant effect on the Company’s results of operations or financial position.

         The Company has entered into foreign exchange  forward  contracts which
are  designated  as  fair  value  hedges  of  accounts   receivable  and  future
receivables  related to customer  orders in backlog.  The Company,  from time to
time,  enters into foreign  exchange  forward  contracts  to hedge  certain firm
commitments  which  are  denominated  in  currencies  other  than the  Company’s
operating currencies.

         As of July 1, 2001, all of the Company’s  foreign exchange forward
contracts  were  designated  as fair value  hedges.  There  were no  ineffective
portions,  as defined under FAS133, during the six months ended July 1, 2001. As
such,  there were no charges to the statement of operations  during the three or
six months ended July 1, 2001, related to these contracts.  At July 1, 2001, the
difference  between the spot rate and the contract rate for the foreign exchange
forwards was a net unrealized gain of $114,000.

Note 6 - Restatement of Prior Year Balances

         Prior year  balances  have been restated to reflect the adoption of SEC
Staff Accounting Bulletin 101 (“Revenue Recognition”) and EITF00-10 (“Accounting
for  Shipping  and  Handling  Costs”).  The Company was  required to adopt these
accounting  guidelines  in the fourth  quarter of 2000.  The  adoption  required
restatement of prior periods.

Note 7 - Bank Credit Arrangements

         In June 2001, the Company  entered into a new worldwide  multi-currency
credit  facility  with a major US bank.  This  facility  includes a $10  million
revolving  credit  facility  for direct  borrowings  and letters of credit.  The
facility  contains a  sub-limit  that caps the amount of direct  borrowings  the
Company can make at $5 million.  The revolving  credit facility  expires on June
15, 2003. The facility  contains  limits on direct  borrowings and issuance's of
letters of credit based upon stipulated  percentages of accounts  receivable and
inventory.  The facility  also  contains  covenants  specifying  minimum  and/or
maximum thresholds for operating results, selected financial ratios and backlog.
The agreement contains certain  restrictions on investments,  borrowings and the
sale of assets.  The  Company's  old credit  facility was  terminated  except in
relation to approximately $2.2 million of letters of credit which had previously
been posted under that facility and continue to be  outstanding on July 1, 2001.
The Company has approximately $900,000 of letters of credit posted under its new
facility on July 1, 2001.

         The  Company  also  entered  into a term  loan for  £1.4  million
(approximately $2 million) as part of this credit facility. The proceeds of this
loan were used to repay an existing  term loan of the same amount.  The new term
loan is repayable in monthly  installments of  £38,888  through June 2004.
The term loan has an intent rate of LIBOR plus 2.7%.


                                  Page 7 of 14



PART I - ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION & RESULTS OF OPERATIONS

Safe Harbor Statements Under Private Securities Litigation Reform Act of 1995

         Certain  statements   contained  in  the  Company’s  public  documents,
including this report and in particular,  in this  “Management’s  Discussion and
Analysis  of  Financial  Condition  and  Results of  Operations”  may be forward
looking  and may be  subject to a variety  of risks and  uncertainties.  Various
factors could cause actual results to differ  materially from these  statements.
These  factors  include,   but  are  not  limited  to,  pricing  pressures  from
competitors and/or customers;  continued  economic and political  uncertainty in
certain of the Company’s markets; the Company’s ability to maintain and increase
gross margin  levels;  the  Company’s  ability to generate  positive  cash flow;
changes  in  business  conditions,  in  general,  and,  in  particular,  in  the
businesses of the Company’s  customers and competitors;  and other factors which
might  be  described  from  time to  time  in the  Company’s  filings  with  the
Securities and Exchange Commission.

Results of Operations

Six  Months Ended July 1, 2001 Compared To The Six Months Ended July 2, 2000

         Net sales for the six month  period  ended  July 1,  2001,  were  $23.4
million compared to $26.8 million for the six month period ended July 2, 2000, a
decrease of $3.4  million.  The decrease is primarily a result of lower sales in
North  America of $6.8  million  partially  offset by an increase in new machine
sales in Europe.  The timing of the Company’s  sales,  particularly new machines
sales, is highly dependent on when an order is received, the amount of lead time
from  receipt of order to  delivery  and  specific  customer  requirements.  The
Company  operates  in markets  which are  extremely  competitive  with  cyclical
demand.  Many of the Company’s  customers and markets  operate at less than full
capacity and certain remain  particularly  competitive  and are subject to local
economic events.

         Orders received for the six month period ended July 1, 2001, were $23.0
million  compared to $33.7  million for the six month period ended July 2, 2000.
The decline in incoming  orders is due to weak  market  conditions  faced by the
Company.

         The Company’s  products are  primarily  supplied to  manufacturers  and
represent capital commitments for new plants, expansion or modernization. In the
case of major  equipment  orders,  up to 12 months are  required to complete the
manufacturing  process.  Accordingly,  revenues  reported  in the  statement  of
operations  may  represent  orders  received in the current or previous  periods
during which time economic conditions in various geographic markets of the world
impact the Company’s  level of order intake.  Many of the Company’s  traditional
customers and markets are operating with excess  capacity  thereby  reducing the
number of  projects  for plant  expansion  and  modernization.  The  Company  is
experiencing  increased pricing pressures from competitors in an overall smaller
market. In addition,  since its inception,  the decline in the value of the Euro
versus  the U.S.  dollar  and  British  pound  sterling  has  increased  pricing
pressures.  Over the longer term,  these  conditions  are  resulting in customer
orders with lower margins and lost  business.  Further,  the cyclical  nature of
industry  demand  and,  therefore,  the  timing of order  intake  may effect the
Company’s quarterly results of operations. The Company’s ability to maintain and
increase net sales depends upon a  strengthening  and stability in the Company’s
traditional  markets and its ability to control costs to effectively  compete in
its current markets.  There can be no assurance that the current level of orders
will continue,  that market  conditions will not worsen, or that improvements in
the  Company’s  traditional  markets  will  lead  to  increased  orders  for the
Company’s products.

         The level of backlog considered firm by management at July 1, 2001, was
$27.4 million  compared to $27.7 million at December 31, 2000, and $35.1 million
at July 2, 2000.


                                  Page 8 of 14



         Gross  margin for the six month  period  ended  July 1, 2001,  was $4.9
million  compared to $6.1 million for the six month period ended July 2, 2000, a
decrease of $1.2  million.  The  decrease  in gross  margin is a result of lower
sales.  The gross  margin as a percent of sales for the six month  period  ended
July 1, 2001, was 20.9% compared to 22.6% for the six month period ended July 2,
2000.  The decrease in gross margin as a percent of sales is primarily  due to a
change in sales mix  resulting  from  increased  new machine sales in Europe and
decreased sales in North America. The European new machine sales generated lower
gross profits  primarily due to pricing  pressures  resulting  from  competitive
market conditions and the relative weakness of the Euro versus the British pound
sterling.

         Operating  expenses for the six month  period ended July 1, 2001,  were
$6.7  million  compared to $8.4  million for the six month  period ended July 2,
2000, a decrease of $1.7 million  primarily due to lower  employee  compensation
and related  expenses of  approximately  $1.1 million,  travel  expenses of $0.3
million and advertising cost of $0.3 million.

         Interest  income  for the six month  period  ended  July 1,  2001,  was
$88,000  compared to $148,000  for the six month  period  ended July 2, 2000,  a
decrease of  $60,000.  The  decrease  is  primarily  due to lower  average  cash
balances available for investing and lower interest rates.

         Interest  expense  for the six month  period  ended July 1,  2001,  was
$78,000  compared to $144,000  for the six month  period  ended July 2, 2000,  a
decrease of $66,000. The decrease is primarily due to lower borrowings.

         The Company  provides for income taxes at the statutory rates in effect
in each tax  jurisdictions  in which  income  is  earned  or  losses  generated,
adjusted for permanent differences in determining income for financial reporting
and income tax purposes. The effective income tax rate was 36% for the six month
period  ended July 2, 2001,  compared to 33% for the six month period ended July
2, 2000.  The  effective  tax rate varies among periods due to the change in the
proportion  and  amount of income  and  losses  generated  in  different  taxing
jurisdictions.

 Three Months Ended July 1, 2001 Compared to The Three Months Ended July 2, 2000

         Net sales for the three months ended July 2, 2001,  were $12.4  million
compared  to $15.3  million  for the three month  period  ended July 2, 2000,  a
decrease of $2.9  million.  The decrease is primarily a result of lower sales in
North  America of $6.6  million  partially  offset by an increase in new machine
sales in Europe.

         Orders  received for the three month  period  ended July 1, 2001,  were
$13.4 million compared to $22.7 million for the three month period ended July 2,
2000.

         The Company’s  sales,  orders and backlog  levels varied when comparing
the two  quarters  due to market  conditions  and the nature of the  industry in
which the Company  operates as more fully discussed in the results of operations
for the six month period on page 8.

         Gross margin for the three month  period  ended July 1, 2001,  was $2.4
million  compared to $4.0 million for the three month period ended July 2, 2000,
a decrease of $1.6  million.  The  decrease in gross margin is a result of lower
sales.  The gross  margin as a percent of sales for the three month period ended
July 1, 2001,  was 19.6% compared to 26.2% for the three month period ended July
2, 2000. The decrease in the gross margin as a percent of sales is primarily due
to a change in sales mix  resulting  from  increased new machine sales in Europe
and decreased  sales in North America.  The European new machine sales generated
lower  gross  profits  primarily  due  to  pricing   pressures   resulting  from
competitive  market  conditions and the relative weakness of the Euro versus the
British pound sterling.

         Operating  expenses for the three month period ended July 2, 2001, were
$3.2  million  compared to $4.3 million for the three month period ended July 2,
2000,  a decrease  of $1.0  primarily  due to lower  employee  compensation  and
benefit  costs of  approximately  $0.6  million,  and lower travel  expenses and
advertising costs.


                                  Page 9 of 14



         Interest  income for the three  month  period  ended July 2, 2001,  was
$36,000 compared  to $63,000 for the three  month  period  ended July 1, 2000, a
decrease of $27,000. The decrease is primarily due to lower interest rates.

         Interest  expense for the three month periods  ended July 1, 2001,  and
July 2, 2000, was $36,000 and $72,000,  respectively.  The decrease is primarily
due to lower borrowings.

         The Company  provides for income taxes at the statutory rates in effect
in each tax  jurisdiction  in which  income is earned or losses  are  generated,
adjusted for permanent differences in determining income for financial reporting
and income tax  purposes.  The  effective  income tax rate was 36% for the three
month  periods  ended July 1, 2001,  compared to 43% for the three  months ended
July 2, 2000.  The  effective tax rate varies among periods due to the change in
the  proportion  and amount of income  and losses  generated  in  different  tax
jurisdictions.

Material Contingencies

         In February  1995, the Company and Black & Decker  Corporation  (“Black
and  Decker”)  entered  into a  Settlement  Agreement  pursuant to which Black &
Decker  agreed  to  assume  full   responsibility   for  the  investigation  and
remediation of any pre-May 12, 1986 environmental contamination at the Company’s
Ansonia  and Derby,  Connecticut  facilities,  as  required  by the  Connecticut
Department of  Environmental  Protection  (“DEP”).  A preliminary  environmental
assessment of the Company’s  properties  in Ansonia and Derby,  Connecticut  has
been  conducted  by Black &  Decker.  Although  the  assessment  is still  being
evaluated by the DEP, on the basis of the  preliminary  data now available there
is no reason to believe that any remediation  activities which might be required
as a result of the findings of the assessment  will have a material  effect upon
the capital  expenditures,  results of operations or the competitive position of
the Company.

Liquidity and Capital Resources; Capital Expenditures

         Working  capital  and the  working  capital  ratio at July 1, 2001 were
$13.7 million and 2.0 to 1, respectively, compared to $14.3 million and 1.9 to 1
at December  31, 2000,  respectively.  During the six months ended July 1, 2001,
the Company paid no dividends.

         Due to the nature of the Company's business,  many sales are of a large
dollar  amount.  Consequently,  the timing of recording such sales may cause the
balances in accounts  receivable  and/or  inventory  to  fluctuate  dramatically
between quarters and may result in significant  fluctuations in cash provided by
operations.  Historically,  the Company has not experienced significant problems
regarding the collection of accounts receivable.  The Company has also generally
financed its operations  with cash generated by  operations,  progress  payments
from  customers  and  borrowings  under its bank credit  facilities.  Management
anticipates  that its cash balances,  operating cash flows and available  credit
line will be  adequate  to fund  anticipated  capital  commitments  and  working
capital  requirements  for at least the next twelve  months.  The  Company  made
capital expenditures of $290,000 and $306,000 during the six month periods ended
July 1, 2001 and July 2, 2000, respectively.

         In June 2001, the Company  entered into a new worldwide  multi-currency
credit  facility  with a major US bank.  This  facility  includes a $10  million
revolving  credit  facility  for direct  borrowings  and letters of credit.  The
facility  contains a  sub-limit  that caps the amount of direct  borrowings  the
Company can make at $5 million.  The revolving  credit facility  expires on June
15, 2003. The facility  contains  limits on direct  borrowings and issuance's of
letters of credit based upon stipulated  percentages of accounts  receivable and
inventory.  The facility  also  contains  covenants  specifying  minimum  and/or
maximum thresholds for operating results, selected financial ratios and backlog.
The agreement contains certain  restrictions on investments,  borrowings and the
sale of assets.  Dividend declarations or payments are allowed under this credit
facility as long as there exists  under the credit  facility no Event of Default
(as defined in the credit facility) or no condition which, upon giving of notice
or lapse of time or both,  would become an Event of Default.  The  Company's old
credit facility was terminated except in relation to approximately  $2.2 million
of letters of credit which had  previously  been posted under that  facility and
continue to be


                                 Page 10 of 14



outstanding on July 1, 2001. The Company has  approximately  $900,000 of letters
of credit posted under its new facility on July 1, 2001.

         The  Company  also  entered  into a term  loan for  £1.4  million
(approximately $2 million) as part of this credit facility. The proceeds of this
loan were used to repay an existing  term loan of the same amount.  The new term
loan is repayable in monthly  installments of  £38,888  through July 2004.
The term  loan has an  interest  rate of LIBOR  plus  2.7%.  At July 1, 2001 and
December  31,  2000,  there were $2.0  million and $2.4  million,  respectively,
outstanding under a term loan.

Impact of Recently Issued Accounting Standards

         In June  1998,  the FASB  issued  Statement  No.  133,  Accounting  for
Derivative Instruments and Hedging Activities, which the Company was required to
adopt on January 1, 2001. The Statement  provides a new method of accounting for
derivatives  and  hedges.  The  adoption  of  this  Statement  did  not  have  a
significant effect on the Company’s results of operations or financial position.

Item 2 - Quantitative and Qualitative Disclosures About Market Risk

         The Company is exposed to market risk from changes in foreign  currency
and interest rates. The Company manufactures many of its products and components
in the  United  Kingdom  and  purchases  many  components  in  foreign  markets.
Approximately  50% of the Company's  revenue is generated from foreign  markets.
The Company  manages its risk to foreign  currency  rate changes by  maintaining
foreign  currency bank  accounts in  currencies in which it regularly  transacts
business and the use of foreign exchange forward contracts. The Company does not
enter into derivative contracts for trading or speculative purposes.

         The Company's  cash  equivalents  and  short-term  investments  and its
outstanding debt bear variable  interest rates. The rates are adjusted to market
conditions.  Changes in  the market rate affect  interest earned and paid by the
Company. The Company does not use derivative  instruments to offset the exposure
to changes in interest  rates.  Changes in the interest  rates  related to these
items are not  expected to have a material  impact on the  Company's  results of
operations.


                                 Page 11 of 14



PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS                                                             None

ITEM 2 – CHANGES IN SECURITIES                                                         N/A

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES                                               N/A

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   a) Election of Directors:
      Glenn J. Angiolillo:      votes for 4,997,132, votes withheld 135,325
      Charles S. Jones:         votes for 4,864,937, votes withheld 267,520
      Albert Shaio:             votes for 4,994,965, votes withheld 137,492

   b) Ratification  of the  selection  of  Ernst  &  Young  LLP  as  independent
      accountants for the Company for the fiscal year ending December 31, 2001:

      votes for 5,041,478, votes against 80,727, votes abstained 10,252

ITEM 5 – OTHER INFORMATION                                                             N/A

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 4-A   Amendment to Credit  Agreement  and Waiver for the Amended and
              Restated  Credit  Agreement  between Farrel  Corporation and Chase
              Manhattan Bank Dated January 23, 1998.                                   Attached

Exhibit 4-B   Revolving  and Term Loan Credit Agreement dated June 15, 2001,
              Between  Farrel  Corporation,   Farrel  Limited  and  First  Union
              National Bank.                                                           Attached

Exhibit 4-C   Revolving  Promissory Note dated June 18, 2001, between Farrel
              Corporation,   Farrel  Limited  and  First  Union  National  Bank.       Attached

Exhibit 4-D   Term  Promissory  Noted dated June 18,  2001,  between  Farrel
              Limited and First Union National Bank.                                   Attached

Exhibit 11 (Regulation S-K) Computation of Earnings Per Share.                         Attached

Reports on Form 8-K

     No  Reports  on Form 8-K were filed by the  registrant  during the  periods
covered by this report.


                                 Page 12 of 14



                                                                      Exhibit 11

                               FARREL CORPORATION
                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
                 (In thousands, except per share and share data)

                                                       Three Months Ended            Six Months Ended
                                                      July 1,        July 2,       July 1,        July 2,
                                                       2001           2000          2001           2000

Net loss applicable to common stock ...........    $     (573)    $     (132)    $   (1,180)    $   (1,612)
                                                   ==========     ==========     ==========     ==========
Weighted average number of common
shares outstanding -  Basic earnings per share      5,228,563      5,250,061      5,229,251      5,250,061

Effect of dilutive stock and purchase options             --            --             --             --
                                                   ----------     ----------     ----------     ----------

Weighted average number of common
shares outstanding - Diluted earnings per share     5,228,563      5,250,061      5,229,251      5,250,061
                                                   ==========     ==========     ==========     ==========

Net loss per common
  share — Basic ...............................    $    (0.11)    $    (0.03)    $    (0.23)    $    (0.31)
                                                   ==========     ==========     ==========     ==========
  share — Fully diluted .......................    $    (0.11)    $    (0.03)    $    (0.23)    $    (0.31)
                                                   ==========     ==========     ==========     ==========



                                 Page 13 of 14







                                   SIGNATURES


PURSUANT  TO THE  REQUIREMENTS  OF THE  SECURITIES  EXCHANGE  ACT OF  1934,  THE
REGISTRANT  HAS DULY  CAUSED  THIS  REPORT  TO BE  SIGNED  ON ITS  BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.


                               FARREL CORPORATION
                               REGISTRANT




DATE:      8/13/01                          /s/Rolf K. Liebergesell             
                                            ROLF K. LIEBERGESELL
                                            CHIEF EXECUTIVE OFFICER,
                                            PRESIDENT AND CHAIRMAN OF THE BOARD





DATE:      8/13/01                          /s/Walter C. Lazarcheck             
                                            WALTER C. LAZARCHECK
                                            VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
                                            (CHIEF ACCOUNTING OFFICER)


                                 Page 14 of 14

EX-99

                                                                     Exhibit 4-D

[GRAPHIC OMITTED]


                              TERM PROMISSORY NOTE


£1,400,000.00
                                                                   June 18, 2001

Farrel Limited
25 Main Street
Ansonia, Connecticut  06401
(Individually and collectively "Borrower")

First Union National Bank
300 Main Street
Stamford, Connecticut  06904
(Hereinafter referred to as "Bank")

Borrower  promises  to pay to the  order of Bank,  at its  office  located  at 3
Bishopsgate, London EC2N 3AB, United Kingdom, or wherever else Bank may specify,
the sum of  £1,400,000.00  in lawful  money of the United  Kingdom  and in
immediately  available  funds,  or  such  lesser  sum  as may  be  advanced  and
outstanding  from  time to time,  with  interest  in like  money  on the  unpaid
principal  balance at the rate and on the terms provided in this Promissory Note
(including all renewals, extensions or modifications hereof, this "Note") and in
a certain  Revolving  and Term Loan Credit  Agreement  between Bank and Borrower
dated as of the date  hereof,  as the same may be modified and amended from time
to time (the "Loan Agreement").

INTEREST  RATE.  Interest shall accrue on the unpaid  principal  balance of this
Note from the date  hereof at 1-month  LIBOR  plus the Margin and the  Mandatory
Costs Rate ("Interest Rate"), as determined by Bank prior to the commencement of
each consecutive  interest period of 1 month (each, an "Interest Period") during
the term of the Note; provided,  the first Interest Period shall commence on the
date of this Note and end on the first date  thereafter  that  interest  is due.
Each Interest Rate shall remain in effect for the entire  Interest  Period until
redetermined for the next successive  Interest  Period.  "LIBOR" is the rate for
U.S.  dollar/Sterling  deposits  with a  maturity  equal to the number of months
specified  above,  as reported on  Telerate  page 3750 as of 11:00 a.m.,  London
time,  on the second  London  business day before the relevant  Interest  Period
begins  (or if not so  reported,  then as  determined  by the Bank from  another
recognized source or interbank quotation).

MANDATORY  COSTS RATE means in relation to any Interest  Period or other period,
the cost to the Bank of complying  with all reserve,  special  deposit,  capital
adequacy,  solvency,  liquidity ratios, fees or other requirements of or imposed
by the Bank of England,  the Financial Services Authority,  the European Central
Bank or any  other  governmental  or  regulatory  authority  for the time  being
attributable  to each  Advance or any unpaid sum  (rounded up if  necessary to 4
decimal places) as conclusively determined by the Bank.

MARGIN means 2.70% per annum.

DEFAULT  RATE.  In addition to all other  rights  contained  in this Note,  if a
Default  (as  defined  herein)  occurs and as long as a Default  continues,  all
outstanding  Obligations  shall  bear  interest  at the  Interest  Rate  plus 3%
("Default Rate").  The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.


                                     Page 1



INTEREST AND FEE(S)  COMPUTATION  (ACTUAL/360/and  in the case of Sterling 365).
Interest  and fees,  if any,  shall be computed on the basis of a 360/and in the
case of Sterling  365-day year for the actual  number of days in the  applicable
period  ("Actual/360/and  in  the  case  of  Sterling  365  Computation").   The
Actual/360/and  in the case of Sterling 365  Computation  determines  the annual
effective yield by taking the stated (nominal) rate for a year's period and then
dividing said rate by 360/and in the case of Sterling 365 to determine the daily
periodic rate to be applied for each day in the applicable  period.  Application
of the  Actual/360/and  in the case of  Sterling  365  Computation  produces  an
annualized effective interest rate exceeding the nominal rate.

REPAYMENT  TERMS.  This Note shall be due and payable in  thirty-six  (36) equal
consecutive  monthly  payments of  principal of  £38,888.89,  plus accrued
interest,  commencing on July 18, 2001,  and  continuing on the same day of each
month  thereafter  until fully paid.  In any event,  all  principal  and accrued
interest shall be due and payable on June 18, 2004.

AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT.  Borrower  authorizes Bank
to debit demand deposit  account number  04635036 or any other account with Bank
designated in writing by Borrower,  beginning July 18, 2001 for any payments due
under this Note.  Borrower  further  certifies  that Borrower  holds  legitimate
ownership of this account and  preauthorizes  this periodic debit as part of its
right under said ownership.

APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations  shall be applied to accrued interest and then
to principal.  If a Default occurs,  monies may be applied to the Obligations in
any manner or order deemed appropriate by Bank.

If any  payment  received  by Bank under this Note or other  Loan  Documents  is
rescinded,  avoided or for any reason  returned  by Bank  because of any adverse
claim or threatened  action,  the returned  payment  shall remain  payable as an
obligation  of all persons  liable  under this Note or other Loan  Documents  as
though such payment had not been made.

IF THE UNITED KINGDOM AT ANY TIME PARTICIPATES IN ECONOMIC AND MONETARY UNION
("EMU") IN ACCORDANCE WITH ARTICLE 109J OF THE TREATY, THEN:

any amount  expressed to be payable  under this  Agreement in Sterling  shall be
made in euros; and any amount so required to be paid in euros shall be converted
from Sterling at the rate  stipulated  pursuant to Article 109l(4) of the Treaty
and payment of the amount in euros derived from such conversion  shall discharge
the obligation of the relevant  party to pay such Sterling  Amount in accordance
with, and subject to, the  regulations  made pursuant to Article  109l(4) of the
Treaty.

TREATY means the treaty establishing the European Community, being the Treaty of
Rome of 25th March  1957,  as amended  by the Single  European  Act 1986 and the
Maastricht  Treaty (which was signed at Maastricht on 7th February 1992 and came
into force on 1st November 1993), as further amended from time to time.

STERLING AMOUNT means in relation to any Advance that is or is to be denominated
in Sterling the principal  amount thereof and in relation to any Advance that is
or is to be denominated  in any other currency the principal  amount of Sterling
that would be required to purchase the amount of such  Advance in such  currency
at the Bank's spot rate for the purchase of such  currency  with Sterling in the
London  Interbank  Market at 11am on the third  business day prior to the day on
which such Advance was or, as the case may be, is to be made.

"Sterling" or "£" means the lawful currency of the United Kingdom.

LOAN AGREEMENT; DEFINITIONS. This Note is subject to the terms and conditions of
the Loan  Agreement.  All capitalized  terms not otherwise  defined herein shall
have  such  meaning  as  assigned  to  them  in the  Loan  Agreement.  The  term
"Obligations"  used in this Note  refers to any and all  Indebtedness  and other
obligations  under this Note,  the Revolving  Note between Bank and Borrower and
defined  in the  Loan  Agreement,  all  other  indebtedness  as  defined  in the
respective  Loan  Documents,  and all  obligations  under any swap agreements as
defined in 11 U.S.C. §101 between Bank and Borrower whenever executed.


                                     Page 2



LATE CHARGE.  If any payments  are not timely made,  Borrower  shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.

Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.

ATTORNEYS'  FEES AND OTHER  COLLECTION  COSTS.  Borrower shall pay all of Bank's
reasonable  expenses  incurred  to  enforce or  collect  any of the  Obligations
including, without limitation, reasonable arbitration,  paralegals',  attorneys'
and experts' fees and expenses,  whether  incurred without the commencement of a
suit,  in  any  trial,  arbitration,  or  administrative  proceeding,  or in any
appellate or bankruptcy proceeding.

USURY. If at any time the effective interest rate under this Note would, but for
this  paragraph,  exceed the maximum  lawful rate,  the effective  interest rate
under this Note shall be the maximum  lawful  rate,  and any amount  received by
Bank in excess of such rate shall be applied to  principal  and then to fees and
expenses, or, if no such amounts are owing, returned to Borrower.

DEFAULT. If any Event of Default as defined in the Loan Agreement shall occur, a
default ("Default") under this Note shall exist.

REMEDIES  UPON  DEFAULT.  If a  Default  occurs  under  this  Note  or any  Loan
Documents,  Bank  may  at any  time  thereafter,  take  the  following  actions:
Acceleration  Upon Default.  Accelerate the maturity of this Note and, at Bank's
option,  any or all other  Obligations,  whereupon this Note and the accelerated
Obligations  shall be immediately  due and payable;  provided,  however,  if the
Default is based upon a  bankruptcy  or  insolvency  proceeding  commenced by or
against  Borrower or any  guarantor  or endorser of this Note,  all  Obligations
shall automatically and immediately be due and payable. Cumulative. Exercise any
rights and remedies as provided under the Note and other Loan  Documents,  or as
provided by law or equity.

WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan  Documents  shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same  Default on a future  occasion.  Neither the failure nor any
delay on the part of Bank in exercising any right,  power,  or remedy under this
Note and other Loan  Documents  shall operate as a waiver  thereof,  nor shall a
single or  partial  exercise  thereof  preclude  any other or  further  exercise
thereof or the exercise of any other right, power or remedy.

Each Borrower or any person liable under this Note waives presentment,  protest,
notice of  dishonor,  demand for  payment,  notice of  intention  to  accelerate
maturity,  notice  of  acceleration  of  maturity,  notice of sale and all other
notices of any kind. Further,  each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan  evidenced by this Note for any period,
and  grant  any  releases,  compromises  or  indulgences  with  respect  to  any
collateral  securing  this Note,  or with  respect to any other  Borrower or any
other person liable under this Note or other Loan Documents,  all without notice
to or consent of each  Borrower or each person who may be liable under this Note
or any other Loan  Document and without  affecting  the liability of Borrower or
any person who may be liable under this Note or any other Loan Document.


                                     Page 3



MISCELLANEOUS  PROVISIONS.  Assignment.  This Note and the other Loan  Documents
shall  inure to the  benefit  of and be  binding  upon  the  parties  and  their
respective  heirs,  legal  representatives,   successors  and  assigns.   Bank's
interests in and rights under this Note and the other Loan  Documents are freely
assignable,  in whole or in part, by Bank. In addition,  nothing in this Note or
any of the other Loan  Documents  shall prohibit Bank from pledging or assigning
this Note or any of the other  Loan  Documents  or any  interest  therein to any
Federal  Reserve  Bank.  Borrower  shall not  assign  its  rights  and  interest
hereunder without the prior written consent of Bank, and any attempt by Borrower
to assign without Bank's prior written  consent is null and void. Any assignment
shall not  release  Borrower  from the  Obligations.  Applicable  Law;  Conflict
Between  Documents.  This Note and, unless otherwise  provided in any other Loan
Document,  the other Loan Documents shall be governed by and construed under the
laws of the state named in Bank's  address  shown above  without  regard to that
state's conflict of laws  principles.  If the terms of this Note should conflict
with the  terms of the Loan  Agreement,  the terms of the Loan  Agreement  shall
control.  Jurisdiction.  Borrower  irrevocably agrees to non-exclusive  personal
jurisdiction in the state named in Bank's address shown above. Severability.  If
any provision of this Note or of the other Loan Documents shall be prohibited or
invalid under  applicable  law, such provision  shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such  provision  or the  remaining  provisions  of this  Note or  other  such
document.  Notices.  Any notice or other  communication  hereunder  to any party
hereto shall be by hand delivery,  overnight delivery,  facsimile, or registered
or certified mail and unless  otherwise  provided herein shall be deemed to have
been given or made when  delivered or faxed (and  confirmed)  or as shown on the
receipt for such  registered or certified mail. Any notices to Borrower shall be
sufficiently  given,  if  delivered,  faxed  or  mailed,  as  aforesaid,  to the
Borrower's address shown above or such other address as provided hereunder,  and
to Bank, if delivered,  faxed or mailed, as aforesaid,  to Bank's office address
shown above or such other  address as Bank may  specify in writing  from time to
time. In the event that Borrower changes Borrower's address at any time prior to
the date the  Obligations  are paid in full,  Borrower  agrees to promptly  give
written notice of said change of address by registered or certified mail, return
receipt requested,  all charges prepaid. Plural; Captions. All references in the
Loan  Documents  to  Borrower,  guarantor,  person,  document  or other nouns of
reference  mean both the singular  and plural form,  as the case may be, and the
term  "person"  shall  mean any  individual,  person  or  entity.  The  captions
contained in the Loan Documents are inserted for convenience  only and shall not
affect the meaning or interpretation of the Loan Documents. Use of Proceeds. The
proceeds of the loan(s)  evidenced by this Note shall be used for the commercial
purposes of Borrower.  Advances.  Bank may, in its sole  discretion,  make other
advances which shall be deemed to be advances  under this Note,  even though the
stated  principal  amount  of this  Note may be  exceeded  as a result  thereof.
Posting of Payments.  All payments  received  during normal  banking hours after
2:00 p.m.  local time at the office of Bank first  shown  above  shall be deemed
received at the opening of the next banking day. Fees and Taxes.  Borrower shall
promptly pay all  documentary,  intangible  recordation  and/or similar taxes on
this transaction whether assessed at closing or arising from time to time.


                                     Page 4



ARBITRATION.  Upon  demand of any party  hereto,  whether  made  before or after
institution of any judicial proceeding,  any claim or controversy arising out of
or relating to the Loan Documents  between parties hereto (a "Dispute") shall be
resolved by binding  arbitration  conducted under and governed by the Commercial
Financial Disputes  Arbitration Rules (the "Arbitration  Rules") of the American
Arbitration  Association (the "AAA") and the Federal  Arbitration Act.  Disputes
may include,  without limitation,  tort claims,  counterclaims,  a dispute as to
whether a matter is subject to arbitration,  claims brought as class actions, or
claims arising from documents  executed in the future. A judgment upon the award
may be entered in any court having jurisdiction.  Notwithstanding the foregoing,
this  arbitration  provision does not apply to disputes under or related to swap
agreements.  Special Rules.  All arbitration  hearings shall be conducted in the
city named in the  address of Bank first  stated  above.  A hearing  shall begin
within 90 days of demand for  arbitration and all hearings shall conclude within
120 days of demand for  arbitration.  These time limitations may not be extended
unless a party shows cause for extension and then for no more than a total of 60
days. The expedited  procedures set forth in Rule 51 et seq. of the  Arbitration
Rules  shall be  applicable  to claims of less than  $1,000,000.00.  Arbitrators
shall be licensed  attorneys  selected  from the  Commercial  Financial  Dispute
Arbitration  Panel of the AAA.  The parties do not waive  applicable  Federal or
state substantive law except as provided herein.  Preservation and Limitation of
Remedies.  Notwithstanding  the preceding binding  arbitration  provisions,  the
parties agree to preserve,  without diminution,  certain remedies that any party
may exercise before or after an arbitration  proceeding is brought.  The parties
shall  have the  right to  proceed  in any court of  proper  jurisdiction  or by
self-help to exercise or prosecute the following  remedies,  as applicable:  (i)
obtaining   provisional  or  ancillary  remedies  including  injunctive  relief,
sequestration,  garnishment,  attachment,  appointment of receiver and filing an
involuntary  bankruptcy  proceeding;  and (ii) when  applicable,  a judgment  by
confession  of  judgment.  Any claim or  controversy  with regard to any party's
entitlement  to such  remedies is a Dispute.  Waiver of Exemplary  Damages.  The
parties agree that they shall not have a remedy of punitive or exemplary damages
against  other  parties in any  Dispute  and hereby  waive any right or claim to
punitive or exemplary  damages they have now or which may arise in the future in
connection  with any Dispute  whether the Dispute is resolved by  arbitration or
judicially.  Waiver of Jury Trial.  THE PARTIES  ACKNOWLEDGE THAT BY AGREEING TO
BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY
TRIAL WITH REGARD TO A DISPUTE.

CONNECTICUT  PREJUDGMENT  REMEDY  WAIVER.  EACH BORROWER  ACKNOWLEDGES  THAT THE
TRANSACTIONS  REPRESENTED  BY THIS NOTE ARE COMMERCIAL  TRANSACTIONS  AND HEREBY
VOLUNTARILY  AND  KNOWINGLY  WAIVES  ANY  RIGHTS  TO NOTICE  OF AND  HEARING  ON
PREJUDGMENT  REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT  GENERAL STATUTES OR
OTHER  STATUTES  AFFECTING  PREJUDGMENT  REMEDIES,  AND  AUTHORIZES  THE  BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER,  PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.

IN WITNESS  WHEREOF,  Borrower,  on the day and year first  above  written,  has
caused this Note to be executed under seal.

PLACE OF EXECUTION AND DELIVERY.  Borrower  hereby  certifies that this Note and
the Loan Documents  were executed in the State of  Connecticut  and delivered to
Bank in the State of Connecticut.

                                    Farrel Limited
                                    Taxpayer Identification Number:


                                    By:   /s/ Rolf K Liebergesell      (SEAL)
                                        Rolf K. Liebergesell, Director




                                     Page 5

EX-99

                                                                     Exhibit 4-C

                            REVOLVING PROMISSORY NOTE


$10,000,000.00
                                                                   June 18, 2001

Farrel Corporation
25 Main Street
Ansonia, Connecticut  06401
and
Farrel Limited
25 Main Street
Ansonia, Connecticut  06401
(Individually and collectively "Borrower")

First Union National Bank
300 Main Street
Stamford, Connecticut  06904
(Hereinafter referred to as "Bank")

Borrower  promises to pay to the order of Bank, at its office indicated above or
wherever  else Bank may  specify  to the  Borrower  in  writing,  the sum of Ten
Million and No/100 Dollars ($10,000,000.00) in lawful money of the United States
of America,  the United Kingdom, or in the applicable  Alternative  Currency (as
defined in the Loan  Agreement,  hereafter  defined)  as the case may be, and in
immediately  available  funds,  or  such  lesser  sum  as may  be  advanced  and
outstanding from time to time, with interest on the unpaid principal  balance at
the rate and on the  terms  provided  in this  Promissory  Note  (including  all
renewals,  extensions  or  modifications  hereof,  this "Note") and in a certain
Revolving and Term Loan Credit  Agreement  between Bank and Borrower dated as of
the date hereof,  as the same may be modified and amended from time to time (the
"Loan Agreement").

LIMITATION OF LIABILITY OF FARREL LIMITED. It is expressly understood and agreed
that (a) the  amounts  loaned to Farrel  Corporation  hereunder  are  solely the
obligation of Farrel Corporation and that Farrel Limited shall have no liability
to Bank with respect to such amounts loaned to Farrel  Corporation,  and (b) the
amounts loaned to Farrel Limited hereunder are the joint and several  obligation
of Farrel  Corporation  and  Farrel  Limited,  each  Borrower  hereby  expressly
agreeing that Farrel Corporation shall be fully liable for all amounts loaned by
Bank to Farrel Limited.

INTEREST RATE DEFINITIONS.

LIBOR-Based  Rate means 1-month,  2-month,  3-month,  6-month or 12-month LIBOR.
"LIBOR" is the rate for U.S.  dollar/Sterling  deposits with a maturity equal to
the number of months  specified  above,  as reported on Telerate page 3750 as of
11:00 a.m.,  London time, on the second London  business day before the relevant
Interest  Period begins (or if not so reported,  then as determined by Bank from
another recognized source or interbank quotation).

Prime-Based  Rate.  The rate of Bank's Prime Rate,  as that rate may change from
time to time  with  changes  to occur  on the date  Bank's  Prime  Rate  changes
("Prime-Based  Rate").  "Bank's Prime Rate" shall be that rate announced by Bank
from time to time as its prime  rate and is one of several  interest  rate bases
used by Bank.  Bank lends at rates both above and below Bank's  Prime Rate,  and
Borrower  acknowledges  that Bank's Prime Rate is not represented or intended to
be the lowest or most favorable rate of interest offered by Bank.

Mandatory  Costs Rate means in relation to any Interest  Period or other period,
the cost to the Bank of complying  with all reserve,  special  deposit,  capital
adequacy, solvency, liquidity ratios, fees or other

                                     Page 1



requirements  of or  imposed  by the Bank of  England,  the  Financial  Services
Authority,  the European  Central Bank or any other  governmental  or regulatory
authority  for the time  being  attributable  to each  Advance or any unpaid sum
(rounded up if necessary to 4 decimal places) as conclusively  determined by the
Bank.

Margin  means 2.70% per annum with respect to the  LIBOR-Based  Rate and 0% with
respect to the Prime-Based Rate.

INTEREST RATE SELECTION AND ADJUSTMENT.

Interest Rate Options. At the election of Borrower, the unpaid principal balance
of each  Advance  (as defined  herein)  shall bear  interest  from the date such
Advance  is made  available  to the  Borrower,  at the  LIBOR-Based  Rate or the
Prime-Based  Rate selected by Borrower in  accordance  herewith,  plus:  (i) for
Advances  made in  Dollars,  the  Margin;  or (ii) for  Advances  made in Pounds
Sterling  only,  the Margin plus the  Mandatory  Costs Rate (each,  an "Interest
Rate").  Borrower  shall select the  Interest  Rate and for each  Interest  Rate
except  the  Prime-Based  Rate,  the  period  of time  such  Interest  Rate will
continuously  apply (each, an "Interest  Period")  pursuant to the  subparagraph
entitled "Notice and Manner of Borrowing and Rate Conversion" below. There shall
be no more than one Interest Rate for an Advance in effect at any time.

When the Prime-Based Rate is selected for an Advance, it shall be adjusted daily
as  applicable  to  reflect  Bank's  Prime Rate and the  Prime-Based  Rate shall
continue  to apply  until  another  Interest  Rate  option  for that  Advance is
selected  pursuant to the subparagraph  entitled "Notice and Manner of Borrowing
and Rate Conversion". When the LIBOR-Based Rate is selected for an Advance, such
rate shall be fixed for the Interest Period and shall apply for that Advance for
successive Interest Periods at the then prevailing successive rate until another
Interest Rate option for that Advance is selected  pursuant to the  subparagraph
entitled "Notice and Manner of Borrowing and Rate Conversion."

Interest Periods.  In connection with a LIBOR-Based Rate Advance,  Borrower,  by
giving notice at the times described in the  subparagraph  entitled  "Notice and
Manner of Borrowing and Rate Conversion"  below, shall select an Interest Period
to be applicable thereto,  which Interest Period shall be a period corresponding
to one of the Interest Rate options.  No Interest  Period  selection is required
for a Prime-Based Rate Advance.

Notice and Manner of Borrowing  and Rate  Conversion or  Continuation.  Borrower
shall give Bank irrevocable  telephonic  notice of each proposed Advance or rate
conversion or continuation not later than 11:00 a.m. local time at the office of
Bank first shown above (a) on the same business day as each proposed  Advance or
rate  conversion  or  continuation  to the  Prime-Based  Rate and (b) at least 2
business days before each proposed Advance or rate conversion or continuation to
the  LIBOR-Based  Rate.  Each such  notice  shall  specify  (i) the date of such
Advance or rate conversion or  continuation,  which shall be a business day and,
in the case of a conversion from the LIBOR-Based  Rate Advance,  the last day of
an  Interest  Period,  (ii) the  amount  of each  Advance  or the  amount  to be
converted or continued,  (iii) the Interest Rate selected by Borrower,  and (iv)
except for the Prime-Based  Rate, the duration of any Interest Period applicable
thereto,  which  Interest  Period must  correspond  to one of the Interest  Rate
options.  Notices  received  after  11:00 a.m.  local time at the office of Bank
first shown above shall be deemed received on the next business day.

DEFAULT  RATE.  In addition to all other  rights  contained  in this Note,  if a
Default  (as  defined  herein)  occurs and as long as a Default  continues,  all
outstanding  Obligations  shall  bear  interest  at the  Interest  Rate  plus 3%
("Default Rate").  The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.

INTEREST AND FEE(S)  COMPUTATION  (ACTUAL/360/and  in the case of Sterling 365).
Interest  and fees,  if any,  shall be computed on the basis of a 360/and in the
case of Sterling  365-day year for the actual  number of days in the  applicable
period  ("Actual/360/and  in  the  case  of  Sterling  365  Computation").   The
Actual/360/and  in the case of Sterling 365  Computation  determines  the annual
effective yield by taking the stated (nominal) rate for a year's period and then
dividing said rate by 360/and in the case of Sterling 365 to determine the daily
periodic rate to be applied for each day in the applicable  period.  Application
of the

                                     Page 2



Actual/360/and  in the case of Sterling 365  Computation  produces an annualized
effective interest rate exceeding the nominal rate.

REVOLVING  CREDIT  ADVANCES.   This  is  a  revolving  credit  note.  Until  the
Termination Date of this Note, Borrower may borrow, repay and reborrow, and Bank
may advance and readvance under this Note  respectively  from time to time (each
an "Advance" and together the "Advances"),  subject to the limitations set forth
in the Loan Agreement.

REPAYMENT  TERMS.  This Note  shall be due and  payable in  consecutive  monthly
payments of accrued  interest only,  commencing on July 18, 2001, and continuing
on the same day of each month  thereafter  until fully paid.  In any event,  all
principal and accrued interest shall be due and payable on June 18, 2003.

AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT.  Borrower  authorizes Bank
to debit Farrel  Corporation's  demand deposit  account number 2000006058397 and
Farrel  Limited's  demand deposit  account number  04635036 or any other account
with Bank  designated  in writing by Borrower,  beginning  July 18, 2001 for any
payments due under this Note.  Borrower  further  certifies  that Borrower holds
legitimate  ownership of this account and  preauthorizes  this periodic debit as
part of its right under said ownership.

APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations  shall be applied to accrued interest and then
to principal.  If a Default occurs,  monies may be applied to the Obligations in
any manner or order deemed appropriate by Bank.

If any  payment  received  by Bank under this Note or other  Loan  Documents  is
rescinded,  avoided or for any reason  returned  by Bank  because of any adverse
claim or threatened  action,  the returned  payment  shall remain  payable as an
obligation  of all persons  liable  under this Note or other Loan  Documents  as
though such payment had not been made.

IF THE UNITED  KINGDOM AT ANY TIME  PARTICIPATES  IN ECONOMIC AND MONETARY UNION
("EMU") IN ACCORDANCE WITH ARTICLE 109J OF THE TREATY, THEN:

any amount  expressed to be payable  under this  Agreement in Sterling  shall be
made in euros; and any amount so required to be paid in euros shall be converted
from Sterling at the rate  stipulated  pursuant to Article 109l(4) of the Treaty
and payment of the amount in euros derived from such conversion  shall discharge
the obligation of the relevant  party to pay such Sterling  Amount in accordance
with, and subject to, the  regulations  made pursuant to Article  109l(4) of the
Treaty.

TREATY means the treaty establishing the European Community, being the Treaty of
Rome of 25th March  1957,  as amended  by the Single  European  Act 1986 and the
Maastricht  Treaty (which was signed at Maastricht on 7th February 1992 and came
into force on 1st November 1993), as further amended from time to time.

STERLING AMOUNT means in relation to any Advance that is or is to be denominated
in Sterling the principal  amount thereof and in relation to any Advance that is
or is to be denominated  in any other currency the principal  amount of Sterling
that would be required to purchase the amount of such  Advance in such  currency
at the Bank's spot rate for the purchase of such  currency  with Sterling in the
London  Interbank  Market at 11am on the third  business day prior to the day on
which such Advance was or, as the case may be, is to be made.

"Sterling" or "£" means the lawful currency of the United Kingdom.

LOAN AGREEMENT; DEFINITIONS. This Note is subject to the terms and conditions of
the Loan  Agreement.  All capitalized  terms not otherwise  defined herein shall
have  such  meaning  as  assigned  to  them  in the  Loan  Agreement.  The  term
"Obligations"  used in this Note  refers to any and all  Indebtedness  and other
obligations under this Note, the Term Note between Bank and Borrower and defined
in the Loan Agreement,

                                     Page 3



all other  indebtedness  as defined in the respective  Loan  Documents,  and all
obligations  under  any swap  agreements as defined  in 11 U.S.C.  §101  between
Bank and Borrower whenever executed.

LATE CHARGE.  If any payments  are not timely made,  Borrower  shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.

Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.

ATTORNEYS'  FEES AND OTHER  COLLECTION  COSTS.  Borrower shall pay all of Bank's
reasonable  expenses  incurred  to  enforce or  collect  any of the  Obligations
including, without limitation, reasonable arbitration,  paralegals',  attorneys'
and experts' fees and expenses,  whether  incurred without the commencement of a
suit,  in  any  trial,  arbitration,  or  administrative  proceeding,  or in any
appellate or bankruptcy proceeding.

USURY. If at any time the effective interest rate under this Note would, but for
this  paragraph,  exceed the maximum  lawful rate,  the effective  interest rate
under this Note shall be the maximum  lawful  rate,  and any amount  received by
Bank in excess of such rate shall be applied to  principal  and then to fees and
expenses, or, if no such amounts are owing, returned to Borrower.

DEFAULT. If any Event of Default as defined in the Loan Agreement shall occur, a
default ("Default") under this Note shall exist.

REMEDIES  UPON  DEFAULT.  If a  Default  occurs  under  this  Note  or any  Loan
Documents,  Bank may at any time  thereafter,  take the following  actions:
Acceleration  Upon Default.  Accelerate the maturity of this Note and, at Bank's
option,  any or all other  Obligations,  whereupon this Note and the accelerated
Obligations  shall be immediately  due and payable;  provided,  however,  if the
Default is based upon a  bankruptcy  or  insolvency  proceeding  commenced by or
against  Borrower or any  guarantor  or endorser of this Note,  all  Obligations
shall automatically and immediately be due and payable. Cumulative. Exercise any
rights and remedies as provided under the Note and other Loan  Documents,  or as
provided by law or equity.

WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan  Documents  shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same  Default on a future  occasion.  Neither the failure nor any
delay on the part of Bank in exercising any right,  power,  or remedy under this
Note and other Loan  Documents  shall operate as a waiver  thereof,  nor shall a
single or  partial  exercise  thereof  preclude  any other or  further  exercise
thereof or the exercise of any other right, power or remedy.

Except as otherwise required by the Loan Agreement,  each Borrower or any person
liable under this Note waives presentment,  protest, notice of dishonor,  demand
for payment, notice of intention to accelerate maturity,  notice of acceleration
of maturity,  notice of sale and all other  notices of any kind.  Further,  each
agrees that Bank may extend, modify or renew this Note or make a novation of the
loan evidenced by this Note for any period, and grant any releases,  compromises
or  indulgences  with  respect to any  collateral  securing  this Note,  or with
respect to any other  Borrower  or any other  person  liable  under this Note or
other Loan Documents,  all without notice to or consent of each Borrower or each
person who may be liable under this Note or any other Loan  Document and without
affecting  the  liability of Borrower or any person who may be liable under this
Note or any other Loan Document.

MISCELLANEOUS  PROVISIONS.  Assignment.  This Note and the other Loan  Documents
shall  inure to the  benefit  of and be  binding  upon  the  parties  and  their
respective  heirs,  legal  representatives,   successors  and  assigns.   Bank's
interests in and rights under this Note and the other Loan  Documents are freely
assignable,  in whole or in part, by Bank. In addition,  nothing in this Note or
any of the other Loan  Documents  shall prohibit Bank from pledging or assigning
this Note or any of the other  Loan  Documents  or any  interest  therein to any
Federal  Reserve  Bank.  Borrower  shall not  assign  its  rights  and  interest
hereunder without the

                                     Page 4



prior  written  consent of Bank,  and any attempt by Borrower to assign  without
Bank's prior written consent is null and void. Any assignment  shall not release
Borrower from the Obligations.  Applicable Law; Conflict Between Documents. This
Note and, unless otherwise  provided in any other Loan Document,  the other Loan
Documents  shall be governed by and construed  under the laws of the state named
in Bank's  address shown above without  regard to that state's  conflict of laws
principles. If the terms of this Note should conflict with the terms of the Loan
Agreement the terms of the Loan Agreement shall control. Jurisdiction.  Borrower
irrevocably agrees to non-exclusive  personal jurisdiction in the state named in
Bank's  address shown above.  Severability.  If any provision of this Note or of
the other Loan Documents  shall be prohibited or invalid under  applicable  law,
such provision shall be ineffective  but only to the extent of such  prohibition
or  invalidity,  without  invalidating  the  remainder of such  provision or the
remaining provisions of this Note or other such document. Notices. Any notice or
other  communication  hereunder to any party  hereto shall be by hand  delivery,
overnight  delivery,  facsimile,  or  registered  or  certified  mail and unless
otherwise  provided  herein  shall be  deemed  to have  been  given or made when
delivered  or  faxed  (and  confirmed)  or as  shown  on the  receipt  for  such
registered  or certified  mail.  Any notices to Borrower  shall be  sufficiently
given, if delivered,  faxed or mailed, as aforesaid,  to the Borrower's  address
shown  above or such  other  address  as  provided  hereunder,  and to Bank,  if
delivered,  faxed or mailed, as aforesaid,  to Bank's office address shown above
or such other  address as Bank may specify in writing from time to time.  In the
event that Borrower changes Borrower's address at any time prior to the date the
Obligations are paid in full, Borrower agrees to promptly give written notice of
said  change  of  address  by  registered  or  certified  mail,  return  receipt
requested,  all charges prepaid.  Plural;  Captions.  All references in the Loan
Documents to Borrower,  guarantor,  person, document or other nouns of reference
mean  both the  singular  and  plural  form,  as the  case may be,  and the term
"person" shall mean any individual,  person or entity. The captions contained in
the Loan  Documents are inserted for  convenience  only and shall not affect the
meaning or interpretation of the Loan Documents.  Use of Proceeds.  The proceeds
of the loan(s) evidenced by this Note shall be used for the commercial  purposes
of Borrower.  Advances.  Bank may, in its sole  discretion,  make other advances
which  shall be deemed to be  advances  under this Note,  even though the stated
principal  amount of this Note may be exceeded as a result  thereof.  Posting of
Payments.  All payments  received  during  normal  banking hours after 2:00 p.m.
local time at the office of Bank first shown  above shall be deemed  received at
the opening of the next banking day. Fees and Taxes. Borrower shall promptly pay
all documentary, intangible recordation and/or similar taxes on this transaction
whether assessed at closing or arising from time to time.

ARBITRATION.  Upon  demand of any party  hereto,  whether  made  before or after
institution of any judicial proceeding,  any claim or controversy arising out of
or relating to the Loan Documents  between parties hereto (a "Dispute") shall be
resolved by binding  arbitration  conducted under and governed by the Commercial
Financial Disputes  Arbitration Rules (the "Arbitration  Rules") of the American
Arbitration  Association (the "AAA") and the Federal  Arbitration Act.  Disputes
may include,  without limitation,  tort claims,  counterclaims,  a dispute as to
whether a matter is subject to arbitration,  claims brought as class actions, or
claims arising from documents  executed in the future. A judgment upon the award
may be entered in any court having jurisdiction.  Notwithstanding the foregoing,
this  arbitration  provision does not apply to disputes under or related to swap
agreements.  Special Rules.  All arbitration  hearings shall be conducted in the
city named in the  address of Bank first  stated  above.  A hearing  shall begin
within 90 days of demand for  arbitration and all hearings shall conclude within
120 days of demand for  arbitration.  These time limitations may not be extended
unless a party shows cause for extension and then for no more than a total of 60
days. The expedited  procedures set forth in Rule 51 et seq. of the  Arbitration
Rules  shall be  applicable  to claims of less than  $1,000,000.00.  Arbitrators
shall be licensed  attorneys  selected  from the  Commercial  Financial  Dispute
Arbitration  Panel of the AAA.  The parties do not waive  applicable  Federal or
state substantive law except as provided herein.  Preservation and Limitation of
Remedies.  Notwithstanding  the preceding binding  arbitration  provisions,  the
parties agree to preserve,  without diminution,  certain remedies that any party
may exercise before or after an arbitration  proceeding is brought.  The parties
shall  have the  right to  proceed  in any court of  proper  jurisdiction  or by
self-help to exercise or prosecute the following  remedies,  as applicable:  (i)
obtaining   provisional  or  ancillary  remedies  including  injunctive  relief,
sequestration,  garnishment,  attachment,  appointment of receiver and filing an
involuntary  bankruptcy  proceeding;  and (ii) when  applicable,  a judgment  by
confession  of  judgment.  Any claim or  controversy  with regard to any party's
entitlement  to such  remedies is a Dispute.  Waiver of Exemplary  Damages.  The
parties agree that they shall not have a remedy

                                     Page 5



of punitive or exemplary damages against other parties in any Dispute and hereby
waive any right or claim to punitive or exemplary damages they have now or which
may arise in the future in  connection  with any Dispute  whether the Dispute is
resolved  by  arbitration  or  judicially.  Waiver of Jury  Trial.  THE  PARTIES
ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED
ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE.

CONNECTICUT  PREJUDGMENT  REMEDY  WAIVER.  EACH BORROWER  ACKNOWLEDGES  THAT THE
TRANSACTIONS  REPRESENTED  BY THIS NOTE ARE COMMERCIAL  TRANSACTIONS  AND HEREBY
VOLUNTARILY  AND  KNOWINGLY  WAIVES  ANY  RIGHTS  TO NOTICE  OF AND  HEARING  ON
PREJUDGMENT  REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT  GENERAL STATUTES OR
OTHER  STATUTES  AFFECTING  PREJUDGMENT  REMEDIES,  AND  AUTHORIZES  THE  BANK'S
ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER,  PROVIDED
THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER.

IN WITNESS  WHEREOF,  Borrower,  on the day and year first  above  written,  has
caused this Note to be executed under seal.

PLACE OF EXECUTION AND DELIVERY.  Borrower  hereby  certifies that this Note and
the Loan Documents  were executed in the State of  Connecticut  and delivered to
Bank in the State of Connecticut.

                                    Farrel Corporation
                                    Taxpayer Identification Number:


                                    By:   /s/ Rolf K Liebergesell      
                                        Rolf K. Liebergesell, President


                                    Farrel Limited
                                    Taxpayer Identification Number:


                                    By:   /s/ Rolf K Liebergesell      
                                        Rolf K. Liebergesell, Director




                                     Page 6

EX-99

                                                                     Exhibit 4-A

                    AMENDMENT TO CREDIT AGREEMENT and WAIVER


         This Amendment to Credit Agreement and Waiver (the "Amendment"),  dated
as of June 18, 2001, is among Farrel  Corporation,  Farrel  Limited,  and Farrel
Shaw Limited (each of the foregoing entities is referred to herein  individually
as a "Borrower" and, collectively, as the "Borrowers"),  and The Chase Manhattan
Bank ("Bank").

         WHEREAS,  the  Borrowers  and the Bank are  parties to an  Amended  and
Restated Credit  Agreement dated as of January 23, 1998, as amended (the "Credit
Agreement");

         WHEREAS, the Bank has made Loans and issued Letters of Credit under the
Credit Agreement;

         WHEREAS,  the Borrower desires to terminate the Commitments and pay the
Loans, with the Letters of Credit to remain outstanding; and

         WHEREAS,  the Bank is willing to permit  the  foregoing  subject to the
terms and conditions hereof.

         NOW, THEREFORE, in consideration of the premises herein contained,  and
for other good and valuable consideration,  receipt of which is acknowledged, it
is hereby agreed as follows:

         Section 1.  Definitions.  Terms used but not otherwise  defined  herein
shall  have  the  respective  meanings  ascribed  to such  terms  in the  Credit
Agreement.

         Section 2.  Amendment, Consent and Waiver.
         (A). The Credit  Agreement is amended as follows:  The  definitions  of
"Revolving  Credit  Termination Date" and "Term Note Termination Date" contained
in  Section  1.01 of the  Credit  Agreement,  Definitions,  are  superseded  and
replaced in their entirety, and amended to read:

         "Revolving Credit Termination Date" means June 18, 2001.

         "Term Note Termination Date" means June 18, 2001.

         (B) The Bank  acknowledges  that one or more  Borrowers are  collective
herewith entering into certain financing  transactions with First Union National
Bank ("First Union"),  pursuant to the terms of a certain Credit Agreement dated
as of June 18, 2001 (the "First Union Credit Agreement").  The Bank acknowledges
receipt of an execution copy of the First Union Credit  Agreement and so long as
the First Union Letter of Credit (hereinafter defined) remains in full force and
effect,  hereby  irrevocably  and  unconditionally  waives any  provision of the
Credit  Agreement  or any of the other  documents  or  instruments  executed  or
delivered in connection therewith  (collectively,  the "Chase Credit Documents")
that is inconsistent  with the terms of the First Union Credit  Agreement or the
transactions  contemplated  thereby.  For the avoidance of doubt,  any covenant,
representation,  warranty or other  provision  in the Credit  Agreement  and the
other  Chase  Documents  shall be deemed  inconsistent  for the  purposes of the
preceding  sentence  if it  imposes a  greater  obligation  than the  covenants,
representations,  warranties  and other  provisions  in the First  Union  Credit
Agreement,  but the  provision of Articles 2, 3, 10, and 11 and Sections 9.02 of
the Credit Agreement are not waived, but shall remain in effect until no Letters




of Credit remain outstanding, the Notes (as defined in the Credit Agreement) are
fully and  irrevocably  paid and the Bank shall have no further  Commitment  (as
defined in the Credit Agreement) under the Credit  Agreement,  at which time the
Credit Agreement and all obligations of the Borrower thereunder shall terminate.

         (C) The Bank agrees  that,  notwithstanding  anything  to the  contrary
contained  in the Credit  Agreement  or the other Chase  Credit  Documents,  the
Letters of Credit  specified on Schedule A attached hereto shall be permitted to
remain outstanding until the expiration dates specified thereupon.

         (D)  Pursuant  to  Section  2.01(e)  of the  Credit  Agreement,  on the
Revolving Credit  Termination Date the Bank has the right to request  acceptable
collateral security or indemnification of the Letters of Credit. The Bank agrees
that,  notwithstanding  Section  2.01(e)  or any other  provision  of the Credit
Agreement or the other Chase Credit  Documents,  it will not require  collateral
security for the Letters of Credit nor exercise any right or remedy with respect
thereto,  provided,  however,  that the Bank  receives  a letter of  credit  (or
multiple  letters  of  credit)  acceptable  to the Bank  issued  by First  Union
National Bank to the Bank as beneficiary,  in the face amount (or aggregate face
amount)  of US  $925,918  (by  letters  of credit in United  States  dollars  or
equivalent foreign currencies) with an expiry not earlier than December 31, 2001
(individually  and, if  applicable,  collectively,  the "First  Union  Letter of
Credit").

         Section 3. Representations. The Borrower hereby represents and warrants
to the Bank after taking into effect this  Amendment,  that:  (i) the covenants,
representations  and warranties  set forth in the Credit  Agreement are true and
correct on and as of the date hereof as if made on and as of said date and as if
each  reference  therein to the Credit  Agreement were a reference to the Credit
Agreement  as amended by this  Amendment;  (ii) no Event of Default and no event
which, with the giving of notice or lapse of time or both, would become an Event
of Default has occurred and is  continuing,  which has not been disclosed to the
Bank; (iii) since the date of the Credit  Agreement,  there has been no material
adverse change in the financial condition or business operations of the Borrower
which has not been disclosed to the Bank; and (iv) the making and performance by
the  Borrower  of this  Amendment  have been duly  authorized  by all  necessary
corporate action.

         Section 4.  Conditions.  The  amendments,  waivers and  consents to the
Credit Agreement set forth in Section 2 above shall become effective on the date
first above written  provided that the Bank shall have received a counterpart of
this Amendment duly executed and delivered by the Borrower.

         Section 5. Covenants of the Borrower. Borrower agrees that it shall, no
later than  December 31, 2001,  (i) provide to the Bank,  additional  letters of
credit or cash  collateral  in the amount of the then  remaining  balance of all
Letters of Credit issued by the Bank for the account of Borrowers outstanding as
of December  31, 2001 for the  remaining  term of such Letters of Credit or (ii)
replace,  have cancelled or otherwise terminate such Letters of Credit.  Without
limiting the foregoing sentence, the Borrowers shall use commercially reasonable
efforts  to  replace,  cancel or  otherwise  terminate  such  Letters  of Credit
pursuant to clause (ii) of the preceding sentence.

         Section  6.  Miscellaneous.   Except  as  expressly  provided  in  this
Amendment,  the Credit  Agreement  shall remain  unchanged and in full force and
effect except that each reference therein to "this Credit Agreement" and similar
terms  referring to the Credit  Agreement shall be deemed to refer to the Credit
Agreement as amended hereby. This Amendment (i) shall be deemed to be




effective on and as of the date first above  written,  (ii) shall be governed by
and construed in accordance with the laws of the State of Connecticut, and (iii)
may be executed in  counterparts,  which taken together shall constitute one and
the same  instrument and either of the parties hereto may execute this Amendment
by signing any such  counterpart.  Should any terms or  provisions of the Credit
Agreement  conflict with the terms and provisions  contained in this  Amendment,
the terms and provisions of this Amendment shall prevail.


FARREL CORPORATION                       FARREL LIMITED

By: /s/ Rolf K Liebergesell              By: /s/ Rolf K Liebergesell
     Name: Rolf K Liebergesell                Name: Rolf K Liebergesell
       Title: Chairman & CEO                    Title: Director


FARREL SHAW LIMITED                      THE CHASE MANHATTAN BANK

By: /s/ Rolf K Liebergesell              By: /s/ Thomas P Burgdorf
     Name: Rolf K Liebergesell                Name: Thomas P Burgdorf
       Title: Director                          Title: Assistant Vice President

EX-99

                                                                     Exhibit 4-B

                    Revolving and Term Loan Credit Agreement


THIS  AGREEMENT  (the  "Agreement"),  dated as of June 18, 2001,  between FARREL
CORPORATION, a Delaware corporation, and FARREL LIMITED, a corporation organized
under the laws of  England  and Wales  (individually  and  collectively,  as the
context may  require,  "Borrower"),  and FIRST UNION  NATIONAL  BANK, a national
banking association ("Bank");

                              W I T N E S S E T H:

In  consideration  of the premises and of the mutual  covenants herein contained
and to induce Bank to extend credit to Borrower, the parties agree as follows:

1.  Definitions.  Capitalized  terms that are not otherwise defined herein shall
have the meanings set forth in Exhibit 1 hereto.

2. The Revolving Loan and the Term Loan.

2.1. Revolving Loan Credit Facility.

         (a) Revolving Credit Advances. Bank agrees, on the terms and conditions
set forth in this  Agreement,  to make Advances  under the  Revolving  Note (the
"Revolving  Loan") in an aggregate  amount not to exceed the Maximum Loan Amount
of the Revolving Loan, subject to the following monetary limits:

             (i) Advances to Farrel  Limited  shall not exceed,  at any one time
outstanding, the Farrel Limited Borrowing Base; and

             (ii) Advances to Farrel  Corporation  shall not exceed,  at any one
time outstanding, the Farrel Corporation Borrowing Base.

         (b)  Direct  Advance  Sublimit.   Notwithstanding  the  foregoing,  the
aggregate amount of Advances of cash proceeds made by Bank shall not exceed:

             (i) with  respect  to Farrel  Limited,  the Farrel  Limited  Direct
Advance Sub-Limit; and

             (ii) with  respect to Farrel  Corporation,  the Farrel  Corporation
Direct Advance Sub-Limit.

Within the foregoing limit,  Borrower may borrow,  prepay and reborrow  Advances
under the Revolving Note at any time during the Revolving Credit Period.

2.2.  Revolving Note. The Revolving Loan shall be evidenced by a promissory note
in the face amount of the Maximum  Loan  Amount of the  Revolving  Loan dated of
even date  herewith  (the  "Revolving  Note") and shall be payable in accordance
with the terms of the Revolving Note and this Agreement.

2.3. Intentionally Deleted.

2.4. Intentionally Deleted.

2.5. Advances of the Revolving Loan.



                                     Page 1



(a) Bank, in its discretion,  may require from Borrower a signed written request
for an Advance of cash proceeds under the Revolving Note in form satisfactory to
Bank,  which  request shall be delivered to Bank no later than 12:00 noon (local
time in Stamford,  Connecticut for requests  presented at the Bank in the United
States, or London, England time for requests presented at the Bank in the United
Kingdom)  on the  date  of the  requested  Advance,  and  shall  set  forth  the
calculation  of the Farrel  Corporation  Borrowing  Base or the  Farrel  Limited
Borrowing Base, as the case may be, and a reconciliation to the previous request
or Borrowing Base Certificate,  specify the date (which shall be a Business Day)
and the amount of the  proposed  Advance and provide such other  information  as
Bank may  reasonably  require.  Bank's  acceptance  of such a  request  shall be
indicated by its making the Advance requested.  Such an Advance of cash proceeds
shall be made available to Borrower in immediately  available funds by crediting
the Borrower's account.

(b)  Notwithstanding  the  foregoing,   Bank  may,  in  its  sole  and  absolute
discretion,  make or permit to remain  outstanding  Advances under the Revolving
Loan in excess of the original  principal  amount of the Revolving Note, and all
such  excess  amounts  shall (i) be part of the  Indebtedness  evidenced  by the
Revolving  Note,  (ii) bear interest as provided  herein,  (iii) be payable upon
demand by Bank,  and (iv) be  entitled  to all rights and  security  as provided
under the Loan Documents.

2.6 Term Loan  Facility.  Bank agrees,  on the terms and conditions set forth in
this  Agreement,  to  make a  term  loan  to  Borrower  (the  "Term  Loan",  and
collectively with the Revolving Loan, the "Loan") in an amount not to exceed the
Maximum Loan Amount of the Term Loan.

2.7 Term Note. The Term Loan shall be evidenced by a promissory note in the face
amount of the Maximum  Loan Amount of the Term Loan dated of even date  herewith
(the "Term Note" and collectively with the Revolving Note, the "Note") and shall
be payable in accordance with the terms of the Term Note and this Agreement.

2.8. Repayment of Loan.

(a)  Interest on the Loan shall  accrue and be payable as set forth in the Note.
The Loan shall  mature,  and the  principal  amount  thereof and all accrued and
unpaid  interest,  fees,  expenses  and  other  amounts  payable  under the Loan
Documents shall be due and payable, on the Termination Date.

(b) Bank may debit the Demand  Deposit  Account and/or make Advances to Borrower
(whether or not in excess of the lesser of the  applicable  Maximum  Loan Amount
and the sum of the Farrel  Corporation  Borrowing  Base and the  Farrel  Limited
Borrowing  Base) and apply  such  amounts  to the  payment  of  interest,  fees,
expenses and other  amounts to which Bank may be entitled  from time to time and
Bank is hereby irrevocably authorized to do so without the consent of Borrower.

(c) Borrower  shall make each payment of principal  and interest on the Loan and
fees  hereunder  not later than 12:00 noon (local time in Stamford,  Connecticut
for  payments  made to the Bank in the United  States,  or local time in London,
England  time for payments  made to the Bank in the United  Kingdom) on the date
when due,  without set off,  counterclaim  or other  deduction,  in  immediately
available funds to Bank at its address referred to in Section 10.4. Whenever any
payment of  principal  of, or interest on, the Loan or of fees shall be due on a
day which is not a Business Day, the date for payment  thereof shall be extended
to the next succeeding Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.

(d) To the extent that the aggregate  amount of all Advances  exceeds the Farrel
Corporation Borrowing Base or the Farrel Limited Borrowing Base, as the case may
be, the  amount of such  excess  will be paid  immediately  to Bank upon  Bank's
demand (or letters of credit cancelled or cash collateralized).

2.9. Overdue Amounts.  Any payments not made as and when due shall bear interest
from the date due until paid at the Default Rate, in Bank's discretion.

2.10. Calculation of Interest. All interest under the Note or hereunder shall be
calculated  on the  basis  of the  Actual/360  and in the case of  Sterling  365
Computation, as defined in the Note.


                                     Page 2



2.11. Sales Tax. Borrower shall notify Bank if any Account includes any sales or
other  similar tax and Bank may, but shall not be  obligated  to, remit any such
taxes  directly to the taxing  authority  and make Advances or charge the Demand
Deposit Account therefor. In no event shall Bank be liable for any such taxes.

2.12. Letters of Credit; Bankers Acceptances; Guarantees.

(a) Bank  shall  from time to time  issue,  extend or renew  letters  of credit,
bankers   acceptances  and  guarantees  for  the  account  of  Borrower  or  its
Subsidiaries  subject to (i) the monetary  limitations  set forth in Section 2.1
hereof, (ii) the underlying  transaction for which the letter of credit, bankers
acceptance  or  guarantee  has been  issued  being  deemed  legal by Bank in its
reasonable discretion,  and (iii) the Bank's reasonable  determination that such
underlying  transaction  is  not  in  breach  of  international/OFAC  sanctions.
Borrower shall complete and sign such  applications and supplemental  agreements
and provide such other  documentation as Bank may reasonably  require.  The form
and  substance of all letters of credit,  bankers  acceptances  and  guarantees,
including expiration dates, shall be subject to Bank's reasonable approval. Bank
may charge fees in accordance with Section 2.13 hereof for issuance,  renewal or
extension  of letters of credit,  bankers  acceptances  and  guarantees.  Farrel
Corporation  unconditionally  guarantees  all  obligations  of any Subsidiary of
Borrower  with  respect to letters of credit  issued by Bank for the  account of
such Subsidiary and all acceptances and guarantees of any  Subsidiary's  drafts.
Upon an Event of Default,  Borrower shall, on demand, deliver to Bank good funds
equal to 105% of Bank's  maximum  liability  under all  outstanding  letters  of
credit,  bankers  acceptances and guarantees,  to be held as cash collateral for
Borrower's reimbursement obligations and other Indebtedness.

(b) Any letter of credit  issued  hereunder  shall be  governed  by the  Uniform
Customs of Practice for Documentary Credit (1993 Rev.), International Chamber of
Commerce Publication No. 500, as revised from time to time, except to the extent
that the terms of such  publication  would limit or diminish  rights  granted to
Bank hereunder or in any other Loan Document.

2.13. Fees.

(a) Borrower  shall pay to Bank a  non-refundable  facility fee in the amount of
(pound)4,000  with  respect  to the Term Loan and  $25,000  with  respect to the
Revolving Loan, both of which shall be payable on the date of this Agreement.

(b) Borrower shall pay to Bank quarterly in arrears an  availability  fee, equal
to 0.375% per annum on the average  daily unused  principal  under the Revolving
Note  (without  taking into account  availability  under the Farrel  Corporation
Borrowing Base or the Farrel Limited Borrowing Base, as the case may be) for the
preceding calendar quarter or portion thereof.

(c)  Borrower  shall pay to Bank,  at such times as Bank shall  require,  Bank's
standard fees in connection with letters of credit and guarantees,  as in effect
from time to time,  and in addition,  a fee equal to 1.25% per annum on the face
amount of each such  letter of credit and  guarantee  for the period of time the
same will be outstanding, payable annually up-front.

(d) If  Borrower  elects to  terminate  this  Agreement  in full and  prepay all
Indebtedness  prior to the Termination  Date as provided in Section 2.15 hereof,
or if Borrower makes any payment, prepayment or conversion of the Loan on a date
other than the last day of an Interest Period,  as defined in the Revolving Note
or the Term Note, as the case may be, or if Bank  terminates  this  Agreement as
provided  for in  Section  2.15  hereof,  Borrower  shall,  on the  date of such
termination,  pay to Bank the Early Termination Fee, which Early Termination Fee
shall  be  deemed  liquidated  damages  to  compensate  Bank for its loss of the
benefits of this Agreement and shall not be deemed a penalty.

2.14.  Statement of Account.  If Bank provides Borrower with a loan statement of
account on a periodic  basis,  such  statement  will be  presumed  complete  and
accurate  and  will be  definitive  and  binding  on  Borrower  absent  manifest
mathematical  error,  unless objected to with specificity by Borrower in writing
within forty-five (45) days after receipt.


                                     Page 3



2.15. Termination.  Upon at least thirty (30) days prior written notice to Bank,
Borrower may, at its option,  terminate  this  Agreement and the Loan  facility;
provided,  in connection  with the  termination  hereof prior to the Termination
Date,  Borrower shall pay to Bank, as liquidated  damages for Bank's loss of the
benefits of this Agreement and not as a penalty, the Early Termination Fee. Bank
may terminate the Loan facility hereunder at any time,  without notice,  upon or
after the occurrence of an Event of Default.

3. Conditions Precedent to Borrowing.

3.1.  Conditions  Precedent  to  Initial  Advance.  In  addition  to  any  other
requirement set forth in this Agreement, Bank will not make the Term Loan or the
initial  Advance  under the  Revolving  Loan  unless  and  until  the  following
conditions shall have been satisfied in the sole reasonable  opinion of Bank and
its counsel:

(a) Loan  Documents.  Borrower  and each other  party to any Loan  Document,  as
applicable, shall have executed and delivered this Agreement, the Term Note, the
Revolving  Note,  and other required Loan  Documents,  all in form and substance
satisfactory to Bank.

(b)  Supporting  Documents.  Borrower  shall cause to be  delivered  to Bank the
following documents:

(i) A copy of the governing  instruments of Borrower and each Subsidiary,  and a
good  standing  certificate  of Borrower and each  Subsidiary,  certified by the
appropriate  official of its country and state of incorporation and the State of
Connecticut, if different;

(ii) Incumbency  certificate and certified resolutions of the board of directors
(or other  appropriate  Persons) of Borrower and each other Person executing any
Loan  Documents,  signed by the  Secretary  or  another  authorized  officer  of
Borrower  or  such  other  Person,  authorizing  the  execution,   delivery  and
performance of the Loan Documents;

(iii)  The  legal  opinion  of  Borrower's  and any  Guarantor's  legal  counsel
addressed to Bank regarding such matters as Bank and its counsel may request;

(iv)  A  satisfactory  Borrowing  Base  Certificate  duly  completed  by  Farrel
Corporation or Farrel Limited,  as the case may be, together with all supporting
statements, schedules and reconciliations as required by Bank;

(v)  Satisfactory  evidence of payment of all fees due and  reimbursement of all
costs  incurred by Bank, and evidence of payment to other parties of all fees or
costs which Borrower is required under this Agreement to pay (including  without
limitation reasonable attorneys' fees) by the date of the initial Advance;

(vi)  UCC-11  searches  and other Lien  searches  showing no  existing  security
interests  in or Liens on the any of  Borrower's  assets  other  than  Permitted
Liens;

(vii) Any lien waivers requested by Bank pursuant to section 5.13(c) hereof.

(c) Insurance.  Borrower shall have delivered to Bank  satisfactory  evidence of
insurance meeting the requirements of Section 5.3.

(d) Additional  Documents.  Borrower shall have delivered to Bank all additional
opinions, documents,  certificates and other assurances that Bank or its counsel
may require.

3.2. Conditions Precedent to Each Advance. The following conditions, in addition
to any other  requirements  set forth in this Agreement,  shall have been met or
performed, in the sole opinion of Bank and its counsel, by the Advance Date with
respect to any  Advance  Request  and each  Advance  Request  (whether  or not a
written Advance Request is required) shall be deemed to be a representation that
all such conditions have been satisfied:


                                     Page 4



(a) Advance  Request.  Borrower shall have delivered to Bank an Advance  Request
and other information,  as required under Section 2.5(a),  unless the procedures
described in Section 2.4 are in effect.

(b) No Event  of  Default.  No  Event of  Default  shall  have  occurred  and be
continuing  or could occur upon the making of the  Advance in  question  and, if
Borrower is required to deliver a written Advance  Request,  Borrower shall have
delivered  to  Bank  an  officer's  certificate  to such  effect,  which  may be
incorporated in the Advance Request.

(c) Correctness of  Representations.  All representations and warranties made by
Borrower and any Guarantor herein or otherwise in writing in connection herewith
shall be true and  correct  in all  material  respects  with the same  effect as
though  the  representations  and  warranties  had  been  made  on and as of the
proposed  Advance Date (except where such  representations  and warranties  were
intended to apply only to a specific  prior date),  and, if Borrower is required
to deliver a written Advance  Request,  Borrower shall have delivered to Bank an
officer's  certificate to such effect,  which may be incorporated in the Advance
Request.

(d) No Change. There shall have been no change since the date of the most recent
financial  statements of Borrower,  any Subsidiary or any Guarantor delivered to
Bank from time to time which could  reasonably be anticipated to have a Material
Adverse Effect.

(e) Limitations Not Exceeded.  The proposed  Advance shall be in compliance with
the  monetary  limitations  set forth in Section  2.1  hereof.  If  Borrower  is
required  to deliver a written  Advance  Request,  Bank  shall  have  received a
current  Accounts  Receivable  Report (as required by Section 5.6) sufficient in
form and substance to calculate and verify the Farrel Corporation Borrowing Base
and the Farrel Limited Borrowing Base, as the case may be.

(f) Further Assurances. Borrower shall have delivered such further documentation
or assurances as Bank may reasonably require.

4.  Representations  and Warranties.  In order to induce Bank to enter into this
Agreement and to make the Loan provided for herein, Borrower makes the following
representations  and  warranties,  all of which shall  survive the execution and
delivery of the Loan Documents. Unless otherwise specified, such representations
and warranties  shall be deemed made as of the date hereof and as of the Advance
Date of any Advance by Bank to Borrower:

4.1.  Valid  Existence  and Power.  Each of Borrower  and each  Subsidiary  is a
corporation or limited partnership, as the case may be, duly organized,  validly
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
organization  and is duly  qualified  or licensed  to  transact  business in all
places where the failure to be so qualified would have a Material Adverse Effect
on it.  Each of  Borrower  and each  other  Person  which is a party to any Loan
Document  (other than Bank) has the power to make and perform the Loan Documents
executed by it and all such  instruments  will  constitute the legal,  valid and
binding  obligations  of such  Person,  enforceable  in  accordance  with  their
respective  terms,  subject  only  to  bankruptcy  and  similar  laws  affecting
creditors' rights generally.

4.2. Authority. The execution,  delivery and performance thereof by Borrower and
each other Person  (other than Bank)  executing any Loan Document have been duly
authorized  by all  necessary  action  of such  Person,  and do not and will not
violate any provision of law or regulation,  or any writ, order or decree of any
court or governmental or regulatory  authority or agency or any provision of the
governing  instruments of such Person, and do not and will not, with the passage
of time or the giving of notice,  result in a breach of, or constitute a default
or require any  consent  under,  or result in the  creation of any Lien upon any
property or assets of such Person pursuant to, any law,  regulation,  instrument
or  agreement to which any such Person is a party or by which any such Person or
its respective properties may be subject, bound or affected.


                                     Page 5



4.3.  Financial  Condition.  Other than as  disclosed  in  financial  statements
delivered  on or prior to the date  hereof  to Bank,  neither  Borrower  nor any
Subsidiary  nor (to the  knowledge of Borrower)  any Guarantor has any direct or
contingent  obligations  or  liabilities  as of the date hereof  (including  any
guarantees or leases) or any material  unrealized or anticipated losses from any
commitments of such Person except as described on Exhibit 4.3 (if any). All such
financial  statements  have been  prepared  in  accordance  with GAAP and fairly
present the financial  condition of Borrower,  Subsidiary  or Guarantor,  as the
case may be,  as of the date  thereof.  Borrower  is not  aware of any  material
adverse fact (other than facts which are  generally  available to the public and
not  particular  to  Borrower,  such as general  economic  or  industry  trends)
concerning the  conditions or future  prospects of Borrower or any Subsidiary or
any Guarantor which has not been fully disclosed to Bank,  including any adverse
change in the operations or financial condition of such Person since the date of
the most recent financial statements delivered to Bank. Borrower is Solvent, and
after consummation of the transactions set forth in this Agreement and the other
Loan Documents, Borrower will be Solvent.

4.4.  Litigation.  Except as  disclosed  on Exhibit  4.4 (if any) and on reports
filed  with  the  Securities  and  Exchange  Commission,  there  are no suits or
proceedings  pending,  or to the  knowledge of Borrower  threatened,  before any
court or by or before any  governmental  or  regulatory  authority,  commission,
bureau or agency or public  regulatory body against or affecting  Borrower,  any
Subsidiary or (to Borrower's knowledge) any Guarantor, or their assets, which if
adversely  determined  would have a  Material  Adverse  Effect on the  financial
condition or business of Borrower, such Subsidiary or such Guarantor.

4.5.  Agreements,  Etc. Except as disclosed on reports filed with the Securities
and Exchange  Commission,  neither Borrower nor any Subsidiary is a party to any
agreement or  instrument or subject to any court order,  governmental  decree or
any charter or other corporate restriction which could reasonably be anticipated
to have a  Material  Adverse  Effect,  nor is any such  Person in default in the
performance,  observance or fulfillment of any of the obligations,  covenants or
conditions  contained in any agreement or instrument to which it is a party,  or
any law,  regulation,  decree,  order or the like,  which  could  reasonably  be
anticipated to have a Material Adverse Effect.

4.6.  Authorizations.  All  authorizations,  consents,  approvals  and  licenses
required  under  applicable  law or regulation for the ownership or operation of
the property  owned or operated by Borrower or any Subsidiary or for the conduct
of any  business  in which it is engaged  have been duly  issued and are in full
force and effect,  and it is not in default,  nor has any event  occurred  which
with the passage of time or the giving of notice,  or both,  would  constitute a
default,  under any of the terms or provisions of any part thereof, or under any
order,  decree,  ruling,  regulation,  closing  agreement  or other  decision or
instrument of any governmental commission, bureau or other administrative agency
or public regulatory body having  jurisdiction  over such Person,  which default
would have a Material Adverse Effect on such Person.  Except as noted herein, no
approval,  consent or  authorization  of, or filing or  registration  with,  any
governmental  commission,  bureau  or other  regulatory  authority  or agency is
required  with respect to the  execution,  delivery or  performance  of any Loan
Document.

4.7.  Title.  Each of Borrower and each  Subsidiary has good title to all of the
material  assets shown in its financial  statements free and clear of all Liens,
except Permitted Liens.

4.8. Intentionally Deleted.

4.9. Location.  The chief executive office of Borrower where Borrower's business
records are located,  all of  Borrower's  other places of business and any other
places  where any of its  material  assets  are  kept,  are all  located  at the
addresses  indicated on Exhibit 4.9. The material assets of Borrower are located
and shall at all times be kept and  maintained  only at  Borrower's  location or
locations  as described  on Exhibit 4.9 herein  except for sales and  in-transit
Inventory in the ordinary course.  No such assets are attached or affixed to any
real  property so as to be  classified  as a fixture  unless Bank has  otherwise
agreed in writing.

4.10.  Taxes.  Borrower  and each  Subsidiary  have filed all  federal and state
income and other tax returns  which are required to be filed,  and have paid all
taxes as shown on said returns and all taxes, including withholding, FICA and ad
valorem taxes,  shown on all assessments  received by it to the extent that such
taxes have become due.  Neither  Borrower nor any  Subsidiary  is subject to any
federal,  state or local tax Liens nor has such  Person  received  any notice of
deficiency or other  official  notice to pay any taxes which are past due, other
than those taxes being  actively  contested  in good  faith.  Borrower  and each
Subsidiary have paid all sales and excise taxes payable by it.


                                     Page 6



4.11.  Labor Law Matters.  No goods or services have been or will be produced by
Borrower  or any  Subsidiary  in  violation  of any  applicable  labor  laws  or
regulations or any collective  bargaining agreement or other labor agreements or
in  violation  of any  minimum  wage,  wage-and-hour  or other  similar  laws or
regulations.

4.12. Accounts. To the best of Borrower's knowledge,  each Account which is used
to  calculate  the  Farrel  Corporation  Borrowing  Base or the  Farrel  Limited
Borrowing  Base,  (a) is genuine and  enforceable  in accordance  with its terms
except for such limits thereon arising from bankruptcy and similar laws relating
to creditors'  rights;  (b) is not subject to any  deduction or discount  (other
than as stated in the invoice and disclosed to Bank), defense, set off, claim or
counterclaim of a material  nature against  Borrower except as to which Borrower
has notified Bank in writing; (c) is not subject to any other circumstances that
would impair the  validity,  enforcability  or amount of such asset except as to
which  Borrower  has  notified  Bank in  writing;  (d)  arises  from a bona fide
delivery of goods or services in the ordinary  course and in accordance with the
terms and conditions of any applicable  purchase  order,  contract or agreement;
(e) is free of all Liens other than Permitted Liens; and (f) is for a liquidated
amount maturing as stated in the invoice therefor.

4.13.  Judgment  Liens.  As  of  the  date  hereof,  neither  Borrower  nor  any
Subsidiary,  nor any of  their  assets,  are  subject  to any  unpaid  judgments
(whether or not stayed) or any judgment liens in any jurisdiction.

4.14. Subsidiaries. If Borrower has any Subsidiaries, they are listed on Exhibit
4.14.

4.15. Environmental.  Except as disclosed on Exhibit 4.15, neither Borrower, nor
to Borrower's  best  knowledge any other  previous owner or operator of any real
property  currently  owned or operated by  Borrower,  has  generated,  stored or
disposed  of any  Regulated  Material  on  any  portion  of  such  property,  or
transferred  any Regulated  Material from such property to any other location in
violation of any applicable  Environmental  Laws. Except as disclosed on Exhibit
4.15 or in compliance  with all  Environmental  Laws, no Regulated  Material has
been  generated,  stored or  disposed  of on any  portion  of the real  property
currently  owned or operated by Borrower by any other Person,  or is now located
on such property.  Except as disclosed on Exhibit 4.15,  Borrower is in material
compliance  with all  applicable  Environmental  Laws and  Borrower has not been
notified of any  action,  suit,  proceeding  or  investigation  which calls into
question  compliance by Borrower with any  Environmental  Laws or which seeks to
suspend,  revoke or terminate any license,  permit or approval necessary for the
generation, handling, storage, treatment or disposal of any Regulated Material.

4.16.  ERISA.  Borrower has  furnished  to Bank true and complete  copies of the
latest  annual  report  required  to be filed  pursuant  to  Section  104 of the
Employee  Retirement  Income  Security Act of 1974, as amended  ("ERISA"),  with
respect to each employee  benefit plan or other plan maintained for employees of
Borrower or any Subsidiary  and covered by Title IV of ERISA (a "Plan"),  and no
Termination Event (as hereinafter defined) with respect to any Plan has occurred
and is continuing.  For the purposes of this  Agreement,  a "Termination  Event"
shall mean a "reportable  event" as defined in Section  4043(b) of ERISA, or the
filing of a notice of intent to terminate  under Section 4041 of ERISA.  Neither
Borrower nor any Subsidiary has any unfunded  liability with respect to any such
Plan.

4.17.  Investment  Company  Act.  Neither  Borrower  nor  any  Subsidiary  is an
"investment  company"  as  defined in the  Investment  Company  Act of 1940,  as
amended.

4.18. Names.  Borrower currently conducts all business only under its legal name
as set forth  above in the  introductory  section of this  Agreement.  Except as
disclosed on Exhibit 4.18,  during the preceding five (5) years Borrower has not
(i) been known as or used any other  corporate,  fictitious or trade name,  (ii)
been the surviving  entity of a merger or consolidation or (iii) acquired all or
substantially all of the assets of any Person.

4.19. Insider.  Borrower is not, and no Person having "control" (as that term is
defined in 12 U.S.C. § 375(b)(5) or in regulations promulgated pursuant thereto)
of Borrower is, an "executive officer,"  "director," or "principal  shareholder"
(as  those  terms  are  defined  in 12  U.S.C. § 375(b)  or  in  regulations
promulgated  pursuant  thereto) of Bank, of a bank holding company of which Bank
is a subsidiary, or of any subsidiary of a bank holding company of which Bank is
a subsidiary.


                                     Page 7



4.20.  Compliance  with  Covenants;  No Event of Default.  Borrower is, and upon
funding of the Loan will be, in compliance with all of the covenants  hereof. No
Default has occurred,  and the execution,  delivery and  performance of the Loan
Documents and the funding of the Loan will not cause an Event of Default.

4.21. Full Disclosure.  There is no material fact which is known or which should
be known by  Borrower  that  Borrower  has not  disclosed  to Bank  which  could
reasonably be anticipated to have a Material  Adverse Effect.  No Loan Document,
nor any agreement,  document,  certificate or statement delivered by Borrower to
Bank, contains any untrue statement of a material fact.

5. Affirmative  Covenants of Borrower.  Borrower  covenants and agrees that from
the date  hereof and until  payment in full of the  Indebtedness  and the formal
termination of this Agreement, Borrower and each Subsidiary:

5.1. Use of Loan  Proceeds.  Shall use the proceeds of the Loan only for working
capital to be used in the  operation  of  Borrower's  business  and to refinance
existing  indebtedness,  and  shall  furnish  Bank  all  evidence  that  it  may
reasonably require with respect to such use.

5.2.  Maintenance  of  Business  and  Properties.  Shall at all times  maintain,
preserve and protect all of its material  property used or useful in the conduct
of its business,  and keep the same in good repair, working order and condition,
and from time to time make, or cause to be made, all material needful and proper
repairs,  renewals,  replacements,  betterments and improvements thereto so that
the business carried on in connection therewith may be conducted properly and in
accordance with standards generally accepted in businesses of a similar type and
size at all times,  and  maintain and keep in full force and effect all licenses
and permits necessary to the proper conduct of its business.

5.3. Insurance.  Shall maintain such liability insurance,  workers' compensation
insurance,  business  interruption  insurance  and casualty  insurance as may be
required by law,  customary and usual for prudent businesses in its industry and
shall  insure and keep  insured all of its  properties  in good and  responsible
insurance  companies. All liability  insurance  shall  name and directly  insure
Bank as additional  insured,  and shall not be  terminable  except upon 30 days'
written notice to Bank.  Borrower shall furnish to Bank evidence of existence of
all such policies.

5.4.  Notice of an Event of Default.  Shall provide to Bank immediate  notice of
(a) the  occurrence  of an Event of Default and what action (if any) Borrower is
taking to correct the same, (b) any material  litigation or material  changes in
existing  litigation or any judgment against it or its assets,  (c) any material
damage or loss to property, (d) any notice from taxing authorities as to claimed
material deficiencies or any material tax lien or any notice relating to alleged
material ERISA  violations,  (e) any Reportable  Event, as defined in ERISA, (f)
any rejection,  return, offset, dispute, loss or other circumstance with respect
to Accounts which could  reasonably be  anticipated  to have a Material  Adverse
Effect,  (g) the  cancellation  or  termination  of, or any default  under,  any
material  agreement  to  which  Borrower  is a  party  or by  which  any  of its
properties are bound,  or any  acceleration of the maturity of any material Debt
of  Borrower;  and (h) any  loss or  threatened  loss of  material  licenses  or
permits.

5.5. Inspections. Shall permit inspections of its assets and the records of such
Person pertaining thereto and verification of the Accounts upon reasonable prior
notice,  at such times and in such manner as may be reasonably  required by Bank
and shall further permit such inspections, reviews and field examinations of its
other records and its  properties  (with such  reasonable  frequency and at such
reasonable  times as Bank may  desire)  by Bank as Bank  may deem  necessary  or
desirable from time to time.

5.6. Financial Information.  Shall maintain books and records in accordance with
GAAP and shall furnish to Bank the following periodic financial information:


                                     Page 8



(a) Periodic Borrowing Base Information.  Within fifteen (15) days of the end of
each month,  Farrel  Corporation and Farrel Limited shall each furnish to Bank a
completed  Borrowing  Base  Certificate  in the form attached  hereto as Exhibit
5.6(a)  (collectively,  a "Borrowing  Base  Certificate").  Each Borrower  shall
attach to the applicable Borrowing Base Certificate, which shall be certified by
the chief  financial  officer or president of Farrel  Corporation to be accurate
and complete and in compliance with the terms of the Loan  Documents,  a backlog
certificate, in the form attached hereto as Exhibit 5.6(a).

(b) Accounts  Receivable Report.  Within fifteen (15) days after the end of each
quarter,  a report  listing all Accounts of Borrower as of the last Business Day
of such quarter (an "Accounts Receivable Report") which shall include the amount
and age of each Account,  the name and mailing address of each Account Debtor, a
detailing  of all credits  due such  Account  Debtor by  Borrower  stated in the
number of days which have elapsed  since the date each such credit was issued by
Borrower,  and such other information as Bank may reasonably require in order to
verify such Accounts, all in reasonable detail and in form acceptable to Bank.

(c) Interim Statements. Within forty-five (45) days after the end of each of the
first three (3) fiscal quarters of each year, a consolidated  and  consolidating
unaudited   management-prepared   financial   statement,    including,   without
limitation,  a balance sheet of Borrower and its Subsidiaries at the end of that
period and a consolidated and consolidating  income statement and a consolidated
statement  of cash flows for the  portion of the fiscal  year  ending  with such
period,  together with all  supporting  schedules,  setting forth in comparative
form the figures for the same period of the preceding fiscal year, and certified
by the chief  financial  officer  of  Borrower  as true and  correct  and fairly
representing  the financial  condition of Borrower and its Subsidiaries and that
such statements are prepared in accordance with GAAP,  except without  footnotes
and subject to normal year-end audit adjustments  (notwithstanding  anything set
forth  herein to the  contrary,  Borrower  shall not be required to deliver such
Interim  Statements  in a form  which  varies  from  the  form  supplied  to the
Securities and Exchange Commission);

(d) Annual  Statements.  Within  ninety  (90) days after the end of each  fiscal
year,  a detailed  audited  financial  report of Borrower  and its  Subsidiaries
containing  a  consolidated  balance  sheet  at the  end of  that  period  and a
consolidated  income  statement  and  statement  of cash flows for that  period,
setting forth in  comparative  form the figures for the  preceding  fiscal year,
together with all supporting schedules and footnotes, and containing an audit of
independent  certified public accountants  acceptable to Bank that the financial
statements  were  prepared  in  accordance  with GAAP.  Any  management  letter,
supplemental  letter,  or other  document  accompanying  the report will also be
provided to Bank. In addition,  promptly upon receipt,  one copy of each written
report  submitted to Borrower by independent  accountants  for any other annual,
quarterly or special  audit will be provided to Bank  (notwithstanding  anything
set forth herein to the contrary, Borrower shall not be required to deliver such
Annual  Statements  in a  form  which  varies  from  the  form  supplied  to the
Securities and Exchange Commission);

(e) No Event of Default  Certificates.  Together  with each  report  required by
Subsections  (c) and (d), a  compliance  certificate  of its  president or chief
financial officer that no Event of Default then exists or if an Event of Default
exists,  the nature and duration  thereof and Borrower's  intention with respect
thereto.

(f) Auditor's Management Letters.  Promptly upon receipt thereof, copies of each
report  submitted to Borrower by  independent  public  accountants in connection
with any annual,  interim or special audit made by them of the books of Borrower
including,  without limitation, each report submitted to Borrower concerning its
accounting  practices and systems and any final comment letter submitted by such
accountants to management in connection with the annual audit of Borrower; and

(g) Other Information.  Such other information reasonably requested by Bank from
time to time  concerning  the  business,  properties  or financial  condition of
Borrower, Guarantor and their respective Subsidiaries.

5.7.  Maintenance  of Existence and Rights.  Borrower will preserve and maintain
its  corporate   existence,   authorities  to  transact  business,   rights  and
franchises,  trade  names,  patents,  trademarks  and permits  necessary  to the
conduct of its business.

5.8.  Payment of Taxes,  Etc.  Shall pay before  delinquent all of its debts and
taxes,  except if being actively contested in accordance with law (provided that
Bank may require bonding or other assurances).


                                     Page 9



5.9.  Compliance;  Hazardous  Materials.  Shall  strictly  comply with all laws,
regulations,  ordinances and other legal requirements,  specifically  including,
without  limitation,  ERISA,  all  securities  laws  and all  laws  relating  to
hazardous  materials and the  environment.  Unless  approved in writing by Bank,
neither  Borrower nor any Subsidiary  shall engage in the storage,  manufacture,
disposition,  processing,  handling,  use or  transportation of any hazardous or
toxic materials, except in compliance with applicable laws and regulations.

5.10  Compliance  with  Assignment  Laws.  Shall if reasonably  required by Bank
comply with the Federal  Assignment of Claims Act and any other  applicable  law
relating to assignment of government contracts.

5.11 Further Assurances. Shall take such further action and provide to Bank such
further assurances as may be reasonably  requested to ensure compliance with the
intent of this Agreement and the other Loan Documents.

5.12 Intentionally Deleted.

6. Negative  Covenants of Borrower.  Borrower covenants and agrees that from the
date  hereof  and  until  payment  in full of the  Indebtedness  and the  formal
termination of this Agreement, Borrower and each Subsidiary:

6.1 Negative Pledge.  Shall not create,  assume,  or permit to exist any Lien on
any of its assets whether now owned or hereafter acquired, other than: (i) liens
for taxes  contested  in good faith;  (ii) liens  accruing  by law for  employee
benefits;  (iii) liens  pursuant to capital lease  obligations  and/or  purchase
money loans for business  equipment and (iv) Permitted  Liens.  Neither Borrower
nor any Subsidiary shall grant any such negative pledge to any other party.

6.2. Transfer/Acquisition of Assets by Subsidiaries. Other than office equipment
and payment for marketing services,  shall not permit any tangible or intangible
assets to be transferred to or acquired by the following  subsidiaries of Farrel
Corporation: (i) Farrel Shaw Ltd., (ii) Farrel Europe BV, (iii) Farrel Asia Ltd.
(other than office  equipment),  (iv) Farrel GmbH,  or (v) Farrel Srl.  Borrower
hereby  represents that except as noted herein,  as of the date hereof,  none of
the foregoing  subsidiaries have any ownership  interest in any such tangible or
intangible assets.

6.3. Default on Other Contract or Obligations. Shall not default on any contract
with or obligation  when due to a third party or default in the  performance  of
any  obligation  to a third party  incurred  for money  borrowed in an amount in
excess of $100,000.00,  which defaults could reasonably be anticipated to have a
Material Adverse Effect.

6.4.  Judgment  Entered.  Shall not permit the entry of any monetary judgment or
the assessment  against,  the filing of any tax lien against, or the issuance of
any writ of  garnishment  or  attachment  against  any  property of or debts due
Borrower  in an  amount  in  excess of  $100,000.00  that is not  discharged  or
execution  is not stayed  within  thirty  (30) days of entry  (except  judgments
validly covered by insurance with a deductible of not more than $10,000).

6.5  Guarantees.  Shall  not  guarantee  or  otherwise  become  responsible  for
obligations  of any other person or persons in an aggregate  amount in excess of
$100,000.00 per fiscal year, other than the endorsement of checks and drafts for
collection in the ordinary course of business.

6.6.   Change  in  Business.   Shall  not  enter  into  any  business  which  is
substantially different from the business in which it is presently engaged.

6.7. Accounts. (a) Shall not sell, assign or factor any of its Accounts, Chattel
Paper or any promissory  notes held by it; and (b) shall notify Bank promptly in
writing of any material  discount,  offset or other  deductions not shown on the
face of an Account invoice and any dispute over an Account,  and any information
relating to an adverse  change in any Account  Debtor's  financial  condition or
ability to pay its obligations,  which could reasonably be anticipated to have a
Material Adverse Effect.

6.8. No Change in Name, Offices;  Removal of Assets.  Shall not, unless it shall
have given 60 days' advance  written notice thereof to Bank, (a) change its name
or the  location of its chief  executive  office or other  office where books or
records are kept or (b) permit any material  Inventory or other tangible  assets
to be located at any location other than as specified in Section 4.9 .


                                    Page 10



6.9.  Margin Stock.  Shall not use any proceeds of the Loan to purchase or carry
any margin stock  (within the meaning of  Regulation U of the Board of Governors
of  Federal  Reserve  System)  or extend  credit to others  for the  purpose  of
purchasing or carrying any margin stock.

6.10.  Tangible  Assets.  Shall not, except as otherwise  provided  herein,  and
except  for  Inventory  of  customers  located  at  Borrower's   facilities  for
rebuilding or  refurbishing,  allow any Inventory or other tangible assets to be
commingled with, or become an accession to or part of, any property of any other
Person; nor allow any tangible assets to become a fixture unless Bank shall have
given its prior written authorization.

6.11.  Subsidiaries.  Shall not acquire,  form or dispose of any Subsidiaries or
permit any Subsidiary to issue capital stock except to its parent.

6.12.  Change of Name.  Shall give Bank thirty (30) days prior written notice of
any change of name or any new trade or fictitious  name.  Borrower's  use of any
trade or fictitious  name shall be in compliance with all laws regarding the use
of such names.

6.13.  Liquidation,  Mergers,  Consolidations  and  Dispositions  of Substantial
Assets.  Shall not  dissolve  or  liquidate,  or become a party to any merger or
consolidation,  or acquire by purchase, lease or otherwise, all or a substantial
part (more than 10% in the  aggregate  during the term  hereof) of the assets of
any  Person,  or  sell,  transfer,  lease  or  otherwise  dispose  of  all  or a
substantial  part (more than 10% in the aggregate during the term hereof) of its
property or assets,  except for the sale of Inventory in the ordinary  course of
business,  or  sell  or  dispose  of  any  equity  ownership  interests  in  any
Subsidiary.

6.14.  Change  of Fiscal  Year or  Accounting  Methods.  Shall  not  change  its
accounting methods except in compliance with GAAP, or its fiscal year.

7. Financial Covenants.  Borrower covenants and agrees that from the date hereof
and until payment in full of the Indebtedness and the formal termination of this
Agreement,  Borrower  and  each  Subsidiary  shall  comply  with  the  following
financial covenants:

7.1.  End-of-Month Backlog.  Consolidated  End-of-Month Backlog will not be less
than  $20,000,000 for more than two consecutive  months.  This covenant shall be
tested monthly upon receipt of backlog certificate.

7.2. Current Position.  Consolidated  Current Position will not decrease by more
than $1,250,000 during any trailing  four-quarter period. This covenant shall be
tested  quarterly  upon  Bank's  receipt  of  interim,   or  annual,   financial
statements,  as  applicable,  commencing  with the trailing four quarter  period
ending on December 31, 2001.  Current  Position  means  Adjusted  Current Assets
minus Adjusted Current Liabilities. Adjusted Current Assets means the sum of (i)
cash and  cash  equivalents,  (ii)  accounts  receivable  and  (iii)  inventory.
Adjusted Current  Liabilities  means all current  liabilities in accordance with
GAAP plus  obligations  arising from  Advances of cash proceeds of the Revolving
Loan that are classified as long-term.

7.3. Adjusted Net Worth.  Consolidated  Adjusted Net Worth will not be less than
$22,500,000.  This covenant  shall be tested  quarterly  upon Bank's  receipt of
interim, or annual,  financial  statements,  as applicable,  commencing with the
trailing four quarter period ending on June 30, 2001.  Consolidated Adjusted Net
Worth means Borrower's  consolidated  stockholders'  equity,  in accordance with
GAAP,  exclusive of any amount  arising  from the  cumulative  foreign  currency
translation  adjustment  that  would  be  reported  in  Borrower's  consolidated
statement of stockholders' equity.


                                    Page 11



7.4. Debt Coverage Ratio. Consolidated Debt Coverage Ratio will not be less than
1.25 to 1.00 for any trailing four-quarter period. This covenant shall be tested
quarterly upon Bank's receipt of interim, or annual,  financial  statements,  as
applicable,  commencing with the trailing four quarter period ending on June 30,
2001. Debt Coverage Ratio means Funds Flow divided by the current  maturities of
long term debt as of the test  date.  Funds  Flow  means,  for a given  trailing
four-quarter  period, the sum of (i) net income,  (ii) depreciation  expense and
(iii)  amortization  expense.  For  purposes  of  this  covenant,   the  current
maturities of long-term  debt will be in  accordance  with GAAP but will exclude
obligations arising from the Direct Advance Sub-Limit of the Revolving Loan that
are classified as short-term.

7.5.  Dividends.  In no event shall Borrower declare or pay a dividend or
make any other  distribution  or  withdrawal  if there  shall  exist an Event of
Default  or a  condition  which,  upon the  giving of notice or lapse of time or
both, would become an Event of Default under the Loan Documents.

7.6. Limitation on Debt. Borrower  shall not, without the prior written  consent
of Bank, directly or indirectly,  create, incur, assume or become liable for any
Debt, whether contingent or direct,  except for equipment lease financing and/or
purchase money equipment financing, and other Permitted Debt.

7.7. Loans and Advances. Borrower shall not, without the  prior written  consent
of Bank, during any fiscal year,  make loans or advances, except in the ordinary
course of business, to any person or entity other than another Borrower.

7.8. Deposit Relationship.  Borrower  shall  maintain  its   primary  depository
account  and  cash  management account  with Bank, into which  Advances  may  be
credited and from which monthly payments will be automatically deducted.

8. Event of Default.

8.1.  Events of Default.  Each of the  following  shall  constitute  an Event of
Default:

(a) There shall occur any default by Borrower in the  payment,  when due, of any
principal  of or interest on the Note,  any amounts due  hereunder  or any other
Loan  Document,  or any  other  Indebtedness  or any  default  of any  Financial
Covenant set forth in Section 7 hereof; or

(b) There  shall  occur any  default by  Borrower or any other party to any Loan
Document  (other than Bank) in the  performance  of any  agreement,  covenant or
obligation  contained in this  Agreement or such Loan  Document not provided for
elsewhere  in this Section 8 beyond  thirty (30) days from the date  Borrower or
such other party has actual or  constructive  knowledge of such  default,  other
than with  respect to a payment  default or  default of any  Financial  Covenant
referenced in Section 8.1(a) hereof; or

(c) Any  representation  or warranty  made by Borrower or any other party to any
Loan  Document  (other  than Bank)  herein or therein or in any  certificate  or
report  furnished in connection  herewith or therewith  shall prove to have been
untrue or incorrect in any material respect when made; or

(d) Any other  obligation now or hereafter owed by Borrower or any Subsidiary to
Bank shall be in default and not cured within the grace period, if any, provided
therein,  or any such Person shall be in default under any  obligation in excess
of $100,000 owed to any other  obligee,  which  default  entitles the obligee to
accelerate any such obligations or exercise other remedies with respect thereto,
provided  that  with  respect  to  any  Subsidiary,  the  foregoing  shall  only
constitute  an Event of  Default if such  event  would  have a Material  Adverse
Effect on Borrower; or

(e) Borrower or any  Subsidiary  shall (A)  voluntarily  dissolve,  liquidate or
terminate  operations  or apply for or  consent  to the  appointment  of, or the
taking of possession  by, a receiver,  custodian,  trustee or liquidator of such
Person or of all or of a  substantial  part of its assets,  (B) admit in writing
its inability, or be generally unable, to pay its debts as the debts become due,
(C) make a general  assignment for the benefit of its creditors,  (D) commence a
voluntary  case  under  the  federal  Bankruptcy  Code (as now or  hereafter  in
effect), (E) file a petition seeking to take advantage of any other law relating
to  bankruptcy,  insolvency,  reorganization,   winding-up,  or  composition  or
adjustment of debts, (F) fail to controvert in a timely and appropriate  manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
under  Bankruptcy  Code,  or (G) take any  corporate  action for the  purpose of
effecting any of the  foregoing,  provided that with respect to any  Subsidiary,
the foregoing shall only constitute an Event of Default if such event would have
a Material Adverse Effect on Borrower; or


                                    Page 12



(f) An involuntary  petition or complaint shall be filed against Borrower or any
Subsidiary  seeking  bankruptcy relief or reorganization or the appointment of a
receiver,  custodian,  trustee,  intervenor  or  liquidator  of  Borrower or any
Subsidiary,  of all or  substantially  all of its assets,  and such  petition or
complaint  shall not have been  dismissed  within  sixty (60) days of the filing
thereof;  or an order, order for relief,  judgment or decree shall be entered by
any court of competent  jurisdiction or other competent  authority  approving or
ordering  any of the  foregoing  actions,  provided  that  with  respect  to any
Subsidiary,  the  foregoing  shall only  constitute  an Event of Default if such
event would have a Material Adverse Effect on Borrower; or

(g) A judgment in excess of $100,000  shall be rendered  against the Borrower or
any Subsidiary and shall remain undischarged,  undismissed and unstayed for more
than  thirty  days  (except  judgments  validly  covered  by  insurance  with  a
deductible  of not more than  $10,000) or there  shall  occur any levy upon,  or
attachment,  garnishment or other seizure of, any material portion of the assets
of  Borrower  or any  Subsidiary  by  reason  of the  issuance  of any tax levy,
judicial  attachment or  garnishment  or levy of  execution,  provided that with
respect to any  Subsidiary,  the  foregoing  shall only  constitute  an Event of
Default if such event would have a Material Adverse Effect on Borrower; or

(h) Borrower or any Subsidiary shall fail to pay, within a reasonable time after
demand,  any returned or dishonored  draft,  check, or other item which has been
deposited to the Demand Deposit  Account or otherwise  presented to Bank and for
which Borrower has received provisional credit; or

(i) There shall occur any change in the  condition  (financial  or otherwise) of
Borrower and/or any Subsidiary  which, in the reasonable  opinion of Bank, could
have a Material Adverse Effect.

8.2. Remedies.  If any Event of Default shall occur, Bank may, without notice to
Borrower,  at its option,  withhold further Advances to Borrower. If an Event of
Default  shall have  occurred  and be  continuing,  Bank may  declare any or all
Indebtedness  to be  immediately  due and  payable  (if not  earlier  demanded),
terminate  its  obligation  to make  Advances to  Borrower,  bring suit  against
Borrower to collect the  Indebtedness,  exercise  any remedy  available  to Bank
hereunder or at law and take any action or exercise any remedy  provided  herein
or in any other  Loan  Document  or under  applicable  law.  No remedy  shall be
exclusive  of other  remedies or impair the right of Bank to exercise  any other
remedies.

8.3. Receiver.  In addition to any other remedy available to it, Bank shall have
the absolute  right,  upon the  occurrence  of an Event of Default,  to seek and
obtain the  appointment  of a receiver to take  possession of and operate and/or
dispose  of the  business  and  assets of  Borrower  and any costs and  expenses
incurred by Bank in connection with such receivership shall bear interest at the
Default Rate, at Bank's option.

8.4. Deposits;  Insurance. After the occurrence of an Event of Default, Borrower
authorizes Bank to collect and apply against the Indebtedness  when due any cash
or deposit accounts in its possession,  and any refund of insurance  premiums or
any  insurance  proceeds  payable  on  account  of the loss or  damage to any of
Borrower's  assets and  irrevocably  appoints  Bank as its  attorney-in-fact  to
endorse any check or draft or take other action necessary to obtain such funds.

9. Bank's Additional Right.

9.1.  Other  Rights.  Borrower  authorizes  Bank  without  affecting  Borrower's
obligations  hereunder or under any other Loan Document from time to time (i) to
take from any party and hold  collateral  or  guaranties  for the payment of the
Indebtedness  or any part  thereof,  and to  exchange,  enforce or release  such
collateral or guaranty of payment of the Indebtedness or any part thereof and to
release or  substitute  any endorser or guarantor or any party who has given any
security  interest  in  any  collateral  as  security  for  the  payment  of the
Indebtedness  or any part  thereof or any party in any way  obligated to pay the
Indebtedness  or any part thereof;  and (ii) upon the occurrence of any Event of
Default to direct  the  manner of the  disposition  of such  collateral  and the
enforcement of any endorsements, guaranties, letters of credit or other security
relating to the  Indebtedness or any part thereof as Bank in its sole discretion
may determine.


                                    Page 13



9.2  Waiver  of  Marshaling.  Borrower  hereby  waives  any right it may have to
require marshaling of its assets.

10. Miscellaneous.

10.1.  No  Waiver,  Remedies  Cumulative.  No failure on the part of Bank or the
Borrower to exercise,  and no delay in exercising,  any right hereunder or under
any other Loan Document shall operate as a waiver thereof,  nor shall any single
or  partial  exercise  of any right  hereunder  preclude  any  other or  further
exercise  thereof  or the  exercise  of any other  right.  The  remedies  herein
provided are cumulative  and are in addition to any other  remedies  provided by
law, any Loan Document or otherwise.

10.2.  Survival of  Representations.  All  representations  and warranties  made
herein shall  survive the making of the Loan  hereunder  and the delivery of the
Note, and shall continue in full force and effect so long as any Indebtedness is
outstanding,  there exists any  commitment  by Bank to Borrower,  and until this
Agreement is formally terminated in writing.

10.3.  Indemnity By Borrower;  Expenses.  In addition to all other Indebtedness,
Borrower  agrees to defend,  protect,  indemnify  and hold harmless Bank and its
Affiliates  and  all  of  their  respective  officers,   directors,   employees,
attorneys,  consultants and agents from and against any and all losses, damages,
liabilities,  obligations,  penalties,  fees,  costs  and  expenses  (including,
without  limitation,  reasonable  attorneys'  and  paralegals'  fees,  costs and
expenses)  incurred by such indemnitees,  whether prior to or from and after the
date hereof, as a result of or arising from or relating to (i) the due diligence
effort (including,  without  limitation,  public record search,  recording fees,
examinations  and  investigations  of the  properties of Borrower and Borrower's
operations),  negotiation,  preparation,  execution and/or performance of any of
the  Loan  Documents  or  of  any  document  executed  in  connection  with  the
transactions contemplated thereby,  maintenance of the Loan by Bank, and any and
all amendments,  modifications,  and supplements of any of the Loan Documents or
restructuring  of the  Indebtedness,  (ii) any  suit,  investigation,  action or
proceeding by any Person (other than Borrower), whether threatened or initiated,
asserting a claim for any legal or equitable remedy against any Person under any
statute, regulation or common law principle,  arising from or in connection with
Bank's  furnishing  of funds to  Borrower  under this  Agreement,  (iii)  Bank's
preservation,  administration  and  enforcement  of its  rights  under  the Loan
Documents and applicable law, including the reasonable fees and disbursements of
counsel for Bank in  connection  therewith,  whether  suit be brought or not and
whether  incurred at trial or on appeal,  (iv) periodic field exams,  audits and
appraisals  performed by Bank;  and/or (v) any matter  relating to the financing
transactions  contemplated by the Loan Documents or by any document execution in
connection with the transactions contemplated thereby, other than for such loss,
damage, liability,  obligation,  penalty, fee, cost or expense arising from such
indemnitee's gross negligence or willful misconduct.  If Borrower should fail to
pay any tax or other amount  required by this  Agreement to be paid or which may
be  reasonably  necessary  to protect or  preserve  any  assets of  Borrower  or
Borrower's  or Bank's  interests  therein,  Bank may make such  payment  and the
amount  thereof  shall be payable on demand,  shall bear interest at the Default
Rate from the date of demand  until paid and shall be deemed to be  Indebtedness
entitled  to the  benefit  and  security  of the Loan  Documents.  In  addition,
Borrower agrees to pay and save Bank harmless  against any liability for payment
of any  state  documentary  stamp  taxes,  intangible  taxes  or  similar  taxes
(including  interest  or  penalties,  if  any)  which  may now or  hereafter  be
determined to be payable in respect to the  execution,  delivery or recording of
any Loan Document or the making of any Advance, whether originally thought to be
due or not, and  regardless of any mistake of fact or law on the part of Bank or
Borrower with respect to the  applicability of such tax.  Borrower's  obligation
for  indemnification  for all of the  foregoing  losses,  damages,  liabilities,
obligations,  penalties,  fees,  costs and expenses of Bank shall be part of the
Indebtedness,  chargeable  against  Borrower's  loan account,  and shall survive
termination of this Agreement.

10.4. Notices. Any notice or other communication  hereunder or under the Note to
any party  hereto or  thereto  shall be by hand  delivery,  overnight  delivery,
facsimile,  or registered or certified mail and unless otherwise provided herein
shall  be  deemed  to have  been  given or made  when  delivered  or faxed  (and
confirmed)  or as shown on the receipt for such  registered  or certified  mail,
addressed to the party at its address  specified  below (or at any other address
that the party may hereafter specify to the other parties in writing):


                                    Page 14



Bank:             First Union National Bank
                  300 Main Street
                  Stamford, CT 06901
                  Attn: Philip A. Galioto, Assistant Vice President
                  Fax # 203-406-6521

                  With a copy to:
                  Susman, Duffy & Segaloff, P.C.
                  55 Whitney Avenue
                  New Haven, CT 06510
                  Attn: Matthew C. Susman, Esq.
                  Fax #: 203-562-8430

Borrower:         Farrel Corporation
                  25 Main Street
                  Ansonia, CT 06401
                  Attn: Rolf K. Liebergesell, President and CEO
                  Fax #: 203-736-2836

                  With a copy to:
                  Cummings & Lockwood
                  Four Stamford Plaza
                  Stamford, CT 06904
                  Attn: Andrew Kupinse, Esq.
                  Fax: 203-351-4534

10.5.  Governing  Law.  This  Agreement and the Loan  Documents  shall be deemed
contracts made under the laws of the State of Connecticut  and shall be governed
by and  construed  in  accordance  with the laws of said  state  (excluding  its
conflict of laws provisions if such provisions would require  application of the
laws of another jurisdiction).

10.6.  Successors and Assigns.  This  Agreement  shall be binding upon and shall
inure to the benefit of Borrower and Bank, and their  respective  successors and
assigns;  provided,  that  Borrower  may not assign any of its rights  hereunder
without the prior written  consent of Bank, and any such assignment made without
such consent will be void.

10.7. Counterparts. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts,  each of which when so
executed and  delivered  shall be deemed an original and all of which when taken
together shall constitute but one and the same instrument.

10.8. No Usury. Regardless of any other provision of this Agreement, the Note or
in any other Loan  Document,  if for any reason the  effective  interest  should
exceed the maximum  lawful  interest,  the  effective  interest  shall be deemed
reduced to, and shall be, such maximum lawful interest, and (i) the amount which
would be  excessive  interest  shall be deemed  applied to the  reduction of the
principal  balance of the Note and not to the payment of  interest,  and (ii) if
the Loan  evidenced by the Note has been or is thereby paid in full,  the excess
shall be returned to the party paying same,  such  application  to the principal
balance of the Note or the refunding of excess to be a complete  settlement  and
acquittance thereof.

10.9.  Powers.  All  powers of  attorney  granted  to Bank are  coupled  with an
interest and are irrevocable.

10.10.  Approvals.  If this Agreement calls for the approval or consent of Bank,
such  approval or consent may be given or  withheld  in the  discretion  of Bank
unless otherwise specified herein.

10.11. Binding Arbitration; Preservation of Remedies.


                                    Page 15



(a) Binding Arbitration. Upon demand of any party hereto, whether made before or
after institution of any judicial  proceeding,  any claim or controversy arising
out of, or  relating  to the Loan  Documents  ("Disputes")  between  the parties
hereto (a "Dispute")  shall be resolved by binding  arbitration  conducted under
and  governed  by the  Commercial  Financial  Disputes  Arbitration  Rules  (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") and the
Federal Arbitration Act. Disputes may include, without limitation,  tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class  actions,  or claims  arising  from  documents  executed in the
future.  A  judgment  upon  the  award  may  be  entered  in  any  court  having
jurisdiction. Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to swap agreements.

(b) Special Rules.  All  arbitration  hearings shall be conducted in the city in
which the office of Bank first  stated above is located.  A hearing  shall begin
within 90 days of demand for  arbitration  and all  hearings  shall be concluded
within 120 days of demand for  arbitration.  These time  limitations  may not be
extended  unless a party shows cause for  extension  and then for no more than a
total of 60 days.  The expedited  procedures set forth in Rule 51 et seq. of the
Arbitration  Rules  shall be  applicable  to  claims  of less  than  $1,000,000.
Arbitrators shall be licensed attorneys  selected from the Commercial  Financial
Dispute  Arbitration  Panel of the AAA.  The  parties  do not  waive  applicable
Federal or state substantive law except as provided herein.

(c)  Preservation  and  Limitation  of Remedies.  Notwithstanding  the preceding
binding  arbitration  provisions,   the  parties  agree  to  preserve,   without
diminution,  certain  remedies  that any party may  exercise  before or after an
arbitration  proceeding is brought.  The parties shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable:  (i) all rights to foreclose against any real
or personal  property or other  security by  exercising a power of sale or under
applicable  law by judicial  foreclosure  including a proceeding  to confirm the
sale;  (ii) all  rights  of  self-help  including  peaceful  occupation  of real
property and collection of rents,  set-off,  and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief,  sequestration,  garnishment,  attachment,  appointment  of receiver and
filing  an  involuntary  bankruptcy  proceeding;  and (iv)  when  applicable,  a
judgment by confession of judgment.  Any claim or controversy with regard to the
parties' entitlement to such remedies is a Dispute.

(d) No Punitive  Damages.  Each party  agrees that it shall not have a remedy of
punitive or exemplary damages against the other in any Dispute and hereby waives
any right or claim to punitive or exemplary damages it may have now or which may
arise in the future in  connection  with any  Dispute,  whether  the  Dispute is
resolved by arbitration or judicially.

(e) Waiver of Jury Trial.  The parties  acknowledge  that by agreeing to binding
arbitration they have irrevocably waived any right they may have to a jury trial
with regard to a Dispute.

10.12.  Participations.  Bank  shall  have the  right to enter  into one or more
participation  with other lenders with respect to the  Indebtedness.  Upon prior
notice to Borrower of such  participation,  Borrower shall thereafter furnish to
such  participant any information  furnished by Borrower to Bank pursuant to the
terms of the  Loan  Documents.  Nothing  in this  Agreement  or any  other  Loan
Document  shall  prohibit  Bank from  pledging or assigning  this  Agreement and
Bank's  rights  under  any of the other  Loan  Documents,  including  collateral
therefor, to any Federal Reserve Bank in accordance with applicable law.


                                    Page 16



10.13.  Dealings with Multiple  Borrowers.  All  Indebtedness,  representations,
warranties,  covenants and indemnities set forth in the Loan Documents of Farrel
Corporation are solely the obligation of Farrel Corporation,  and Farrel Limited
shall  have no  liability  to Bank with  respect to such  obligations  of Farrel
Corporation.  All  Indebtedness,  representations,   warranties,  covenants  and
indemnities  set forth in the Loan Documents of Farrel Limited are the joint and
several obligation of Farrel Corporation and Farrel Limited,  and both Borrowers
shall be fully liable with respect to such  obligations of Farrel Limited.  Bank
shall have the right to deal with any  individual of any Borrower with regard to
all matters concerning the rights and obligations of Bank hereunder and pursuant
to applicable law with regard to the  transactions  contemplated  under the Loan
Documents.  All actions or inactions of the officers,  managers,  members and/or
agents of any Borrower with regard to the  transactions  contemplated  under the
Loan  Documents  shall be  deemed  with  full  authority  and  binding  upon all
Borrowers  hereunder.  Each Borrower  hereby appoints each other Borrower as its
true and lawful  attorney-in-fact,  with full right and power,  for  purposes of
exercising  all rights of such Person  hereunder and under  applicable  law with
regard to the transactions  contemplated under the Loan Documents. The foregoing
is a material inducement to the agreement of Bank to enter into the terms hereof
and to consummate the transactions contemplated hereby.

10.14. Waiver of Certain Defenses. To the fullest extent permitted by applicable
law, upon the  occurrence of any Event of Default,  neither  Borrower nor anyone
claiming by or under  Borrower  will claim or seek to take  advantage of any law
requiring  Bank to attempt to realize upon any assets of Borrower or  collateral
of any surety or guarantor,  or any appraisement,  evaluation,  stay, extension,
homestead,  redemption  or exemption  laws now or hereafter in force in order to
prevent or hinder the  enforcement of this Agreement.  Borrower,  for itself and
all who may at any time claim through or under Borrower, hereby expressly waives
to the fullest extent  permitted by law the benefit of all such laws. All rights
of Bank  and all  obligations  of  Borrower  hereunder  shall  be  absolute  and
unconditional  irrespective  of (i) any  change in the time,  manner or place of
payment of, or any other term of, all or any of the  Indebtedness,  or any other
amendment or waiver of or any consent to any departure from any provision of the
Loan  Documents,  (ii) any  exchange,  release  or  non-perfection  of any other
collateral given as security for the  Indebtedness,  or any release or amendment
or waiver of or consent to  departure  from any  guaranty  for all or any of the
Indebtedness, or (iii) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Borrower or any third party, other than
payment and performance in full of the Indebtedness.

10.15. Other Provisions.  Any other or additional terms and conditions set forth
in Exhibit 10.15 (if any) are hereby incorporated herein.




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

FIRST UNION NATIONAL BANK           FARREL CORPORATION


By /s/ Anne S Wilson                By /s/ Rolf K Liebergesell    
   Anne S. Wilson                      Rolf K. Liebergesell
   Its Vice President                  Its  President and CEO


                                    FARREL LIMITED


                                    By /s/ Rolf K Liebergesell    
                                       Rolf K. Liebergesell
                                       Its  Director









                                    Page 17



STATE OF CONNECTICUT)
                    ) ss: New Haven,                            June 15, 2001
COUNTY OF NEW HAVEN )

         Personally  appeared this date, Anne S. Wilson, vice president of First
Union National Bank, a national  banking  association,  signer and sealer of the
foregoing  instrument and  acknowledged  the same to be her free act and deed as
such officer, and the free act and deed of said banking corporation, before me.


                                                    Mathew Sussman
                                          Commissioner of the Superior Court



STATE OF CONNECTICUT)
                    ) ss: New Haven,                            June 15, 2001
COUNTY OF NEW HAVEN )

         Personally appeared this date, Rolf K. Liebergesell,  president and CEO
of  Farrel  Corporation,  a  Delaware  corporation,  signer  and  sealer  of the
foregoing  instrument and  acknowledged  the same to be his free act and deed as
such officer, and the free act and deed of said corporation, before me.



                                                    Andrew Kupinse
                                          Commissioner of the Superior Court




STATE OF CONNECTICUT)
                    ) ss: New Haven,                            June 15, 2001
COUNTY OF NEW HAVEN )

         Personally appeared this date, Rolf K. Liebergesell, director of Farrel
Limited, a corporation organized under the laws of England and Wales, signer and
sealer of the foregoing instrument and acknowledged the same to be his free act
and deed as such officer, and the free act and deed of said corporation, before
me.


                                                    Andrew Kupinse
                                          Commissioner of the Superior Court



                                    Page 18





                              SCHEDULE OF EXHIBITS


         (If any exhibit is omitted, the information called for therein
                 shall be considered "None" or "Not Applicable")

Exhibit   Section Reference                   Title

 1       1   ("Definitions")                  Definitions
 1.1C    1.1 ("Permitted Debt")               Permitted Debt
 1.1D    1.1 ("Permitted Liens")              Permitted Liens
 1.2     1.2 Financial Terms
 4.3     4.3 ("Financial Condition")          Contingent Liabilities
 4.4     4.4 ("Litigation")                   Litigation
 4.9     4.9 ("Location")                     Offices of Borrower
 4.14    4.14 ("Subsidiaries")                List of Subsidiaries
 4.15    4.15 ("Environmental")               Environmental Disclosures
 4.18    4.18 ("Names")                       Names; Mergers; Acquisitions
 4.22    4.22 ("Additional Representations")  Additional Representations
 5.6(a)  5.6(a)("Periodic Borrowing Base
                 Information")                Borrowing Base/Backlog Certificate
 10.15   10.15 ("Other Provisions")           Additional Terms



                                    Page 19