First Union National Bank
                               Commercial Banking
                                     CT2006
                                 300 Main Street
                               Stamford, CT 06901

March 18, 2002


Mr. Walter Lazarcheck
Chief Financial Officer
Farrel Corporation
Ansonia, CT

     Re: Letter  agreement to modify  definition of  "Consolidated  Adjusted Net
     Worth"  contained in the text of Section 7.3 of the Revolving and Term Loan
     Credit Agreement dated as of June 18, 2001 ("the Agreement"), between First
     Union National Bank  ("Bank");  and Farrel  Corporation  and Farrel Limited
     (individually and collectively, "Borrower").

Dear Walter:

Per previous  discussions  between  Bank and  Borrower,  Bank hereby  agrees the
definition  of  "Consolidated  Adjusted Net Worth",  as it is shown in the third
sentence of Section 7.3 of the Agreement, will now read as follows:

     Consolidated   Adjusted  Net  Worth  means   Borrower's   consolidated
     stockholders'  equity,  in accordance with GAAP,  exclusive of (i) any
     amount  arising  from  the  cumulative  foreign  currency  translation
     adjustment   reported  in   Borrower's   consolidated   statement   of
     stockholders'  equity,  and (ii) an amount arising from the cumulative
     minimum  pension   liability   reported  in  Borrower's   consolidated
     statement of  stockholders'  equity not to exceed  $3,500,000 when the
     Consolidated  Adjusted  Net Worth is tested as of December  31,  2001,
     March 31, 2002,  June 2002 and September  30, 2002,  and not to exceed
     $2,500,000  when the  Consolidated  Adjusted Net Worth is tested as of
     December 31, 2002 and each test date thereafter.

First  Union also  agrees the  aforementioned  new  definition  of  Consolidated
Adjusted Net Worth is effective as of the December 31, 2001 test date.

This letter  agreement  applies to the definition of  Consolidated  Adjusted Net
Worth only.  This letter does not amend any other term,  condition or definition
contained in the Agreement.  Please sign below to indicate your agreement to the
aforementioned modification and return one signed copy of this letter to me.

Sincerely,

/s/ Anne Wilson
-------------------------
Anne Wilson
Vice President

Borrower hereby agrees to the modification referenced in this letter.

/s/ Walter Lazarcheck
-------------------------
Walter Lazarcheck
Chief Financial Officer
Farrel Corporation