AMENDED AND RESTATED
                                CREDIT AGREEMENT
                          dated as of January 23, 1998
                                      among
                               FARREL CORPORATION,
                                 FARREL LIMITED,
                               FARREL SHAW LIMITED
                                       AND
                            THE CHASE MANHATTAN BANK




<PAGE>



                      AMENDED AND RESTATED CREDIT AGREEMENT


          AMENDED AND  RESTATED  CREDIT  AGREEMENT  dated as of January 23, 1998
among FARREL  CORPORATION,  a corporation  organized  under the laws of Delaware
(the "U.S. Company"),  FARREL LIMITED, a corporation organized under the laws of
England and Wales  ("Farrel  Limited")  and FARREL SHAW  LIMITED,  a corporation
organized  under the laws of England and Wales  ("Farrel Shaw" and together with
Farrel Limited, the "U.K. Companies") (each a "Borrower" and, collectively,  the
"Borrowers")  and THE CHASE MANHATTAN BANK, a New York banking  corporation (the
"Bank").

          WHEREAS,  the U.S.  Company,  Farrel Limited and the Bank have entered
into that certain Credit  Agreement  dated as of March 20, 1993, as amended (the
"Existing Credit  Agreement")  pursuant to which the Bank has extended credit to
such Borrowers evidenced as by certain promissory notes issued by such Borrowers
to the Bank (the "Existing Notes"); and

          WHEREAS,  this  Agreement  amends and  restates  in its  entirety  the
Existing Credit  Agreement in order to, among other things,  increase the amount
available for borrowing, provide for the issuance of a Term Loan, and add Farrel
Shaw as a Borrower hereunder.

          NOW THEREFORE, the Borrowers and the Bank agree as follows:


                    ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS

          Section 1.01.  Definitions.  As used in this Agreement,  the following
terms have the  following  meanings  (terms  defined in the  singular  to have a
correlative meaning when used in the plural and vice versa):

         "Accounting  Month" means each fiscal month of the Borrowers,  it being
understood  that each fiscal year of the  Borrowers  is divided into four fiscal
quarters of 13 weeks each, and each such fiscal quarter is divided approximately
into two four-week months and one five-week month.

         "Acquisition"  means the acquisition by Farrel Shaw of the Francis Shaw
Rubber Machinery  business owned by Francis Shaw, FSRM and PRC,  pursuant to the
terms of the Acquisition Documents.

         "Acquisition  Documents"  mean that certain Agreement dated December 4,
1997, among Francis Shaw,  FSRM, PRC, Farrel Shaw,  Farrel Limited and EIS Group
plc,  and  all  other  agreements,  instruments  or  documents  entered  into in
connection therewith or delivered pursuant thereto.



                                       -1-

<PAGE>




          "Additional  Costs" has the  meaning  assigned to such term in Section
3.01.

         "Affiliate"  means  any  Person:   (a)  which  directly  or  indirectly
controls,  or is controlled by, or is under common control with, any Borrower or
any of their Subsidiaries; (b) which directly or indirectly beneficially owns or
holds five  percent or more of any class of voting  stock of any Borrower or any
such  Subsidiary;  (c)  five  percent  or more of the  voting  stock of which is
directly or  indirectly  beneficially  owned or held by any Borrower or any such
Subsidiary;  or (d) which is a partnership in which any Borrower or any of their
Subsidiaries  is a general  partner.  The term "control"  means the  possession,
directly or  indirectly,  of the power to direct or cause the  direction  of the
management  and policies of a Person,  whether  through the  ownership of voting
securities, by contract, or otherwise.

         "Agency Fee" has the meaning assigned to such term in Section 2.11(b).

         "Aggregate Outstandings" means the sum of, without duplication, (A) the
aggregate  principal amount of Loans  outstanding at such time, plus (B) the L/C
Obligations.

         "Agreement"  means this  Amended  and  Restated  Credit  Agreement,  as
amended or  supplemented  from time to time.  References to Articles,  Sections,
Exhibits,  Schedules  and the like refer to the  Articles,  Sections,  Exhibits,
Schedules and the like of this Agreement unless otherwise indicated.

         "Alternative  Currency" means any currency other than Dollars or Pounds
Sterling which is freely  transferrable  and convertible  into Dollars,  and for
which Chase London quotes a per annum  interest rate for the offering to leading
banks in the London interbank market of deposits.

         "Application" means an application in such form as the Bank may specify
from time to time, requesting the Bank to open a Letter of Credit.

         "Backlog Certificate" means each certificate delivered by the Borrowers
substantially in the form of Exhibit B-2.

         "Banking  Day"  means  any  day  on  which  commercial  banks  are  not
authorized or required to close in New York City,  and whenever such day relates
to a Fixed Rate Loan or notice  with  respect  to any Fixed Rate Loan,  a day on
which dealings in Dollar  deposits are also carried out in the London  interbank
market.

         "Borrowing Base" means at any date of determination thereof, the sum of
(i) 85% of Eligible U.S. Receivables at such date plus (ii) 50% of Eligible U.S.
Inventory at such date plus (iii) 85% of


                                      -2-
<PAGE>

Eligible U.K.  Receivables at such date plus (iv) 50% of Eligible U.K. Inventory
at such date;  the Borrowing  Base shall be determined by the Bank monthly based
upon a Borrowing  Base  Certificate  submitted by the  Borrowers to the Bank and
certified as accurate and complete by the senior  financial  officer of the U.S.
Company.

         "Borrowing Base (U.S.)" means at the date of determination thereof, the
sum of (i) 85% of  Eligible  U.S.  Receivables  at such  date  plus  (ii) 50% of
Eligible  U.S.  Inventory  at such date;  the  Borrowing  Base  (U.S.)  shall be
determined by the Bank monthly based upon a Borrowing Base Certificate submitted
by the  Borrowers  to the Bank and  certified  as accurate  and  complete by the
senior financial officer of the U.S. Company.

         "Borrowing Base  Certificate"  means each certificate  delivered by the
Borrowers substantially in the form of Exhibit B-1.

         "Capital   Expenditure"   means,  with  respect  to  any  Person,   any
expenditure made or obligation  incurred by such Person to purchase,  acquire or
construct fixed assets, plant and equipment  (including renewals,  improvements,
replacements  and  incurrence of  obligations  under  Capital  Leases) less cash
revenues  received  by such  Person  from the sale of fixed  assets,  plant  and
equipment.

         "Capital Lease" means any lease which has been or should be capitalized
on the books of the lessee in accordance with GAAP.

         "Chase London" means the London branch of the Bank.

         "Closing  Date" means the date this Agreement has been executed by each
of the Borrowers and the Bank.

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

         "Commitments"  mean the Revolving  Credit  Commitment and the Term Loan
Commitment.

         "Commitment  Fee" has the  meaning  assigned  to such  term in  Section
2.11(a).

         "Consolidated  Subsidiary"  means any Subsidiary  whose accounts are or
are required to be consolidated  with the accounts of any Borrower in accordance
with GAAP.

         "Consolidated  Tangible  Net  Worth"  means  Tangible  Net Worth of the
Borrowers and their Consolidated  Subsidiaries,  as determined on a consolidated
basis in accordance with GAAP.

         "Current  Assets" means all assets of the Borrowers  treated as current
assets in accordance with GAAP, excluding prepaid expenses.


                                      -3-
<PAGE>


         "Current Liabilities" means all liabilities of the Borrowers treated as
current  liabilities in accordance with GAAP,  including without  limitation (a)
all obligations payable on demand or within one year after the date on which the
determination is made (but not including the obligations under this Agreement in
the one year  period  prior to the  Termination  Date) and (b)  installment  and
sinking  fund  payments  required  to be made  within one year after the date on
which  the  determination  is  made,  but  excluding  all  such  liabilities  or
obligations  which are renewable or extendable at the option of the Borrowers to
a date more than one year from the date of determination.

         "Debt"  means,  with respect to any Person:  (a)  indebtedness  of such
Person for borrowed money; (b)  indebtedness for the deferred  purchase price of
property or services (except trade payables in the ordinary course of business);
(c)  Unfunded  Benefit  Liabilities  of such  Person  (if such  Person  is not a
Borrower,  determined  in a manner  analogous  to that of  determining  Unfunded
Benefit  Liabilities of the  Borrowers);  (d) the face amount of any outstanding
letters of credit issued for the account of such Person; (e) obligations arising
under  acceptance  facilities;  (f)  guaranties,  endorsements  (other  than for
collection in the ordinary course of business) and other contingent  obligations
to  purchase,  to provide  funds for  payment,  to supply funds to invest in any
Person, or otherwise to assure a creditor against loss; (g) obligations  secured
by any Lien on property of such Person;  and (h)  obligations  of such Person as
lessee under Capital Leases.

         "Debt Service  Charges"  means, for any fiscal year, the sum of (i) all
scheduled payments of principal during such period on or with respect to Debt of
the Borrowers or their Consolidated  Subsidiaries  (including without limitation
imputed  principal on Capital  Leases),  plus (ii) Interest  Expense during such
period.

         "Default"  means any event  which with the giving of notice or lapse of
time, or both, would become an Event of Default.

         "Default Rate" means, with respect to the principal of any Loan and, to
the extent  permitted by law, any other amount  payable by the  Borrowers  under
this Agreement,  the Notes, the Letters of Credit or the Facility Documents that
is not paid when due (whether at stated maturity, by acceleration or otherwise),
a rate per annum  during the period  from and  including  the due date,  to, but
excluding  the date on which such  amount is paid in full  equal to two  percent
above the Variable  Rate as in effect from time to time plus the Margin (if any)
provided that, if the amount so in default is principal of a Fixed Rate Loan and
the due date  thereof  is a day other than the last day of the  Interest  Period
therefor,  the "Default Rate" for such  principal  shall be, for the period from
and  including  the due date and to but  excluding  the last day of the Interest
Period therefor, two percent above the interest rate for


                                      -4-
<PAGE>


such Loan as provided in Section 2.10 hereof and, thereafter,  the rate provided
for above in this definition.

          "Direct  Borrowing  Sublimit"  means the  amount of the  lesser of (i)
$10,000,000 plus 50% of the amount of ---- backlog of the Borrowers in excess of
$40,000,000 or (ii) $15,000,000.

          "Dollars"  and the sign "$" mean lawful money of the United  States of
America.

         "EBIT" means,  for any fiscal year, (i) the  consolidated net income of
the Borrowers and their  Consolidated  Subsidiaries  plus (ii) all taxes accrued
with  respect to such fiscal  year which are  calculated  and  charged  upon the
profits of the  Borrowers  and their  Consolidated  Subsidiaries  plus (iii) all
Interest Expense accrued with respect to such fiscal year.

         "EBITDA"  means,  for any fiscal year,  (i) EBIT for such period,  plus
(ii) the aggregate  amounts of depreciation  and amortization to the extent that
such amounts were deducted in the computation of EBIT for such period.

         "Eligible  Receivables"  of a  Borrower  means the gross  amount of the
accounts  receivable  of such  Borrower  that  arose in the  ordinary  course of
business of such Borrower and are free and clear of any and all Liens and claims
of others,  less any re-bills and  chargebacks  (but  excluding  chargebacks  of
previously  disputed  items  which  have  been  subsequently  agreed  to by  the
customer) of any nature (whether issued, owing,  granted, or outstanding),  less
customary  reserves for: slow paying accounts (which shall be defined as any and
all  accounts  the  payment of which is due and owing for a period of 90 or more
days from the due date of the invoice in respect thereof); credit balances which
are over 90 days past due;  that  portion of any  account  which is less than 90
days  past due if more than  one-half  of the total  amount in  respect  of such
account  is more  than 90 days past due;  sales to the other  Borrowers,  to any
Subsidiary of the Borrowers or sales to any entity affiliated with the Borrowers
in any way; sales to financially unsound customers; dilution (which is a reserve
for such  Borrower's  normal  pattern of returns,  discounts,  claims,  credits,
allowances and other reductions in the Borrowers' receivables).

         "Eligible U.K.  Inventory" means the net amount of the inventory of the
Borrowers located in the United Kingdom that is owned by such Borrowers free and
clear of any and all Liens or claims of  others,  including  raw  materials  and
work-in-process,  but less any  packaging  materials  and  supplies,  damaged or
unsalable goods returned or rejected by such Borrower?s  customers,  goods to be
returned to the Borrowers?  suppliers,  goods in transit to third parties (other
than the Borrowers? agents or warehouses and goods out at contractors), and less
any  reserves  required  for special


                                      -5-
<PAGE>


order goods (unless built for a specific order), and market value declines.

         "Eligible U.S.  Inventory" means the net amount of the inventory of the
Borrowers  located  in the  United  States  of  America  that is  owned  by such
Borrowers free and clear of any and all Liens or claims of others, including raw
materials and  work-in-process,  but less any packaging  materials and supplies,
damaged or unsalable  goods returned or rejected by such  Borrower's  customers,
goods to be  returned  to the  Borrowers'  suppliers,  goods in transit to third
parties  (other  than the  Borrowers'  agents  or  warehouses)  and goods out at
contractors,  and less any  reserves  required for special  order goods  (unless
built for a specific order), and market value declines.

          "Eligible U.K.  Receivables"  means  Eligible  Receivables of the U.K.
Companies.

          "Eligible U.S.  Receivables"  means  Eligible  Receivables of the U.S.
Company.

         "Environmental  Laws"  means  any and all  federal,  state,  local  and
foreign statutes,  laws,  regulations,  ordinances,  rules,  judgments,  orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental   restrictions   relating  to  the  environment  or  to  emissions,
discharges,  releases  or  threatened  releases  of  pollutants,   contaminants,
chemicals,  or  industrial,  toxic or  hazardous  substances  or wastes into the
environment  including,  without limitation,  ambient air, surface water, ground
water,  or  land,  or  otherwise   relating  to  the  manufacture,   processing,
distribution,  use,  treatment,  storage,  disposal,  transport,  or handling of
pollutants,   contaminants,   chemicals,  or  industrial,   toxic  or  hazardous
substances or wastes.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended  from time to time,  including  any rules  and  regulations  promulgated
thereunder.

         "ERISA Affiliate" means any corporation or trade or business which is a
member of any group of  organizations  (i) described in section 414(b) or (c) of
the Code of which any  Borrower  is a member,  or (ii)  solely for  purposes  of
potential  liability under section 302(c)(11) of ERISA and section 412(c)(11) of
the Code and the lien created under section  302(f) of ERISA and section  412(n)
of the  Code,  described  in  section  414(m)  or (o) of the Code of  which  any
Borrower is a member.

         "ERISA Event" means (i) a "reportable  event" described in section 4043
of ERISA and the regulations thereunder with respect to any Title IV Plan (other
than a reportable  event not subject to the  provision  for 30-day notice to the
PBGC under such regulations); (ii) the filing of a notice of intent to terminate
a


                                      -6-
<PAGE>

Title IV Plan under section 4041 of ERISA;  (iii) the institution of proceedings
to terminate a Title IV Plan by the PBGC; (iv) any other event or condition that
might  reasonably be expected to constitute  grounds under section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Title
IV Plan or the imposition of any material liability under Title IV of ERISA; (v)
an event  requiring  notification  under  section  4041(c)(3)(c)  of ERISA  with
respect to a Title IV Plan; (vi) the  withdrawal,  as described in ERISA section
4063, of any ERISA Affiliate from a Title IV Plan during a plan year in which it
was a "substantial  employer" (as defined in section 4001(a)(2) of ERISA); (vii)
with respect to any Title IV Plan,  the cessation of operations at a facility in
the circumstances  described in section 4068(f) of ERISA; (viii) the adoption of
an amendment to a Title IV Plan requiring the provision of security to such plan
pursuant to section 307 of ERISA; (ix) with respect to any ERISA Affiliate,  the
failure to make a payment  required under section 412 of the Code or section 302
of ERISA which failure has not been cured within thirty (30) days; (x) a Pension
Plan having an  "accumulated  funding  deficiency" (as defined in section 412 of
the Code and section 302 of ERISA) whether or not waived;  (xi) the  application
for, or receipt of, a funding  waiver from the  Internal  Revenue  Service  with
respect to any Pension  Plan;  (xii) the adoption of an amendment to any Pension
Plan that  pursuant  to section  401(a)(29)  of the Code or section 307 of ERISA
would result in the loss of tax-exempt status of the trust of which such plan is
a part if either Borrower or an ERISA Affiliate fails to timely provide security
to the Plan in  accordance  with the  provisions  thereof or such  sections;  or
(xiii) a Pension Plan intended to be qualified  under section 401(a) of the Code
ceases to be so qualified or its related trust ceases to be exempt under section
501(a) of the Code.

         "Event of Default" has the meaning given such term in Section 9.01.

         "Facility  Documents"  means this Agreement,  the Notes, the Letters of
Credit, and any Interest Rate Protection Agreement to which the Bank is a party,
as each may be amended or supplemented from time to time.

         "Facility  Fee"  has  the  meaning  assigned  to such  term in  Section
2.11(b).

         "Federal Funds Rate"  means, for any day, the rate per annum (expressed
on a 365/366 day basis of  calculation if the rate on the Variable Rate Loans is
so calculated)  equal to the weighted average of the rates on overnight  federal
funds transactions as published by the Federal Reserve Bank of New York for such
day (or for any day that is not a Banking  Day,  for the  immediately  preceding
Banking Day).


                                      -7-
<PAGE>


         "Fixed Base Rate" means with respect to any Interest Period for a Fixed
Rate Loan: the rate per annum  (rounded  upwards,  if necessary,  to the nearest
1/16 of one percent)  quoted at  approximately  11:00 a.m.  London time by Chase
London two Banking Days prior to the first day of such  Interest  Period for the
offering to leading  banks in the London  interbank  market of Dollar  deposits,
Pound Sterling deposits or deposits of an Alternative  Currency, as the case may
be, in immediately  available funds, for a period, and in an amount,  comparable
to the Interest Period and principal amount of the related Fixed Rate Loan which
shall be made by the Bank and outstanding during such Interest Period.

         "Fixed  Rate" means,  for any Fixed Rate Loan for any  Interest  Period
therefor, a rate per annum (rounded upwards, if necessary,  to the nearest 1/100
of one  percent)  determined  by the Bank to be equal to the quotient of (i) the
Fixed  Base Rate for such Loan for such  Interest  Period,  divided  by (ii) one
minus the Reserve Requirement for such Loan for such Interest Period.

         "Fixed  Rate Loan"  means any Loan when and to the extent the  interest
rate therefor is determined on the basis of the definition "Fixed Base Rate."

         "Foreign  Exchange  Contract"  means a contract  pursuant  to which any
Borrower  purchases or sells  foreign  currency  for a fixed Pounds  Sterling or
Dollar amount at a future date.

         "Forfeiture  Proceeding" means any action,  proceeding or investigation
affecting any Borrower or any of their  Subsidiaries  or  Affiliates  before any
court,   governmental   department,   commission,   board,  bureau,   agency  or
instrumentality, domestic or foreign, or the receipt of notice by any such party
that any of them is a suspect  in or a target  of any  governmental  inquiry  or
investigation,  which is reasonably  likely to result in an indictment of any of
them or the seizure or forfeiture of any of their property.

         "Francis  Shaw" means Francis Shaw & Company  (Manchester)  Limited,  a
corporation organized under the laws of England and Wales.

         "FSRM"  means  Francis Shaw Rubber  Machinery  Limited,  a  corporation
organized under the laws of England and Wales.

         "Funded  Debt"  means,  with  respect to any  Person,  all Debt of such
Person for money borrowed which by its terms matures more than one year from the
date as of which such Funded Debt is  incurred,  and any Debt of such Person for
money  borrowed  maturing  within one year from such date which is  renewable or
extendable at the option of the obligor to a date beyond one year from such date
(whether  or  not   theretofore   renewed  or  extended),   including  any  such
indebtedness  renewable or  extendable  at the option of the obligor


                                      -8-
<PAGE>


under, or payable from the proceeds of other  indebtedness which may be incurred
pursuant to, the provisions of any revolving  credit  agreement or other similar
agreement.

         "GAAP" means  generally  accepted  accounting  principles in the United
States of America as in effect, applied on a basis consistent with those used in
the preparation of the financial  statements referred to in Section 5.05 (except
for changes concurred with by the Borrowers' independent public accountants).

         "Hazardous Materials" means any substance regulated under Environmental
Laws and includes,  without limitation,  any hazardous or toxic waste, substance
or material;  asbestos or PCBs; petroleum products including gasoline, fuel oil,
crude oil, diesel oil and various  constituents of such products;  and any other
chemicals, materials or substances which are regulated under Environmental Laws.

         "Interest  Expense"  means all payments made by the Borrowers and their
Subsidiaries of interest, finance charges, the portion of capital lease payments
attributable  to the time value of money and other fees,  charges  and  expenses
extracted in exchange for the forbearance from the collection of money.

         "Interest  Period"  means,  with  respect to any Fixed  Rate Loan,  the
period commencing on the date such Loan is made,  converted from a Variable Rate
Loan or renewed,  as the case may be, and ending, as the respective Borrower may
select  pursuant to Section 2.06, on the  numerically  corresponding  day in the
first,  second or third calendar month thereafter,  provided that in the case of
the Term Loan, the initial interest period will commence on the Closing Date and
shall end on March 31, 1998 and for each subsequent  interest period  thereafter
the  respective  Borrower  may only select as an ending  date,  the  numerically
corresponding  date in the third month after  commencement  and provided further
that each such  Interest  Period  which  commences  on the last Banking Day of a
calendar  month (or on any day for which there is no  numerically  corresponding
day in the appropriate  subsequent calendar month) shall end on the last Banking
Day of the appropriate calendar month.

         "Interest  Rate  Protection  Agreements"  means any interest rate swap,
cap, collar agreement or similar  arrangement  between any Borrower and the Bank
providing for the transfer or mitigation of interest  risks either  generally or
under specific contingencies.

         "Issuing  Bank" means the Bank or Chase London,  as the case may be, in
its capacity as issuer of any Letter of Credit.

         "L/C Fee Payment  Date" means the date of issuance of each L/C and each
three month anniversary thereof.


                                      -9-
<PAGE>


         "L/C Obligations"  means at any time, an amount equal to the sum of (a)
the aggregate then undrawn and unexpired amount of the then outstanding  Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to subsection 2.01(e)(iv).

         "Letters of Credit" means  standby,  trade and  documentary  letters of
credit  and  bank  guarantees  and   performance   bonds  issued  under  Section
2.01(e)(i).

         "Lending  Office"  means,  for each type of Loan, the lending office of
the Bank  designated as such for such type of Loan on its signature  page hereof
or such other  office of the Bank (or of an  affiliate  of the Bank) as the Bank
may from time to time specify to the Borrowers as the office by which like Loans
are to be made and maintained.

         "Lien" means any lien  (statutory  or  otherwise),  security  interest,
mortgage,  deed of trust,  priority,  pledge,  charge,  conditional  sale, title
retention  agreement,  financing lease or other  encumbrance or similar right of
others, or any agreement to give any of the foregoing.

         "Loans" mean the  Revolving  Credit Loans and the Term Loan made by the
Bank pursuant to Section 2.01.

         "Margin"  means,  (a) for a Variable  Rate Loan, 0% and (b) for a Fixed
Rate Loan,  1.25% if such Loan is a Revolving Credit Loan and 1.75% if such Loan
is a Term Loan.

         "Multiemployer  Plan" means a Plan defined as such in section  3(37) of
ERISA to which  contributions  have been made by either of the  Borrowers or any
ERISA  Affiliate,  or as to which either of the Borrowers or any ERISA Affiliate
has any direct or indirect fixed or contingent liability.

         "Notes" means the Revolving Credit Note and the Term Note.

         "PBGC" means the Pension  Benefit  Guaranty  Corporation and any entity
succeeding to any or all of its functions under ERISA.

         "Pension Plan" means a Plan (including,  but not limited to, a Title IV
Plan) that is an "employee  benefit  pension plan" as defined in section 3(2) of
ERISA.

         "Person" means an individual, partnership, corporation, business trust,
joint  stock  company,  trust,   unincorporated   association,   joint  venture,
governmental authority or other entity of whatever nature.

         "Plan"  means  any  employee  benefit  or  other  plan  established  or
maintained, or to which contributions have been made, by any of the


                                      -10-
<PAGE>


Borrowers  or any ERISA  Affiliate,  or as to which any of the  Borrowers or any
ERISA  Affiliate  has any  direct or  indirect  fixed or  contingent  liability,
excluding any Multiemployer Plan.

         "Pounds  Sterling"  and the sign "?" mean  lawful  money of the  United
Kingdom.

         "Principal  Office" means the principal  office of the Bank,  presently
located at 270 Park Avenue, New York, New York 10017.

         "PRC" means PRC Fabrications Limited, a corporation organized under the
laws of the England and Wales.

         "Regulation  D" means  Regulation  D of the Board of  Governors  of the
Federal Reserve System as the same may be amended or  supplemented  from time to
time.

         "Regulation  U" means  Regulation  U of the Board of  Governors  of the
Federal Reserve System as the same may be amended or  supplemented  from time to
time.

         "Regulatory  Change" means any change after the date of this  Agreement
in United States  federal,  state,  municipal or United Kingdom or other foreign
laws or regulations  (including without limitation Regulation D) or the adoption
or  making  after  such  date of any  interpretations,  directives  or  requests
applying to a class of banks  including  the Banks of or under any United States
federal, state, municipal or United Kingdom or other foreign laws or regulations
(whether  or not  having  the  force  of law) by any  court or  governmental  or
monetary authority charged with the interpretation or administration thereof.

         "Reimbursement  Obligation"  means the  obligation  of the Borrowers to
reimburse the Bank pursuant to  subsection  2.01(e)(iv)  for amounts drawn under
the Letters of Credit.

         "Reserve  Requirement"  means, for any Fixed Rate Loan for any Interest
Period  therefor,  the average  maximum rate at which  reserves  (including  any
marginal,  supplemental  or emergency  reserves)  are required to be  maintained
during such  Interest  Period under  Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding  $1,000,000,000  against
"Eurocurrency  liabilities"  (as such  term is used in  Regulation  D).  Without
limiting the effect of the foregoing,  the Reserve Requirement shall reflect any
other  reserves  required to be maintained by such member banks by reason of any
Regulatory  Change  against  (i) any  category  of  liabilities  which  includes
deposits  by  reference  to which the Fixed  Base  Rate is to be  determined  as
provided in the definition of "Fixed Base Rate" in this Section 1.01 or (ii) any
category of extensions of credit or other assets which include Fixed Rate Loans.


                                      -11-
<PAGE>


         "Retiree   Welfare  Plan"  means  a  Welfare  Plan  that  provides  for
continuing  benefits or coverage for any  participant  or any  beneficiary  of a
participant after such  participant's  termination of employment,  other than as
may be required by COBRA at the expense of the participant or the beneficiary of
the participant.

         "Retiree  Welfare  Plan  Liability"  means  with  respect  to a Retiree
Welfare  Plan the  total  value  as of the  determination  date of all  expected
postretirement  benefit obligations  determined in accordance with the Financial
Accounting  Standard No. 106, determined without regard to the effective date of
the standards set forth in the Financial Accounting Standard No. 106.

         "Revolving Credit Commitment"  means the obligation of the Bank to make
Revolving Credit Loans under this Agreement in the aggregate principal amount of
$18,500,000  or an  equivalent  amount  denominated  in Pounds  Sterling,  or an
Alternative  Currency,  as such amount may be reduced or otherwise modified from
time to time.

         "Revolving  Credit  Loan"  has the  meaning  assigned  to such  term in
Section 2.01(a) hereof.

         "Revolving  Credit  Note"  means  the  promissory  note  issued  by the
Borrowers  in the form of Exhibit A-1 hereto  evidencing  the  Revolving  Credit
Loans  made  by the  Bank  hereunder  and  all  promissory  notes  delivered  in
substitution or exchange therefor, as amended or supplemented from time to time.

         "Revolving Credit  Termination Date" means December 31, 1999;  provided
that if such date is not a Banking Day, the Revolving  Credit  Termination  Date
shall be the next succeeding  Banking Day (or, if such next  succeeding  Banking
Day falls in the next calendar  month,  the next  preceding  Banking  Day);  and
provided further that the Bank may extend the Revolving Credit  Termination Date
by providing written notice to the Borrowers.

         "SEC" means the Securities and Exchange Commission.

         "SEC Filings" means the U.S. Company's  Registration  Statement on Form
S-1,  File No.  33-43539 as filed with the SEC on January 13, 1992,  pursuant to
the Securities Act of 1933, as amended,  and any subsequent  report on Form 10-Q
and on Form 10-K.

         "Subsidiary"  means,  with respect to any Person,  any  corporation  or
other entity of which at least a majority of the  securities or other  ownership
interests  having ordinary  voting power  (absolutely or  contingently)  for the
election of directors or other persons  performing  similar functions are at the
time owned directly or indirectly by such Person.

         "Tangible  Net  Worth"  means,  at any date of  determination  thereof,
consolidated stockholders equity of the Borrowers,


                                      -12-
<PAGE>


determined  in  accordance  with GAAP,  eliminating  the  effect of  accumulated
foreign  currency  translation  adjustments  therefrom  and adding  thereto  (a)
subordinated  debt which is subordinated to all obligations  owed to the Bank on
terms  and  conditions  acceptable  to the Bank and (b) an  amount  equal to any
reserve or charge, if any, in an amount not in excess of $700,000 resulting from
FASB 106.

         "Term  Loan" has the meaning  assigned to such term in Section  2.01(b)
hereof.

         "Term Loan  Commitment"  means the  obligation  of the Bank to make the
Term Loan under this Agreement,  in the aggregate principal amount of $6,500,000
or an equivalent amount in Pounds Sterling.

         "Term Note" means the promissory note issued by Farrel Shaw in the form
of Exhibit A-2 hereto  evidencing  the Term Loan made by the Bank  hereunder and
all promissory notes delivered in substitution or exchange therefor,  as amended
or supplemented from time to time.

         "Term Note Termination Date" means December 31, 2002;  provided that if
such  date  is not a  Banking  Day,  the  Termination  Date  shall  be the  next
succeeding  Banking  Day (or, if such next  succeeding  Banking Day falls in the
next calendar month, the next preceding  Banking Day); and provided further that
the Bank may extend the  Termination  Date by  providing  written  notice to the
Borrowers.

         "Title IV Plan" means a Plan covered by Title IV of ERISA.

         "Transaction  Fee" has the  meaning  assigned  to such term in  Section
2.11(c).

         "U.K.  Base  Rate"  means  that  rate  of  interest  from  time to time
announced by Chase London at its principal  office in the United  Kingdom as its
base rate.

         "Unfunded  Benefit  Liabilities"  means,  with respect to any Plan, the
amount (if any) by which the present  value of all benefit  liabilities  (within
the meaning of section  4001(a)(16)  of ERISA)  under the Plan  exceeds the fair
market  value of all Plan  assets  allocable  to such  benefit  liabilities,  as
determined on the most recent  valuation date of the Plan and in accordance with
the  provisions  of ERISA for  calculating  the  potential  liability  of either
Borrower or any ERISA Affiliate under Title IV of ERISA.

         "Uniform   Customs"   means  the  Uniform   Customs  and  Practice  for
Documentary   Credits  (1993  Revision),   International   Chamber  of  Commerce
Publication No. 500, as the same may be amended from time to time.

         "U.S.  Prime  Rate"  means  that  rate of  interest  from  time to time
announced by the Bank at the Principal  Office as its prime  commercial  lending
rate.


                                      -13-
<PAGE>


         "Variable  Rate"  means,  for  any  day,  (a) in  the  case  of  Dollar
borrowing, the higher of (i) the Federal Funds Rate for such day plus 1/4 of one
percent and (ii) the U.S. Prime Rate for such day, and (b) in the case of Pounds
Sterling borrowings, the U.K. Base Rate plus one and 1/4 percent.

         "Variable Rate Loan" means any Loan when and to the extent the interest
rate for such Loan is determined in relation to the Variable Rate.

         "Welfare Plan" means a Plan that is an "employee  welfare benefit plan"
within the meaning of section 3(1) of ERISA.

         Section 1.2.  Accounting  Terms.  All accounting terms not specifically
defined  herein shall be construed in  accordance  with GAAP,  and all financial
data required to be delivered  hereunder  shall be prepared in  accordance  with
GAAP.


                              ARTICLE 2. THE CREDIT

         Section  2.01.  The Loans.  (a) Subject to the terms and  conditions of
this Agreement,  the Bank agrees to make revolving  credit loans (the "Revolving
Credit  Loans") to any Borrower  from time to time from and  including  the date
hereof to and including the Revolving Credit Termination Date

                  (i) in the case of each of the U.K.  Companies,  up to but not
         exceeding  in  the   aggregate   principal   amount  at  any  one  time
         outstanding, the amount of the lesser of

                           (A)  the  Revolving   Credit   Commitment   less  L/C
                  Obligations  less the aggregate  principal amount of Revolving
                  Credit Loans outstanding from the Bank to the U.S. Company and
                  the other U.K. Company;

                           (B) the Borrowing Base less L/C Obligations  less the
                  aggregate   principal   amount  of   Revolving   Credit  Loans
                  outstanding  from the Bank to the U.S.  Company  and the other
                  U.K.  Company  less the  principal  amount  of the  Term  Loan
                  outstanding; or

                           (C) the Direct Borrowing  Sublimit less the aggregate
                  principal  amount of Revolving  Credit Loans  outstanding from
                  the Bank to the U.S. Company and the other U.K. Company; and

                  (ii) in the case of the U.S. Company,  up to but not exceeding
         in the  aggregate  principal  amount at any one time  outstanding,  the
         amount of the lesser of


                                      -14-
<PAGE>


                           (A)  the  Revolving   Credit   Commitment   less  L/C
                  Obligations  less the  principal  amount of  Revolving  Credit
                  Loans outstanding from the Bank to the U.K. Companies;

                           (B) the  Borrowing  Base (U.S.) less L/C  Obligations
                  issued by the Bank for the  benefit of the U.S.  Company  less
                  the excess, if any, of (x) the Aggregate Outstandings from the
                  Bank to or for the benefit of the U.K.  Companies over (y) the
                  sum of  85%  of the  Eligible  U.K.  Receivables  plus  50% of
                  Eligible U.K.  Inventory less the principal amount of the Term
                  Loan outstanding; or

                           (C) the  excess,  if  any,  of the  Direct  Borrowing
                  Sublimit over the principal  amount of Revolving  Credit Loans
                  outstanding from the Bank to the U.K. Companies.

The  Revolving  Credit  Loans shall be due and payable on the  Revolving  Credit
Termination Date.

         (b) Subject to the terms and  conditions  of this  Agreement,  the Bank
agrees to make a term loan (the "Term Loan") to Farrel Shaw on the Closing Date,
in an amount  equal to the  amount of its Term  Loan  Commitment.  The Term Loan
shall be repaid in twenty  quarterly  equal  installments of principle each such
installment  to be payable on the last day of each March,  June,  September  and
December  beginning  on March 31,  1998 and ending on the Term Loan  Termination
Date.

         (c) The Loans may be made in Dollars, Pounds Sterling or an Alternative
Currency as follows:  (i) any Loan made pursuant to Subsection  2.01(f) shall be
made in Pounds  Sterling;  (ii) any other  Variable  Rate Loan  shall be made in
Dollars;  (iii) the Term Loan  shall be made in  Pounds  Sterling;  and (iv) any
Fixed  Rate  Loan  shall be made in the  currency  specified  by the  respective
Borrower  in the notice of  borrowing  received by the Bank in  accordance  with
Section 2.08.

         (d) The Loans may be  outstanding  as Variable Rate Loans or Fixed Rate
Loans (each a "type" of Loan) as follows:  (i) any Loan outstanding  pursuant to
subsection  2.01(f) shall be a Variable Rate Loan; (ii) any Loan  outstanding in
an  Alternative  Currency  shall be a Fixed Rate Loan;  and (iii) any other Loan
outstanding  shall be the type of Loan specified by the  respective  Borrower in
the notice of such  borrowing  or  conversion  thereof  received  by the Bank in
accordance with Section 2.08.

         (e) (i) Subject to the terms and conditions  hereof, the Bank agrees to
issue Letters of Credit for the account of any Borrower on any Banking Day prior
to the Revolving  Credit  Termination  Date in such form as may be approved from
time to time by the Bank;  provided  that the Bank shall have no  obligation  to
issue any Letter of Credit.


                                      -15-
<PAGE>


                  (A) for the  benefit  of any U.K.  Company  if,  after  giving
         effect to such issuance, the Aggregate Outstandings from the Bank to or
         for the benefit of the U.K.  Companies (other than the principal amount
         of the Term Loan outstanding) would exceed the lesser of

                           (1)  the  Revolving   Credit   Commitment   less  the
                  Aggregate  Outstandings from the Bank to or for the benefit of
                  the U.S. Company; or

                           (2)   the   Borrowing   Base   less   the   Aggregate
                  Outstandings  from the Bank to or for the  benefit of the U.S.
                  Company; or

                  (B) for the  benefit  of the U.S.  Company  if,  after  giving
         effect to such issuance, the Aggregate Outstandings from the Bank to or
         for the benefit of the U.S. Company would exceed the lesser of

                           (1)  the  Revolving   Credit   Commitment   less  the
                  Aggregate Outstandings from the Banks to or for the benefit of
                  the U.K.  Companies  (other than the  principal  amount of the
                  Term Loan outstanding); or

                           (2) the  Borrowing  Base (U.S.)  less the excess,  if
                  any, of (x) the Aggregate Outstandings from the Bank to or for
                  the benefit of the U.K.  Companies  over (y) the sum of 85% of
                  the  Eligible  U.K.  Receivables  plus  50% of  Eligible  U.K.
                  Inventory,   less  the  principal  amount  of  the  Term  Loan
                  outstanding.

         Each Letter of Credit shall be denominated in Dollars,  Pounds Sterling
or an  Alternative  Currency.  On the  Revolving  Credit  Termination  Date each
Borrower  for whose  benefit a Letter of Credit has been issued must (i) deposit
in accounts  maintained at the Issuing  Bank(s) cash reserves for the benefit of
the  Issuing  Bank(s) in the amount of all L/C  Obligations  for any  Letters of
Credit of such  Issuing  Bank(s) to remain  outstanding  for the benefit of such
Borrower  after the  Revolving  Credit  Termination  Date  including  reasonable
estimated  commissions,   out-of-pocket  charges  and  handling  fees,  or  (ii)
otherwise  provide  for a  financial  institution  acceptable  to  the  Bank  to
indemnify the Issuing Bank(s)  against loss in connection with such  outstanding
L/C   Obligations   issued  for  the  benefit  of  such  Borrower   pursuant  to
indemnification documentation in form and substance satisfactory to the Bank.

                  (ii) Any  Borrower may from time to time request that the Bank
issue a Letter of Credit by  delivering  to the Bank at its  address for notices
specified herein an Application  therefor,  completed to the satisfaction of the
respective Issuing Bank, and such other certificates, documents and other papers
and information


                                      -16-
<PAGE>


as the Issuing Bank may reasonably request. Upon receipt of any Application, the
Issuing Bank will process such Application and the  certificates,  documents and
other  papers  and  information  delivered  to it  in  connection  therewith  in
accordance with its customary  procedures and shall promptly issue the Letter of
Credit in such  customized  form as may  reasonably be requested by the Borrower
(but in no event  shall the Issuing  Bank issue any Letter of Credit  later than
five Banking Days after receipt of the  Application  therefor and all such other
certificates,  documents and other papers and information  relating  thereto) by
issuing the original of such Letter of Credit to the  beneficiary  thereof or as
otherwise  may be agreed by the Issuing Bank and the  respective  Borrower.  The
Issuing  Bank shall  furnish a copy of such  Letter of Credit to the  respective
Borrower promptly following the issuance thereof.

                  (iii) (A) The Borrowers shall pay to the Issuing Bank a letter
of credit commission with respect to each Letter of Credit,  payable in the same
currency as that in which such Letter of Credit is denominated,  computed at the
rate per annum equal to 7/8 of one percent, calculated on the basis of a year of
360 days for the actual days elapsed, of the aggregate undrawn amount under such
Letter of Credit on the date on which such fee is calculated.  Such  commissions
shall be payable  quarterly  in advance  on each L/C Fee  Payment  Date to occur
after the issuance of a Letter of Credit and shall be nonrefundable.

                        (B) In the case of an  assignment  of all or any part of
the Loans or Commitments pursuant to Section 11.05 of this Agreement, the letter
of  credit  commission  referred to  in Clause (A) above  shall be  paid to  the
Issuing Bank for the account of the  participating  banks,  pro rata  according
to their respective commitments.

                  (iv) The  Borrowers  agree to  reimburse  the Issuing Bank for
each draft presented under any Letter of Credit and paid by the Issuing Bank for
the  amount  of (a) such  draft so paid and (b) any  taxes  (other  than  income
taxes), fees, charges or other costs or expenses incurred by the Issuing Bank in
connection  with such  payment.  Each such payment  shall be made to the Issuing
Bank at its address for notices specified herein in the same currency as that in
which such Letter of Credit is denominated and in immediately available funds on
the date that such draft is paid. It is expressly understood and agreed that (a)
the  reimbursement  obligations  and fees with  respect to the Letters of Credit
issued for the benefit of the U.S.  Company  hereunder are solely the obligation
of the U.S.  Company and that the U.K.  Companies  shall have no liability  with
respect  to such  obligations  and (b) all other  obligations  of the  Borrowers
pursuant  to  Section  2.01(e)  are the joint  and  several  obligations  of the
Borrowers.

                  (v) The Borrowers'  obligations under this subsection shall be
absolute and  unconditional  under any and all circumstances


                                      -17-
<PAGE>


and  irrespective  of any set-off,  counterclaim or defense to payment which the
Borrowers may have or have had against the Bank or any  beneficiary  of a Letter
of  Credit.  The  Borrowers  also agree with the Bank that the Bank shall not be
responsible for, and the Borrowers'  Reimbursement  Obligations under subsection
(iv) shall not be affected by, among other things,  the validity or  genuineness
of documents or of any endorsements thereon, even though such documents shall in
fact prove to be invalid,  fraudulent or forged, or any dispute between or among
the Borrowers and any  beneficiary of any Letter of Credit or any other party to
which such Letter of Credit may be transferred  or any claims  whatsoever of the
Borrowers  against  any  beneficiary  of  such  Letter  of  Credit  or any  such
transferee.  The Bank shall not be liable for any error, omission,  interruption
or delay in transmission, dispatch or delivery of any message or advice, however
transmitted,  in  connection  with any  Letter of  Credit,  except for errors or
omissions caused by the Issuing Bank's gross  negligence or willful  misconduct.
The  Borrowers  agree that any  action  taken or omitted by the Bank under or in
connection with any Letter of Credit or the related drafts or documents, if done
in the absence of gross negligence or willful  misconduct and in accordance with
the standards of care specified in the Uniform Customs,  shall be binding on the
Borrowers and shall not result in any liability of the Bank to the Borrowers.

                  (vi) If any draft shall be  presented  for  payment  under any
Letter of Credit,  the Issuing Bank shall  promptly  notify the Borrowers of the
date and amount thereof. The responsibility of the Issuing Bank to the Borrowers
in  connection  with any draft  presented for payment under the Letter of Credit
shall,  in addition to any payment  obligation  expressly  provided  for in such
Letter of Credit,  be limited to determining that the documents  (including each
draft) delivered under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.

                  (vii) To the  extent  that any  provision  of any  Application
related  to any Letter of Credit is  inconsistent  with the  provisions  of this
Section 2.01(e), the provisions of this Section 2.01(e) shall apply.

         (f)  Subject  to the  terms  and  conditions  hereof,  the  Bank  shall
automatically   advance  as  Revolving  Credit  Loans  hereunder,   without  the
requirement of a formal borrowing notice from the Borrowers,  up to an aggregate
amount of ?1,000,000 to the U.K.  Companies?  demand deposit accounts maintained
at Chase London from time to time in order to provide sufficient available funds
to honor  checks and drafts  drawn on such  accounts.  Each such check and draft
requiring any advance under this subsection  2.01(f) shall  constitute a request
by the  Borrowers to the Bank for the  borrowing of a Variable  Rate Loan in the
amount of such advance on the date of such check or draft.


                                      -18-
<PAGE>


         Section 2.02. The Note.  The Revolving  Credit Loans shall be evidenced
by a single  promissory note in favor of the Bank,  substantially in the form of
Exhibit A-1, dated the Closing Date , duly completed and executed. The Term Loan
shall  be  evidenced  by  a  single  promissory  note  in  favor  of  the  Bank,
substantially in the form of Exhibit A-2, dated the Closing Date, duly completed
and executed.

         Section 2.03.  Purpose.  Farrel Shaw shall use the proceeds of the Term
Loan and the Revolving  Credit Loans  borrowed by it to repay the funds borrowed
from  Farrel  Limited to  finance  the  Acquisition  and for  general  corporate
purposes and the other Borrowers shall use the proceeds of the Revolving  Credit
Loans for general  corporate  purposes.  Such proceeds shall not be used for the
purpose,  whether  immediate,  incidental  or  ultimate,  of buying or  carrying
"margin stock" within the meaning of Regulation U.

         Section  2.04.  Borrowing  Procedures.  Any Borrower  which  intends to
effect a  borrowing  shall  give the Bank  notice of each  borrowing  to be made
hereunder as provided in Section  2.08.  Not later than 12:00 noon New York City
time on the date of such borrowing in the case of a borrowing of a Variable Rate
Loan or 12:00  noon New York City time on the  Banking  Day three  Banking  Days
prior to the date of such  borrowing in the case of a Fixed Rate Loan,  the Bank
shall through the  appropriate  Lending  Office and subject to the conditions of
this Agreement,  make the amount of the Loan to be made on such day available to
such Borrower,  in immediately available funds, by the Bank crediting an account
of such Borrower  designated by such Borrower and maintained at the  appropriate
Lending Office.

         Section 2.05. Prepayments and Conversions. The Borrowers shall have the
right to make  prepayments  of  principal,  or to convert  one type of Loan into
another type of Loan, at any time or from time to time;  provided  that: (a) the
respective  Borrower  shall  give the Bank  notice  of each such  prepayment  or
conversion as provided in Section  2.08;  (b) Fixed Rate Loans may be prepaid or
converted  only on the last day of an Interest  Period for such Loans unless the
Borrowers  concurrently  with any such prepayment or conversion shall pay to the
Banks any  compensation  called for under  Section 3.04. In the case of the Term
Loan, all prepayments shall be applied to the principal installments of the Term
Loan in the inverse order of their maturities.

         Section 2.06. Interest Periods; Renewals. (a) In the case of each Fixed
Rate Loan,  the  respective  Borrower  shall  select an  Interest  Period of any
duration in accordance  with the definition of Interest  Period in Section 1.01,
subject to the following  limitation:  (i) no Interest  Period may extend beyond
the Revolving  Credit  Termination Date (in the case of a Revolving Credit Loan)
or the  Term  Loan  Termination  Date  (in the  case  of the  Term  Loan);  (ii)
notwithstanding clause (i) above, no Interest Period shall have a


                                      -19-
<PAGE>


duration  less than one month,  and if any such proposed  Interest  Period would
otherwise be for a shorter period,  such Interest Period shall not be available;
(iii) if an Interest  Period would end on a day which is not a Banking Day, such
Interest  Period shall be extended to the next Banking Day,  unless such Banking
Day would fall in the next calendar  month in which event such  Interest  Period
shall end on the immediately  preceding  Banking Day; and (iv) no more than five
Interest Periods may be outstanding at any one time.

         (b)  Upon  notice  to the  Banks  as  provided  in  Section  2.08,  the
respective  Borrower  may  renew  any  Fixed  Rate  Loan on the  last day of the
Interest Period therefor as the same type of Loan with an Interest Period of the
same or different duration in accordance with the limitations provided above. If
such  Borrower  shall fail to give  notice to the Bank of such a  renewal,  such
Fixed Rate Loan  shall  automatically  become a  Variable  Rate Loan at the then
applicable  Dollar  equivalent on the last day of the current  Interest  Period;
provided that the foregoing shall not prevent the conversion of any type of Loan
into another type of Loan in accordance with Section 2.05.

         Section 2.07. Changes of Commitment.  Immediately  following the making
of the Term Loan,  the Term Loan  Commitment  shall be terminated on the Closing
Date and shall not be reinstated.  The Borrowers  shall have the right to reduce
or terminate  the amount of unused  Revolving  Credit  Commitment at any time or
from time to time,  provided that:  (a) the Borrowers  shall each give notice of
each such  reduction or termination to the Bank as provided in Section 2.08; and
(b) each partial  reduction  shall be in an  aggregate  amount at least equal to
$1,000,000.  The Revolving Credit  Commitment once reduced or terminated may not
be reinstated.

         Section 2.08.  Certain Notices.  Notices by the respective  Borrower to
the Bank of each  borrowing  pursuant to Section  2.04,  and each  prepayment or
conversion  pursuant to Section 2.05, each renewal  pursuant to Section 2.06(b),
and each reduction or termination of the Revolving Credit Commitment pursuant to
Section 2.07 shall be irrevocable and shall be effective only if received by the
Bank not  later  than  12:00  noon New York  City  time,  and (a) in the case of
borrowings and prepayments of,  conversions  into and (in the case of Fixed Rate
Loans)  renewals of (i) Variable Rate Loans,  given on the Banking Day therefor;
(ii) Fixed Rate Loans,  given three Banking Days prior thereto;  (b) in the case
of reductions or termination  of the Revolving  Credit  Commitment,  given three
Banking  Days prior  thereto.  Each such  notice  shall  specify the Loans to be
borrowed, prepaid, converted or renewed and the amount (subject to Section 2.09)
and type of the Loan to be borrowed or converted, or prepaid or renewed (and, in
the case of a conversion,  the type of Loans to result from such conversion, the
currency in which such Loan is to be made and, in the case of a Fixed Rate Loan,
the Interest  Period  therefor) and the date of the borrowing or prepayment,  or
conversion or renewal (which shall be


                                      -20-
<PAGE>


a Banking Day).  Each such notice of reduction or termination  shall specify the
amount of the Revolving Credit Commitment to be reduced or terminated.

         Section 2.09.  Minimum  Amounts.  Except for (i) Loans made pursuant to
Section  2.01(f),  and (ii) Variable Rate Loans which exhaust the full remaining
amount of the Revolving  Credit  Commitment,  prepayments or  conversions  which
result in the prepayment or conversion of all Loans of a particular  type or the
entire  Term  Loan,  each  borrowing,  prepayment,  conversion  and  renewal  of
principal of Loans of a particular  type shall be in an amount at least equal to
(i) $100,000 in the case of Variable  Rate Loans and (ii)  $1,000,000  or larger
amounts  in  increments  of  $100,000  or the  respective  Alternative  Currency
equivalent,  in the case of Fixed Rate Loans made in Dollars or such Alternative
Currency,  and ?500,000 or larger  amounts in increments of ?100,000 in the case
of  Fixed  Rate  Loans  made  in  Pounds  Sterling   (borrowings,   prepayments,
conversions  or renewals of or into Loans of different  types or, in the case of
Fixed Rate Loans,  having different  Interest Periods at the same time hereunder
to be deemed separate borrowings, prepayments,  conversions and renewals for the
purposes of the foregoing,  one for each type of Interest  Period).  Anything in
this Agreement to the contrary  notwithstanding,  the aggregate principal amount
of Fixed Rate Loans having  concurrent  Interest Periods shall be at least equal
to $1,000,000,  $500,000 or such amounts in any Alternative Currency as shall be
determined  by the Bank in the case of Fixed Rate Loans made in Dollars,  Pounds
Sterling  or an  Alternative  Currency,  respectively.  The Bank may in its sole
discretion agree to advance Fixed Rate Loans in smaller  denominations  upon the
request of the Borrowers.

         Section 2.10.  Interest.  (a) Interest shall accrue on the  outstanding
and unpaid  principal  amount of each Loan for the period from and including the
date of such Loan to but  excluding  the date such Loan is due at the  following
rates per annum:  (i) for a Variable  Rate  Loan,  at a variable  rate per annum
equal to the Variable  Rate plus the Margin and (ii) for a Fixed Rate Loan, at a
fixed rate equal to the Fixed Rate plus the Margin.  If the principal  amount of
any Loan and any other  amount  payable  by the  Borrowers  hereunder  including
Letters of Credit reimbursement obligations or under the Notes shall not be paid
when due (at stated  maturity,  by  acceleration  or otherwise),  interest shall
accrue on such amount to the fullest extent  permitted by law from and including
such  due date to but  excluding  the date  such  amount  is paid in full at the
Default Rate.

         (b) The interest  rate on each Variable Rate Loan shall change when the
Variable  Rate changes and interest on each such Loan shall be calculated on the
basis of a year of 360 days for the actual number of days  elapsed.  Interest on
each Fixed Rate Loan shall be  calculated on the basis of a year of 360 days for
the actual number of days elapsed.


                                      -21-
<PAGE>


         (c)  Accrued  interest  shall be due and  payable in  arrears  upon any
payment of principal or  conversion  and (i) for each Variable Rate Loan, on the
last day of each March, June, September and December,  commencing the first such
date  after such  Loan;  (ii) for each  Fixed Rate Loan,  on the last day of the
Interest  Period with respect  thereto;  provided that interest  accruing at the
Default Rate shall be due and payable from time to time on demand of the Bank.

         (d) Interest  shall be payable in the currency  which is  applicable to
each respective loan.

         Section  2.11.  Fees.  (a)  The  Borrowers  shall  pay  to  the  Bank a
commitment  fee (the  "Commitment  Fee") in Dollars on the daily  average of the
lesser of (i) the Direct  Borrowing  Sublimit  less the amount of the  Revolving
Credit Loans  outstanding  and (ii) the  Revolving  Credit  Commitment  less the
Aggregate  Outstandings  (excluding  the  Term  Loan)  for the  period  from and
including  the  Closing  Date to the  earlier of the date the  Revolving  Credit
Commitment  is terminated or the  Revolving  Credit  Termination  Date at a rate
equal to 3/8 of one percent per annum,  calculated on the basis of a year of 360
days for the actual number of days elapsed.  The accrued Commitment Fee shall be
due and  payable  in  arrears  upon  any  termination  of the  Revolving  Credit
Commitment  and on the last day of each March,  June,  September  and  December,
commencing on the first such date after the Closing Date.

         (b) Agency Fee;  Facility Fee. The  Borrowers  shall pay to the Bank an
agency  fee (the  "Agency  Fee") of  $25,000  per annum  which  shall be due and
payable in arrears on March 31 of each year commencing March 31, 1998 and on the
termination date of the Revolving Credit  Commitment for the pro rata portion of
the year to such date.

         (c) Transaction  Fee. The Borrowers shall pay to the Bank a transaction
fee (the "Transaction Fee") equal to $50,000 on the Closing Date.

         (d) Advisory Fee. Upon the parties? execution of this Agreement and the
closing of the  transactions  contemplated  hereby,  the Bank shall be deemed to
have  earned the  balance  of the  $80,000  advisory  fee set forth in the Fifth
Amendment to the Existing Credit Agreement,  which amount was previously paid by
the U.S.  Company,  and  thereupon the Letter  Agreement  dated October 30, 1995
shall be deemed terminated and of no further force or effect.

         Section 2.12. Payments Generally.  All payments under this Agreement or
the  Notes  shall  be made in  Dollars,  Pounds  Sterling  or in the  respective
Alternative Currency,  as appropriate,  in immediately available funds not later
than 1:00 p.m. New York City time on the relevant  dates  specified  above (each
such  payment  made  after  such time on such due date to be deemed to have been
made on


                                      -22-
<PAGE>


the next succeeding  Banking Day) at the applicable Lending Office. The Bank may
(but shall not be obligated  to) debit the amount of any such  payment  which is
not made by such time to any ordinary  deposit  account of any Borrower with the
Bank.  The  Borrowers  shall,  at the time of making  each  payment  under  this
Agreement,  the Notes,  the  Letters of Credit or any other  Facility  Document,
specify to the Bank the principal,  other amount payable by the Borrowers  under
this Agreement, the Notes, the Letters of Credit or such other Facility Document
to which such  payment  is to be  applied  (and in the event that it fails to so
specify, or if a Default or Event of Default has occurred and is continuing, the
Bank may apply such payment as it may elect in its sole discretion).  If the due
date of any payment under this  Agreement,  the Notes,  the Letters of Credit or
any other Facility Document would otherwise fall on a day which is not a Banking
Day, such date shall be extended to the next succeeding Banking Day and interest
shall be payable for any principal so extended for the period of such extension.

         Section  2.13.  No  Withholding;  Gross-Up.  All payments on account of
principal of an interest on the Notes and all other  amounts  payable under this
Agreement,  the Notes,  the  Letters of Credit or the other  Facility  Documents
shall be made  without  withholding  for or on account of any  present or future
taxes  imposed by any  Governmental  Authority.  If any such  withholding  is so
required,  each Borrower shall make the  withholding and pay the amount withheld
to the appropriate  Governmental  Authority  before  penalties attach thereto or
interest accrues thereon.

         Section 2.14.  Currency  Equivalent.  For purposes of the provisions of
this  Article  2, (a) the  equivalent  in  Dollars  of  Pounds  Sterling  or any
Alternative  Currency  shall be determined  each month on the earlier of (i) the
tenth day of such  month or (ii) the date the  Borrowers  deliver  to the Bank a
Borrowing  Base  Certificate  and a  Backlog  Certificate  pursuant  to  Section
6.08(c),  by using the  quoted  spot rate at which the Bank  offers to  exchange
Dollars for such  currency  at 11:00 A.M.  (New York City time) on such date and
shall remain in effect until determined in the next subsequent month and (b) the
equivalent in any Pounds Sterling or any  Alternative  Currency of Dollars shall
be  determined  each month on the  earlier of (i) the tenth day of such month or
(ii) on the date the Borrowers  deliver to the Bank a Borrowing Base Certificate
and a Backlog  Certificate  pursuant to Section 6.08(c) by using the quoted spot
rate at which the Bank offers to  exchange  such  currency  for Dollars at 11:00
A.M. (New York time) on such date and shall remain in effect until determined in
the next subsequent month.

         Section 2.15.  Foreign Exchange.  Upon request of any Borrower the Bank
will, subject to market conditions and availability, enter into Foreign Exchange
Contracts  for the account of the  Borrowers in amounts up to  ?3,000,000.  Such
Foreign  Exchange  Contracts  shall be subject to the Bank's normal policies and
procedures for such  transactions,  including its underwriting


                                      -23-
<PAGE>


requirements  and the payment by the Borrowers of the Bank's  customary fees and
charges  for  such   transactions,   and  shall  be  accomplished   pursuant  to
documentation  satisfactory in all respects to the Bank. Any such  documentation
shall be  deemed  to be  Facility  Documents  hereunder  and under the terms and
provisions of the other Facility Documents.


                  ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC.

         Section 3.01. Additional Costs. (a) The Borrowers shall pay to the Bank
from time to time on demand such amounts as the Bank may reasonably determine to
be necessary to compensate it for any costs which the Bank reasonably determines
are  attributable  to the making or maintaining  any Fixed Rate Loans under this
Agreement or the Notes or the  obligation to make any such Loans  hereunder,  or
any reduction in any amount  receivable by the Bank  hereunder in respect of any
such Loans or such obligation (such increases in costs and reductions in amounts
receivable  being  herein  called  "Additional   Costs"),   resulting  from  any
Regulatory  Change  which:  (i)  changes  the basis of  taxation  of any amounts
payable to the Bank under this  Agreement or the Notes in respect of any of such
Loans (other than taxes  imposed on the overall net income of the Bank or of any
Lending Office for any of such Loans by the  jurisdiction in which the Principal
Office, the principal office of Chase London or such Lending Office is located);
or (ii) imposes or modifies any reserve,  special deposit,  deposit insurance or
assessment,  minimum capital,  capital ratio or similar requirements relating to
any  extensions  of credit or other  assets  of, or any  deposits  with or other
liabilities of, the Bank  (including any of such Loans or any deposits  referred
to in the definition of "Fixed Base Rate" in Section 1.01); or (iii) imposes any
other condition affecting this Agreement or the Notes (or any of such extensions
of credit or  liabilities).  The Bank will  notify  the  Borrowers  of any event
occurring  after  the date of this  Agreement  which  will  entitle  the Bank to
compensation  pursuant to this Section 3.01(a) as promptly as practicable  after
it obtains knowledge thereof and determine to request such compensation.

         (b) Without  limiting the effect of the  foregoing  provisions  of this
Section 3.01, in the event that, by reason of any  Regulatory  Change,  the Bank
either (i) incurs  Additional  Costs based on or measured by the excess  above a
specified level of the amount of a category of deposits or other  liabilities of
the Bank which  includes  deposits by reference  to which the  interest  rate on
Fixed Rate Loans is  determined  as provided in this  Agreement or a category of
extensions of credit or other assets of the Bank which includes Fixed Rate Loans
or (ii)  becomes  subject to  restrictions  on the amount of such a category  of
liabilities  or assets which it may hold,  then, if the Bank so elects by notice
to the Borrowers,  the  obligation of the Bank to make or renew,  and to convert
Loans of any other type into,  Loans of such type  hereunder  shall be


                                      -24-
<PAGE>


suspended until the date such Regulatory Change ceases to be in effect,  and the
Borrowers  shall on the last day(s) of the then current  Interest  Period(s) for
the  outstanding  Loans of such type,  either  prepay such Loans or convert such
Loans into another type of Loan in accordance with Section 2.05.

         (c) Without  limiting the effect of the  foregoing  provisions  of this
Section 3.01 (but without duplication), the Borrowers shall pay to the Bank from
time to time on request such amounts as the Bank may reasonably  determine to be
necessary to compensate  the Bank for any costs which it  reasonably  determines
are  attributable to the maintenance by it or any of its affiliates  pursuant to
any law or regulation of any  jurisdiction or any  interpretation,  directive or
request  (whether  or not having  the force of law and  whether in effect on the
date of this Agreement or thereafter) of any court or  governmental  or monetary
authority of capital in respect of its Loans hereunder or its obligation to make
Loans hereunder (such  compensation to include,  without  limitation,  an amount
equal to any  reduction  in  return  on  assets or equity of the Bank to a level
below  that  which  it  could  have  achieved  but  for  such  law,  regulation,
interpretation,  directive or request). The Bank will notify the Borrowers if it
is entitled to  compensation  pursuant  to this  Section  3.01(c) as promptly as
practicable after it determines to request such compensation.

         (d)  Determinations  and  allocations  by the Bank for purposes of this
Section 3.01 of the effect of any Regulatory  Change pursuant to subsections (a)
or (b), or of the effect of capital  maintained  pursuant to subsection  (c), on
the costs of making or maintaining  Loans or the obligation to make Loans, or on
amounts receivable by, or the rate of return to, the Bank in respect of Loans or
such obligation,  and of the additional  amounts required to compensate the Bank
under this Section 3.01, shall be conclusive,  provided that such determinations
and allocations are made on a reasonable basis.

         Section  3.02.  Limitation  on Types of Loans.  Anything  herein to the
contrary notwithstanding, if the Bank reasonably determines (which determination
shall be conclusive) that:

         (a) quotations of interest rates for the relevant  deposits referred to
in the definition of "Fixed Base Rate" in Section 1.01 are not being provided in
the relevant amounts or for the relevant  maturities for purposes of determining
the rate of  interest  for any  type of Fixed  Rate  Loans as  provided  in this
Agreement; or

         (b) the relevant  rates of interest  referred to in the  definition  of
"Fixed  Base Rate" in Section  1.01 upon the basis of which the rate of interest
for any type of Fixed Rate Loans is to be determined do not adequately cover the
cost to the Bank of making or maintaining  such Loans;  then the Bank shall give
the Borrowers  prompt notice thereof,  and so long as such condition


                                      -25-
<PAGE>


remains in effect,  the Bank shall be under no obligation to make or renew Loans
of such type or to  convert  Loans of any other type into Loans of such type and
the Borrowers shall, on the last day(s) of the then current  Interest  Period(s)
for the  outstanding  Loans of the affected  type,  either  prepay such Loans or
convert such Loans into another type of Loans in accordance with Section 2.05.

         Section 3.03.  Illegality.  Notwithstanding any other provision in this
Agreement,  in the event that it becomes  unlawful  for the Bank or any  Lending
Office to (a) honor its  obligation to make or renew Fixed Rate Loans  hereunder
or convert Loans of any type into Loans of such type, or (b) maintain Fixed Rate
Loans hereunder,  then the Bank shall promptly notify the Borrowers  thereof and
the Bank's  obligation  to make or renew  Fixed Rate Loans and to convert  other
types of Loans into Loans of such type hereunder  shall be suspended  until such
time as the Bank may again make,  renew or convert and  maintain  such  affected
Loans and the Borrowers  shall, on the last day(s) of the then current  Interest
Period  for the  outstanding  Fixed Rate  Loans,  as the case may be (or on such
earlier  date as the Bank may  specify to the  Borrowers  and, if the Bank shall
require  such  prepayment,  the  Borrowers  shall  not  be  liable  to  pay  the
compensation  otherwise due pursuant to Section 3.04),  either prepay such Loans
or convert  such Loans into  another  type of Loans in  accordance  with Section
2.05.

         Section 3.04.  Certain  Compensation.  The  Borrowers  shall pay to the
Bank,  upon  the  request  of the  Bank,  such  amount  or  amounts  as shall be
sufficient  (in the  reasonable  opinion of the Bank) to compensate the Bank for
any loss, cost or expense which the Bank  reasonably  determines is attributable
to:

         (a) any payment, prepayment, conversion or renewal of a Fixed Rate Loan
on a date other than the last day of an Interest  Period for such Loan  (whether
by reason of acceleration or otherwise); or

         (b) any failure by the  Borrowers  to borrow,  convert  into or renew a
Fixed  Rate Loan to be made,  converted  into or renewed by the Bank on the date
specified  therefor in the relevant  notice under Section 2.04, 2.05 or 2.06, as
the case may be.

         Without  limiting the  foregoing,  such  compensation  shall include an
amount  equal to the  excess,  if any,  of:  (i) the  amount of  interest  which
otherwise would have accrued on the principal amount so paid, prepaid, converted
or renewed  or not  borrowed,  converted  or  renewed  for the  period  from and
including  the date of such  payment,  prepayment  or  conversion  or failure to
borrow,  convert  or renew  to but  excluding  the last day of the then  current
Interest  Period for such Loan (or, in the case of a failure to borrow,  convert
or renew,  to but  excluding  the last day of the Interest  Period for such Loan
which  would have  commenced  on the date  specified  therefor  in the  relevant
notice) at the  applicable  rate of interest for such Loan  provided for herein;
over (ii) the


                                      -26-
<PAGE>


amount of interest (as  reasonably  determined  by the Bank) the Bank would have
bid in the  London  interbank  market  (if such Loan is a Fixed  Rate  Loan) for
deposits in Dollars,  Pounds Sterling or any applicable Alternative Currency, as
the case may be, for amounts  comparable to such principal amount and maturities
comparable to such period. A determination of the Bank as to the amounts payable
pursuant to this Section 3.04 shall be conclusive absent manifest error.

                         ARTICLE 4. CONDITIONS PRECEDENT

         Section 4.01.  Documentary  Conditions  Precedent to Initial Borrowing.
The obligation of the Bank to make the Loans  constituting the initial borrowing
or to issue any Letters of Credit is subject to the condition precedent that the
Bank shall have received on or before the Closing Date each of the following, in
form and substance satisfactory to the Bank and its counsel:

         (a)      counterparts of this Agreement duly executed by the Borrowers;

         (b)      the Notes duly executed by the Borrowers;

         (c) certificates of the Secretary or Assistant Secretary of each of the
Borrowers, dated the Closing Date, attesting to the Certificate of Incorporation
(or  Charter),  the  Bylaws and all  corporate  action  taken by the  Borrowers,
including  resolutions  of its Board of  Directors  authorizing  the  execution,
delivery and  performance  of the Facility  Documents to which it is a party and
each other document to be delivered pursuant to this Agreement;

         (d) certificates of the Secretary or Assistant Secretary of each of the
Borrowers,  dated the Closing Date,  certifying the names and true signatures of
the officers of such Borrower authorized to sign the Facility Documents to which
it is a party and the other  documents to be delivered  by such  Borrower  under
this Agreement;

         (e) certificates of a duly authorized officer of each of the Borrowers,
dated the Closing  Date,  stating that the  representations  and  warranties  in
Article 5 are true and  correct  on such  date as though  made on and as of such
date, all  agreements  and conditions  required to be complied with by such date
have been  performed  and  complied  with and that no event has  occurred and is
continuing which constitutes a Default or Event of Default;

         (f) good  standing  certificates  and  certified  copies of all charter
documents  with respect to each of the  Borrowers  certified by the secretary of
state of its  jurisdiction of  incorporation in the case of the U.S. Company and
the Registrar of Companies in the case of the U.K. Companies,  and evidence that
each of the Borrowers is qualified as a foreign  corporation in good standing in
every other jurisdiction in which the nature of its business so requires, except
where  failure to be so qualified and in good standing does not, in any one case
or in the  aggregate,  materially  adversely


                                      -27-
<PAGE>


affect the  financial  condition,  operations,  properties  or  business  of the
Borrowers,  taken as a whole,  or the ability of the  Borrowers to perform their
obligations under the Facility Documents.;

         (g)  favorable  opinions of Cummings & Lockwood,  U.S.  counsel for the
Borrowers and  McFarlanes,  U.K.  counsel for the  Borrowers,  dated the Closing
Date, in substantially the forms contained in Exhibits C-1 and C-2, respectively
and as to such other matters as the Bank may reasonably request;

         (h)  evidence  that the  Acquisition  shall  have been  consummated  in
accordance with the Acquisition Documents;

         (i) a certificate of a duly  authorized  officer of Farrel Shaw,  dated
the Closing Date, attaching true and correct copies of (i) all material consents
under any indenture,  agreement, lease or instrument obtained in connection with
the Acquisition and (ii) all consents and  authorizations  required or advisable
in connection with the Acquisition under any law, rule or regulation;

         (j) certified complete and correct copies of the Acquisition  Documents
(including all exhibits, schedules and disclosure letters referred to therein or
delivered pursuant thereto, if any);

         (k)  certified  complete  and correct  copies of each of the  financial
statements referred to in Section 5.05;

         (l) an initial borrowing notice of the Borrowers  relating to the Loans
to be made and the Letters of Credit to be issued on the Closing  Date  together
with a letter from the  Borrowers  containing  wire  transfer  instructions  and
account  information  relating to the funds to be made  available by the Bank to
the Borrowers on the Closing Date; and

         (m) a Borrowing Base Certificate  calculated as of a date not more than
30 days prior to the Closing Date.

          Section 4.02. Additional  Conditions Precedent.  The obligation of the
Bank to make the Loans  pursuant  to a  borrowing  which  increases  the  amount
outstanding  hereunder (including the initial borrowing) or to issue any Letters
of Credit shall be subject to the further conditions  precedent that on the date
of such Loan:

          (a) the following statements shall be true:

                  (i) the representations and warranties  contained in Article 5
hereof and in the other Facility  Documents are true and correct in all material
respects  on and as of the date of such Loan or the  issuance  of such Letter of
Credit as though made on and as of such date; and

             (ii) no Default or Event of Default has occurred and is continuing,
or would result from such Loan or the issuance of such Letter of Credit; and


                                      -28-
<PAGE>


         (b) the Bank shall have received such approvals,  opinions or documents
as the Bank may reasonably request.

         Section  4.03.  Deemed  Representations.  Each notice of  borrowing  or
request for the issuance of a Letter of Credit  hereunder and  acceptance by any
Borrower  of the  proceeds  of such  borrowing  or the benefit of such Letter of
Credit  shall  constitute a  representation  and  warranty  that the  statements
contained  in  Section  4.02(a)  are true and  correct  both on the date of such
notice or request and, unless the Borrowers  otherwise  notify the Bank prior to
such  borrowing  or such  issuance,  as of the  date of such  borrowing  or such
issuance.

                    ARTICLE 5. REPRESENTATIONS AND WARRANTIES

         The Borrowers hereby jointly and severally represent and warrant,  that
(after giving effect to the Acquisition):

         Section 5.01. Incorporation,  Good Standing and Due Qualification. Each
of the Borrowers and each of their  Subsidiaries is duly  incorporated,  validly
existing  and in  good  standing  under  the  laws  of the  jurisdiction  of its
incorporation,  has the  corporate  power and authority to own its assets and to
transact the business in which it is now engaged or proposed to be engaged,  and
is duly qualified as a foreign  corporation  and in good standing under the laws
of each other jurisdiction in which such qualification is required, except where
failure to be so qualified  and in good standing does not, in any one case or in
the aggregate, materially adversely affect the financial condition,  operations,
properties  or  business of the  Borrowers  or any such  Subsidiary,  taken as a
whole,  or the ability of the Borrowers to perform their  obligations  under the
Facility Documents.

          Section  5.02.  Corporate  Power  and  Authority;  No  Conflicts.  The
execution,  delivery and  performance  by each of the  Borrowers of the Facility
Documents  to which it is a party  have been duly  authorized  by all  necessary
corporate action and do not and will not: (a) require any consent or approval of
its  stockholders  that has not been  obtained;  (b)  contravene  its charter or
by-laws;  (c) violate  any  provision  of, or require any filing,  registration,
consent  or  approval  under,  any law,  rule,  regulation  (including,  without
limitation,   Regulation  U),  order,  writ,   judgment,   injunction,   decree,
determination or award presently in effect having applicability to the Borrowers
or any of their  Subsidiaries  or  Affiliates;  (d)  result  in a  breach  of or
constitute a default or require any consent under any material  indenture,  loan
or credit  agreement or any other  material  agreement,  lease or  instrument to
which any Borrower is a party or by which it or its  properties  may be bound or
affected; (e) result in, or require, the creation or imposition of any Lien upon
or with respect to any of the properties now owned or hereafter  acquired by any
Borrower;  or (f) cause any  Borrower  (or any  Subsidiary  or Affiliate of such
Borrower,  as the case  may be) to be in  default  under  any  such  law,  rule,
regulation, order, writ, judgment, injunction, decree,


                                      -29-
<PAGE>


determination or award or any such indenture, agreement, lease or instrument.

          Section 5.03. Legally Enforceable  Agreements.  Each Facility Document
to which  any of the  Borrowers  is a party  is, or when  delivered  under  this
Agreement  will be, a legal,  valid  and  binding  obligation  of such  Borrower
enforceable  against such Borrower in accordance with its material terms, except
to the extent that such  enforcement  may be limited by  applicable  bankruptcy,
insolvency and other similar laws affecting creditors' rights generally.

          Section  5.04.  Litigation.  As of  the  Closing  Date,  there  are no
actions,  suits or  proceedings  pending or, to the knowledge of the  Borrowers,
threatened,  against or affecting  the  Borrowers  or any of their  Subsidiaries
before any court, governmental agency or arbitrator, which are reasonably likely
to,  in any one  case  or in the  aggregate,  materially  adversely  affect  the
financial condition, operations,  properties or business of the Borrowers or any
such  Subsidiary,  taken as a whole,  or the ability of the Borrowers to perform
their obligations under the Facility  Documents,  except for such matters as are
disclosed in the U.S. Company's SEC Filings.

          Section 5.05. Financial Statements.

          (a) The consolidated and consolidating  balance sheet of the Borrowers
and their Consolidated  Subsidiaries (other than Farrel Shaw) as at December 31,
1996,  and the related  consolidated  and  consolidating  income  statement  and
statements of cash flows and changes in  stockholders'  equity of such Borrowers
and  Consolidated   Subsidiaries  for  the  fiscal  year  then  ended,  and  the
accompanying footnotes, together with the opinion thereon, of the U.S. Company?s
independent certified public accountants, copies of which have been furnished to
the Bank, and the interim  consolidated and  consolidating  balance sheet of the
Borrowers  and their  Consolidated  Subsidiaries  other than  Farrel  Shaw as at
September  30,  1997  and the  related  consolidated  and  consolidating  income
statement and  statements of cash flows and changes in  stockholders?  equity of
such Borrowers and  Consolidated  Subsidiaries  for the  nine-month  period then
ended, copies of which have been furnished to the Bank, are complete and correct
in all  material  respects  and fairly  present the  financial  condition of the
Borrowers and their  Consolidated  Subsidiaries as at such dates and the results
of the  operations  of such  Borrowers  and  Consolidated  Subsidiaries  for the
periods covered by such  statements,  all in accordance  with GAAP  consistently
applied  (subject to year-end  adjustments in the case of the interim  financial
statements).  There  are no  liabilities  of  the  Borrowers  or  any  of  their
Consolidated  Subsidiaries (other than Farrel Shaw), fixed or contingent,  which
are material and which should have been but are not  reflected in the  financial
statements  or in the notes  thereto,  other  than  liabilities  arising  in the
ordinary course of business since December 31, 1996. No information,  exhibit or
report  furnished by the Borrowers to the Bank in  connection  with the Existing
Credit  Agreement at the time such  material was provided to the Bank  contained
any material misstatement of fact or omitted to state a material fact or any


                                      -30-
<PAGE>


fact  necessary  to  make  the  statement   contained   therein  not  materially
misleading.  Since December 31, 1996,  there has been no material adverse change
in the condition (financial or otherwise),  business, operations or prospects of
the Borrowers or any of their Subsidiaries, taken as a whole.

         (b) The opening  balance  sheet of Farrel Shaw as at the closing of the
Acquisition,  a copy of which has been  furnished  to the Bank,  is complete and
correct in all material respects and fairly presents the financial  condition of
Farrel Shaw as of such date.

         Section 5.06. Taxes.  Each of the Borrowers and their  Subsidiaries has
filed all tax returns  (federal,  state and local)  required to be filed and has
paid all material taxes, assessments and governmental charges and levies thereon
to be due, including  interests and penalties.  The federal income tax liability
of the Borrowers and their Subsidiaries has been audited by the Internal Revenue
Service and has been finally  determined  and satisfied for all taxable years up
to and including the taxable year ended April, 1994.

         Section  5.07.  ERISA.  (a) Each Plan is in  compliance in all material
respects with, and has been  administered in all material respects in compliance
with,  the  applicable  provisions of ERISA,  the Code and any other  applicable
federal  or state  law,  and,  other  than  events or  conditions  for which the
Borrowers  have  furnished  a report  to the  Bank,  no event  or  condition  is
occurring or exists  concerning which the Borrowers would be under an obligation
to furnish a report to the Bank in accordance with Section 6.08(h) hereof.

         (b) As of  December  31,  1996,  the  amount  of all  Unfunded  Benefit
Liabilities under all Title IV Plans does not exceed approximately  $400,000. As
of the date these  representations  are made with respect to any Loan under this
Agreement,  the  Unfunded  Benefit  Liabilities  of all Title IV Plans  have not
increased  in an amount that is material (as  specified  in Section  6.08(h)(ii)
hereof.

         (c) Retiree  Welfare Plan Liability of the Borrower with respect to all
the Retiree  Welfare  Benefit Plans does not exceed  $3,500,000.  As of the date
these  representations  are made with respect to any Loan under this  Agreement,
the Retiree  Welfare  benefit  Plan  Liability  with  respect to all the Retiree
Welfare  benefit  Plans have not  increased  in an amount that is  material  (as
specified in Section 6.08(h)(ii)).

         (d)       With respect to each Pension Plan:

                    (i)  if the  plan  is  intended  to be  tax-qualified  under
          section  401(a) of the Code, it is so qualified,  its related trust is
          tax-exempt  under  section  501 of the Code,  and  either the plan and
          trust  have been  determined  by the  Internal  Revenue  Service to be
          qualified and exempt from tax under


                                      -31-
<PAGE>


          sections   401  and  501  of  the   Code  or   application   for  such
          determinations  has been or will be filed  with the  Internal  Revenue
          Service and responses regarding the same have not been received; and

                    (ii)  there  has  been  no  ERISA  Event  and  there  is  no
          outstanding material liability with respect to any termination of such
          Pension Plan.

          (e) With respect to each Pension Plan or Welfare Plan:

                    (i) Except as set forth in Schedule III, there are no claims
          (other than  claims for  benefits  in the normal  course),  actions or
          lawsuits asserted or instituted  against any Plan, or to the knowledge
          of the Borrowers,  any  Multiemployer  Plan; and the Borrowers have no
          knowledge of any threatened litigation or claims against the assets of
          any  Plan  or  against  any  fiduciary  thereof  with  respect  to the
          operation of any such plan that in the aggregate could have a material
          adverse  effect  on  the  financial  condition  or  prospects  of  the
          Borrowers or any ERISA  Affiliate  or the ability of the  Borrowers to
          perform their obligations hereunder.

                    (ii) All reports  with  respect to any Plan  required  under
          ERISA,  the Code or any other  applicable law to be filed, the failure
          of which to file  that is  reasonably  likely  to,  in the  aggregate,
          result in liability of any of the Borrowers in a material amount, have
          been filed,  and all such reports are true and correct in all material
          respects as of the date given.

                    (iii)  The  Borrowers  have  not  engaged  in a  "prohibited
          transaction"  as defined  in  section  4975 of the Code and Title I of
          ERISA or  participated  in a breach of  fiduciary  responsibility  (as
          described in section  502(1) of ERISA) that would  subject any of them
          (after  giving  effect  to any  exemption)  to the tax or  penalty  on
          prohibited transactions imposed by section 4975 of the Code or section
          502 of ERISA, or any other liability, the amount of which is material.

                    (iv) Any bond  required  under  ERISA to be  obtained by any
          Person with respect to any Plan has been obtained and is in full force
          and effect, except where the failure of which is not reasonably likely
          to result in liability to the Borrowers and their ERISA  Affiliates in
          an amount in excess of $20,000.

          (f) Each Welfare Plan has complied  with the notice,  continuation  of
coverage,  and other applicable  requirements under section 4980B of the Code in
all material respects.

          (g) No Plan is a Multiemployer Plan.

          Section 5.08.  Subsidiaries  and  Ownership of Stock.  Schedule I is a
complete  and  accurate  list of the  Subsidiaries  of the  Borrowers  as of the
Closing Date, showing the jurisdiction of


                                      -32-
<PAGE>


incorporation or organization of each such Subsidiary and showing the percentage
of the Borrowers'  ownership of the outstanding  stock or other interest of each
such Subsidiary as of the Closing Date. All of the outstanding  capital stock or
other interest of each such  Subsidiary has been validly  issued,  is fully paid
and nonassessable and is owned by the Borrowers free and clear of all Liens.

         Section  5.09.  Credit  Arrangements.  Schedule  II is a  complete  and
correct list as of the Closing Date of all credit agreements and indentures, and
all material  guaranties and Capital Leases presently in effect providing for or
relating to the borrowing of money  (including  agreements and  arrangements for
the  issuance of letters of credit or for  acceptance  financing)  in respect of
which the Borrowers or any of their  Subsidiaries  is in any manner  directly or
contingently obligated as of the Closing Date; and the maximum principal or face
amounts of the credit in question, outstanding and which can be outstanding, are
correctly stated.

         Section  5.10.  Operation of Business.  Each of the Borrowers and their
Subsidiaries possesses all licenses, permits,  franchises,  patents, copyrights,
trademarks  and  trade  names,  or  rights  thereto,  to  conduct  its  business
substantially as now conducted and as presently proposed to be conducted, except
where failure of such  possession will not, in any one case or in the aggregate,
materially adversely affect the financial condition,  operations,  properties or
business  of the  Borrowers  or any such  Subsidiary,  taken as a whole,  or the
ability  of the  Borrowers  to  perform  their  obligations  under the  Facility
Documents.

         Section  5.11.  Hazardous  Materials.  The  Borrowers and each of their
Subsidiaries   have   obtained   all  material   permits,   licenses  and  other
authorizations  which are required on the Closing  Date under all  Environmental
Laws which are applicable to the ongoing  business  operations of the Borrowers.
The Borrowers and each of their Subsidiaries are in material compliance with the
terms and conditions of all such material permits,  licenses and authorizations,
and with respect to the ongoing business operations of the Borrowers are also in
material  compliance  with  all  other  limitations,  restrictions,  conditions,
standards,  prohibitions,  requirements,  obligations,  schedules and timetables
contained in any applicable Environmental Law or in any regulation,  code, plan,
order, decree,  judgment,  injunction,  notice or demand letter issued, entered,
promulgated or approved  thereunder,  except as disclosed in Schedule IV. To the
extent the Borrowers or any of their Subsidiaries has failed to so comply,  such
failure will not have a material  adverse effect on the  consolidated  financial
condition,  operations,  business  or  prospects  of  the  Borrowers  and  their
Consolidated Subsidiaries.

         In addition, except as set forth in Schedule IV hereto:

         (a) To the best of the Borrowers' knowledge,  no notice,  notification,
demand, request for information,  citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and no  investigation  or
review is pending or


                                      -33-
<PAGE>


threatened  by any  governmental  or other  entity  with  respect to any alleged
failure  by the  Borrowers  or any of their  Subsidiaries  to have  any  permit,
license or authorization required in connection with the conduct of the business
of the Borrowers or any of their Subsidiaries or with respect to any generation,
treatment,  storage,  recycling,  transportation,  release or  disposal,  or any
release  as  defined  in 42  U.S.C.  ?9601(22)  ("Release"),  of  any  Hazardous
Materials  generated by the  Borrowers or any of their  Subsidiaries,  except as
disclosed in Schedule IV.

          (b) Except as disclosed in Schedule IV,  neither the Borrowers nor any
of their  Subsidiaries has handled any Hazardous  Material,  on any property now
owned or leased by the Borrowers or any of their  Subsidiaries to an extent that
it has, or may reasonably be expected to have, a material  adverse effect on the
consolidated financial condition,  operations,  business or prospects taken as a
whole of the Borrowers and their Consolidated Subsidiaries.

          (c) As of the  Closing  Date  no  oral or  written  notification  of a
Release of a Hazardous  Material has been filed by or on behalf of the Borrowers
or any of their  Subsidiaries,  except  as  disclosed  in  Schedule  IV,  and no
property now owned or leased by the  Borrowers or any of their  Subsidiaries  is
listed or  proposed  for  listing  on the  National  Priority  List  promulgated
pursuant to CERCLA.

          (d) As of the Closing Date there are no Liens of record  arising under
or pursuant to any Environmental  Laws on any of the real property or properties
owned or leased by the Borrowers or any of their Subsidiaries, and the Borrowers
have no knowledge of government  actions which have been taken or are in process
which  could  subject  any of such  properties  to such  Liens and  neither  the
Borrowers nor any of their Subsidiaries would be required to place any notice or
restriction  relating to the  presence of  Hazardous  Materials  at any property
owned by it in any deed to such property.

          (e)  As  of  the  Closing  Date  there  have  been  no   environmental
investigations,  studies,  audits, tests, reviews or other analyses conducted by
or which are in the possession of the Borrowers or any of their  Subsidiaries in
relation to any property or facility now owned or leased by the Borrowers or any
of their Subsidiaries which have not been made available to the Bank.

          Section 5.12. No Default on Outstanding Judgments or Orders. As of the
Closing Date,  each of the Borrowers  and their  Subsidiaries  has satisfied all
judgments  that have been in effect for any period of 30  consecutive  days, and
neither the Borrowers nor any of their  Subsidiaries  is in default with respect
to any judgment, writ, injunction, decree, or material rule or regulation of any
court,  arbitrator or federal, state, municipal or other Governmental Authority,
commission, board, bureau, agency or instrumentality,  domestic or foreign as of
the date hereof.

          Section 5.13. No Defaults on Other  Agreements.  Neither the Borrowers
nor any of  their  Subsidiaries  is a party  to any  indenture,  loan or  credit
agreement or any lease or other agreement


                                      -34-
<PAGE>


or  instrument  or subject  to any  charter or  corporate  restriction  which is
reasonably likely to have a material adverse effect on the business, properties,
assets,  operations or conditions,  financial or otherwise,  of the Borrowers or
any of their Subsidiaries,  taken as a whole, or the ability of the Borrowers to
carry out their  obligations  under the  Facility  Documents to which they are a
party.

         Section 5.14.  Labor  Disputes and Acts of God. As of the Closing Date,
neither  the  business  nor the  properties  of any  Borrower or of any of their
Subsidiaries are affected by any fire, explosion,  accident,  strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public  enemy or other  casualty  (whether  or not  covered  by  insurance),
materially and adversely  affecting such business or properties or the operation
of such Borrower or any such Subsidiary.

         Section  5.15.  Governmental  Regulation.  Neither  Borrower nor any of
their  Subsidiaries  is subject to regulation  under the Public Utility  Holding
Company Act of 1935, the Investment Company Act of 1940, the Interstate Commerce
Act, the Federal Power Act or any statute or regulation  limiting its ability to
incur indebtedness for money borrowed as contemplated hereby.

         Section 5.16. No  Forfeiture.   No  Forfeiture  Proceeding  against any
Borrower is pending or threatened.

         Section 5.17.     Solvency.

         (a) The present fair salable value of the assets of the Borrowers after
giving effect to all the transactions contemplated by the Facility Documents and
the  funding  of all  Commitments  and the  issuance  of the  Letters  of Credit
hereunder  exceeds  the amount that will be required to be paid on or in respect
of the existing debts and other liabilities  (including contingent  liabilities)
of the Borrowers and their Subsidiaries as they mature.

         (b) The  property of each  Borrower  does not  constitute  unreasonably
small  capital for such  Borrower to carry out its business as now conducted and
as proposed to be conducted, including the capital needs of each Borrower.

         (c) No Borrower intends to, nor does any Borrower believe that it will,
incur debts  beyond its ability to pay such debts as they  mature  (taking  into
account  the  timing  and  amounts  of cash  to be  received  by the  respective
Borrower,  and of  amounts  to be  payable  on or in  respect  of  debt  of such
Borrower).  The cash available to each  Borrower,  after taking into account all
other  anticipated  uses of the  cash of such  Borrower,  is  anticipated  to be
sufficient  to pay all such  amounts on or in  respect of debt of such  Borrower
when such amounts are required to be paid.

         (d) No Borrower believes that final judgments against it in actions for
money damages will be rendered at a time when,  or in an amount such that,  such
Borrower  will be unable to satisfy any such


                                      -35-
<PAGE>


judgments  promptly in  accordance  with their terms  (taking  into  account the
maximum reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments  might be rendered).  The cash available
to each  Borrower  after taking into account all other  anticipated  uses of the
cash of such Borrower  (including the payments on or in respect of debt referred
to in paragraph (c) of this Section  5.17),  is  anticipated to be sufficient to
pay all such judgments promptly in accordance with their terms.

         Section  5.18.   Representations  and  Warranties  in  the  Acquisition
Documents.  The Bank has received a complete and correct copy of the Acquisition
Documents (including all exhibits,  schedules and disclosure letters referred to
therein or  delivered  pursuant  thereto,  if any) and all  amendments  thereto,
waivers  relating  thereto and other side letters or  agreements  affecting  the
terms thereof.  The Acquisition  Documents have been duly executed and delivered
by the Borrowers  who are parties  thereto and are in full force and effect with
respect to such Borrowers.  Each of the representations and warranties set forth
in each of the Acquisition  Documents of any Borrowers party thereto, and to the
knowledge of the Borrowers,  of each other Person party  thereto,  were true and
correct  in  all  material  respects  on and as of the  date  made  (except  for
representations and warranties specifically relating to a time period other than
the date of execution of the Acquisition Documents or the date of closing of the
transactions  contemplated  by  the  Acquisition  Documents).  Each  Acquisition
Document  is a legal,  valid  and  binding  obligation  of the  Borrowers  party
thereto,  enforceable  against such Persons in accordance with its terms, except
to the extent that such  enforcement  may be limited by  applicable  bankruptcy,
insolvency,   reorganization,   moratorium  and  other  similar  laws  affecting
creditors?  rights  generally and general  principles of equity  (regardless  of
whether such  enforceability is considered in a proceeding at law or in equity).
All transactions  contemplated by the Acquisition Documents to be consummated on
or prior to the Closing Date have been consummated without amendment,  waiver or
modification of the terms thereof.

                        ARTICLE 6. AFFIRMATIVE COVENANTS

          So long as the Notes shall remain unpaid,  any Letters of Credit shall
remain  outstanding or the Bank shall have any Commitment  under this Agreement,
each Borrower shall:

          Section 6.01.  Maintenance  of Existence.  Preserve and maintain,  and
cause each of its material Subsidiaries to preserve and maintain,  its corporate
existence  and good  standing  in the  jurisdiction  of its  incorporation,  and
qualify and remain  qualified,  and cause each of its material  Subsidiaries  to
qualify and remain qualified,  as a foreign  corporation in each jurisdiction in
which such  qualification  is required,  except where failure to do so shall not
have a material  adverse  effect on the financial  condition or prospects of the
Borrowers  and  their  Subsidiaries,  taken as a whole,  or the  ability  of the
Borrowers to perform their obligations hereunder.



                                      -36-
<PAGE>



          Section  6.02.  Conduct of Business.  Continue,  and cause each of its
Subsidiaries to continue, to engage in a business of substantially the same type
as conducted by it on the date of this Agreement.

          Section 6.03. Maintenance of Properties.  Maintain, keep and preserve,
and cause each of its  Subsidiaries to maintain,  keep and preserve,  all of its
properties  (tangible and  intangible),  necessary in the proper  conduct of its
business in good working order and condition, ordinary wear and tear excepted.

          Section  6.04.  Maintenance  of Records.  Keep,  and cause each of its
Subsidiaries to keep,  adequate records and books of account,  in which complete
entries  will  be  made  in  accordance  with  GAAP,  reflecting  all  financial
transactions of the Borrowers and their Subsidiaries.

          Section 6.05.  Maintenance of Insurance.  Maintain,  and cause each of
its  Subsidiaries to maintain,  insurance with  financially  sound and reputable
insurance  companies or  associations in such amounts and covering such risks as
are usually  carried by  companies  engaged in the same or similar  business and
similarly  situated,  which  insurance may provide for reasonable  deductibility
from coverage thereof.

          Section  6.06.  Compliance  with Laws.  Comply,  and cause each of its
Subsidiaries  to  comply,  in all  respects  with all  applicable  laws,  rules,
regulations and orders, such compliance to include,  without limitation,  paying
before the same  become  delinquent  all  taxes,  assessments  and  governmental
charges imposed upon it or upon its property, except to the extent in good faith
duly contested in accordance with all applicable  laws,  rules,  regulations and
procedures  and  for  which  adequate  reserves  are  provided,   as  reasonably
determined  by the Bank,  and  except  where  failure  to do so shall not have a
material adverse effect on the financial condition or prospects of the Borrowers
and their  Subsidiaries,  taken as a whole,  or the ability of the  Borrowers to
perform their obligations hereunder.

          Section 6.07.  Right of Inspection.  At any  reasonable  time and from
time to time upon advance notice, permit the Bank or any agent or representative
thereof,  to examine and make copies and abstracts from the records and books of
account  of,  and  visit  the  properties  of,  such  Borrower  and  any  of its
Subsidiaries, and to discuss the affairs, finances and accounts of such Borrower
and any such Subsidiary with any of their respective  officers and directors and
such Borrower's independent accountants.

          Section 6.08. Reporting Requirements. Furnish to the Bank:

          (a) as soon as available and in any event within 90 days after the end
of each fiscal year of the Borrowers,  a consolidated and consolidating  balance
sheet of the Borrowers and their Consolidated Subsidiaries as of the end of such
fiscal  year  and  a  consolidated  and   consolidating   income  statement  and
consolidated


                                      -37-
<PAGE>


statements  of cash flows and changes in  stockholders'  equity of the Borrowers
and their  Consolidated  Subsidiaries  for such fiscal year,  all in  reasonable
detail and, if required by the SEC,  stating in comparative  form the respective
consolidated and consolidating  figures for the corresponding date and period in
the prior  fiscal year and all  prepared in  accordance  with GAAP and as to the
consolidated statements accompanied by an opinion thereon acceptable to the Bank
by Ernst & Young,  L.L.P. or other independent  accountants of national standing
selected by the Borrowers;

          (b) as soon as available and in any event within 45 days after the end
of each of the first three  quarters of each  fiscal  year of the  Borrowers,  a
consolidated  and  consolidating  balance  statement of the  Borrowers and their
Consolidated  Subsidiaries as of the end of such quarter and a consolidated  and
consolidating  income  statement and  consolidated  statements of cash flows and
changes  in  stockholders'  equity,  of the  Borrowers  and  their  Consolidated
Subsidiaries  for the period  commencing at the end of the previous  fiscal year
and ending  with the end of such  quarter,  all in  reasonable  detail  and,  if
required by the SEC, stating in comparative form the respective consolidated and
consolidating  figures  for the  corresponding  date and period in the  previous
fiscal year and all  prepared in  accordance  with GAAP and  certified by senior
financial  officers of each of the Borrowers  (subject to changes resulting from
audit and year-end adjustments);

          (c) as soon as  practicable  and in any event within 10 days after the
end of each  Accounting  Month,  a  Borrowing  Base  Certificate  and a  Backlog
Certificate.

          (d) promptly upon receipt  thereof,  copies of any management  letters
submitted to the Borrowers or any of their Subsidiaries by independent certified
public accountants in connection with examination of the financial statements of
the Borrowers or any such Subsidiary made by such accountants;

          (e)  simultaneously  with the  delivery  of the  financial  statements
referred to above, a certificate of the senior financial  officer of each of the
Borrowers (i) certifying that to the best of their knowledge no Default or Event
of Default has occurred and is  continuing  or, if a Default or Event of Default
has occurred  and is  continuing,  a statement as to the nature  thereof and the
action  which is  proposed  to be taken  with  respect  thereto,  and (ii)  with
computations demonstrating compliance with the covenants contained in Article 8;

          (f) promptly after the  commencement  thereof,  notice of all actions,
suits and proceedings before any court or governmental  department,  commission,
board,  bureau,  agency or instrumentality,  domestic or foreign,  affecting the
Borrowers or any of their  Subsidiaries  which, if determined  adversely to such
Borrower  or such  Subsidiary,  could  have a  material  adverse  effect  on the
financial  condition,   properties  or  operations  of  such  Borrower  or  such
Subsidiary, taken as a whole;


                                      -38-
<PAGE>


          (g) as soon  as  possible  and in any  event  within  ten  days  after
becoming  aware of the  occurrence of each Default or Event of Default a written
notice  setting  forth the  details of such  Default or Event of Default and the
action which is proposed to be taken by the Borrowers with respect thereto;

          (h) as soon as  possible,  and in any event  within 15 days  after any
Borrower  knows or has  reason  to know  that any of the  events  or  conditions
specified  below  with  respect  to any Plan shall  have  occurred  or exist,  a
statement  signed by a senior  financial  officer of such Borrower setting forth
details  respecting  such event or condition and the action,  if any, which such
Borrower or its ERISA  Affiliate  proposes to take with  respect  thereto (and a
copy of any report or notice  required to be filed with or given to PBGC by such
Borrower or an ERISA Affiliate with respect to such event or condition):

                    (i) ERISA Event with respect to a Plan; and

                    (ii) an increase in the Unfunded Benefit  Liabilities of one
          or more  Pension  Plans after the date of this  Agreement in an amount
          which is  material  in  relation  to the  financial  condition  of the
          Borrowers and their Subsidiaries,  on a consolidated basis;  provided,
          however, that such increase shall not be deemed to be material so long
          as it does not exceed during any consecutive 3-year period $500,000.

          (i)  promptly  after the  request of the Bank,  copies of each  annual
report  filed  pursuant to section 104 or Section  4065 of ERISA with respect to
each Plan (including, to the extent required by ERISA, the related financial and
actuarial statements and supporting statements);

          (j) promptly after the furnishing thereof,  copies of any statement or
report furnished to any other party pursuant to the terms of any indenture, loan
or credit or  similar  agreement  involving  an amount in any one case or in the
aggregate  in excess of $500,000 and not  otherwise  required to be furnished to
the Bank pursuant to any other clause of this Section 6.08;

          (k) within 10 days after the sending or filing thereof,  copies of all
proxy statements,  financial statements and reports which any Borrower or any of
their  Subsidiaries  sends  to its  stockholders,  and  copies  of all  regular,
periodic and special reports, and all registration statements which any Borrower
or any such Subsidiary  files with the SEC or any  Governmental  Authority which
may be substituted therefor, or with any national securities exchange;

          (l)  promptly  after the  commencement  thereof or promptly  after any
Borrower knows of the  commencement or threat thereof,  notice of any Forfeiture
Proceeding; and

                                      -39-
<PAGE>


         (m) such other  information  respecting  the  condition or  operations,
financial or otherwise, of any Borrower or any of their Subsidiaries as the Bank
may from time to time reasonably request.

         Section  6.09.  Environmental  Indemnification.  It is  understood  and
agreed among the  Borrowers,  Subsidiaries  and the Bank that the  Borrowers and
each of their  Subsidiaries  shall be solely  responsible for all  environmental
liabilities,   as  described   below,  and  the  Borrowers  and  each  of  their
Subsidiaries agree to release, defend, indemnify and hold harmless the Bank, and
their present and future officers,  directors,  employees, agents, shareholders,
attorneys and all of their  respective  heirs,  representatives,  successors and
assigns from and against all losses, liabilities,  suits, obligations,  demands,
fines, damages, judgments,  injuries,  administrative orders, consent agreements
and orders,  penalties,  actions, causes of actions, changes, costs and expenses
(including reasonable attorneys' fees and consultants' fees), claims,  including
but not  limited  to claims  arising  out of loss of life,  injury  to  persons,
property or business,  or damages to natural resources,  whether based on strict
liability, tort, contract, implied or expressed warranty,  statute,  regulation,
common law, or other Environmental Law, arising in connection with or the result
of  (i)  any  past,  present  or  future  existence,  use,  handling,   storage,
transportation,  manufacture, release or disposal of any Hazardous Materials in,
on,  or under  the  Borrowers'  or such  Subsidiaries  past,  present  or future
properties,  buildings or assets,  or in connection  with the Borrowers' or such
Subsidiaries   business   operations,   whether  foreseeable  or  unforeseeable,
regardless of the source,  time of occurrence or the time of discovery;  or (ii)
any past, present or future violation (or alleged violation) of an Environmental
Law in connection with the ownership,  operation or control of the Borrowers' or
such Subsidiaries  properties,  buildings,  assets or business  operations.  The
foregoing indemnification includes, without limitation,  indemnification against
all  costs  in  law  or  in  equity,  of  removal,  response,  investigation  or
remediation  of any kind, and the disposal of any Hazardous  Materials,  and all
costs  of  determining  whether  the  Borrowers  or  such  Subsidiaries  are  in
compliance  with  all  applicable   Environmental   Laws.   Notwithstanding  the
foregoing,  if any such  liability  shall arise solely as a  consequence  of the
affirmative  actions of the Bank or as a consequence of the gross  negligence of
the Bank,  the  Borrowers  shall not be liable  for the  indemnity  contemplated
hereby.

                          ARTICLE 7. NEGATIVE COVENANTS

         So long as the Notes shall  remain  unpaid,  any Letter of Credit shall
remain  outstanding or the Bank shall have any Commitment  under this Agreement,
the Borrowers shall not:

         Section 7.01. Debt. Create, incur, assume or suffer to exist, or permit
any of its  Subsidiaries  to  create,  incur,  assume or  suffer to exist  Debt,
except:



                                      -40-
<PAGE>


         (a) Debt of the Borrowers under this Agreement,  the Notes, the Letters
of Credit or the other Facility Documents;

         (b) Debt  described in Schedule  II, and any  renewals,  extensions  or
refinancings thereof;

         (c) Debt of any Borrower to any other  Borrower or to any Subsidiary or
of any such Subsidiary to any Borrower or another such Subsidiary;

         (d) Debt in an aggregate  amount not in excess of $500,000 and which is
secured by purchase money liens meeting the requirements of subsection 7.03(i);

         (e) Other Debt in an aggregate  amount not in excess of $1,000,000 on a
consolidated basis;

         (f)  Subordinated   Debt,  which  is  subordinated  to  the  Borrowers'
obligations to the Bank on terms and conditions acceptable to the Bank; and

         (g) Debt of the Borrowers evidenced by the Facility Loan Letter,  dated
December 3, 1990, relating to a loan of ?500,000 from National Westminster Bank,
PLC in favor of Farrel Limited (the ?NatWest Facility?).

         Section 7.02. Guaranties,  Etc. Assume, guaranty,  endorse or otherwise
be or become  directly or contingently  responsible or liable,  or permit any of
its  Subsidiaries  to  assume,  guarantee,  endorse  or  otherwise  be or become
directly or indirectly responsible or liable (including,  but not limited to, an
agreement to purchase any  obligation,  stock,  assets,  goods or services or to
supply or advance any funds,  assets,  goods or  services,  or an  agreement  to
maintain or cause such Person to maintain a minimum working capital or net worth
or  otherwise  to assure  the  creditors  of any  Person  against  loss) for the
obligations of any Person,  except  guaranties of Debt  permitted  under Section
7.01, and guaranties by  endorsement  of negotiable  instruments  for deposit or
collection or similar transactions in the ordinary course of business.

         Section  7.03.  Liens.  Create,  incur,  assume or suffer to exist,  or
permit any of its Subsidiaries to create,  incur, assume or suffer to exist, any
Lien,  upon or with  respect to any of its  properties,  now owned or  hereafter
acquired, except:

         (a) Liens for  taxes or  assessments  or other  government  charges  or
levies  if not yet due and  payable  or if due and  payable  if they  are  being
contested in good faith by  appropriate  proceedings  and for which  appropriate
reserves are maintained;

         (b)  Liens   imposed  by  law,  such  as   mechanic's,   materialmen's,
landlord's,  warehousemen's  and  carrier's  Liens,  and  other  similar  Liens,
securing  obligations  incurred in the ordinary course of business which are not
past due for more than 30 days,  or which are


                                      -41-
<PAGE>


being  contested  in  good  faith  by  appropriate  proceedings  and  for  which
appropriate reserves have been established;

         (c) Liens under workers' compensation,  unemployment insurance,  social
security or similar legislation (other than ERISA);

         (d) Liens,  deposits  or pledges  to secure  the  performance  of bids,
tenders,  contracts  (other than  contracts  for the  payment of money),  leases
(permitted under the terms of this Agreement),  public or statutory obligations,
surety,  stay, appeal,  indemnity,  performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;

         (e) Judgment and other similar  Liens arising in connection  with court
proceedings;  provided that the execution or other  enforcement of such Liens is
effectively  stayed and the claims secured thereby are being actively  contested
in good faith and by appropriate proceedings;

         (f)   Easements,   rights-of-way,   restrictions   and  other   similar
encumbrances  which,  in the  aggregate,  do not  materially  interfere with the
occupation,  use and  enjoyment by such  Borrower or any such  Subsidiary of the
property or assets  encumbered  thereby in the normal  course of its business or
materially impair the value of the property subject thereto;

         (g) Liens securing  obligations of any such  Subsidiary to any Borrower
or another such Subsidiary;

         (h)  Purchase  money Liens on any  property  hereafter  acquired or the
assumption of any Lien on property existing at the time of such acquisition,  or
a Lien incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease; provided that:

             (i) any property  subject to any of the  foregoing is  acquired  by
         such  Borrower or any such  Subsidiary  in the ordinary  course  of its
         business   and   the   Lien   on   any   such   property   is   created
         contemporaneously with such acquisition;

             (ii) the  obligation  secured  by any Lien so  created,  assumed or
         existing shall not exceed the cost as of the time of acquisition of the
         property covered thereby to such Borrower or such Subsidiary  acquiring
         the same;

             (iii) each such Lien shall  attach only to the property so acquired
         and fixed improvements thereon; and

             (iv) the  obligations  secured  by such Lien are  permitted  by the
         provisions of Section 7.01; and

         (i)       a Lien securing the NatWest Facility.


                                      -42-
<PAGE>


          Section 7.04. Leases. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create,  incur, assume or suffer to exist, any
obligation  as lessee for the rental or hire of any real or  personal  property,
except:  (a) leases existing on the date of this Agreement and any extensions or
renewals  thereof;  (b) leases  (other than Capital  Leases) which do not in the
aggregate require the Borrowers and their  Subsidiaries on a consolidated  basis
to make payments  (including taxes,  insurance,  maintenance and similar expense
which any Borrower or any such  Subsidiary is required to pay under the terms of
any such lease) in any fiscal year of the Borrowers in excess of $1,000,000; (c)
leases  between  any  Borrower  and any  such  Subsidiary  or  between  any such
Subsidiaries;  (d) Capital Leases  permitted by Section 7.03 and which do not in
the aggregate  require the Borrowers and their  Subsidiaries  on a  consolidated
basis to make payments  (including  taxes,  insurance,  maintenance  and similar
expense  which any Borrower or any such  Subsidiary is required to pay under the
terms of any such Capital  Lease) in any fiscal year of the  Borrowers in excess
of $1,000,000.

         Section 7.05.  Investments.  Make, or permit any of its Subsidiaries to
make,  any loan or advance to any Person or purchase or  otherwise  acquire,  or
permit any such Subsidiary to purchase or otherwise acquire,  any capital stock,
assets, obligations or other securities of, make any capital contribution to, or
otherwise invest in, or acquire any interest in, any Person, including,  without
limitation,  Farrel  Rockstedt  GmbH  or any  other  Subsidiary  which  is not a
Borrower and,  further  expressly  provided,  that the U.S. Company will make no
such  investment in the U.K.  Companies  except:  (a) direct  obligations of the
United  States of America or any agency  thereof with  maturities of one year or
less from the date of  acquisition;  (b) commercial  paper of a domestic  issuer
rated at least  "A-1" by  Standard  &  Poor's  Corporation  or "P-1" by  Moody's
Investors Service, Inc.; (c) certificates of deposit with maturities of one year
or less from the date of  acquisition  issued by the Bank or an affiliate of the
Bank,  or any  commercial  bank  operating  within the United  States of America
having capital and surplus in excess of $500,000,000; (d) for stock, obligations
or securities received in settlement of debts (created in the ordinary course of
business) owing to such Borrower or any such Subsidiary; and (e), in the case of
the U.S. Company,  the repurchase of its own issued and outstanding common stock
for a  purchase  price  in any one case or in the  aggregate  not in  excess  of
$350,000 in any fiscal year.

         Section  7.06.  Dividends.  Declare  or pay  any  dividends,  purchase,
redeem,  retire or otherwise  acquire for value any of its capital  stock now or
hereafter outstanding, or make any distribution of assets to its stockholders as
such whether in cash, assets or in obligations of such Borrower,  or allocate or
otherwise set apart any sum for the payment of any dividend or distribution  on,
or for the  purchase,  redemption  or  retirement  of any shares of its  capital
stock,  or make any other  distribution  by reduction of capital or otherwise in
respect of any shares of its capital stock or permit any of its  Subsidiaries to
purchase or  otherwise  acquire

                                      -43-
<PAGE>


for value any stock of any Borrower or another such Subsidiary, except that: (a)
any Borrower may declare and deliver  dividends and make  distributions  payable
solely in common  stock of such  Borrower;  (b) any  Borrower  may  purchase  or
otherwise  acquire  shares of its capital  stock by  exchange  for or out of the
proceeds  received from a  substantially  concurrent  issue of new shares of its
capital  stock;  and (c) the U.S.  Company may pay cash  dividends in any fiscal
quarter in amounts in any one case or in the  aggregate not in excess of (i) the
amount spent to repurchase such company?s  issued and outstanding  capital stock
in accordance  with Section  7.05(e) hereof during such four fiscal quarters and
(ii) 25% of the cumulative  consolidated  net income after taxes during the most
recently  completed four fiscal  quarters,  less the cumulative  total amount of
dividends paid in respect of its capital stock during such four fiscal quarters.
Notwithstanding the foregoing,  the Bank acknowledges and agrees that from April
23, 1997  through  June 30,  1998,  the U.S.  Company may pay cash  dividends in
respect  of its  capital  stock in an  aggregate  amount  of not more  than four
million  ($4,000,000)  and that the  taking of such  action by the U.S.  Company
shall not  constitute  a breach or violation  of this  Section  7.06;  provided,
however,  that at the time such action is to be taken by the U.S. Company, if at
all,  the  Borrowers  shall not  otherwise be in default of this Section 7.06 as
regards or as a result of any other  action or  transaction  and shall not be in
default of any other terms or conditions of this Agreement.

         Section  7.07.  Sale  of  Assets.  Sell,  lease,  assign,  transfer  or
otherwise dispose of, or permit any of its Subsidiaries to sell, lease,  assign,
transfer or  otherwise  dispose of, any of its now owned or  hereafter  acquired
assets (including,  without limitation, shares of stock and indebtedness of such
Subsidiaries,  receivables and leasehold  interests) except (a) if, after giving
effect  to such  transaction,  the  aggregate  amount  of the  greater,  in each
instance,  of (x) the net book value,  or (y) the fair market value, of all such
properties  and assets so disposed of in any fiscal year is less than the lesser
of  $2,000,000 or 5% of  Consolidated  Tangible Net Worth as of the beginning of
such  fiscal  year,  (b) for  inventory  disposed of in the  ordinary  course of
business;  (c) the sale or other  disposition of assets no longer used or useful
in the conduct of its business;  (d) if all proceeds  thereof  (after payment of
reasonable  expenses of the transaction) shall promptly be applied either (i) to
the acquisition by the Borrowers or such  Subsidiaries of other assets which are
necessary  or  useful  in its  business  or (ii) to the  prepayment  of an equal
principal  amount of the Loans in accordance  with the terms of this  Agreement;
and (e) that any such Subsidiary may sell, lease,  assign or otherwise  transfer
its assets to any Borrower.

         Section 7.08. Stock of Subsidiaries,  Etc. Sell or otherwise dispose of
any shares of capital  stock of any of its  Subsidiaries,  except in  connection
with a transaction  permitted  under Section 7.10, or permit any such Subsidiary
to  issue  any  additional  shares  of  its  capital  stock,  except  directors'
qualifying shares.



                                      -44-
<PAGE>


         Section 7.09. Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service,  with any Affiliate or permit any of its  Subsidiaries
to enter into any transaction, including, without limitation, the purchase, sale
or exchange of property or the  rendering  of any service,  with any  Affiliate,
except (a) in the ordinary course of and pursuant to the reasonable requirements
of such  Borrower's or such  Subsidiary's  business and upon fair and reasonable
terms no less favorable to such Borrower or such Subsidiary than it would obtain
in a comparable  arm's length  transaction  with a Person not an Affiliate,  (b)
transactions  between Borrowers,  and (c) transactions entered into prior to the
Closing Date between  Affiliates as disclosed on the U.S. Company's SEC Filings,
whether or not at arm's length.

         Section 7.10. Mergers, Etc. Merge or consolidate with, or sell, assign,
lease or  otherwise  dispose of  (whether in one  transaction  or in a series of
transactions)  all or  substantially  all of its  assets  (whether  now owned or
hereafter  acquired) to any Person,  or acquire all or substantially  all of the
assets or the  business of any Person (or enter into any  agreement to do any of
the foregoing),  or permit any of its Subsidiaries to do so except that: (a) any
such Subsidiary may merge into or transfer  assets to such Borrower;  or (b) any
such  Subsidiary  may merge into or consolidate  with or transfer  assets to any
other such Subsidiary

         Section 7.11. No Activities  Leading to Forfeiture.  Engage in or cause
or suffer any of its  Subsidiaries  or  Affiliates to engage in or propose to be
engaged in the conduct of any business or activity which are  reasonably  likely
to result in a Forfeiture Proceeding.

         Section 7.12.  ERISA  Compliance.  Take or omit to take any action,  or
permit any ERISA Affiliate to take or omit to take any action,  that constitutes
or would  result in a  liability  of any  Borrower or an ERISA  Affiliate  in an
amount in excess of $500,000 with respect to (i) an ERISA Event, (ii) failure to
comply with the  requirements  of COBRA by any Welfare  Plan,  (iii)  failure to
comply with the  requirements of ERISA, the Code or any other applicable law by,
or with  respect  to, any  Pension or Welfare  Plan,  (iv)  increase in Unfunded
Benefit  Liability with respect to a Pension Plan, (v) liability with respect to
any Welfare Plan other than a Retiree  Welfare  Plan,  or (vi)  liability of the
Borrowers or any ERISA  Affiliate  with  respect to any Retiree  Welfare Plan in
excess of $3,500,000.


                         ARTICLE 8. FINANCIAL COVENANTS

         So long as the Notes shall  remain  unpaid,  any Letter of Credit shall
remain outstanding or the Bank shall have any Commitment under this Agreement:


                                      -45-
<PAGE>


         Section 8.01.  Minimum Tangible Net Worth. The Borrowers shall maintain
at all times a Consolidated Tangible Net Worth of not less than $23,000,000.

         Section 8.02.  Leverage  RatioSection.  The Borrowers shall maintain at
all times a ratio of  consolidated  total  liabilities  plus L/C  Obligations to
Consolidated Tangible Net Worth of not greater than 1.75 to 1.

         Section 8.03. Interest Coverage.  The Borrowers shall maintain for each
fiscal year a ratio of EBIT to Interest Expense of not less than 3 to 1.

         Section 8.04.  Current Ratio. The Borrowers shall maintain at all times
Current  Assets  in  an  amount  equal  to  not  less  than  1.5  times  Current
Liabilities.

         Section 8.05. Debt Service Coverage. The Borrowers shall maintain for
each fiscal year a ratio of (a) EBITDA minus  Capital  Expenditures  to (b) Debt
Service Charges of not less than 1.25 to 1.


                          ARTICLE 9. EVENTS OF DEFAULT

         Section 9.01.  Events of Default.  Any of the following events shall be
an "Event of Default":

         (a) the Borrowers  shall: (i) fail to pay the principal of the Notes or
any Reimbursement  Obligations as and when due and payable;  or (ii) fail to pay
interest on the Notes or any fee or other amount due hereunder  within five days
of when due and payable;

         (b) any  representation or warranty made or deemed made by any Borrower
in this  Agreement or in any other  Facility  Document to which it is a party or
which is contained in any material certificate,  document, opinion, financial or
other  statement  furnished at any time under or in connection with any Facility
Document shall prove to have been incorrect in any material  respect on or as of
the date made or deemed made;

         (c) the  Borrowers  shall:  (i) fail to perform  or  observe  any term,
covenant or  agreement  contained  in Section 2.03 or Article 8; or (ii) fail to
perform or observe any term,  covenant or  agreement on its part to be performed
or observed  (other than the obligations  specifically  referred to elsewhere in
this Section 9.01) in any Facility  Document and such failure shall continue for
30 consecutive days after written notice received from the Bank;

         (d) any Borrower or any of their  respective  Subsidiaries  shall:  (i)
fail to pay any  indebtedness in an amount in excess of $500,000,  including but
not  limited  to  indebtedness  for  borrowed  money  (other  than  the  payment
obligations described in (a) above), of such Borrower or such Subsidiary, as the
case may be, or any


                                      -46-
<PAGE>


interest or premium thereon,  when due (whether by scheduled maturity,  required
prepayment,  acceleration,  demand or  otherwise);  or (ii) fail to  perform  or
observe any term,  covenant or condition on its part to be performed or observed
under any  agreement  or  instrument  relating  to any such  indebtedness,  when
required to be performed  or observed,  if the effect of such failure to perform
or observe is to accelerate,  or to permit the acceleration of, after the giving
of notice or  passage  of time,  or both,  the  maturity  of such  indebtedness,
whether or not such failure to perform or observe  shall be waived by the holder
of such  indebtedness;  or any such indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment),  prior to the stated  maturity  thereof;  and, in either event such
failure or default shall continue for 30  consecutive  days after written notice
received from the Bank;

         (e) any Borrower or any of their respective Subsidiaries: (A) (i) shall
generally  not, or be unable to, or shall admit in writing its inability to, pay
its debts as such debts  become  due; or (ii) shall make an  assignment  for the
benefit of creditors, petition or apply to any tribunal for the appointment of a
custodian,  receiver or trustee for it or a substantial  part of its assets;  or
(iii)  shall  commence  any  proceeding  under any  bankruptcy,  reorganization,
arrangement,  readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such  petition  or  application  filed or any such  proceeding  shall  have been
commenced  against it, in which an  adjudication or appointment is made or order
for relief is entered,  or which  petition,  application  or proceeding  remains
undismissed  for a period  of 30 days or more;  or shall be the  subject  of any
proceeding  under  which its assets may be subject  to  seizure,  forfeiture  or
divestiture  (other  than a  proceeding  in  respect of a Lien  permitted  under
Section  7.03(b));  or (v) by any act or omission shall indicate its consent to,
approval of or acquiescence  in any such petition,  application or proceeding or
order for relief or the appointment of a custodian,  receiver or trustee for all
or any  substantial  part  of its  property;  or  (vi)  shall  suffer  any  such
custodianship, receivership or trusteeship to continue undischarged for a period
of 30 days  or more or (B) (i)  without  prejudice  to any  other  provision  of
Article 9 the following  events in relation to the U.K.  Companies shall also be
Event of Default:

                  (i) the passing by either U.K. Company of a resolution for the
         liquidation  of such U.K.  Company other than for the purpose of a bona
         fide  amalgamation or  reconstruction  on terms previously  approved in
         writing by the Bank;

                  (ii) the  presentation  for a  tribunal  for the making  of an
         administration order in respect of either U.K. Company;

                  (iii) the  making  of a  proposal  under  Part I of the United
         Kingdom  Insolvency  Act 1986 or under any  statutory  re-enactment  or
         modification  thereof for a composition in


                                      -47-
<PAGE>


         satisfaction of either U.K. Company's debts or a scheme of  arrangement
         of its affairs;

                  (iv)  the  appointment  of  any  person  as  an administrative
         receiver of either U.K. Company; and

                  (v) the  appointment  of a  manager of either  U.K.  Company's
         property or any substantial part thereof.

         (f) one or more  judgments,  decrees or orders for the payment of money
in excess of $500,000 in the aggregate shall be rendered against any Borrower or
any of their respective Subsidiaries and such judgments, decrees or orders shall
continue  unsatisfied and in effect for a period of 30 consecutive  days without
being vacated, discharged, satisfied or stayed or bonded pending appeal;

         (g) any event or  condition  shall  occur or exist with  respect to any
Plan concerning which any Borrower is under an obligation to furnish a report to
the Bank in accordance with Section 6.08(h) hereof and as a result of such event
or condition,  together with all other such events or conditions,  such Borrower
or any ERISA  Affiliate has incurred or in the opinion of the Bank is reasonably
likely  to incur a  liability  with  respect  to a Title IV Plan,  the PBGC or a
section 4042 Trustee (or any  combination of the foregoing) that is in excess of
$500,000;

         (h) the Unfunded Benefit  Liabilities of one or more Pension Plans have
increased  after the date of this  Agreement  in an amount that is material  (as
specified in Section 6.08(h)(ii) hereof);

         (i) during any period of 12 consecutive  months,  commencing  before or
after  the date of this  Agreement,  individuals  who at the  beginning  of such
12-month  period were  directors of Farrel  Corporation  cease for any reason to
constitute a majority of the board of directors of the U.S. Company; or

         (j) any Forfeiture Proceeding shall have been commenced or any Borrower
shall have given the Bank written notice of the  commencement  of any Forfeiture
Proceeding as provided in Section 6.08(l).

         Section  9.02.  Remedies.  If any Event of Default  shall  occur and be
continuing,  the  Bank  may,  by  notice  to  the  Borrowers,  (a)  declare  the
Commitments to be terminated,  whereupon the same shall forthwith  terminate and
so shall the obligations of the Issuing Bank to issue and Letters of Credit, and
(b) declare the outstanding principal of the Notes, all interest thereon and all
other amounts payable under this Agreement, the Notes, the Letters of Credit and
the other  Facility  Documents to be forthwith  due and payable,  whereupon  the
Notes,  all such interest and all such amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrowers; provided that, in the
case  of  an  Event  of  Default  referred  to in  Section  9.01(e)  above,  the
Commitments  shall  be  immediately  terminated,  and the


                                      -48-
<PAGE>


Notes, all interest thereon, all Reimbursement Obligations and all other amounts
payable  under  this  Agreement,  the  Letters  of Credit or the other  Facility
Documents  shall be immediately  due and payable  without  notice,  presentment,
demand,  protest  or other  formalities  of any kind,  all of which  are  hereby
expressly waived by the Borrowers.

                       ARTICLE 10. UNCONDITIONAL GUARANTY.

         Section 10.01.  Guarantied  Obligations.  Each of the U.S.  Company and
Farrel Limited (each of the foregoing  entities in such capacity  individually a
"Guarantor"  and  collectively  the  "Guarantors"),  jointly and  severally,  in
consideration  of the  execution  and  delivery of this  Agreement  by the Bank,
hereby irrevocably and  unconditionally  guarantees to the Bank, as and for such
Guarantor's  own debt,  until final  payment has been made the due and  punctual
payment in full in cash in the applicable  currency of all obligations of Farrel
Shaw with respect to the Term Loan (the ?Guarantied Obligations?),  in each case
when and as the same shall become due and payable, whether at maturity, pursuant
to  mandatory or optional  prepayment,  by  acceleration  or  otherwise,  all in
accordance  with the terms and provisions of this  Agreement,  the Term Note and
the other Facility  Documents,  it being the intent of the  Guarantors  that the
guaranty set forth in this Section 10.01 (the "Unconditional Guaranty") shall be
a guaranty of payment and not a guaranty of collection.

         Section 10.02.  Performance  Under This Agreement.  In the event Farrel
Shaw  fails to make,  on or before  the due date  thereof,  any  payment  of the
principal  of, or  interest  on, the Term Note,  or if Farrel Shaw shall fail to
perform,  keep,  observe, or fulfill any other obligation referred to in Section
10.01  hereof in the manner  provided  in this  Agreement,  the Term Note or the
other  Facility  Documents,  and any such failure  shall  remain  uncured at the
expiration  of any  applicable  cure  period  provided  herein  or in the  other
Facility Documents,  the Guarantors shall cause forthwith to be paid the moneys,
or to be performed,  kept, observed,  or fulfilled each of such obligations,  in
respect of which such failure has occurred.

         Section 10.03.  Waivers.  To the fullest extent  permitted by law, each
Guarantor does hereby waive:

         (a) notice of acceptance of the Unconditional Guaranty;

         (b) notice of any borrowings under this Agreement by Farrel Shaw;

         (c) notice of the amount of the Guarantied Obligations, subject to each
Guarantor's  right to make  inquiry of the Bank to  ascertain  the amount of the
Guarantied Obligations at any reasonable time;


                                      -49-
<PAGE>


         (d) notice of adverse change in the financial condition of Farrel Shaw,
or any other  guarantor or any other fact that might  increase each  Guarantor's
risk hereunder;

         (e) notice of  presentment  for payment,  demand,  protest,  and notice
thereof as to the Term Note or any other Facility Document;

         (f) notice of any Default or Event of Default by Farrel Shaw;

         (g) all  other  notices  and  demands  to which  each  Guarantor  might
otherwise be entitled (except if such notice or demand is specifically otherwise
required to be given to each  Guarantor  hereunder  or under the other  Facility
Documents);

         (h) the right by statute or  otherwise to require the Bank to institute
suit  against  Farrel Shaw or any other  guarantor  or to exhaust the rights and
remedies of the Bank against Farrel Shaw or any other guarantor,  each Guarantor
being bound to the payment of each and all Guarantied  Obligations,  whether now
existing or hereafter accruing, as fully as if such Guarantied  Obligations were
directly owing to the Bank by each Guarantor;

         (i) any defense  arising by reason of any  disability  or other defense
(other than the defense that the  Guarantied  Obligations  shall have been fully
and finally performed and indefeasibly  paid) of Farrel Shaw or by reason of the
cessation  from any cause  whatsoever of the liability of Farrel Shaw in respect
thereof; and

         (j) any stay (except in connection with a pending  appeal),  valuation,
appraisal,  redemption  or extension  law now or at any time  hereafter in force
which, but for this waiver,  might be applicable to any sale of property of each
Guarantor made under any judgment,  order or decree based on this Agreement, and
each Guarantor  covenants that it will not at any time insist upon or plead,  or
in any manner claim or take the benefit or advantage of such law.

Until all of the Guarantied  Obligations  shall have been paid in full,  each of
the Guarantors hereby agrees to completely subordinate any right of subrogation,
reimbursement,  or  indemnity  whatsoever  in respect  thereof  and any right of
recourse  to or with  respect to any  property  of Farrel  Shaw.  Nothing  shall
discharge or satisfy the obligations of any Guarantor  hereunder except the full
and  final  performance  and  indefeasible  payment  in cash  in the  applicable
currency of the Guarantied  Obligations by such  Guarantor,  upon which the Bank
agrees to transfer  and assign its  interest in the Term Note to such  Guarantor
without  recourse,  representation  or warranty of any kind (other than that the
Bank owns the Term Note and that the Term Note is free of Liens  created  by the
Bank). All of the Guarantied  Obligations shall in the manner and subject to the
limitations  provided herein for the acceleration  thereof  forthwith become due
and payable without notice.


                                      -50-
<PAGE>


         Section 10.04.  Releases.  Each of the  Guarantors  consents and agrees
that,  without notice to or by such Guarantor and without affecting or impairing
the  obligations of such Guarantor  hereunder,  the Bank, in the manner provided
herein, by action or inaction, may:

         (a) compromise or settle, extend the period of duration or the time for
the payment,  or discharge  the  performance  of, or may refuse to, or otherwise
not,  enforce,  or may,  by action or  inaction,  release all or any one or more
parties to, the Term Note;

         (b) grant other indulgences to Farrel Shaw in respect thereof;

         (c) amend or  modify  in any  manner  and at any time (or from time to
time) the Term Note in accordance with Section 11.01 or otherwise;

         (d) release  or  substitute  any  one  or  more  of the  endorsers  or
guarantors of the Guarantied Obligations whether parties hereto or not; and

         (e) exchange,  enforce,  waive, or release, by action or inaction,  any
security for the Guarantied Obligations (including,  without limitation,  any of
the  collateral  therefor)  or any  other  guaranty  of  any  of the  Guarantied
Obligations.

         Section 10.05.  Marshaling.  Each of the Guarantors consents and agrees
that:

         (a) the Bank  shall be under no  obligation  to  marshal  any assets in
favor of each Guarantor or against or in payment of any or all of the Guarantied
Obligations; and

         (b) to the extent Farrel Shaw or any other guarantor makes a payment or
payments  to the  Bank,  which  payment  or  payments  or any part  thereof  are
subsequently invalidated,  declared to be fraudulent or preferential, set aside,
or required,  for any of the foregoing  reasons or for any other  reason,  to be
repaid or paid over to a custodian,  trustee, receiver, or any other party under
any bankruptcy law, common law, or equitable  cause,  then to the extent of such
payment or repayment,  the Guarantied Obligations or part thereof intended to be
satisfied  thereby shall be revived and continued in full force and effect as if
said  payment or  payments  had not been made and such  Guarantor  shall  remain
liable for such Guarantied Obligation.

         Section  10.06.  Liability.  Each of the  Guarantors  agrees  that  the
liability  of  such  Guarantor  in  respect  of this  Article  10  shall  not be
contingent upon the exercise or enforcement by the Bank of whatever remedies the
Bank may have against Farrel Shaw or any other  guarantor or the  enforcement of
any Lien or realization upon any security the Bank may at any time possess.


                                      -51-
<PAGE>


         Section 10.07. Unconditional Obligation. The Unconditional Guaranty set
forth  in  this  Article  10  is  an  absolute,  unconditional,  continuing  and
irrevocable  guaranty of payment and  performance and shall remain in full force
and  effect  until  the full and final  payment  of the  Guarantied  Obligations
without respect to future changes in conditions,  including change of law or any
invalidity  or  irregularity  with respect to the issuance or  assumption of any
obligations (including,  without limitation, the Term Note) of or by Farrel Shaw
or any other  guarantor,  or with respect to the  execution  and delivery of any
agreement (including,  without limitation,  the Term Note and the other Facility
Documents) of Farrel Shaw or any other guarantor.

         Section 10.08. Election to Perform Obligations.  Any election by any of
the Guarantors to pay or otherwise  perform any of the  Guarantied  Obligations,
whether  pursuant  to this  Article  10 or  otherwise,  shall not  release  such
Guarantor  from any of its other  obligations  under the Notes,  the  Letters of
Credit or any of the other Facility Documents.

         Section  10.09.  No  Election.  The Bank  shall  have the right to seek
recourse  against  any one or  more  of the  Guarantors  to the  fullest  extent
provided  for  herein for such  Guarantor's  obligations  under  this  Agreement
(including,  without  limitation,  this Article 10) in respect of the Guarantied
Obligations.  No  election  to proceed in one form of action or  proceeding,  or
against any party, or on any obligation, shall constitute a waiver of the Bank?s
right to  proceed  in any other form of action or  proceeding  or against  other
parties   unless  the  Bank  has   expressly   waived  such  right  in  writing.
Specifically, but without limiting the generality of the foregoing, no action or
proceeding by the Bank against  Farrel Shaw or any Guarantor  under any document
or  instrument  evidencing  Guarantied  Obligations  shall serve to diminish the
liability of any of the  Guarantors  under this  Agreement  (including,  without
limitation,  this  Article  10) except to the extent  that the Bank  finally and
unconditionally  shall  have  realized  payment  by such  action or  proceeding,
notwithstanding   the  effect  of  any  such  action  or  proceeding  upon  such
Guarantor's right of subrogation against Farrel Shaw.

         Section  10.10.  Other  Enforcement  Rights.  The Bank may proceed,  as
provided in Article 10 hereof, to protect and enforce the Unconditional Guaranty
by suit or suits or proceedings in equity, at law or in bankruptcy,  and whether
for the  specific  performance  of any covenant or  agreement  contained  herein
(including,  without  limitation,  in this Article 10) or in execution or aid of
any power herein  granted;  or for the recovery of judgment for the  obligations
hereby guarantied or for the enforcement of any other proper, legal or equitable
remedy available under applicable law.

         Section 10.11.  Delay or Omission;  No Waiver.  No course of dealing on
the part of the Bank and no delay or failure on the part of the Bank to exercise
any right  hereunder  (including,  without  limitation,  this  Article 10) shall
impair  such right or operate as




                                      -52-
<PAGE>


a waiver of such right or  otherwise  prejudice  the Bank's  rights,  powers and
remedies hereunder.  Every right and remedy given by the Unconditional  Guaranty
or by law to the  Bank  may be  exercised  from  time to time as often as may be
deemed expedient by the Bank.

         Section 10.12.  Restoration  of Rights and Remedies.  If the Bank shall
have  instituted  any  proceeding  to  enforce  any  right or  remedy  under the
Unconditional  Guaranty,  or under the Term Note, and such proceeding shall have
been  discontinued  or abandoned for any reason,  or shall have been  determined
adversely to the Bank,  then and in every such case,  the Bank,  Farrel Shaw and
the Guarantors shall,  except as may be limited or affected by any determination
in such proceeding,  be restored  severally and respectively to their respective
former positions hereunder and thereunder, and thereafter, subject as aforesaid,
the rights and remedies of the Bank shall continue as though no such  proceeding
had been instituted.

         Section  10.13.  Cumulative  Remedies.  No remedy under this  Agreement
(including, without limitation, this Article 10), the Notes, or any of the other
Facility Documents is intended to be exclusive of any other remedy, but each and
every remedy shall be  cumulative  and in addition to any and every other remedy
given under this Agreement (including, without limitation, this Article 10), the
Notes, or any of the other Facility Documents.

          Section 10.14.  Survival. The obligations of the Guarantors under this
Article 10 shall survive the transfer and payment of any  Guarantied  Obligation
until the indefeasible payment in full of all the Guarantied Obligations.

         Section 10.15.  No Withholding;  Gross-Up.  Each payment by a Guarantor
shall be made  without  withholding  for or on account of any  present or future
taxes  imposed by any  Governmental  Authority.  If any such  withholding  is so
required,  such Guarantor shall make the withholding and pay the amount withheld
to the appropriate  Governmental  Authority  before  penalties attach thereto or
interest accrues thereon.

         Section  10.16.  Payment  in  Applicable  Currency.  Any  payment  of a
Guarantied  Obligation  required to be made pursuant to this Agreement  shall be
made in the currency in which such Guarantied  Obligation is required to be made
pursuant to this Agreement, the Term Note or any other Facility Document.


                            ARTICLE 11. MISCELLANEOUS

          Section 11.01.  Amendments and Waivers.  Except as otherwise expressly
provided in this  Agreement,  any provision of this  Agreement may be amended or
modified only by an instrument in writing  signed by the Borrowers and the Bank,
and any provision of this Agreement may be waived by the Borrowers and the Bank.
No failure on the part of the Bank to exercise, and no delay in exercising,  any
right hereunder shall operate as a waiver thereof



                                      -53-
<PAGE>

or preclude any other or further  exercise  thereof or the exercise of any other
right.  The remedies  herein  provided are  cumulative  and not exclusive of any
remedies provided by law.

          Section 11.02. Usury. Anything herein to the contrary notwithstanding,
the  obligations  of the Borrowers  under this  Agreement and the Notes shall be
subject to the limitation that payments of interest shall not be required to the
extent that receipt thereof would be contrary to provisions of law applicable to
the Bank  limiting  rates of interest  which may be charged or  collected by the
Bank.

          Section 11.03.  Expenses.  The Borrowers  shall  reimburse the Bank on
demand for all out-of-pocket  costs,  expenses and charges  (including,  without
limitation, fees and charges of external legal counsel for the Bank) incurred by
the Bank in connection with the preparation,  performance or enforcement of this
Agreement,  the Notes or the other Facility  Documents.  The Borrowers  agree to
indemnify the Bank and its directors,  officers,  employees and agents from, and
hold each of them harmless  against,  any and all losses,  liabilities,  claims,
damages or expenses  incurred by any of them  arising out of or by reason of any
investigation  or  litigation or other  proceedings  (including  any  threatened
investigation  or  litigation  or other  proceedings)  relating to any actual or
proposed use by any Borrower or any of its  Subsidiaries  of the proceeds of the
Loans, including,  without limitation,  the reasonable fees and disbursements of
counsel  incurred in  connection  with any such  investigation  or litigation or
other proceedings (but excluding any such losses,  liabilities,  claims, damages
or expenses incurred by reason of the gross negligence or willful  misconduct of
the Person to be indemnified).

          Section  11.04.  Survival.  The  obligations  of the  Borrowers  under
Sections  3.01,  3.04 and 11.03 shall survive the repayment of the Loans and the
termination of the Commitments.

          Section 11.05.  Assignment;  Participations.  This Agreement  shall be
binding  upon,  and shall inure to the benefit of, the  Borrowers,  the Bank and
their  respective  successors  and assigns,  except that the  Borrowers  may not
assign or transfer their rights or obligations hereunder. The Bank shall, at the
request of the Borrowers, from time to time, assign all or any part of any Loans
or  Commitments to any other bank or other entity as the Borrowers may designate
and, in connection therewith, the Bank shall agree to amend the Credit Agreement
in a manner customary for a multi-lender  credit facility,  under which the Bank
shall  act as  agent  bank  so long as the  Bank is a party  to this  Agreement;
provided,  however,  the Bank shall have no obligation to agree to an assignment
which  will  result in the  Commitments  of the Bank  being less than 50% of the
aggregate  amount of the  Commitments of all banks unless the Borrowers  arrange
(by assignment,  termination or otherwise) to reduce the Commitments of the Bank
to zero.  Additionally,  the Bank may,  with the prior  written  consent  of the
Borrowers,  which consent  shall not be  unreasonably  withheld,  assign or sell
participations  in, all or any part of any Loans or  Commitments to another bank
or


                                      -54-
<PAGE>

other  entity.  In the case of an  assignment,  the assignee  shall have, to the
extent of such assignment (unless otherwise provided therein),  the same rights,
benefits and obligations as it would have if it were the Bank hereunder.  In the
case of a participation, the participant shall have no rights under the Facility
Documents  and all amounts  payable by the  Borrowers  under  Article 3 shall be
determined  as if the  Bank  had not  sold  such  participation.  The  agreement
executed by the Bank in favor of the participant  shall not give the participant
the  right to  require  the Bank to take or omit to take  any  action  hereunder
except  action  directly  relating to (i) the  extension  of a payment date with
respect to any portion of the principal of or interest on any amount outstanding
hereunder  allocated to such  participant,  (ii) the  reduction of the principal
amount  outstanding  hereunder  or (iii) the  reduction  of the rate of interest
payable on such  amount or any  amount of fees  payable  hereunder  to a rate or
amount,  as the case may be,  below that which the  participant  is  entitled to
receive under its agreement with the Bank. The Bank may furnish any  information
concerning  the  Borrowers  in the  possession  of the Bank from time to time to
assignees and participants  (including  prospective assignees and participants);
provided  that the Bank shall  require  any such  prospective  assignee  or such
participant  (prospective  or  otherwise)  to agree in writing to  maintain  the
confidentiality of such information.

          Section  11.06.  Notices.  Unless the party to be  notified  otherwise
notifies the other party in writing as provided in this  Section,  and except as
otherwise provided in this Agreement,  notices shall be given to the Bank and to
the Borrowers by ordinary  mail or telex  addressed to such party at its address
on the signature page(s) of this Agreement.  Notices shall be effective:  (a) if
given by mail,  72 hours  after  deposit in the mails with  first-class  postage
prepaid,  addressed as aforesaid;  and (b) if given by telex,  when the telex is
transmitted to the telex number as aforesaid;  provided that notices to the Bank
shall be effective upon receipt.

          Section  11.07.  Waiver of Setoff  Rights.  The Bank hereby  expressly
waives any right of setoff,  recoupment,  banker?s liens or  counterclaim it may
now or hereafter have with regard to any of the Borrowers and any right to which
it may now or hereafter be entitled to offset  balances held by the Bank for the
account of any of the Borrowers  against any obligations of the Borrowers now or
hereafter owed to the Bank.

          Section  11.08.  Jurisdiction;  Immunities.  (a) EACH BORROWER  HEREBY
IRREVOCABLY  SUBMITS  TO THE  JURISDICTION  OF ANY  CONNECTICUT  STATE OR UNITED
STATES FEDERAL COURT SITTING IN CONNECTICUT COUNTY OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS  AGREEMENT  OR THE NOTES,  AND EACH  BORROWER
HEREBY  IRREVOCABLY  AGREES  THAT  ALL  CLAIMS  IN  RESPECT  OF SUCH  ACTION  OR
PROCEEDING  MAY BE HEARD AND  DETERMINED  IN SUCH  CONNECTICUT  STATE OR FEDERAL
COURT. EACH BORROWER  IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE
BORROWER AT ITS ADDRESS  SPECIFIED IN SECTION



                                      -55-
<PAGE>

11.06.  EACH  BORROWER  AGREES  THAT A FINAL  JUDGMENT  IN ANY  SUCH  ACTION  OR
PROCEEDING  SHALL BE CONCLUSIVE  AND MAY BE ENFORCED IN OTHER  JURISDICTIONS  BY
SUIT ON THE  JUDGMENT  OR IN ANY OTHER  MANNER  PROVIDED BY LAW.  EACH  BORROWER
FURTHER  WAIVES ANY  OBJECTION  TO VENUE IN SUCH STATE AND ANY  OBJECTION  TO AN
ACTION OR  PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON  CONVENIENS.  EACH
BORROWER  FURTHER AGREES THAT ANY ACTION OR PROCEEDING  BROUGHT AGAINST THE BANK
SHALL BE  BROUGHT  ONLY IN  CONNECTICUT  STATE OR UNITED  STATES  FEDERAL  COURT
SITTING IN  CONNECTICUT  COUNTY.  EACH BORROWER  WAIVES ANY RIGHT IT MAY HAVE TO
JURY TRIAL.

          (b) Nothing in this  Section  11.07 shall affect the right of the Bank
to serve legal process in any other manner  permitted by law or affect the right
of the Bank to bring any action or  proceeding  against the  Borrowers  or their
property in the courts of any other jurisdictions.

          (c) To the extent that any Borrower  has or hereafter  may acquire any
immunity from  jurisdiction of any court or from any legal process (whether from
service or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise)  with respect to itself or its  property,  such Borrower
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement, the Notes, the Letters of Credit and the other Facility Documents.

          Section 11.09. Table of Contents;  Headings. Any table of contents and
the headings  and  captions  hereunder  are for  convenience  only and shall not
affect the interpretation or construction of this Agreement.

          Section  11.10.  Severability.  The  provisions of this  Agreement are
intended to be  severable.  If for any reason any  provision  of this  Agreement
shall be held invalid or unenforceable in whole or in part in any  jurisdiction,
such provision shall, as to such  jurisdiction,  be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability  thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.

          Section  11.11.  Counterparts.  This  Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument,  and any party hereto may execute this Agreement by signing any
such counterpart.

          Section  11.12.  Integration.  The  Facility  Documents  set forth the
entire  agreement  between  the  parties  hereto  relating  to the  transactions
contemplated  thereby  and  supersede  any prior oral or written  statements  or
agreements with respect to such transactions.



          Section 11.13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED  AND  CONSTRUED  IN  ACCORDANCE  WITH,  THE  LAW  OF  THE  STATE  OF
CONNECTICUT.



                                      -56-
<PAGE>

          Section  11.14.  Confidentiality.  The Bank agree (on behalf of itself
and each of its affiliates,  directors, officers, employees and representatives)
to use reasonable precautions to keep confidential,  in accordance with safe and
sound  banking  practices,  any  nonpublic  information  supplied  to it by  the
Borrowers  pursuant to this  Agreement  which is  identified by the Borrowers as
being confidential at the time the same is delivered to the Bank,  provided that
nothing  herein shall limit the  disclosure of any such  information  (i) to the
extent  required by statute,  rule,  regulation  or  judicial  process,  (ii) to
counsel for the Bank, (iii) to bank examiners,  auditors or accountants, (iv) in
connection  with  any  litigation  to  which  the  Bank is a party or (v) to any
assignee or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective  assignee or participant) first executes
and delivers to the Bank a  Confidentiality  Agreement in substantially the form
of Exhibit D hereto;  and  provided  finally  that in no event shall the Bank be
obligated or required to return any materials furnished by the Borrower.

          Section  11.15.  Treatment of Certain  Information  Each  Borrower (a)
acknowledges  that services may be offered or provided to it (in connection with
this  Agreement or otherwise) by the Bank or by one or more of its  subsidiaries
or affiliates and (b) acknowledges that information delivered to the Bank by the
Borrowers may be provided to each such subsidiary and affiliate.


                                      -57-
<PAGE>


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

                                            FARREL CORPORATION


                                            By:/s/ Rolf Karl  Liebergesell
                                               ---------------------------
                                             Name:  Rolf Karl Liebergesell
                                             Title: Chairman,CEO and President


                                            Address for Notices:
                                            25 Main Street
                                            Ansonia, Connecticut  06401
                                            Attn:  President
                                            Fax No.: (203) 736-2836

                                            with a copy to:
                                            Attn:  Senior Financial Officer
                                            Fax No.: (203) 735-6267



                                            FARREL LIMITED


                                            By:/s/ Rolf Karl Liebergesell
                                               --------------------------
                                             Name:  Rolf Karl Liebergesell
                                             Title: Chairman,CEO and President


                                            Address for Notices:
                                            25 Main Street
                                            Ansonia, Connecticut  06401
                                            Attn:  President
                                            Fax No.:  (203) 736-2836

                                            with a copy to:
                                            Attn:  Senior Financial Officer
                                            Fax No.: (203) 735-6267





                                      -58-
<PAGE>




                                            FARREL SHAW LIMITED


                                            By:/s/ Rolf Karl Liebergesell
                                               --------------------------
                                               Name:  Rolf Karl Liebergesell
                                               Title: Director


                                            Address for Notices:
                                            25 Main Street
                                            Ansonia, Connecticut  06401
                                            Attn:  President
                                            Fax No.:  (203) 736-2836

                                             with a copy to:
                                             Attn: Senior Financial Officer
                                             Fax No.:  (203) 735-6267





                                             THE CHASE MANHATTAN BANK


                                             By:/s/ Thomas D. McCormick
                                                -----------------------
                                                Name:  Thomas D. McCormick
                                                Title: Vice President


                                             Address for Notices:
                                             999 Broad Street
                                             Bridgeport, Connecticut  06604
                                             Attn:  Thomas D. McCormick
                                             Fax No:  (203) 382-5302



                                      -59-