(STATE STREET LOGO)

State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101

                                                      January 23, 1996

Westerbeke Corporation
Avon Industrial Park
Avon, MA 02322

                          RE:  Loan Facility

Ladies and Gentlemen:

      State Street Bank and Trust Company (the "Bank") is pleased to make 
available to Westerbeke Corporation, an organization organized under the 
laws of The Commonwealth of Massachusetts (the "Borrower") a $500,000 
revolving line of credit (the "Revolving Line of Credit") and term loan 
facility "Term Loan") on the following terms and conditions:

      I. The Revolving Line of Credit

      1. Term. The Revolving Line of Credit shall commence on the 
date hereof and expire on June 30, 1996 (the "Revolving Maturity 
Date"), unless extended by mutual agreement.

      2. Notice and Manner of Borrowings. Subject to the terms and 
conditions hereof, the Bank agrees to make revolving loans provided 
for herein (each, a "Revolving Loan") (the Revolving Loans and the 
Term Loan, as hereinafter defined, collectively, the "Loans"). If a 
request for a Revolving Loan is made orally, it shall be immediately 
confirmed in writing if requested by the Bank. The outstanding 
amount of all Revolving Loans hereunder shall not at any time exceed 
$500,000.

      3. Evidence of Indebtedness. All Revolving Loans will be 
evidenced by a promissory note in the form attached hereto as 
Exhibit A (the "Note"). The Borrower hereby authorizes the Bank to 
record each Loan and the corresponding information on the schedule 
forming part of the Note, and, absent manifest error, this record 
shall be conclusive and binding.

      4. Interest Rate. Principal on each outstanding Revolving Loan 
shall bear interest at a floating rate per annum equal to the Bank's 
Prime Rate. Interest on each Loan shall be calculated on the basis 
of a 360-day year for the actual number of days elapsed. As used 
herein, "Prime Rate" shall mean the rate of interest per annum 
announced from time to time by Bank in Boston, Massachusetts as its 
Prime Rate.

      5. Payments and Prepayment. Interest on Revolving Loans shall 
be payable monthly in arrears on the first business day of each 
month commencing February 1, 1996, or on the first business day of 
the month following advancement of the initial Revolving Loans, and 
on the same day when principal is payable, whether upon acceleration 
following an Event of Default as defined herein or on the Revolving 
Maturity Date. On the Revolving Maturity Date all Revolving Loans, 
shall be paid in full, provided, however that so long as no default 
has occurred and is continuing hereunder, on the Revolving Maturity 
Date, all outstanding Revolving Loans shall be converted into a Term 
Loan (the "Term Loan") and shall be payable as provided herein. 
Revolving Loans may be prepaid without penalty and any amounts 
prepaid may be reborrowed subject to the terms hereof. All payments 
of principal and interest shall be made in immediately available 
United States dollars at the main office of the Bank.

      6. Use of Funds. Proceeds of Revolving Loans may be used only 
for purchase of equipment for which the Bank has been provided an 
invoice and adequate description of the equipment to be purchased.

      II. The Term Loan

      On the Revolving Maturity Date, unless an Event of Default has 
occurred and is continuing, the outstanding amount of all Revolving Loans 
shall be converted to the Term Loan. Principal outstanding under the Term 
Loan shall be payable in equal consecutive monthly installments each in an 
amount necessary to fully amortize the outstanding amount of the Term Loan 
in 60 such monthly installments. Interest on principal outstanding under 
the Term Loan shall be payable at either a floating rate equal to the 
Bank's Prime Rate per annum or a fixed rate of interest quoted by the Bank 
as its applicable cost of funds, determined in discretion of the Bank, 
plus 2.25% percent per annum (such rate, the "Fixed Interest Rate"). 
Interest on the Term Loan is payable commencing on July 1, 1996 and on the 
first business day of each month thereafter with all outstanding principal 
outstanding under the Term Loan with accrued and unpaid interest due and 
payable in full on June 30, 2001 (the "Maturity Date"). The Term Loan 
shall be evidenced by the Note and may be prepaid without penalty in the 
event the Term Loan bears interest at the Prime Rate, and only if the 
Borrower simultaneously pays all Lost Interest Income, cost and expense of 
the Bank in connection with such prepayment in the event the Term Loan 
bears interest at the Fixed Interest Rate. As used herein, "Lost Interest 
Income" shall be computed by the Bank by determining the interest rate 
differential between the Fixed Interest Rate on the Term Loan and the 
yield on a United States Government Treasury instrument with a similar 
maturity as the remaining term of the Term Loan. In the event that the 
rate differential is such that the yield on such treasury instrument is 
greater than the Fixed Interest Rate, no Lost Interest Income shall be 
payable. In the event that the Fixed Interest Rate is greater than the 
yield on such treasury instrument, the difference shall be multiplied by 
the principal amount of the Term Loan being prepaid computed monthly for 
the remaining term of the Term Loan and the present value (using 6 month 
treasury rate) of such monthly compensation shall be calculated and paid 
to the Bank as "Lost Net Interest Income". Amounts of the Term Loan which 
are prepaid may not be reborrowed.

      III. General Loan Terms

      1. Security. The Loans will be secured by the equipment purchased 
with the proceeds of the Revolving Loans as described in a Security 
Agreement executed in connection herewith (the "Security Agreement").

      2. Covenants. Until all Obligations have been paid in full, the 
Borrower covenants and agrees as follows:

      a) To maintain as of the end of each fiscal quarter Working Capital 
      of not less than $4,500,000;

      b) To maintain as of the end of each fiscal quarter Consolidated 
      Tangible Net Worth of not less than $8,500,000 plus 40% of net 
      income earned during the previous fiscal quarter on a cumulative 
      basis;

      c) To maintain as of the end of each fiscal year a Debt Service 
      Coverage Ratio of not less than 4 to 1;

      d) To maintain as of the end of each fiscal quarter a Leverage Ratio 
      of not more than 1 to 1;

      e) Not to create, incur, assume or guarantee and Indebtedness other 
      than (i) Indebtedness to the Bank, (ii) Indebtedness existing as of 
      the date of this letter agreement and disclosed on Exhibit B, and 
      (iii) other Indebtedness with the prior consent of the Bank;

      f) Not to create, incur, assume or suffer to exist any mortgage, 
      pledge, security interest, lien or other charge or encumbrance upon 
      any of its assets or properties, other than (i) those in favor of 
      the Bank, (ii) those shown on Exhibit B and (iii) those for which 
      the Bank has given its prior written approval;

      g) To (i) duly observe and comply with all applicable laws, 
      including without limitation, those pertaining to environmental 
      matters and the release or threat of release of hazardous 
      substances, and pension and retirement plans, and pay all taxes and 
      governmental charges prior to the time they become delinquent, (ii) 
      maintain in full force and effect all licenses and permits necessary 
      in any material respect for the proper conduct of its business, 
      (iii) keep its properties and assets in good repair and insured in 
      such amounts as is customary in the industry and as the Bank may 
      require, (iv) remain engaged substantially in the business in which 
      it is currently engaged, (v) not sell or dispose of any assets 
      except in the ordinary course of business or merge or consolidate 
      with or into any entity, (vi) not pay any dividends on any class of 
      stock or make any other distribution or payment on account of such 
      stock in any fiscal year in excess of net income earned in such 
      fiscal year, (vii) comply with all terms and provisions of all 
      documents evidencing or securing any Indebtedness to any party other 
      than the Bank ("Other Indebtedness"), (viii) immediately notify the 
      Bank of any default or event of default with respect to Other 
      Indebtedness and to provide to the Bank a copy of any notice 
      received by the Borrower relating thereto or any notice or claim of 
      any such default, and (ix) immediately notify the Bank of any 
      default or event of default hereunder and of any litigation or 
      governmental proceeding commenced or threatened in writing against 
      the Borrower;

      h) To permit the Bank upon reasonable notice to visit and inspect 
      the properties of the Borrower and make copies or abstracts from the 
      Borrower's books and records;

      i) To pay (i) all fees, costs and expenses incurred or paid by the 
      Bank in connection with the administration, enforcement or amendment 
      of this letter agreement or any other documents executed in 
      connection herewith, including any fees associated with commercial 
      finance exams conducted by the Bank;

      j) Until the Maturity Date, to submit to the Bank: (i) within 60 
      days of the end of each fiscal quarter of the Borrower, Borrower's 
      financial statements, including balance sheet and income statement, 
      together with a certificate of compliance executed by the chief 
      financial officer of the Borrower in a form acceptable to the Bank, 
      (ii) within 120 days of the end of each fiscal year of the Borrower, 
      Borrower's annual financial statements [audited/reviewed] by a 
      certified public accountant acceptable to the Bank, (iii) such other 
      financial statements and information as the Bank may reasonably 
      request from time to time and (iv) within 10 days after the making 
      of any Revolving Loan, a copy of the invoice with respect to 
      equipment purchased using the proceeds of such Revolving Loan; and

      k) Execute and deliver such additional instruments and take such 
      further action as the Bank may reasonably request solely to effect 
      the purpose of this letter agreement and the Loans evidenced by the 
      Note.

      3. Representations and Warranties. The Borrower represents and 
warrants that:

      a) It is a corporation duly organized, validly existing and in good 
      standing under the laws of the jurisdiction of its incorporation, 
      has all requisite corporate power and authority to own its property 
      and conduct its business as is now conducted, is duly qualified and 
      in good standing as a foreign corporation and is duly authorized to 
      do business in each jurisdiction where the nature of its properties 
      or business requires such qualifications and maintains no permanent 
      offices, assets, employees or business operations in any state other 
      than in The Commonwealth of Massachusetts, provided, however that 
      the Borrower may from time to time maintain personnel and assets 
      temporarily at locations outside of The Commonwealth of 
      Massachusetts;

      b) The execution, delivery and performance of this letter agreement, 
      the Note and the Security Agreement (i) are, and will be, within its 
      corporate power and authority, (ii) have been authorized by all 
      necessary corporate proceedings, (iii) do not, and will not, require 
      the consent of the stockholders of the Borrower or approvals of any 
      governmental authority, (iv) will not contravene any provision of 
      the charter documents or by-laws of the Borrower or any law, rule or 
      regulation applicable to the Borrower, (v) will not constitute a 
      default under any other agreement, order or undertaking binding on 
      the Borrower, and (vi) will not require the consent or approval of 
      any obligee or holder of any instrument relating to the Other 
      Indebtedness;

      c) This letter agreement, the Note, the Security Agreement and 
      related documents constitute the legal, valid, binding and 
      enforceable obligations of the Borrower, except as the same may be 
      limited by bankruptcy, insolvency, reorganization, moratorium or 
      other laws affecting the enforcement of creditors' rights generally 
      and by general equitable principles;

      d) All financial statements previously furnished to the Bank by it 
      were prepared in accordance with generally accepted accounting 
      principles and present fairly and completely the financial position 
      of the Borrower. Since the date of such statements, there has been 
      no material, adverse change in the assets, liabilities, financial 
      condition or business of the Borrower other than in the ordinary 
      course of business;

      e) The Borrower has good and marketable title to all its material 
      properties, assets and rights of every name and nature purportedly 
      owned by it, except for encumbrances shown on Exhibit B;

      f) there is no litigation, arbitration, proceeding or investigation 
      pending, or to the best of the Borrower's knowledge threatened, 
      against the Borrower except those previously disclosed by the 
      Borrower to the Bank in writing; and

      g) The making of each Loan hereunder shall be deemed to be a 
      reaffirmation by the Borrower as to the representations and 
      warranties contained in this paragraph and confirmation that no 
      Event of Default has occurred hereunder.

      4. Availability of Loans.  The availability of Revolving Loans under 
this facility is subject to satisfaction of the following:

      a) Receipt by the Bank of a duly executed copy of this letter, the 
      Note, the Security Agreement and insurance certificate, Uniform 
      Commercial Code financing statements, a Clerk's certificate relating 
      to corporate proceedings;

      b) Receipt by the Bank of a certificate of legal existence and good 
      standing with respect to the Borrower issued by the Secretary of The 
      Commonwealth of Massachusetts, evidence of payment of all taxes due 
      and owing the Borrower which shall either be in the form of a tax 
      good standing certificate issued by the Massachusetts Department of 
      Revenue or a certification by the Treasurer of the Borrower that all 
      such taxes have been duly paid, and copies of the Articles of 
      Organization certified by the Massachusetts Secretary of the 
      Commonwealth and By-Laws of the Borrower certified by the Clerk of 
      the Borrower;

      c) There shall have occurred (i) no Event of Default continuing 
      beyond any applicable cure periods under this letter agreement or 
      the Security Agreement and no Event of Default shall occur after 
      giving effect to the making of the requested loan, and (ii) no 
      material adverse change in the assets, liabilities, financial 
      condition, business or prospects of the Borrower, as determined by 
      the Bank acting in good faith; and

      d) The Bank shall have filed such UCC financing statements in 
      appropriate offices and received such releases as the Bank shall 
      deem to be necessary in order to provide the Bank a first priority 
      perfected security interest in all Collateral described in the 
      Security Agreement; and

      e) Completion of such due diligence and other matters and receipt of 
      such additional documentation as the Bank may reasonably require.

      5. Events of Default. It will be an Event of Default hereunder 
if any of the following events occurs:

      a) the Borrower fails to pay when due any amount of principal or 
      interest on any Loan or any fees or expenses payable hereunder or 
      under the Note on the due date therefor; or 

      b) the Borrower fails to perform any term, covenant or agreement 
      contained in this letter agreement, which in the case of section 
      III2g) of this letter agreement only continues for 15 days from the 
      earlier of the date when the Borrower first becomes aware of such 
      failure or receives notice from the Bank as to such failure, the 
      Note or the Security Agreement or any other agreement or document 
      executed in connection with this letter agreement continuing beyond 
      any applicable grace periods: or

      c) there shall occur any material adverse change in the assets, 
      liabilities, financial condition, business or prospects of the 
      Borrower as determined by the Bank acting in good faith or a change 
      in the senior management or controlling ownership interest of the 
      Borrower from that existing on the date hereof; or

      d) any representation or warranty of the Borrower made in this 
      letter agreement, the Note, the Security Agreement or any other 
      document executed in connection with this letter agreement shall 
      prove to have been false in any material respect upon the date when 
      made or deemed to have been made; or 

      e) the Borrower fails to pay or perform any obligation to the Bank, 
      including under the $3,000,000 revolving line of credit made 
      available by the Bank to the Borrower, or the Borrower fails to pay 
      at maturity, or within any applicable period of grace, any 
      obligations for borrowed monies or advances, or for the use of real 
      or personal property, or fails to observe or perform any term, 
      covenant or agreement evidencing or securing such obligations for 
      borrowed monies or advances or relating to such use of real or 
      personal property, the result of which failure is to permit the 
      holder or holders of such Indebtedness to cause such Indebtedness to 
      become due prior to its stated maturity upon delivery of required 
      notice, if any; or

      f) the Borrower (i) applies for or consent to the appointment of, or 
      the taking of possession by, a receiver, custodian, trustee, 
      liquidator or similar official of itself or of all or a substantial 
      part of its property, (ii) is generally not paying its debts as such 
      debts become due, (iii) makes a general assignment for the benefits 
      of its creditors, (iv) commences any case or proceeding under any 
      law relating to bankruptcy, insolvency, reorganization, winding-up 
      or composition or adjustment of debts, or any other laws providing 
      for the relief of debtors, (v) fails to contest in a timely or 
      appropriate manner, or acquiesces in writing to, any petition, filed 
      against it in an involuntary case under the Federal Bankruptcy Code 
      or other law, or (vi) takes any action under the laws of its 
      jurisdiction of incorporation or organization similar to any of the 
      foregoing; or

      g) a proceeding or case shall be commenced, without the application 
      or consent of the Borrower in any court of competent jurisdiction, 
      seeking (i) the liquidation, reorganization, dissolution, winding-
      up, or composition or readjustment of its debts, (ii) the 
      appointment of a trustee, receiver, custodian, liquidator or the 
      like of it or of all or any substantial part of its assets, or (iii) 
      similar relief in respect of it, under any law relating to 
      bankruptcy, insolvency, reorganization, winding-up, or composition 
      or adjustment of debts or any other law providing for the relief of 
      debtors, and such proceeding or case shall continue undismissed, or 
      unstayed and in effect, for a period of 30 days; or an order for 
      relief shall be entered in an involuntary case under the Federal 
      Bankruptcy Code, against the Borrower or action under the laws of 
      the jurisdiction of incorporation or organization of the Borrower or 
      similar to any of the foregoing shall be taken with respect to the 
      Borrower and shall continue unstayed and in effect for any period of 
      30 days; or

      h) a final judgment or final order for the payment of money is 
      entered against the Borrower by any court, or an execution or 
      similar process is issued or levied against property of the 
      Borrower, that in the aggregate exceeds $100,000 in value and such 
      judgment, order, warrant or process shall continue undischarged or 
      unstayed for 30 day; or

      i) the Borrower permits any employee pension benefit plan, as that 
      term is defined in the Employment Retirement Income Security Act of 
      1974, as amended ("Erisa") maintained by it to (a) engage in any 
      prohibited transaction as that term is defined in Section 4975 of 
      the internal Revenue Code of 1986, as amended, (b) incur any 
      "accumulated funding deficiency" as that term is defined in Erisa, 
      whether or not waived, or (c) terminate in any manner which would 
      result in the imposition of a lien or encumbrance on the assets of 
      the Borrower pursuant to Section 4058 of Erisa.

      6. Remedies. Upon the occurrence of an Event of Default described in 
subsections 5.1(f) and (g), immediately and automatically, and upon the 
occurrence of any other Event of Default continuing beyond any applicable 
cure periods, at any time thereafter while such Event of Default is 
continuing, at the Bank's option and upon the Bank's declaration:

      (a) The Revolving Line of Credit established hereunder shall 
      terminate and outstanding amounts thereunder will be due and payable 
      on the Revolving Maturity Date and will not be converted to the Term 
      Loan as provided herein;

      (b) the unpaid principal amount of the Loans together with accrued 
      interest and all other Obligations shall become immediately due and 
      payable without presentment, demand, protest or further notice of 
      any kind, all of which are hereby expressly waived; and

      (c) the Bank may exercise any and all rights it has under this 
      Agreement, the Note, the Security Agreement and any other document 
      executed in connection herewith, and proceed to protect and enforce 
      the Bank's rights by any action at law, in equity or other 
      appropriate proceeding.

      7. Notices. All notices hereunder shall be in writing and shall be 
deemed to have been given when delivered by hand, when properly deposited 
in the mails postage prepaid, when sent by facsimile or when delivered to 
overnight courier. Notices to the Bank shall be given to State Street Bank 
and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Attn: 
Suzanne L. Dwyer or Corporate Banking Division Executive and notice to the 
Borrower shall be deemed to have been given if given at the address stated 
at the beginning of this letter agreement, Attention: Carleton Bryant.

      8. Miscellaneous. No waivers shall be effective unless in writing. 
All amendments hereto must be in writing signed by all parties hereto. Any 
amounts owing from the Bank to the undersigned, including deposits, may be 
set off against past due obligations of any of the undersigned to the 
Bank. This letter and the Note shall be governed by the laws of The 
Commonwealth of Massachusetts. The Borrower may not assign or transfer or 
participate any of its rights hereunder and under the Note without consent 
of the Borrower.

      9. Definitions. Except as otherwise defined herein, all financial 
terms shall be defined in accordance with generally accepted accounting 
principles. The following defined terms as used herein shall have the 
following meanings:

      "Capital Expenditures" shall mean any expenditures made or 
      obligations incurred by the Borrower in connection with the 
      acquisition of any equipment or other property constituting fixed 
      assets.

      "Consolidated Current Liabilities" shall mean at any date as 
      of which the amount thereof shall be determined, all amounts that 
      should, in accordance with generally accepted accounting principles, 
      be included as current liabilities on the consolidated balance sheet 
      of the Borrower at such date, plus, to the extent not already 
      included therein, all Loans made hereunder, and all Indebtedness 
      that is payable upon demand or within on year form the date of 
      determination thereof unless such Indebtedness is renewable or 
      extendable at the option of the Borrower to a date more than one 
      year from the date of determination.

      "Consolidated Tangible Net Worth" shall mean the total assets 
      of the Borrower and its Subsidiaries minus (x) the sum of any 
      amounts attributable to (i) goodwill, (ii) intangible items such as 
      unamortized debt discount and expense, patents, trade marks and 
      names, service marks and names, copyrights and research and 
      development expenses except prepaid expenses, and (iii) any write-up 
      in the book value of assets resulting from any revaluation thereof 
      subsequent to the date of the financial statements last delivered to 
      the Bank and (y) Consolidated Total Liabilities of the Borrower and 
      its Subsidiaries.

      "Consolidated Total Liabilities" shall mean at any date as of
      which the amount thereof shall be determined, all obligations that
      should, in accordance with generally accepted accounting principles, be
      classified as liabilities on the consolidated balance sheet of the 
      Borrower and its Subsidiaries, including in any event all 
      Indebtedness.

      "Debt Service Coverage Ratio" shall mean, at any date as of which 
      the amount thereof shall be determined, the ratio of the total of 
      the Borrower's and its Subsidiaries' (x) net income after taxes for 
      such period, excluding any extraordinary items, plus (b) 
      depreciation, amortization and interest for such period, minus (c) 
      Capital Expenditures for such period not financed by the Bank to (y) 
      current maturities of long term Indebtedness for such period.

      "Indebtedness" shall mean all obligations for borrowed money and 
      other extensions of credit to the Borrower, secured or unsecured, 
      absolute or contingent, whether or not evidenced by a note, bond or 
      other instrument, all guarantees, all obligations reflecting the 
      deferred purchase price of property or other accounts payable, and 
      all obligations of the Borrower secured by a mortgage, lien, pledge 
      or other security interest, together with any interest, charges and 
      fees payable on any of the foregoing.

      "Leverage Ratio" shall mean the ratio of the Borrower's Consolidated 
      Tangible Net Worth to the Borrower's Consolidated Total Liabilities 
      for such period.

      "Obligations" shall mean any and all obligations of the Borrower to 
      the Bank of every kind and description, direct or indirect, absolute 
      or contingent, primary or secondary, due or to become due, now 
      existing or hereafter arising, regardless of how they arise or by 
      what agreement or instrument, if any, and including obligations to 
      perform acts and refrain from taking action as well as obligations 
      to pay money.

      "Subsidiary" shall mean any corporation, association, or similar 
      organization of which 50% or more of the ordinary voting power for 
      the election of a majority of the board of directors or other 
      governing body of such entity is held or controlled by the Borrower 
      or Subsidiary of the Borrower and including, in any event, 
      Guarantor; or any other such organization the management of which is 
      directly or indirectly controlled by the Borrower or a Subsidiary of 
      the Borrower through the exercise of voting power or otherwise; or 
      any joint venture, whether incorporated or not, in which the 
      Borrower has a 50% ownership interest.

      "Working Capital" shall mean the amount by which consolidated 
      current assets of the Borrower and its Subsidiaries exceeds 
      Consolidated Current Liabilities of the Borrower and its 
      Subsidiaries at the time of determination.

      If the foregoing satisfactorily sets forth the terms and conditions 
of this credit facility, please execute and return the enclosed copy of 
this letter agreement, the Note, and applicable Security Agreement and 
such other documents and agreements as the Bank may request each of which 
when received will be considered to be an agreement executed under seal to 
be governed by the laws of The Commonwealth of Massachusetts effective 
when received by the Bank. We are pleased to provide this loan facility 
and look forward to the ongoing development of our relationship.

                                       Sincerely,

                                       STATE STREET BANK AND TRUST COMPANY

                                       By: /s/ Suzanne L. Dwyer
                                       Title: Loan Officer

Acknowledged and accepted:

WESTERBEKE CORPORATION

By: /s/ Carleton L. Bryant
Title: Executive Vice President

Date: January 23, 1996

Exhibits

A--Note
B--Indebtedness/Encumbrances