June 24, 1998


Frisby Technologies, Inc.
77 East Main Street
Bay Shore, NY 11706

Re:  $1,000,000 line of credit

Gentlemen:

     European  American Bank ("EAB") is pleased to advise you it holds available
for Frisby Technologies,  Inc. (the "Borrower"),  a corporation organized and in
good  standing  under the laws of the State of New York,  a line of credit  (the
"Line")  in the  amount  of  $1,000,000,  subject  to the  following  terms  and
conditions:

     1. Description of the Line:

     The Line shall be fully available for direct  borrowings (each a "Loan" and
collectively,  the  "Loans")  and standby  letters of credit (each an "SBLC" and
collectively, the "SBLCs").

     Loans provided  under the Line shall be evidenced by EAB's standard  Master
Note (the "Note") in the amount of  $1,000,000.  Each advance  thereunder  shall
bear  interest at a rate to be elected by the Borrower at the time a request for
an advance is made equal to either.

     (i) Prime Rate Option:  A floating  rate of interest  equal at all times to
EAB's  Prime Rate,  (the rate of interest  stated by EAB to be its Prime Rate in
effect from time to time and adjusted when said Prime Rate changes)  computed on
the basis of actual days elapsed in a 360 day year.

     (ii)  LIBOR Rate  Option:  A fixed rate of  interest  equal to the  Reserve
adjusted  LIBOR,  as such term is defined  in the Note,  plus a margin of 2% per
annum for interest periods of 30, 60, or 90 days.

     Interest  on the  unpaid  principal  balance  of the Note from time to time
outstanding  shall be payable monthly in arrears  commencing on the first day of
the month  following the date of the first  advance under the Note.  Any advance
under the Line made by EAB in its discretion shall be in an amount not less than
$10,000.

     In the event that an advance bears interest at the Prime Rate Option,  such
advance  may be prepaid,  in whole or in part,  in  increments  of not less than
$10,000, without premium or penalty.

     The Borrower  agrees to indemnify  EAB and to hold EAB harmless from actual
loss or expense,  if any, that EAB may sustain or incur should the Borrower make
any prepayment of the principal of an advance  hereunder bearing interest at the
LIBOR Rate  (whether at stated  maturity  or by  acceleration),  including,  but
limited to, any interest actually payable by EAB to lenders of funds obtained by
it in order to make or maintain the Note at the LIBOR Rate Option.

<PAGE>

     Each  SBLC  issued  under the Line  shall be  evidenced  by EAB's  standard
Application and Agreement for Standby Letters of Credit.  There shall be payable
in  respect  of each  SBLC,  a fee equal to 1% per  annum  together  with  EAB's
standard charges for standby letters of credit.

     The  Borrower  acknowledges  and agrees  that the Line is  uncommitted  and
requests for advances or  extensions of credit  thereunder  shall be approved in
the discretion of EAB, which may refuse to make an extension of credit under the
Line at any time without prior notice to the Borrower,  and that the performance
or compliance by the Borrower of the agreements  contained in this letter, or in
any other  document  or  agreement  evidencing  or  securing  such  advances  or
extensions  of credit,  shall not  obligate EAB to make an advance or provide an
extension of credit thereunder.

     Subject to the terms and  conditions  hereof,  the Line shall be  available
until June 30, 1999.

     2.  Purpose of the Line:  The  purpose of the Line shall be to support  the
Borrower's short-term working capital needs.

     3.  Security  for the Line:  The Line shall be secured by a first  priority
security  interest in all assets and personal  property of the Borrower pursuant
to EAB's  standard  General  Security  Agreement and duly filed UCC-1  Financing
Statements.  Each advance  made or letter of credit  issued under the Line shall
also be  secured  by a pledge  of  marketable  securities  or  other  collateral
acceptable to EAB.

     4. Financial Reporting: The Borrower shall provide to EAB:

     (i) As soon as  available,  but in any event within five (5) days after the
filing  thereof,  a copy of each  annual  report of the  Borrower on Form 10-KSB
prepared for filing with the Securities and Exchange Commission.

     (ii) As soon as available,  but in any event within five (5) days after the
filing thereof, a copy of each of the Borrowers  quarterly report on Form 10-QSB
prepared for filing with the Securities and Exchange Commission.

     (iii) Such other  financing or additional  information as EAB may from time
to time request.

     5. Special  Requirements:  The Borrower shall maintain hazard  insurance on
its inventory with a financially  sound and reputable  insurance company in such
amounts as are  necessary  to cover not less than the  replacement  cost of such
inventory and covering such risks as are usually carried by companies engaged in
the same or similar  business which  insurance  policy shall be endorsed to name
EAB lender loss payee.

<PAGE>

     6.  Integration:  This letter  replaces and supersedes  that certain letter
agreement between the Borrower and EAB dated December 24, 1997.

     7.  Acceptance:  If the  foregoing  is  acceptable,  please so  indicate by
signing and returning this letter before July 7, 1998, the date this letter will
otherwise expire, unless extended in writing by EAB.

                                            Very truly yours,

                                            EUROPEAN AMERICAN BANK


                                            By:  /s/Douglas Schumacher
                                                 -------------------------
                                                 Douglas Schumacher
                                                 Vice President


Agreed and Accepted this
 30th day of June, 1998.

FRISBY TECHNOLOGIES, INC.

By:  /s/Stephen Villa
       ------------------------------------
      Stephen Villa
      Chief Financial Officer