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                                                                     EXHIBIT 4.3

                                                           Date:  May 14, 2001

                               SECURITY AGREEMENT


LENDER/SECURED PARTY:               DEBTOR(S)/PLEDGOR(S):

MUSI INVESTMENTS S.A.                  FRISBY TECHNOLOGIES, INC.

   231 VAL DES BONS MALADES            3195 CENTRE PARK BOULEVARD
   L-2121 LUXEMBOURG-KIRCHBERG         WINSTON-SALEM, FORSYTH COUNTY, NC  27107

Debtor/Pledgor is: [ ] Individual  [X] Corporation  [ ] Partnership
                   [ ] Other __________________
Address is Debtor's/Pledgor's: [ ] Residence [X] Place of Business
                               [ ] Chief Executive Office if more than one place
                                   of business
Collateral (hereinafter defined) is located at:  [X] Debtor's/Pledgor's address
                                                     shown above
                                                 [ ] the following address:____

_______________________________________________________________________________
_______________________________________________________________________________

Reference is made to that certain Loan Agreement dated May 14, 2001 (the "Loan
Agreement") between Lender and Debtor. Capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed to them in the Loan
Agreement.


1.   SECURITY INTEREST. For good and valuable consideration, the receipt and
     adequacy of which are hereby acknowledged, Debtor/Pledgor (hereinafter
     referred to as "Debtor") assigns and grants to Lender (also known as
     "Secured Party"), a security interest and lien in the Collateral
     (hereinafter defined) to secure the payment and the performance of the
     Obligation (hereinafter defined).


2.   COLLATERAL. A security interest is granted in the following collateral
     described in this Item 2 (the "Collateral'):


     A. TYPES OF COLLATERAL (check as applicable)


[X] ACCOUNTS: Any and all accounts and other rights of Debtor to the payment for
goods sold or leased or for services rendered whether or not earned by
performance, contract rights, book debts, checks, notes, drafts, instruments,
chattel, paper acceptances, and any and all amounts due to Debtor from a factor
or other forms of obligations and receivables now existing or hereafter arising
out of the business of Debtor.


[X] INVENTORY: Any and all of Debtor's goods held as inventory

whether now owned or hereafter acquired, including without limitation, any and
all such goods held for sale or lease or being processed for sale or lease in
Debtor's business, as now or hereafter conducted including all materials goods
and work in process, finished goods and other tangible property held for sale or
lease or furnished or to be furnished under contracts of service or used or
consumed in Debtor's business, along with all documents (including documents of
title) covering such inventory.


[X] EQUIPMENT: Any and all of Debtor's goods held as equipment

including, without limitation, all machinery, tools, dies, furnishings, or
fixtures wherever located whether now owned or hereafter acquired, together with
all increases, parts, fittings, accessories, equipment, and special tools now or
hereafter affixed to any part thereof or used in connection therewith.


[X]  FIXTURES:

     [X]  Specific Fixtures: Limited to any and all of Debtor's goods held as
          fixtures which are specifically described in the space below to the
          extent that granting a security interest shall not constitute a
          violation of law or default under any agreement or contract applicable
          to Debtor.

whether now existing or hereafter acquired. These goods are or will become
fixtures on the following described real estate in Forsyth County, North
Carolina, owned by: Debtor more particularly described as follows: as described
in Exhibit A attached hereto.


[X] GENERAL INTANGIBLES:

         Any and all of Debtor's general intangible property, including, without
limitation, all patents, trademarks, service marks and exclusive licenses
(whether issued or pending), and all processes and systems related thereto.


     B.   SUBSTITUTIONS, PROCEEDS AND RELATED ITEMS. Any and all substitutes and
          replacements for, accessions, attachments and other additions to,
          tools, parts and equipment now or hereafter added to or used in
          connection with, and all cash or non-cash proceeds and products of,
          the Collateral (including, without limitation all income benefits and
          property receivable, received or distributed which results from any of
          the Collateral, such as dividends payable or distributable in cash
          property or stock; insurance distributions of any kind related to the
          Collateral, including, without limitation, returned premiums interest
          premium and principal payments; redemption proceeds and subscription
          rights; and shares or other proceeds of conversions or splits of any
          securities in the Collateral) any and all choses in action and causes
          of action of Debtor, whether now existing or hereafter arising,
          relating directly or indirectly to the Collateral (whether arising in
          contract, tort or otherwise and whether or not currently in
          litigation); all certificates of title, manufacturer's statements of
          origin, other documents, accounts and chattel paper, whether now
          existing or hereafter arising directly or indirectly from or related
          to the Collateral; all warranties, wrapping, packaging, advertising
          and shipping materials used or to be used in connection with or
          related to the Collateral; all of Debtors books, records, data, plans,
          manuals, computer software, computer tapes, computer systems, computer
          disks, computer programs, source codes and object codes containing any


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          information, pertaining directly or indirectly to the Collateral and
          all rights of Debtor to retrieve data and other information pertaining
          directly or indirectly to the Collateral from third parties, whether
          now existing or hereafter arising; and all returned refused, stopped
          in transit, or repossessed Collateral, any of which, received by
          Debtor, upon request shall be delivered immediately to Lender.


3.   DESCRIPTION OF OBLIGATION(S). The following obligations ("Obligation" or
     "Obligations") are secured by this Agreement: (a) A debts, obligations
     liabilities and agreements of Debtor to Lender, now or hereafter existing,
     arising under the Loan Agreement, and all renewals, extensions or
     rearrangement of any of the above; (b) All costs incurred by Lender to
     obtain, preserve, perfect and enforce this Agreement and maintain,
     preserve, collect and realize upon the Collateral; (c) All other reasonable
     costs and reasonable attorney's fees incurred by Lender for which Debtor is
     obligated to reimburse Lender in accordance with the terms of the Loan
     Documents, together with interest at the maximum rate allowed by law or if
     none, Prime Rate plus 4% per annum. If Debtor is not the obligor of the
     Obligation, and in the event any amount paid to Lender on any Obligation is
     subsequently recovered from Lender in or as a result of any bankruptcy,
     insolvency or fraudulent conveyance proceeding, Debtor shall be liable to
     Lender for the amounts so recovered up to the fair market value of the
     Collateral whether or not the Collateral has been released or the security
     interest terminated. In the event the Collateral has been released or the
     security interest terminated the fair market value of the Collateral shall
     be determined, at Lender's option, as of the date the Collateral was
     released, the security interest terminated, or said amounts were recovered.


4.   DEBTOR'S WARRANTIES. Debtor hereby represents and warrants to Lender as
     follows:


     A.   FINANCING STATEMENTS. Except as may be noted by schedule attached
          hereto and incorporated herein by reference, no financing statement
          covering the Collateral is or will be on file in any public office,
          except the financing statements relating to this security interest,
          and no security interest, other than the one herein created, has
          attached or been perfected in the Collateral or any part thereof.


     B.   OWNERSHIP. Debtor owns, or will use the proceeds of any loans by
          Lender to become the owner of, the Collateral free from any setoff,
          claim, restriction, lien, security interest or encumbrance, except
          Permitted Liens and the security interest hereunder.


     C.   FIXTURES AND ACCESSIONS. No material part of the Collateral is affixed
          to real estate or is an accession to any goods, or will become a
          fixture or accession, except as expressly set out herein.


     D.   CLAIMS OF DEBTORS ON THE COLLATERAL. As of the date of this Agreement,
          all account debtors and other obligors whose debts or obligations are
          part of the Collateral have no right to setoffs, counterclaims or
          adjustments, and no defenses in connection therewith, except defenses,
          adjustments, setoffs and counterclaims that arise in the ordinary
          course of business.


     E.   ENVIRONMENTAL COMPLIANCE. To the best of Debtor's knowledge, the
          conduct of Debtor's business operations and the condition of Debtor's
          property does not and will not violate any federal laws, rules or
          ordinances for environmental protection, regulations of the
          Environmental Protection Agency and any applicable local or state law
          rule, regulation or rule of common law and any judicial interpretation
          thereof relating primarily to the environment or any materials defined
          as hazardous materials or substances under any local, state or federal
          environmental laws, rules or regulations, and petroleum, petroleum
          products, oil and asbestos ("Hazardous Materials"), except violations
          which are not likely to have a Material Adverse Effect.


     F.   POWER AND AUTHORITY. Debtor has full power and authority to make this
          Agreement, and all necessary consents and approvals of any persons,
          entities, governmental or regulatory authorities and securities
          exchanges have been obtained to effectuate the validity of this
          Agreement.


5.   DEBTOR'S COVENANTS. Until full payment and performance of all of the
     Obligations and termination or expiration of any obligation or commitment
     of Lender to make advances or loans to Debtor, unless Lender otherwise
     consents in writing:


     A.   OBLIGATION AND THIS AGREEMENT. Debtor shall perform all of its
          agreements herein and in any other material agreements between it and
          Lender.


     B.   OWNERSHIP AND MAINTENANCE OF THE COLLATERAL. Debtor shall keep all
          tangible Collateral (except Collateral that is obsolete or no longer
          used in the ordinary course of business) in good condition. Debtor
          shall defend the Collateral against all claims and demands of all
          persons at any time claiming any interest therein adverse to Lender.
          Debtor shall keep the Collateral free from all liens and security
          interests except Permitted Liens and the security interest hereby
          created.


     C.   INSURANCE. Debtor shall insure the Collateral with companies
          reasonably acceptable to Lender. Such insurance shall be in an amount
          not less than the fair market value of the Collateral and shall be
          against such casualties with such deductible amounts as Lender shall
          approve. All insurance policies shall be written for the benefit of
          Debtor and Lender as their interests may appear, payable to Lender as
          loss payee, or in other form satisfactory to Lender, and such policies
          or certificates evidencing the same shall be furnished to Lender. All
          policies of insurance shall provide for written notice to Lender at
          least thirty (30) days prior to cancellation. Risk of loss or damage
          is Debtor's to the extent of any deficiency in any effective insurance
          coverage.


     D.   LENDER'S COSTS. Debtor shall pay all reasonable costs necessary to
          obtain, preserve, perfect, defend and enforce the security interest
          created by this Agreement, collect the Obligation, and preserve,
          defend, enforce and collect the Collateral, including but not limited
          to taxes, assessments, insurance premiums, repairs, rent, storage
          costs and expenses of sales legal expenses, reasonable attorney's fees
          and other fees or expenses for which Debtor is obligated to reimburse
          Lender in accordance with the terms of the Loan Documents. Whether the
          Collateral is or is not in Lender's possession, and without any
          obligation to do so and without waiving Debtor's default for failure
          to make any such payment, Lender at its option may pay any such costs
          and expenses, discharge encumbrances on the Collateral, and pay for
          insurance of the Collateral, and such payments shall be a part of the
          Obligation and bear interest at the rate set out in the Obligation.
          Debtor agrees to reimburse Lender on demand for any costs so incurred.

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     E.   INFORMATION AND INSPECTION. Debtor shall (i) promptly furnish Lender
          any information with respect to the Collateral reasonably requested by
          Lender; (ii) allow Lender or its representatives to inspect the
          Collateral, during business hours and wherever located, and to inspect
          and copy, or furnish Lender or its representatives with copies of, all
          records relating to the Collateral and the Obligation; (iii) promptly
          furnish Lender or its representatives such information as Lender may
          request to identify the Collateral, at the time and in the form
          requested by Lender; and (iv) deliver upon request to Lender shipping
          and delivery receipts evidencing the shipment of goods and invoices
          evidencing the receipt of, and the payment for, the Collateral.


     F.   ADDITIONAL DOCUMENTS. Debtor shall sign and deliver any papers deemed
          reasonably necessary or desirable in the judgment of Lender to obtain,
          maintain, and perfect the security interest hereunder and to enable
          Lender to comply with any federal or state law in order to obtain or
          perfect Lender's interest in the Collateral or to obtain proceeds of
          the Collateral.


     G.   PARTIES LIABLE ON THE COLLATERAL. Debtor shall preserve the liability
          of all obligors on any Collateral, shall preserve the priority of all
          security therefor. Lender shall have no duty to preserve such
          liability or security, but may do so at the expense of Debtor, without
          waiving Debtor's default.


     H.   RECORDS OF THE COLLATERAL. Debtor at all times shall maintain accurate
          books and records covering the Collateral. Debtor immediately will
          mark all books and records with an entry showing the absolute
          assignment of all Collateral to Lender, and Lender is hereby given the
          right to audit the books and records of Debtor relating to the
          Collateral at any time and from time to time. The amounts shown as
          owed to Debtor on Debtor's books and on any assignment schedule will
          be the undisputed amounts owing and unpaid.


     I.   DISPOSITION OF THE COLLATERAL. If disposition of any Collateral gives
          rise to an account, chattel paper or instrument, Debtor immediately
          shall notify Lender, and upon request of Lender shall assign or
          indorse the same to Lender. No Collateral may be sold, leased,
          manufactured, processed or otherwise disposed of by Debtor in any
          manner without the prior written consent of Lender, except: (1) the
          Collateral sold, leased, manufactured, processed or consumed in the
          ordinary course of business, and (2) dispositions of Collateral that
          is obsolete or no longer used in Debtor's business.


     J.   ACCOUNTS. Each account held as Collateral will represent the valid and
          legally enforceable obligation of third parties and shall not be
          evidenced by any instrument or chattel paper.


     K.   NOTICE/LOCATION OF THE COLLATERAL. Debtor shall give Lender written
          notice of each office of Debtor in which records of Debtor pertaining
          to accounts held as Collateral are kept and each location at which the
          Collateral is or will be kept, and of any change of any such location.
          If no such notice is given, all records of Debtor pertaining to the
          Collateral and all Collateral of Debtor are and shall be kept at the
          address marked by Debtor above.


     L.   CHANGE OF NAME/STATUS AND NOTICE OF CHANGES. Without the written
          consent of Lender, Debtor shall not change its name, change its
          corporate status, use any trade name or engage in any business not
          reasonably related to its business as presently conducted. Debtor
          shall notify Lender immediately of (i) any material change in the
          Collateral, (ii) a change in Debtor's residence or location, (iii) a
          change in any matter warranted or represented by Debtor in this
          Agreement, or in any of the Loan Documents or furnished to Lender
          pursuant to this Agreement, and (iv) the occurrence of an Event of
          Default (hereinafter defined).


     M.   USE AND REMOVAL OF THE COLLATERAL. Debtor shall not use the Collateral
          illegally. Debtor shall not, unless previously indicated as a fixture,
          permit the Collateral to be affixed to real or personal property
          without the prior written consent of Lender. Debtor shall not permit
          any of the Collateral to be removed from the locations specified
          herein without the prior written consent of Lender, except for the
          sale of inventory in the ordinary course of business.


     N.   POSSESSION OF THE COLLATERAL. Debtor shall deliver all investment
          securities and other instruments, documents and chattel paper which
          are part of the Collateral and in Debtor's possession to Lender
          immediately upon request, or if hereafter acquired, immediately
          following acquisition and such request, appropriately endorsed to
          Lender s order, or with appropriate , duly executed powers. Debtor
          waives presentment, notice of acceleration, demand, notice of
          dishonor, protest, and all other notices with respect thereto.


     O.   CONSUMER CREDIT. If any Collateral or proceeds includes obligations of
          third parties to Debtor, the transactions giving rise to the
          Collateral shall conform in all material respects to the applicable
          state or federal law including but not limited to consumer credit law.
          Debtor shall hold harmless and indemnify Lender against any cost, loss
          or expense arising from Debtor's breach of this covenant.


     P.   POWER OF ATTORNEY. Debtor appoints Lender and any officer thereof
          effective upon the occurrence and during the continuance of an Event
          of Default as Debtor's attorney-in-fact with full power in Debtor's
          name and behalf to do every act which Debtor is obligated to do or may
          be required to do hereunder; however, nothing in this paragraph shall
          be construed to obligate Lender to take any action hereunder nor shall
          Lender be liable to Debtor for failure to take any act on hereunder.
          This appointment shall be deemed a power coupled with an interest and
          shall not be terminable as long as the Obligation is outstanding and
          shall not terminate on the disability or incompetence of Debtor.


     Q.   WAIVERS BY DEBTOR. Debtor waives notice of the creation, advance,
          increase, existence, extension or renewal of and of any indulgence
          with respect to, the Obligation; waives presentment, demand, notice of
          dishonor, and protest; waives notice of the amount of the Obligation
          outstanding at any time, notice of any change in financial condition
          of any person liable for the Obligation or any part thereof, and all
          other notices respecting the Obligation except for notices to be
          provided under the Loan Agreement. Debtor waives any right to require
          that any action be brought against any other person or to require that
          resort be had to any other security or to any balance of any deposit
          account. Debtor further waives any right of subrogation or to enforce
          any right of action against any other Debtor until the Obligation is
          paid in full.

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     R.   OTHER PARTIES AND OTHER COLLATERAL. No renewal or extension of or any
          other indulgence with respect to the Obligation or any part thereof,
          no release of any security, no release of any person (including any
          maker, indorser, guarantor or surety) liable on the Obligation, no
          delay in enforcement of payment, and no delay or omission or lack of
          diligence or care in exercising any right or power with respect to the
          Obligation or any security therefor or guaranty thereof or under this
          Agreement shall in any manner impair or affect the rights of Lender
          under the law, hereunder, or under any other agreement pertaining to
          the Collateral. Lender need not file suit or assert a claim for
          personal judgment against any person for any part of the Obligation or
          seek to realize upon any other security for the Obligation, before
          foreclosing or otherwise realizing upon the Collateral Debtor waives
          any, right to the benefit of or to require or control application of
          any other security or proceeds thereof, and agrees that Lender shall
          have no duty or obligation to Debtor to apply to the Obligation any
          such other security or proceeds thereof.


     S.   COLLECTION AND SEGREGATION OF ACCOUNTS AND RIGHT TO NOTIFY. Lender
          hereby authorizes Debtor to collect the Collateral, subject to the
          direction and control of Lender, but following the occurrence and
          during the continuance of an Event of Default, Lender may without
          cause or notice, curtail or terminate said authority at any time. Upon
          notice by Lender, whether oral or in writing to Debtor, Debtor shall
          forthwith upon receipt of all checks, drafts, cash, and other
          remittances in payment of or on account following the occurrence and
          during the continuance of an Event of Default of the Collateral,
          deposit the same in one or more special accounts maintained with
          Lender over which Lender alone shall have power of withdrawal. The
          remittance of the proceeds of such Collateral shall not, however,
          constitute payment or liquidation of such Collateral until Lender
          shall receive good funds for such proceeds. Funds placed in such
          special accounts shall be held by Lender as security for all
          Obligations secured hereunder. These proceeds shall be deposited in
          precisely the form received except for the endorsement of Debtor where
          necessary to permit collection of items, which indorsement Debtor
          agrees to make and which indorsement Lender is also hereby authorized,
          as attorney-in-fact, to make on behalf of Debtor. In the event Lender
          has notified Debtor to make deposits to a special account, pending
          such deposit, Debtor agrees that it will not commingle any such
          checks, drafts, cash or other remittances with any funds or other
          property of Debtor, but will hold them separate and apart therefrom,
          and upon an express trust for Lender until deposit thereof is made in
          the special account. Lender will, from time to time, apply the whole
          or any part of the Collateral funds on deposit in this special account
          against such Obligations as are secured hereby as Lender may in its
          sole discretion elect. At the sole election of Lender, any portion of
          said funds on deposit in the special account which Lender shall elect
          not to apply to the Obligations, may be paid over by Lender to Debtor.
          At any time, following the occurrence and during the continuance of an
          Event of Default, Lender may notify persons obligated on any
          Collateral to make payments directly to Lender and Lender may take
          control of all proceeds of any Collateral. Until Lender elects to
          exercise such rights, Debtor as agent of Lender, shall collect and
          enforce all payments owed on the Collateral.


     T.   COMPLIANCE WITH STATE AND FEDERAL LAWS. Debtor will maintain its
          existence, good standing and qualification to do business, where the
          failure to do so would result in a Material Adverse Effect, and comply
          in all material respects with all laws, regulations and governmental
          requirements, including without limitation, environmental laws
          applicable to it or any of its property, business operations and
          transactions.


     U.   ENVIRONMENTAL COVENANTS. Debtor shall immediately advise Lender in
          writing of (i) any and all material enforcement, cleanup, remedial,
          removal, or other governmental or regulatory actions instituted,
          completed or threatened pursuant to any applicable federal, state, or
          local laws, ordinances or regulations relating to any Hazardous
          Materials affecting Debtor's business operations; and (ii) all
          material claims made or threatened by any third party against Debtor
          relating to damages, contribution, cost recovery, compensation, loss
          or injury resulting from any Hazardous Materials. Debtor shall
          immediately notify Lender of any material remedial action taken by
          Debtor with respect to Debtor's business operations. Debtor will not
          use or permit any other party to use any Hazardous Materials at any of
          Debtor's places of business or at any other property owned by Debtor
          except such materials as are incidental to Debtor's normal course of
          business, maintenance and repairs and which are handled in material
          compliance with all applicable environmental laws. Debtor agrees to
          permit Lender, its agents, contractors and employees to enter and
          inspect any of Debtor's places of business or any other property of
          Debtor at any reasonable times upon three (3) days prior notice for
          the purposes of conducting, at Lender's expense, an environmental
          investigation and audit (including taking physical samples) to insure
          that Debtor is complying with this covenant.


6. RIGHTS AND POWERS OF LENDER.


     A.   GENERAL. Lender, following the occurrence and during the continuance
          of an Event of Default may obtain from any person information
          regarding Debtor or Debtor's business, which information any such
          person also may furnish without liability to Debtor; require Debtor to
          give possession or control of any Collateral to Lender; indorse as
          Debtor's agent any instruments, documents or chattel paper in the
          Collateral or representing proceeds of the Collateral; contact account
          debtors directly to verify information furnished by Debtor; take
          control of proceeds, Including stock received as dividends or by
          reason of stock splits; release the Collateral in its possession to
          any Debtor, temporarily or otherwise; require additional Collateral;
          reject as unsatisfactory any property hereafter offered by Debtor as
          Collateral; set standards from time to time to govern what may be used
          as after acquired Collateral; designate, from time to time, a certain
          percent of the Collateral as the loan value and require Debtor to
          maintain the Obligation at or below such figure; take control of funds
          generated by the Collateral, such as cash dividends, interest and
          proceeds or refunds from insurance, and use same to reduce any part of
          the Obligation and exercise all other rights which an owner of such
          Collateral may exercise, except the right to vote or dispose of the
          Collateral before an Event of Default; at any time transfer any of the
          Collateral or evidence thereof into its own name or that of its
          nominee; and demand, collect, convert, redeem receipt for, settle,
          compromise, adjust, sue for, foreclose or realize upon the Collateral,
          in its own name or in the name of Debtor, as Lender may determine.
          Lender shall not be liable for failure to collect any account or
          instruments, or for any act or omission on the part of Lender, its
          officers, agents or employees, except for its or their own willful
          misconduct or gross negligence. The foregoing rights and powers of
          Lender will be in addition to, and not a limitation upon, any rights
          and powers of Lender given by law, elsewhere in this Agreement, or
          otherwise. If Debtor fails to maintain any required insurance to the
          extent permitted by applicable law Lender may (but is not obligated
          to) following 10 days prior written notice to Debtor purchase single
          interest insurance coverage for the Collateral which insurance may at
          Lender's option (i) protect only Lender and not provide any
          remuneration or protection for Debtor directly and (ii) provide
          coverage only after the Obligation has been declared due as herein
          provided. The premiums for any such insurance purchased by Lender
          shall be a part of the Obligation and shall bear interest as provided
          in 3(d) hereof.


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7. DEFAULT.


     A.   EVENT OF DEFAULT. An event of default ("Event of Default") shall occur
          if: (i) there is a loss, theft, damage or destruction of any material
          portion of the Collateral for which there is no insurance coverage or
          for which, in the opinion of Lender, there is insufficient insurance
          coverage; or (ii) the occurrence of a "Default" under the Loan
          Agreement.


     B.   RIGHTS AND REMEDIES. If any Event of Default shall occur then in each
          and every such case, Lender may without presentment, demand, or
          protest; notice of default, dishonor, demand, non-payment, or protest;
          notice of intent to accelerate all or any part of the Obligation;
          notice of acceleration of all or any part of the Obligation; or notice
          of any other kind, all of which Debtor hereby expressly waives,
          (except for any notice required under this Agreement, any other Loan
          Document or applicable law); at any time thereafter exercise and/or
          enforce any of the following rights and remedies of Lender's option:


          i.   ACCELERATION. The Obligation shall at Lender's option, become
               immediately due and payable, and the obligation, If any, of
               Lender to permit further borrowings under the Obligation shall at
               Lender's option immediately cease and terminate.


          ii.  POSSESSION AND COLLECTION OF THE COLLATERAL. At its option: (a)
               take possession or control of, store, lease, operate, manage,
               sell, or instruct any Agent or Broker to sell or otherwise
               dispose of, all or any part of the Collateral; (b) notify all
               parties under any account or contract right forming all or any
               part of the Collateral to make any payments otherwise due to
               Debtor directly to Lender; (c) in Lender's own name, or in the
               name of Debtor, demand, collect, receive, sue for, and give
               receipts and releases for, any and all amounts due under such
               accounts and contract rights; (d) indorse as the agent of Debtor
               any check, note, chattel paper, documents or instruments forming
               all or any part of the Collateral; (e) make formal application
               for transfer to Lender (or to any assignee of Lender or to any
               purchaser of any of the Collateral) of all of Debtor's permits,
               licenses, approvals, agreements and the like relating to the
               Collateral or to Debtor's business; (f) take any other action
               which Lender deems necessary or desirable to protect and realize
               upon its security interest in the Collateral; and (g) in addition
               to the foregoing, and not in substitution therefor, exercise any
               one or more of the rights and remedies exercisable by Lender
               under any other provision of this Agreement, under any of the
               other Loan Documents, or as provided by applicable law
               (including, without limitation, the Uniform Commercial Code as in
               effect in NEW YORK (hereinafter referred to as the "UCC")). In
               taking possession of the Collateral Lender may enter Debtor's
               premises and otherwise proceed without legal process, if this can
               be done without breach of the peace. Debtor shall, upon Lender's
               demand, promptly make the Collateral or other security available
               to Lender at a place designated by Lender, which place shall be
               reasonably convenient to both parties.


Lender shall not be liable for nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Lender's willful and malicious
act. Lender shall have no duty to take any action to preserve or collect the
Collateral.


          iii. RECEIVER. Obtain the appointment of a receiver for all or any of
               the Collateral, Debtor hereby consenting to the appointment of
               such a receiver and agreeing not to oppose any such appointment.


          iv.  RIGHT OF SET OFF. Without notice or demand to Debtor, set off and
               apply against any and all of the Obligation any and all deposits
               (general or special, time or demand provisional or final) and any
               other indebtedness, at any time held or owing by Lender or any of
               Lender's agents or affiliates to or for the credit of the account
               of Debtor or any guarantor or indorser of Debtor's Obligation.


Lender shall be entitled to immediate possession of all books and records
evidencing any Collateral or pertaining to chattel paper covered by this
Agreement and it or its representatives shall have the authority to enter upon
any premises upon which any of the same, or any Collateral, may be situated and
remove the same therefrom without liability. Lender may surrender any insurance
policies in the Collateral and receive the unearned premium thereon. Debtor
shall be entitled to any surplus and shall be liable to Lender for any
deficiency. The proceeds of any disposition after default available to satisfy
the Obligation shall be applied to the Obligation in such order and in such
manner as Lender in its discretion shall decide.


Debtor specifically understands and agrees that any sale by Lender of all or
part of the Collateral pursuant to the terms of this Agreement may be effected
by the Lender at times and in manners which could result in the proceeds of such
sale as being significantly and materially less than might have been received if
such sale had occurred at different times or in different manners, and Debtor
hereby releases Lender and its officers and representatives from and against any
and all obligations and liabilities arising out of or related to the timing or
manner of any such date; provided that any such sale is in accordance with
applicable law and conducted in a commercially reasonable manner.


8. GENERAL.


          A.   PARTIES BOUND. Lender's rights hereunder shall inure to the
               benefit of its successors and assigns. In the event of any
               assignment or transfer by Lender of any of the Obligation or the
               Collateral, Lender thereafter shall be fully discharged from any
               responsibility with respect to the Collateral so assigned or
               transferred, but Lender shall retain all rights and powers hereby
               given with respect to any of the Obligation or the Collateral not
               so assigned or transferred. All representations, warranties and
               agreements of Debtor if more than one are joint and several and
               all shall be binding upon the personal representatives, heirs,
               successors and assigns of Debtor.


          B.   WAIVER. No delay of Lender in exercising any power or right shall
               operate as a waiver thereof; nor shall any single or partial
               exercise of any power or right preclude other or further exercise
               thereof or the exercise of any other power or right. No waiver by
               Lender of any right hereunder or of any default by Debtor shall
               be binding upon Lender unless in writing, and no failure by
               Lender to exercise any power or right hereunder or waiver of any
               default by Debtor shall operate as a waiver of any other or
               further exercise of such right or power or of any further
               default. Each right, power and remedy of Lender as provided for
               herein or in any of the Loan Documents, or which shall now or
               thereafter exist at law or in equity or by statue of otherwise,
               shall be cumulative and concurrent and shall be in addition to
               every other such right, power or remedy. The exercise or
               beginning of the exercise by Lender of any one

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               or more of such rights, powers or remedies shall not preclude the
               simultaneous or later exercise by Lender or any or all other such
               rights, powers or remedies.


          C.   AGREEMENT CONTINUING. This Agreement shall constitute a
               continuing agreement, applying to all future as well as existing
               transactions, whether or not of the character contemplated at the
               date of this Agreement, and if all transactions between Lender
               and Debtor shall be closed at any time, shall be equally
               applicable to any new transactions thereafter. Provisions of this
               Agreement, unless by their terms exclusive, shall be in addition
               to other agreements between the parties. Time is of the essence
               of this Agreement.


          D.   DEFINITIONS. Unless the context indicates otherwise, definitions
               in the UCC apply to words and phrases in this Agreement; if UCC
               definitions conflict, Article 9 definitions apply.


          E.   NOTICES. Notice shall be deemed reasonable if mailed postage
               prepaid at least five (5) days before the related action (or if
               the UCC elsewhere specifies a longer period, such longer period)
               to the address of Debtor given above, or to such other address as
               any party may designate by written notice to the other party.
               Each notice request and demand shall be deemed given or made, if
               sent by mail, upon the earlier of the date of receipt of five (5)
               days after deposit in the U.S. Mail, first class postage prepaid,
               or if sent by any other means, upon delivery.


          F.   MODIFICATIONS. No provision hereof shall be modified or limited
               except by written agreement expressly referring hereto and to the
               provisions so modified or limited and signed by Debtor and
               Lender. The provisions of this Agreement shall not be modified or
               limited by course of conduct or usage of trade.


          G.   APPLICABLE LAW AND PARTIAL INVALIDITY. This Agreement has been
               delivered in the State of NEW YORK and shall be construed in
               accordance with the laws of that State. Wherever possible each
               provision of this Agreement shall be interpreted in such manner
               as to be effective and valid under applicable law, but if any
               provision of this Agreement shall be prohibited by or invalid
               under applicable law, such provision shall be ineffective to the
               extent of such prohibition or invalidity, without invalidating
               the remainder of such provisions or the remaining provisions of
               this Agreement. The invalidity or unenforceability of any
               provision of any Loan Document to any person or circumstances
               shall not affect the enforceability or validity of such provision
               as it may apply to other persons or circumstances.


          H.   FINANCING STATEMENT. To the extent permitted by applicable law, a
               carbon, photographic or other reproduction of this Agreement or
               any financing statement covering the Collateral shall be
               sufficient as a financing statement.


          I.   ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
               PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF
               OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY
               RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM
               BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY
               BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
               ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES
               OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
               DISPUTES OF AMERICAN ARBITRATION ASSOCIATION OR ANY SUCCESSOR
               THEREOF ("A.A.A."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
               THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL.
               JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
               HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR
               DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
               PROCEEDING, TO COMPEL ARBITRATION OF ANY INCONSISTENCY OR CLAIM
               TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION
               OVER SUCH ACTION.


     I. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN NEW YORK COUNTY,
NEW YORK AND ADMINISTERED BY A.A.A. WHO WILL APPOINT AN ARBITRATOR. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.


     II. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) LIMIT THE RIGHT OF LENDER HERETO (A) TO EXERCISE SELF HELP
REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY
REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL
OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. LENDER MAY EXERCISE SUCH SELF HELP
RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING
BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.


          J.   CONTROLLING DOCUMENT. To the extent that this Security Agreement
               conflicts with or is in any way incompatible with any other Loan
               Document concerning the Obligation, any promissory note shall
               control over any other document, and if such note does not
               address an issue, then each other document shall control to the
               extent that it deals most specifically with an issue.


          K.   EXECUTION UNDER SEAL. This Agreement is being executed under seal
               by Debtor(s).


          L.   NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY AGREEMENT AND
               THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
               THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF

                                       6
<PAGE>   7

               PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
               PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
               PARTIES.


IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.


MUSI INVESTMENTS S.A.                         FRISBY TECHNOLOGIES, INC.


By: /s/ Luca Bassani Antivari                 By: /s/ Gregory S. Frisby
   -------------------------------                -----------------------


Name:  Luca Bassani Antivari                  Name:  Gregory S. Frisby
     ----------------------------                  ----------------------


Title:___________________________             Title:  Chairman and CEO
                                                    ---------------------


                                              Attest (If Applicable)

                                              [Corporate Seal]


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