<PAGE>
                                                                   EXHIBIT 10.4

                                        This Security Agreement is entered into
                                        June 7, 2002 to be effective as of June
                                        3, 2002 (References to the date of this
                                        Security Agreement contained herein
                                        shall be deemed to mean June 3, 2002.)

                              SECURITY AGREEMENT

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<S>                                                                 <C>
LENDER/SECURED PARTY:                                               DEBTOR(S)/PLEDGOR(S):

   FINPART INTERNATIONAL S.A.                                          FRISBY TECHNOLOGIES, INC.
   25A BOULEVARD ROYAL - LE FORUM ROYAL
   L - 2449 LUXEMBOURG                                                 3195 CENTRE PARK BOULEVARD
                                                                       WINSTON-SALEM, FORSYTH COUNTY, NC  27107
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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:

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</TABLE>

Reference is made to that certain Loan Agreement entered into June ___, 2002 to
be effective as of June 3, 2002 (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); provided that Lender expressly acknowledges and agrees
               that (i) its security interest and lien in the Collateral
               (hereinafter defined) is junior and subordinate to the security
               interests and liens of DAMAD Holding AG and Bluwat AG to such
               Collateral granted in January 2002 (the "Prior Secured Rights")
               and (ii) to the extent any covenant of Borrower hereunder, or any
               right and remedy of Lender hereunder, is inconsistent with, or
               impracticable in light of, a covenant, right or remedy set forth
               in documents executed in connection with the Prior Secured
               Rights, such covenant, right or remedy hereunder shall be deemed
               stricken herefrom in its entirety.

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.


                                      -1-
<PAGE>

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
         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) All 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 3.75% 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 and
                  except as noted in the Loan Agreement or a schedule thereto,
                  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.


                                      -2-
<PAGE>

         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.

         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.


                                      -3-
<PAGE>

         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.

         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,


                                      -4-
<PAGE>

                  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(c) hereof.

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


                                      -5-
<PAGE>

                  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 NORTH CAROLINA (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.


                                      -6-
<PAGE>

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 or 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 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 NORTH CAROLINA 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 FORSYTH
COUNTY, NORTH CAROLINA AND ADMINISTERED BY A.A.A. WHO WILL APPOINT AN
ARBITRATOR. ALL ARBITRATION HEARINGS WILL BE


                                      -7-
<PAGE>

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 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.

<TABLE>
<S>                                                                <C>
FIN.PART INTERNATIONAL S.A.                                        FRISBY TECHNOLOGIES, INC.



By: /s/ Gianluigi Facchini                                         By: /s/ Gregory S. Frisby________________
   ----------------------------------------------                     ------------------------------------------------------

Name: Gianluigi Facchini                                           Name: Gregory S. Frisby____________________
     --------------------------------------------                       ----------------------------------------------------

Title:                                                             Title: Chairman and CEO__________________
     --------------------------------------------                        ---------------------------------------------------

                                                                   Attest (If Applicable)



                                                                   /s/ John L. Ruggiero
                                                                   [Corporate Seal]
</TABLE>


                                      -8-