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                                DAMAD HOLDING AG

                                 PROMISSORY NOTE

This Note is entered into January 23, 2002      Maturity Date:  January 10, 2005
to be effective as of January 10, 2002
(References to the date of this Note
contained herein shall be deemed to mean
January 10, 2002.)

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Lender:                                          Borrower:


DAMAD Holding AG                        Frisby Technologies, Inc.
Lindenstrasse 14                        3195 Centre Park Blvd.
CH - 6340 Baar                          Winston-Salem, NC County: Forsyth 27107
SWITZERLAND

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         FOR VALUE RECEIVED, the undersigned Borrower unconditionally promises
to pay to the order of Lender, its successors and assigns, without setoff, at
its offices indicated at the beginning of this Note, or at such other place as
may be designated by Lender, the principal amount of Seven Hundred Fifty
Thousand and 00/100 Dollars ($750,000.00), or so much thereof as may be advanced
from time to time in immediately available funds, together with interest
computed daily on the outstanding principal balance hereunder, at an annual
interest rate, and in accordance with the payment schedule, indicated below.

1.       RATE. The Rate shall be the Prime Rate plus 0.75%.

The "Prime Rate" is the so-called composite "Prime Rate" which is published from
time to time during the relevant period in the Southeast Edition of The Wall
Street Journal listing of "Money Rates" and shall be the arithmetic average of
such published rates if more than one is quoted.

Notwithstanding any provision of this Note, Lender does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by the applicable law of the State of North
Carolina; if any higher rate ceiling is lawful, then that higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to Borrower
or credited against principal, at the option of Lender.

2.       ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set
forth above will be calculated by the 365/360 day method (a daily amount of
interest is computed for a hypothetical year of 360 days; that amount is
multiplied by the actual number of days for which any principal is outstanding
hereunder).

3.       RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate
will change, unless otherwise provided, each time and as of the date that the
index or base rate changes. In the event The Wall Street Journal ceases to
publish the Prime Rate, Lender shall substitute an index determined by Lender to
be comparable, in its sole discretion.

4.       PAYMENT SCHEDULE. All payments received hereunder shall be applied
first to the payment of any expense or charges payable hereunder or under any
other loan documents executed in connection with this Note, then to interest due
and payable, with the balance applied to principal, or in such other order as
Lender shall determine at its option.

Single Principal Amount. Principal shall be paid in full in a single payment on
January 10, 2005. Interest thereon shall be paid on a quarterly basis beginning
with the quarter ending March 31, 2002 with such payments being due on the first
business day after the end of each successive quarter. Each payment shall be
accompanied by a statement from Borrower setting forth in reasonable detail the
interest then due and payable for such quarter. A final payment of all accrued
and unpaid interest shall be made at the stated maturity of this Note.

5.       WAIVERS, CONSENTS AND COVENANTS. Borrower, any endorser, or guarantor
hereof or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice (excluding notices to be given under


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the Loan Agreement) required to be given under the law to any Obligor in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, any endorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to
Lender (the "Loan Documents"); (b) consent to all delays, extensions or renewals
of this Note or the Loan Documents, or waivers of any term hereof or of the Loan
Documents, or release or discharge by Lender of any of Obligors, or release,
substitution or exchange of any security for the payment hereof, or the failure
to act on the part of Lender, or any indulgence shown by Lender (without notice
to or further assent from any of Obligors), and agree that no such action,
failure to act or failure to exercise any right or remedy by Lender shall in any
way affect or impair the obligations of any Obligors or be construed as a waiver
by Lender of, or otherwise affect, any of Lender's rights under this Note, under
any endorsement or guaranty of this Note or under any of the Loan Documents; and
(c) agree to pay, on demand, all reasonable costs and expenses of collection or
defense of this Note or of any endorsement or guaranty hereof and/or the
enforcement or defense of Lender's rights with respect to, or the
administration, supervision, preservation, protection of, or realization upon,
any property securing payment hereof, including, without limitation, reasonable
attorney's fees, including fees related to any suit, mediation or arbitration
proceeding, out of court payment agreement, trial, appeal, bankruptcy
proceedings or other proceeding, provided such costs, fees and expenses shall
not exceed 15% of the obligations due hereunder.

6.       PREPAYMENTS. Prepayments may be made in whole or in part at any time.
The Borrower may reborrow any prepayments of principal at any time up to the
maximum available under the Note.

7.       DELINQUENCY CHARGE. To the extent permitted by law, a delinquency
charge may be imposed in an amount not to exceed three percent (3.0%) of the
unpaid portion of any payment that is more than fifteen days late. Unless the
terms of this Note call for repayment of the entire balance of this Note (both
principal and interest) in a single payment and not for installments of interest
or principal and interest, the 3.0% delinquency charge may be imposed not only
with respect to regular installments of principal or interest or principal and
interest, but also with respect to any other payment in default under this Note
(other than a previous delinquency charge), including without limitation a
single payment of principal due at the maturity of this Note. In the event any
installment, or portion thereof, is not paid in a timely manner, subsequent
payments will be applied first to the past due balance (which shall not include
any previous delinquency charges), specifically to the oldest maturing
installment, and a separate delinquency charge will be imposed for each payment
that becomes due until the default is cured.

8.       EVENTS OF DEFAULT. The occurrence of a "Default" under Section 8 of the
Loan Agreement shall constitute an event of default hereunder (an "Event of
Default").

9.       REMEDIES UPON DEFAULT. Whenever there is an Event of Default under this
Note (a) the entire balance outstanding hereunder and all other obligations of
any Obligor to Lender (however acquired or evidenced) shall, at the option of
Lender, become immediately due and payable and any obligation of Lender to
permit further borrowing under this Note shall immediately cease and terminate,
and/or (b) to the extent permitted by law, the Rate of interest on the unpaid
principal shall be increased at Lender's discretion up to the maximum rate
allowed by law, or if none, a per annum rate of interest equal to the Prime Rate
plus 3.75% (the "Default Rate"). The provisions herein for a Default Rate and a
delinquency charge shall not be deemed to extend the time for any payment
hereunder or to constitute a "grace period" giving Obligors a right to cure any
default. At Lender's option, any accrued and unpaid interest, fees or charges
may, for purposes of computing and accruing interest on a daily basis after the
due date of the Note or any installment thereof, be deemed to be a part of the
principal balance, and interest shall accrue on a daily compounded basis after
such date at the Default Rate provided in this Note until the entire outstanding
balance of principal and interest is paid in full. Lender is hereby authorized
at any time to set off and charge against any deposit accounts of any Obligor,
as well as any money, instruments, securities, documents, chattel paper,
credits, claims, demands, income and any other property, rights and interests of
any Obligor which at any time shall come into the possession or custody or under
the control of Lender or any of its agents, affiliates or correspondents,
without notice or demand, any and all obligations due hereunder. Additionally,
Lender shall have all rights and remedies available under each of the Loan
Documents, as well as all rights and remedies available at law or in equity.

10.      NON-WAIVER. The failure at any time of Lender to exercise any of its
options or any other rights hereunder shall not constitute a waiver thereof, nor
shall it be a bar to the exercise of any of its options or rights at a later
date. All rights and remedies of Lender shall be cumulative and may be pursued
singly, successively or together, at the option of Lender. The acceptance by
Lender of any partial payment shall not constitute a waiver of any default or of
any of Lender's rights under this Note. No waiver of any of its rights
hereunder, and no modification or amendment of this Note, shall be deemed to be
made by Lender unless the same shall be in writing, duly signed on behalf of
Lender; each such waiver shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Lender or the obligations of
Obligor to Lender in any other respect at any other time,


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11.      APPLICABLE LAW, VENUE AND JURISDICTION. This Note and the rights and
obligations of Borrower and Lender shall be governed by and interpreted in
accordance with the law of the State of North Carolina. In any litigation in
connection with or to enforce this Note or any endorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of North Carolina or
the United States located within the State of North Carolina and expressly waive
any objections as to venue in any such courts. Nothing contained herein shall,
however, prevent Lender from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law.

12.      PARTIAL INVALIDITY. The unenforceability or invalidity of any provision
of this Note shall not affect the enforceability or validity of any other
provision herein and the invalidity or unenforceability of any provision of this
Note or of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.

13.      BINDING EFFECT. This Note shall be binding upon and inure to the
benefit of Borrower, Obligors and Lender and their respective successors,
assigns, heirs and personal representatives, provided, however, that no
obligations of Borrower or Obligors hereunder can be assigned without prior
written consent of Lender.

14.      CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is
in any way incompatible with any other Loan Document concerning this obligation,
the Note shall control over any other document, and if the Note does not address
an issue, then each other document shall control to the extent that it deals
most specifically with an issue,

15.      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 CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.

         A.       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 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.

         B.       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.

BORROWER REPRESENTS TO LENDER THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
EXCLUSIVELY FOR BUSINESS PURPOSES. BORROWER ACKNOWLEDGES HAVING READ AND
UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS AND CONDITIONS OF THIS NOTE AND
HEREBY EXECUTES THIS NOTE UNDER SEAL AS OF THE DATE HERE ABOVE WRITTEN.


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NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS 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.


FRISBY TECHNOLOGIES, INC.



By:     /s/ Gregory S. Frisby              (Seal)
   ----------------------------------------

Name:  Gregory S. Frisby

Title: Chairman and CEO



       /s/ Douglas J. McCrosson
-------------------------------------------

Attest (If Applicable)
[Corporate Seal]


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