WARRANT AGREEMENT

     WARRANT  AGREEMENT  (the  "Agreement"),  dated as of this  31st day of May,
2000, by and between  Frisby  Technologies,  Inc., a Delaware  corporation  (the
"Company"), and Janney Montgomery Scott LLC ("JMS").  Capitalized terms used but
not otherwise  defined herein shall have the meanings  ascribed to such terms in
the Company's  confidential private placement memorandum dated December 15, 1999
as amended and supplemented from time to time (the "Memorandum").

                              W I T N E S S E T H:
                              --------------------

     WHEREAS,  the Company has sold,  pursuant to an offering (the  "Offering"),
800,000 Units,  each Unit  consisting of one (1) share of its common stock,  par
value  $0.001 per share  (the  "Private  Placement  Common  Stock")  and one (1)
warrant to  purchase  one (1) share of its common  stock in a private  placement
pursuant to the Memorandum and pursuant to an exemption from registration  under
the  Securities  Act  of  1933,  as  amended,  and  the  rules  and  regulations
promulgated  thereunder (the "Securities  Act"), which transaction will close on
the date hereof; and

     WHEREAS,  the Company and JMS have entered into an agency agreement,  dated
as of December 15, 1999 (the "Agency Agreement"),  pursuant to which the Company
has engaged  JMS as its  exclusive  agent for the  purpose of finding  qualified
purchasers for the Private Placement Common Stock; and

     WHEREAS, in connection with the Offering,  and in partial consideration for
the services of JMS in connection  therewith,  the Company desires to issue, and
JMS desires to accept,  JMS Warrants (as defined in Section 1),  represented  by
certificates  (such  certificates,  "JMS Warrant  Certificates"),  which JMS may
exercise to purchase Underlying Securities (as defined in Section 1) pursuant to
the terms of this Agreement and such certificates; and

     WHEREAS, pursuant to this Agreement, JMS shall receive 80,000 JMS Warrants;

     NOW,  THEREFORE,  in consideration  of the services  provided by JMS to the
Company  in   connection   with  the   Offering  and  other  good  and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of defining the terms and provisions of the JMS Warrants and the
JMS Warrant Certificates and the respective rights and obligations thereunder of
the  Company,  JMS and the JMS  Warrant  Holders  (as defined in Section 1), the
parties hereto hereby agree as follows:

     SECTION 1. Definitions. The following terms as used in this Agreement shall
have the meanings set forth below:

     (a) "Business  Day" means a day other than a Saturday,  Sunday or other day
on which banks in the State of New York are authorized by law to remain closed;

     (b) "Common Stock" shall mean the Company's  common stock, par value $0.001
per share;

     (c)  "Company"  shall  have  the  meaning  set  forth  in the  introductory
paragraph, or any successor thereof;

     (d)  "Convertible  Securities"  shall have the meaning set forth in Section
4(c);

     (e) "Exempt Securities" shall have the meaning set forth in Section 4(o);

     (f)  "Exercise  Date" shall mean any date on which the  Company  shall have
received both (i) a JMS Warrant Certificate representing a JMS Warrant, with the
exercise  form  thereon  duly  executed  by  the  JMS  Warrant  Holder,  or  his
attorney-in-fact  duly  authorized  in writing,  and (ii) payment in cash, or by
official  bank or certified  check made payable to the Company,  of an amount in
lawful money of the United States of America equal to the Underlying  Securities
Purchase Price, plus transfer taxes, if any;

     (g) "JMS" shall have the meaning set forth in the introductory paragraph;

     (h) "JMS  Warrant  Certificates"  shall have the  meaning  set forth in the
recitals hereto;

     (i) "JMS  Warrant  Holder"  means a person or entity in whose  name the JMS
Warrants shall be either initially or subsequently  registered upon the books to
be maintained by the Company for such purpose;

     (j)  "JMS  Warrants"  shall  mean  the  right to  purchase  the  Underlying
Securities pursuant to this Agreement, together with any divisions thereof;

     (k) "Nasdaq" means the Nasdaq SmallCap Market;

     (l) "Notice Event" shall mean (i) any  authorization  by the Company of the
issuance to all holders of shares of Common Stock of rights, options or warrants
to subscribe for or purchase shares of Common Stock or of any other subscription
rights or warrants, (ii) any authorization by the Company of the distribution to
all holders of shares of Common Stock of evidences of its indebtedness or assets
(other than cash dividends or distributions payable out of consolidated earnings
or earned  surplus or dividends  payable in shares of Common  Stock),  (iii) any
consolidation  or merger to which the Company is a party and for which  approval
of any stockholders of the Company is required, or of the conveyance or transfer
of the properties and assets of the Company  substantially as an entirety, or of
any reclassification or change of Common Stock issuable upon exercise of the JMS
Warrants  (other than a change in par value,  or from par value to no par value,
or  from  no  par  value  to par  value,  or as a  result  of a  subdivision  or
combination),  or a tender offer or exchange  offer for shares of Common  Stock,
(iv) any voluntary or involuntary dissolution,  liquidation or winding up of the
Company,  or (v) any proposal by the Company to take any other action that would
require an adjustment of the Underlying  Securities Purchase Price or the number
of Underlying Securities pursuant to Section 4;

     (m) "Offering" shall have the meaning set forth in the recitals hereto;

     (n) "Option Issuance" shall have the meaning set forth in Section 4(c);

     (o) "Options" shall have the meaning set forth in Section 4(c);

     (p)  "Registrable  Securities"  means the JMS Warrants  and the  Underlying
Securities;

     (q) "Registration  Rights Agreement" means that certain Registration Rights
Agreement,  dated as of the date hereof, by and between the Company and JMS, and
annexed hereto as Exhibit F;

     (r) "SEC" means the Securities and Exchange Commission;

     (s) "SEC Reports" shall have the meaning set forth in Section 3(d) hereof;

     (t) "Stock Option Plan" shall have the meaning set forth in Section 4(o);

     (u) "Transfer Agent" means American Stock Transfer & Trust Company, or such
other firm as may then be acting as the transfer agent of the Company;

     (v) "Underlying  Securities  Expiration  Date" means the last date on which
the JMS Warrants to purchase the Underlying  Securities may be exercised,  which
shall be 5:00 p.m., New York City time, on the day before the date which is five
years from the date hereof (or as may be extended  pursuant to Section 3(c)), or
if such  expiration  date is not a Business Day, at or before 5:00 p.m. New York
City time on the next following Business Day;

     (w) "Underlying Securities Purchase Price" shall mean the purchase price to
be paid upon the  exercise of the JMS Warrants  with  respect to the  Underlying
Securities in accordance  with the terms hereof,  which price shall be $6.00 per
Underlying  Security,  subject to  adjustment  from time to time pursuant to the
provisions of Section 4;

     (x) "Underlying Securities" means, collectively,  the Underlying Shares and
Underlying Warrants constituting the Underlying Units;

     (y) "Underlying Shares" means the 80,000 shares of Common Stock, subject to
adjustment  from  time to  time as  provided  herein,  constituting  part of the
Underlying Units;

     (z)  "Underlying  Units" shall mean a Unit identical to the Units except as
otherwise described herein;

     (aa) "Underlying  Warrants" means the Warrants to purchase 80,000 shares of
Common  Stock,  subject  to  adjustment  from time to time as  provided  herein,
constituting  part of the Underlying  Units, the form of which is annexed hereto
as Exhibit E;

     (bb) "Underlying  Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Underlying Warrants.

     SECTION 2. Duration and Exercise

     (a) Duration. Subject to the provisions of Section 4 hereof, the Underlying
Units may be  exercised  from time to time,  upon the terms and  subject  to the
conditions  set forth  herein,  at any time  before  the  Underlying  Securities
Expiration  Date.  If the JMS Warrants are not exercised  before the  Underlying
Securities  Expiration  Date, the JMS Warrant Holder shall no longer be entitled
to purchase the Underlying  Securities and all rights hereunder to purchase such
Underlying Securities shall thereupon cease.

     (b) Exercise.

     (i) A JMS Warrant  Holder may  exercise  the JMS  Warrants,  in whole or in
part,  to purchase the  Underlying  Securities in such amounts as may be elected
upon surrender of the JMS Warrant  Certificates  therefor with the  subscription
form  thereon  duly  executed,  to the Company at its  corporate  office at 3195
Centre Park Boulevard,  Winston-Salem,  North Carolina 27107,  together with the
full Underlying  Securities  Purchase Price for each  Underlying  Security to be
purchased,  in lawful money of the United States,  or by certified check or bank
draft  payable in United  States  dollars to the order of the  Company  and upon
compliance  with and subject to the  conditions  set forth herein and in the JMS
Warrant Certificate.

     (ii) Upon receipt of such JMS Warrant  Certificates  with the  subscription
form  thereon  duly  executed  and  accompanied  by  payment  of the  Underlying
Securities Purchase Price for the number of Underlying Securities for which such
JMS Warrants are then being  exercised,  the Company  shall,  subject to Section
5(b) hereof, cause to be issued and delivered promptly, but in all events within
three (3) days of receipt by the Company of the Underlying  Securities  Purchase
Price, to the JMS Warrant Holder certificates for such shares of Common Stock in
such denominations as are requested by the JMS Warrant Holder.

     (iii) In case a JMS Warrant Holder shall exercise JMS Warrants with respect
to less than all of the  Underlying  Securities,  the Company will execute a new
JMS Warrant Certificate,  as represented by a warrant certificate  substantially
in the form  attached  hereto as Exhibit A,  exercisable  for the balance of the
Underlying  Securities  that may be purchased upon exercise of such JMS Warrants
and deliver  such new JMS Warrant  Certificate  to the JMS Warrant  Holder.  JMS
Warrant Certificates shall be executed on behalf of the Company by the Company's
Chairman of the Board, President or any Vice President and by its Treasurer,  an
Assistant Treasurer, its Secretary or an Assistant Secretary.

     (iv) JMS Warrants shall be deemed to have been exercised  immediately prior
to the close of  business  on the  Exercise  Date,  and the person  entitled  to
receive the Underlying  Securities and any JMS Warrant Certificate  representing
the unexercised portion of the JMS Warrants deliverable upon such exercise shall
be treated for all  purposes  as the holder of such  Underlying  Securities  and
unexercised  JMS Warrants,  respectively,  upon such exercise as of the close of
business on the Exercise Date.

     (v) The Company  covenants and agrees that it will pay when due and payable
any and all  taxes  that  may be  payable  in  respect  of the  issue of the JMS
Warrants  or the issue of any  Underlying  Securities.  The  Company  shall not,
however,  be  required  to pay any tax that may be  payable  in  respect  of any
transfer  by the JMS  Warrant  Holder  of the  JMS  Warrants  or any  Underlying
Securities to any person or entity at the time of  surrender.  Until the payment
of the tax referred to in the  previous  sentence  and the  presentation  to the
Company by the JMS  Warrant  Holder of  reasonable  proof of such  payment,  the
Company  shall not be required to issue such  Underlying  Securities  or new JMS
Warrant Certificates representing unexercised JMS Warrants to any transferee.

     (c)  Cashless  Exercise.  In lieu of payment of the  Underlying  Securities
Purchase Price, a JMS Warrant Holder may exercise the JMS Warrants,  in whole or
in part,  by  presentation  and  surrender  of the JMS  Warrant to the  Company,
together  with a  Cashless  Exercise  Form  attached  hereto as  Exhibit B (or a
reasonable facsimile thereof) duly executed (a "Cashless Exercise").  Acceptance
by the Company of such  presentation  and surrender  shall be deemed a waiver of
the JMS Warrant Holder's  obligation to pay all or any portion of the Underlying
Securities  Purchase  Price,  as the case  may be.  In the  event of a  Cashless
Exercise, the JMS Warrant Holder shall exchange the JMS Warrants for that number
of shares of Common  Stock  determined  by  multiplying  the number of shares of
Common Stock for which the JMS Warrants are being  exercised by a fraction,  the
numerator of which shall be the difference between the then current market price
per share of the Common Stock and the Underlying  Securities Purchase Price, and
the  denominator  of which shall be the then  current  market price per share of
Common Stock. For purposes of any computation  under this Section 2(c), the then
current market price per share of Common Stock at any date shall be deemed to be
the average for the ten (10) consecutive  business days immediately prior to the
Cashless  Exercise  of the  daily  closing  prices  of the  Common  Stock on the
principal national  securities exchange on which the Common Stock is admitted to
trading or listed or as reported by the Nasdaq National Market System, or if not
listed or admitted to trading on any such exchange or the Nasdaq National Market
System,  the last reported sales prices as included for quotation on Nasdaq,  or
if not included for quotation on Nasdaq, the average of the highest reported bid
and lowest  reported asked prices in another  over-the-counter  market or if not
then publicly traded, the fair market price of the Common Stock as determined by
the Board of Directors of the Company.

     SECTION 3. Covenants

     (a) Issuance and Sale of Underlying Securities.  The Company covenants that
it will at all times reserve and keep available,  free from  preemptive  rights,
out of its  authorized  Common  Stock,  solely for the purpose of issuance  upon
exercise of the JMS Warrants, such number of shares of Common Stock and Warrants
as shall equal the aggregate  number of the Underlying  Securities.  The Company
covenants  that all shares of Common Stock that shall be issuable  upon exercise
of the JMS Warrants shall, at the time of delivery and,  subject to Section 2(c)
hereof, upon receipt by the Company of the Underlying Securities Purchase Price,
be duly and validly issued, fully paid,  non-assessable and free from all taxes,
liens and charges with respect to the issue thereof  (other than those which the
Company shall promptly pay or discharge).

     The Transfer Agent for the Common Stock will be irrevocably  authorized and
directed at all times to reserve  such number of  authorized  shares as shall be
required for such  purpose.  The Company  will keep a copy of this  Agreement on
file with the Transfer  Agent.  The Company will supply such Transfer Agent with
duly executed  certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 5(b) hereof.  The
Company  will  furnish  such  Transfer  Agent  with a copy  of  all  notices  of
adjustments  and  certificates  related  thereto  transmitted to the JMS Warrant
Holder pursuant to Section 4(p) hereof.

     (b)  Registration  Rights  Agreement.  Any  transferee  of  JMS'  interests
hereunder  and any  subsequent  transferee  thereof  shall  be  entitled  to the
benefits  of that  certain  Registration  Rights  Agreement  between JMS and the
Company of even date herewith,  to the extent  provided for in the  Registration
Rights Agreement.  If an effective  registration  cannot be provided pursuant to
the terms of the  Registration  Rights Agreement as a result of Commission rules
and regulations,  then this Warrant  Agreement shall be modified as requested by
JMS (or any  transferee of JMS'  interests  hereunder or  subsequent  transferee
thereof) so as to  effectively  address tax and  liquidation  concerns of JMS so
long as such modifications would not adversely affect the Company.

     (c)  Notices.  Not less than 90,  and not more  than 120 days  prior to the
Underlying  Securities Expiration Date, the Company shall give written notice to
the JMS Warrant Holder that the JMS Warrants will terminate, and become void, as
of 5:00 p.m., New York City time, on the Underlying  Securities Expiration Date.
If the Company fails to give such notice, the JMS Warrants will not expire until
90 days after the Company gives such notice; provided, however, in no event will
a JMS  Warrant  Holder  be  entitled  to any  damages  or other  remedy  for the
Company's  failure to give such notice other than such  extension.  In addition,
notwithstanding  anything to the contrary in this Agreement,  if the Company has
not maintained an effective registration statement under the Securities Act with
respect to the sale or issuance of the Registrable Securities during the 90 days
immediately before the Underlying Securities Expiration Date (and maintained the
registration or qualification  of such  Registrable  Securities under applicable
state  securities  laws during such periods),  the JMS Warrants shall not expire
until the Company  maintains  such  effective  registration  statement (and such
registrations  and  qualifications)  for 90 consecutive  days beginning with the
first day after 90 days before the Underlying  Securities  Expiration Date, that
such  registration  statement (and such  registrations  and  qualifications)  is
effective.  In the  circumstances  described  in this  paragraph,  the  extended
Underlying  Securities  Expiration  Date  shall  be  considered  the  Underlying
Securities  Expiration  Date for  purposes  of this  Agreement.  Notwithstanding
anything  to the  contrary  in this  Agreement,  the  Company  shall  issue  the
Underlying  Securities  to the JMS Warrant  Holder upon the  exercise of the JMS
Warrants  and such JMS  Warrant  Holder's  representation  that such JMS Warrant
Holder is a  "sophisticated  investor,"  under the federal  securities laws if a
registration statement is not effective at the time of such issuance.

     (d)  SEC  Reports.  So long as the JMS  Warrants  remain  outstanding,  the
Company shall cause copies of all quarterly and annual financial  reports and of
the information, documents, and other reports (or copies of such portions of any
of the foregoing as the SEC may by rules and  regulations  prescribe)  which the
Company is required to file with the SEC  pursuant to Section 13 or 15(d) of the
Exchange Act ("SEC  Reports") to be mailed to the JMS Warrant Holder at his, her
or its address  appearing in the register of warrant  holders  maintained by the
Company,  in each case, within 15 days of filing with the SEC. If the Company is
not subject to the  requirements of Section 13 or 15(d) of the Exchange Act, the
Company  shall  nevertheless  continue to cause SEC Reports  comparable to those
which  it would be  required  to file  pursuant  to  Section  13 or 15(d) of the
Exchange Act if it were subject to the  requirements of either such section,  to
be so filed with the SEC (but only if the SEC permits  such  filings) and mailed
to the JMS Warrant Holder,  in each case,  within the same time periods as would
have  applied  (including  under the  preceding  sentence)  had the Company been
subject to the requirements of Section 13 or 15(d) of the Exchange Act.

     (e)  Restrictive  Legend.  Each JMS  Warrant  Certificate  and  certificate
evidencing  shares of Common Stock and Warrants issued to the JMS Warrant Holder
following  the exercise of JMS  Warrants  shall bear the  following  restrictive
legend until such time as the transfer of such security is not restricted  under
the federal securities laws:

                  THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE HAVE NOT BEEN
                  REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED (THE
                  "ACT"),  OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED,
                  SOLD, ASSIGNED, TRANSFERRED,  PLEDGED, ENCUMBERED OR OTHERWISE
                  DISPOSED OF EXCEPT  PURSUANT TO (I) AN EFFECTIVE  REGISTRATION
                  STATEMENT UNDER THE ACT, (II) TO THE EXTENT  APPLICABLE,  RULE
                  144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
                  TO THE  DISPOSITION  OF  SECURITIES),  OR (III) AN  OPINION OF
                  COUNSEL,  IF SUCH OPINION SHALL BE REASONABLY  SATISFACTORY TO
                  COUNSEL TO THE ISSUER,  THAT AN  EXEMPTION  FROM  REGISTRATION
                  UNDER SUCH ACT IS AVAILABLE.

     SECTION 4. Adjustment of Underlying Securities Purchase Price and Number of
Underlying Securities.  The number of Underlying Securities purchasable upon the
exercise of the Warrants and the payment of the Underlying  Securities  Purchase
Price shall be subject to adjustment from time to time as follows:

     (a) Stock Splits,  Combinations,  etc. In case the Company shall hereafter,
but  prior to 5:00  p.m.  (New  York  City  time) on the  Underlying  Securities
Expiration  Date: (i) pay a dividend or make a distribution  on its Common Stock
in shares of its capital stock (whether such distribution  consists of shares of
Common  Stock or of  capital  stock of any  other  class);  (ii)  subdivide  its
outstanding  shares of Common  Stock;  (iii) combine its  outstanding  shares of
Common Stock into a smaller number of shares; or (iv) issue by  reclassification
of its shares of Common Stock any shares of capital  stock of the  Company,  the
Underlying  Securities  Purchase  Price in effect and the  number of  Underlying
Securities issuable upon exercise of the JMS Warrants  immediately prior to such
action  shall be adjusted so that the JMS  Warrant  Holder  shall be entitled to
receive  that  number of  shares of  capital  stock of the  Company  at the same
aggregate Underlying Securities Purchase Price that the JMS Warrant Holder would
have owned immediately following such action had the JMS Warrants been exercised
immediately  prior thereto.  An adjustment made pursuant to this paragraph shall
become  effective on the day which is  immediately  after the record date in the
case of a dividend  and shall become  effective on the day which is  immediately
after  the  effective  date  in  the  case  of  a  subdivision,  combination  or
reclassification.  If,  as a  result  of an  adjustment  made  pursuant  to this
paragraph, the JMS Warrant Holder shall become entitled to receive shares of two
or more classes of capital  stock of the Company,  the Board of Directors of the
Company (whose determination shall be conclusive) shall determine the allocation
of the adjusted Underlying  Securities Purchase Price between or among shares of
such classes of capital stock.

     (b)   Reclassification,   Combination,   Mergers,   etc.  In  case  of  any
reclassification  or change of outstanding  shares of Common Stock issuable upon
exercise of the JMS Warrants (other than as set forth in paragraph (a) above and
other than a change in par value,  or from par value to no par value, or from no
par value to par value or as a result of a subdivision  or  combination),  or in
case of any  consolidation  or  merger  of the  Company  with  or  into  another
corporation  or  entity  (other  than a  merger  in  which  the  Company  is the
continuing  corporation  and which  does not result in any  reclassification  or
change of the then  outstanding  shares of Common Stock or other  capital  stock
issuable  upon  exercise  of the JMS  Warrants),  or in the  case of any sale or
conveyance of all or substantially  all of the assets of the Company followed by
a related distribution to holders of shares of Common Stock or cash,  securities
or  other  property,  then  as a  condition  of such  reclassification,  change,
consolidation,  merger,  or sale  of  assets,  the  Company  or  such  successor
corporation  or entity,  as the case may be,  shall  forthwith  make  lawful and
adequate  provision  whereby  the  JMS  Warrant  Holder  shall  have  the  right
thereafter  to receive on exercise of the JMS Warrants  (provided  such exercise
occurs  prior to 5:00 p.m.  (New York City  time) on the  Underlying  Securities
Expiration Date) the kind and amount of shares of stock and other securities and
property receivable upon such reclassification,  change, consolidation,  merger,
or sale of assets,  by a holder of shares of Common Stock  immediately  prior to
such reclassification, change, consolidation, merger, or sale of assets, and the
Company or such successor  corporation or entity shall enter into a supplemental
warrant  agreement  with the JMS Warrant  Holder so providing.  Such  provisions
shall include  provision for adjustments  that shall be as nearly  equivalent as
may be  practicable  to the  adjustments  provided for in this Section 4. If the
issuer of securities  deliverable  upon  exercise of the JMS Warrants  under the
supplemental  warrant  agreement  is an  affiliate  of the  formed or  surviving
corporation or other entity, that issuer shall join in the supplemental  warrant
agreement.  The above  provisions of this paragraph (b) shall similarly apply to
successive  reclassification  and  changes  of  shares  of  Common  Stock and to
successive consolidations or mergers.

     (c) Issuance of Options or Convertible Securities. In the event the Company
shall, at any time or from time to time after the date hereof, but prior to 5:00
p.m. (New York City time) on the Underlying  Securities  Expiration Date, issue,
sell,  distribute or otherwise grant in any manner (including by assumption) any
rights to  subscribe  for or to  purchase,  or any  warrants  or options for the
purchase  of,  Common  Stock or any  stock  or  securities  convertible  into or
exchangeable for Common Stock (any such rights, warrants or options being herein
called  "Options" and any such  convertible or exchangeable  stock or securities
being herein called  "Convertible  Securities"),  whether or not such Options or
rights to  convert or  exchange  such  Convertible  Securities  are  immediately
exercisable,  and the price per share at which Common Stock is issuable upon the
exercise of such Options or upon the conversion or exchange of such  Convertible
Securities (determined by dividing (1) the aggregate amount, if any, received or
receivable by the Company as consideration for the issuance,  sale, distribution
or granting of such  Options or such  Convertible  Securities,  plus the minimum
aggregate  amount of additional  consideration,  if any,  payable to the Company
upon the exercise of all such Options or upon conversion or exchange of all such
Convertible  Securities,  plus,  in the case of Options  to acquire  Convertible
Securities,  the minimum aggregate amount of additional  consideration,  if any,
payable upon the conversion or exchange of all such Convertible  Securities,  by
(2) the  total  maximum  number of shares  of  Common  Stock  issuable  upon the
exercise  of all such  Options or upon the  conversion  or  exchange of all such
Convertible  Securities or upon the  conversion  or exchange of all  Convertible
Securities  issuable upon the exercise of all such  Options)  shall be less than
the current  market  price per share of the Common Stock on the record date that
the Company  becomes  obligated to make such  issuance,  sale,  distribution  or
granting of such Options or Convertible  Securities (any such event being herein
called an "Option Issuance"), then, effective upon such Option Issuance:

     (i) the Underlying  Securities Purchase Price shall be reduced to the price
(calculated to the nearest one cent)  determined by  multiplying  the Underlying
Securities Purchase Price in effect immediately prior to such Option Issuance by
a fraction,  the numerator of which shall be the sum of (X) the number of shares
of Common Stock outstanding (exclusive of any treasury shares) immediately prior
to such Option  Issuance  multiplied  by the current  market  price per share of
Common Stock on the date of such Option Issuance, plus (Y) the consideration, if
any,  received by the Company upon such Option Issuance,  and the denominator of
which  shall be the  product of (A) the total  number of shares of Common  Stock
outstanding  (exclusive of any treasury  shares)  immediately  after such Option
Issuance,  multiplied by (B) the current  market price per share of Common Stock
on the record date for such Option Issuance; and

     (ii) the number of Underlying  Securities  purchasable upon the exercise of
the JMS Warrants shall be increased to a number  determined by  multiplying  the
number of Underlying  Securities so purchasable  immediately prior to the record
date for such Option Issuance by a fraction, the numerator of which shall be the
Underlying  Securities  Purchase  Price  in  effect  immediately  prior  to  the
adjustment  required by clause (i) of this  Section (c) and the  denominator  of
which shall be the Underlying  Securities  Purchase Price in effect  immediately
after such adjustment.

     For purposes of the foregoing, the total maximum number of shares of Common
Stock issuable upon exercise of all such Options or upon  conversion or exchange
of all such  Convertible  Securities  or upon the  conversion or exchange of the
total maximum amount of the Convertible Securities issuable upon the exercise of
all such  Options  shall be deemed  to have  been  issued as of the date of such
Option Issuance and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration therefor such price per share,
determined  as provided  above.  Except as provided  in  paragraphs  (j) and (k)
below,  no additional  adjustment of the  Underlying  Securities  Purchase Price
shall be made upon the actual  exercise of such  Options or upon  conversion  or
exchange of the Convertible Securities or upon the conversion or exchange of the
Convertible Securities issuable upon the exercise of such Options.

     (d) Dividends and  Distributions.  In the event the Company  shall,  at any
time or from time to time  after the date  hereof,  but prior to 5:00 p.m.  (New
York City time) on the Underlying Share  Expiration Date,  distribute to all the
holders of Common Stock any dividend or other distribution of cash, evidences of
its  indebtedness,  other securities or other properties or assets (in each case
other  than (1)  dividends  payable  in Common  Stock,  Options  or  Convertible
Securities  and (2) any  cash  dividend  that,  when  added  to all  other  cash
dividends paid in the one year prior to the  declaration  date of such dividend,
does not exceed 5% of the current market price per share of Common Stock on such
declaration date), or any options,  warrants or other rights to subscribe for or
purchase any of the foregoing, then:

     (i) the Underlying  Securities Purchase Price shall be decreased to a price
determined by  multiplying  the  Underlying  Securities  Purchase  Price then in
effect by a fraction,  the numerator of which shall be the current  market price
per share of Common Stock on the record date for such  distribution less the sum
of (X) the cash portion per share, if any, of such  distribution of Common Stock
outstanding  (exclusive  of any  treasury  shares) on the  record  date for such
distribution  plus (Y) the then fair market  value per share (as  determined  in
good faith by the Board of Directors of the Company) of Common Stock outstanding
(exclusive of any treasury  shares) on the record date for such  distribution of
that  portion,  if  any,  of  such  distribution   consisting  of  evidences  of
indebtedness,   other  securities,   properties  assets,  options,  warrants  or
subscription  of purchase  rights,  and the  denominator  of which shall be such
current  market  price per share of the Common Stock on the record date for such
distribution; and

     (ii) the number of Underlying  Securities  purchasable upon the exercise of
the Warrants shall be increased to a number determined by multiplying the number
of Underlying Securities so purchasable immediately prior to the record date for
such distribution by a fraction,  the numerator of which shall be the Underlying
Securities Purchase Price in effect immediately prior to the adjustment required
by  clause  (i) of this  sentence  and the  denominator  of  which  shall be the
Underlying   Securities   Purchase  Price  in  effect   immediately  after  such
adjustment.

     The  adjustments  required by this paragraph (d) shall be made whenever any
such distribution occurs retroactive to the record date for the determination of
stockholders entitled to receive such distribution.

     (e) Sale of Common Stock Below its Current  Market Price.  In the event the
Company shall, at any time or from time to time after the date hereof,  issue or
sell any  shares of Common  Stock and the price per share at which  such  shares
were issued or sold shall be less than the current market price per share of the
Common Stock on the date the Company becomes  obligated to make such issuance or
sale, then, effective upon such issuance or sale:

     (i) the Underlying  Securities Purchase Price shall be reduced to the price
(calculated to the nearest one cent)  determined by  multiplying  the Underlying
Securities  Purchase Price in effect  immediately prior to such issuance or sale
by a  fraction,  the  numerator  of which  shall be the sum of (A) the number of
shares  of  Common  Stock   outstanding   (exclusive  of  any  treasury  shares)
immediately  prior to such  issuance or sale  multiplied  by the current  market
price per share of Common Stock on the date of such  issuance or sale,  plus (B)
the  consideration  received by the Company upon such issuance or sale,  and the
denominator  of which shall be the product of (X) the total  number of shares of
Common Stock  outstanding  (exclusive of any treasury shares)  immediately after
such issuance or sale,  multiplied by (Y) the current  market price per share of
Common Stock on the date of such issuance or sale; and

     (ii) the number of Underlying  Securities  purchasable upon the exercise of
the JMS Warrants shall be increased to a number  determined by  multiplying  the
number of Underlying Securities so purchasable  immediately prior to the date of
such  issuance  or sale by a  fraction,  the  numerator  of  which  shall be the
Underlying  Securities  Purchase  Price  in  effect  immediately  prior  to  the
adjustment  required by clause (i) of this sentence and the denominator of which
shall be the Underlying  Securities  Purchase Price in effect  immediately after
such adjustment.

     (f) Current  Market Price.  For the purpose of any  computation  of current
market price under this Section 4 and Section  5(b) hereof,  the current  market
price per share of the  Common  Stock at any date shall be (x) for  purposes  of
Section 5(b) and any Options  granted to the  Company's  directors  and officers
under the Stock Option Plan,  the closing price on the Business Day  immediately
prior to the  exercise of the JMS  Warrants or the grant of any such Options and
(y) in all other cases,  the average of the daily closing  prices for the thirty
(30) consecutive  trading days immediately  preceding the date in question.  The
closing  price for any day shall be the last  reported sale price or, in case no
such  reported  sale takes place on such day, the average of the closing bid and
asked prices for such day, in each case (1) on the principal national securities
exchange on which the shares of Common  Stock are listed or to which such shares
are admitted to trading or as reported by the Nasdaq  National  Market System or
(2) if the  Common  Stock is not  listed or  admitted  to  trading on a national
securities   exchange   or  the   Nasdaq   National   Market   System,   in  the
over-the-counter  market as included for  quotation on Nasdaq or any  comparable
system or (3) if the Common Stock is not  included for  quotation on Nasdaq or a
comparable  system,  as furnished by two members of the National  Association of
Securities  Dealers,  Inc. selected from time to time in good faith by the Board
of  Directors  of the  Company  for that  purpose.  In the absence of all of the
foregoing,  or if for any reason the current  market  price per share  cannot be
determined  pursuant to the  foregoing  provisions  of this  paragraph  (f), the
current  market  price per  share  shall be the fair  market  value  thereof  as
determined in good faith by the Board of Directors of the Company.

     (g) Change in the Number of JMS Warrants.  The Company may elect,  upon any
adjustment of the Underlying Securities Purchase Price hereunder,  to adjust the
number of JMS Warrants with respect to the Underlying Securities outstanding, in
lieu of the adjustment in the number of shares of Common Stock  purchasable upon
the exercise of the JMS Warrants as  hereinabove  provided.  The JMS Warrants to
purchase  Underlying  Securities  held of record prior to such adjustment of the
number of JMS Warrants  shall become that number of JMS Warrants  (calculated to
the nearest tenth)  determined by multiplying the number one by a fraction,  the
numerator of which shall be the Underlying  Securities  Purchase Price in effect
immediately  prior to such  adjustment and the denominator of which shall be the
Underlying   Securities   Purchase  Price  in  effect   immediately  after  such
adjustment.  Upon each adjustment of the number of JMS Warrants pursuant to this
Section  4,  the  Company  shall,  as  promptly  as  practicable,  cause  to  be
distributed to the JMS Warrant  Holder,  on the date of such  adjustment,  a JMS
Warrant Certificate(s) evidencing, subject to Section 5(b) hereof, the number of
additional  JMS  Warrants to purchase  Underlying  Securities  to which such JMS
Warrant  Holder  shall be  entitled  as a result of such  adjustment  or, at the
option of the Company,  cause to be  distributed  to such JMS Warrant  Holder in
substitution and replacement for the JMS Warrant  Certificates  held by such JMS
Warrant Holder prior to the date of adjustment (and upon surrender  thereof,  if
required by the Company) one or more new JMS Warrant Certificates evidencing the
number of JMS  Warrants  to  purchase  Underlying  Securities  to which such JMS
Warrant  Holder shall be entitled  after such  adjustment  (and the new price at
which such JMS Warrants may be exercised).

     (h)  Consideration  Received.  If any  shares of Common  Stock,  Options or
Convertible  Securities shall be issued,  sold or distributed for  consideration
other than cash, the amount of the consideration other than cash received by the
Company in respect  thereof  shall be deemed to be the then fair market value of
such consideration (as determined in good faith by the Board of Directors of the
Company).  If any Options  shall be issued in  connection  with the issuance and
sale of other securities of the Company,  together comprising one transaction in
which no specific  consideration  is  allocated  to such  Options by the parties
thereto, such Options shall be deemed to have been issued without consideration.
If the Company  shall pay a dividend or make any other  distribution  payable in
Options or Convertible  Securities,  then such Options or Convertible Securities
shall be deemed to have been issued or sold without consideration.

     (i)  Deferral  of Certain  Adjustments.  No  adjustment  to the  Underlying
Securities  Purchase Price  (including  the related  adjustment to the number of
Underlying  Securities)  shall be required  hereunder  unless  such  adjustment,
together with other adjustments  carried forward as provided below, would result
in an  increase  or  decrease  of at least one  percent  (1%) of the  Underlying
Securities Purchase Price; provided that any adjustments which by reason of this
paragraph  (i) are not  required  to be made shall be carried  forward and taken
into account in any  subsequent  adjustment.  No  adjustment  need be made for a
change in the par value of the Common Stock. All calculations under this Section
4 shall be made to the nearest one cent or to the nearest  whole  share,  as the
case may be.

     (j) Changes in Options and  Convertible  Securities.  If the exercise price
provided for in any Options  referred to in paragraph (c) above,  the additional
consideration,   if  any,  payable  upon  the  conversion  or  exchange  of  any
Convertible  Securities referred to in paragraph (c) above, or the rate at which
any  Convertible  Securities  referred to in paragraph (c) above are convertible
into or exchangeable for Common Stock shall change at any time (other than under
or by reason of provisions  designed to protect  against  dilution upon an event
which  results  in a  related  adjustment  pursuant  to  this  Section  4),  the
Underlying Securities Purchase Price then in effect and the number of Underlying
Securities  purchasable upon the exercise of the JMS Warrants shall forthwith be
readjusted  (effective  only with  respect to any  exercise of the JMS  Warrants
after such readjustment) to the Underlying  Securities Purchase Price and number
of  Underlying  Securities so  purchasable  that would then be in effect had the
adjustment  made upon the  issuance,  sale,  distribution  or  granting  of such
Options or  Convertible  Securities  been made based upon such changed  purchase
price, additional consideration or conversion rate, as the case may be, but only
with  respect  to  such  Options  and  Convertible  Securities  as  then  remain
outstanding.

     (k) Expiration of Options and Convertible Securities. If, at any time after
any  adjustment  to the number of  Underlying  Securities  purchasable  upon the
exercise of the JMS Warrants  shall have been made  pursuant to paragraph (c) or
(j) above or this  paragraph (k), any Options or  Convertible  Securities  shall
have expired  unexercised,  the number of Underlying  Securities so  purchasable
with respect to any then  outstanding JMS Warrants shall,  upon such expiration,
be readjusted  and shall  thereafter be such as they would have been had the JMS
Warrants  outstanding at the time of the original  adjustment  been adjusted (or
had the original adjustment not been required, as the case may be) as if (i) the
only shares of Common Stock deemed to have been issued in  connection  with such
Options  or  Convertible  Securities  were the shares of Common  Stock,  if any,
actually  issued  or sold  upon the  exercise  of such  Options  or  Convertible
Securities and (ii) such shares of Common Stock, if any, were issued or sold for
the  consideration  actually received by the Company upon such exercise plus the
aggregate  consideration,  if any,  actually  received  by the  Company  for the
issuance,  sale,  distribution  or granting of all such  Options or  Convertible
Securities,  whether or not exercised;  provided that no such readjustment shall
have the  effect of  decreasing  the  number of such  Underlying  Securities  so
purchasable  by an amount  (calculated by adjusting such decrease to account for
all other  adjustments made pursuant to this Section 4 following the date of the
original adjustment referred to above) in excess of the amount of the adjustment
initially  made in respect of the issuance,  sale,  distribution  or granting of
such Options or Convertible Securities.

     (l) Other  Adjustments.  In the event  that at any time,  as a result of an
adjustment  made pursuant to this Section 4, the JMS Warrant Holder shall become
entitled  to  receive  any  securities  of the  Company  other  than  Underlying
Securities,  thereafter the number of such other  securities so receivable  upon
exercise  of the JMS  Warrants  and the  Underlying  Securities  Purchase  Price
applicable to such exercise shall be subject to adjustment  from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares of Common Stock contained in this Section 4.

     (m) Common Stock.  As used in this Section 4, the term "Common Stock" shall
mean and  include the Common  Stock  issued and  outstanding  on the date of the
closing of the Offering and shall also include any capital stock of any class of
the Company  thereafter  authorized  for issuance that is not limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the  distribution of assets upon the voluntary  liquidation,
dissolution or winding up of the Company; provided, however, that the Underlying
Securities  shall include only shares of such class  designated in the Company's
Certificate  of  Incorporation  as  Common  Stock  or  (i) in  the  case  of any
reclassification,  change,  consolidation,  merger,  or  sale of  assets  of the
character referred to in Section 4(b) hereof, the stock,  securities or property
provided  for in such  section  or (ii) in the case of any  reclassification  or
change in the number of Underlying  Securities  as a result of a subdivision  or
combination or consisting of a change in par value,  or from par value to no par
value,  or from no par value to par  value,  such  Underlying  Securities  as so
reclassified or changed.

     (n)  Determination  of Net Sales Price. In case of the sale for cash of any
shares of Common Stock,  Options, or Convertible  Securities,  the consideration
received  by the  Company  therefor  shall be deemed  to be the net sales  price
therefor (after deducting  therefrom any expense paid or incurred by the Company
or any  underwriting  discounts or commissions or concessions paid or allowed by
the Company in connection therewith).

     (o) Events  Resulting in no  Adjustments.  No adjustment to the  Underlying
Securities  Purchase Price or to the number of Underlying  Securities,  however,
will be made  upon (i) the  exercise  of any  stock  options  issued  under  the
Company's  1998  Stock  Option  Plan (the  "Stock  Option  Plan")  to  officers,
directors,  and  employees  of the  Company  under  the terms of such Plan as it
exists on the date  hereof,  (ii) the  exercise of any  warrants by officers and
directors  of the Company and other  holders of the  Company  Warrants  that are
outstanding  as of the date  hereof,  or (iii) the sale of any  shares of Common
Stock  pursuant to the exercise of the JMS Warrants  (collectively,  the "Exempt
Securities").

     (p) Notice of Change in  Underlying  Securities  Purchase  Price.  Upon any
adjustment pursuant to this Section 4, the Company shall promptly thereafter (i)
cause to be prepared a certificate of the President and Chief Financial  Officer
of the Company setting forth the Underlying Securities Purchase Price after such
adjustment and setting forth in reasonable  detail the method of calculation and
the facts upon which such calculations are based and setting forth the number of
Underlying Securities (or portion thereof) issuable after such adjustment in the
Underlying  Securities  Purchase  Price,  upon  exercise of the JMS Warrants and
payment of the adjusted Underlying  Securities Purchase Price, which certificate
shall be conclusive evidence of the correctness of the matters set forth therein
absent manifest  error,  provided that if the JMS Warrant Holder  requests,  the
Company  shall engage a firm of  independent  public  accountants  of recognized
standing  selected  by the Board of  Directors  of the  Company  (who may be the
regular auditors of the Company) to prepare and file such certificate in lieu of
the certificate of the President and Chief Financial Officer, in which case such
certificate shall be conclusive evidence of the matters set forth therein absent
manifest error, and (ii) send to the JMS Warrant Holder at the address appearing
on the  registry  books  maintained  by  the  Company  written  notice  of  such
adjustments by first-class mail, postage prepaid.

     (q) Notice of Certain Events. With respect to any Notice Event, the Company
shall cause to be given to the JMS Warrant  Holder at such JMS Warrant  Holder's
address on the registry books maintained by the Company,  at least 20 days prior
to the applicable  record date hereinafter  specified,  or in the case of events
for which  there is no record  date,  at least  fifteen  (15) days  prior to the
taking of such proposed  action,  by certified mail,  return receipt  requested,
postage  prepaid,  a written notice stating (i) the date as of which the holders
of record  of  shares of Common  Stock  entitled  to  receive  any such  rights,
options,  warrants  or  distribution  is  to be  determined,  (ii)  the  initial
expiration  date set forth in any tender  offer or exchange  offer for shares of
Common  Stock,  or  (iii)  the date on which  any  such  consolidation,  merger,
conveyance,  transfer,  dissolution,  liquidation  or winding up is  expected to
become  effective or  consummated  and the date as of which it is expected  that
holders of record of shares of Common  Stock shall be entitled to exchange  such
shares  for  securities  or  other  property,  if  any,  deliverable  upon  such
reclassification,  consolidation,  merger,  conveyance,  transfer,  dissolution,
liquidation  or winding  up. The  failure  to give the notice  required  by this
Section 4(q) or any defect  therein shall not affect the legality or validity of
any distribution,  right, option, warrant,  consolidation,  merger,  conveyance,
transfer,  dissolution,  or  liquidation  or  winding  up,  or the vote upon any
action,  provided that the JMS Warrant  Holder shall retain any right to damages
from the Company with respect to such failure.

     SECTION 5. Other Provisions Relating to Rights of the JMS Warrant Holder.

     (a) JMS Warrant Holder not a Stockholder.  The JMS Warrant Holder, as such,
shall not be  entitled  to vote or  receive  dividends  or be deemed  holders of
Common Stock for any purpose  whatsoever,  nor shall anything  contained in this
Agreement be construed to confer upon the JMS Warrant  Holder,  as such,  any of
the rights of a stockholder  of the Company  including,  but not limited to, the
right to vote for the  election of  directors  or on any other  matter,  give or
withhold   consent   to  any   action   by  the   Company   (whether   upon  any
recapitalization,  issue of stock,  reclassification  of  stock,  consolidation,
merger,  conveyance or  otherwise),  receive  notice of meetings or other action
affecting  stockholders  (except for notices  provided  for in this  Agreement),
receive dividends or subscription  rights, or otherwise until JMS Warrants shall
have been exercised to purchase Underlying Securities,  at which time the person
or persons in whose name or names the certificate or certificates for the shares
of Common Stock are  registered  shall be deemed the holder or holders of record
of such shares of Common Stock for all purposes.

     (b)  Fractional   Shares.   Anything   contained  herein  to  the  contrary
notwithstanding,  the  Company  shall not be  required  to issue any  fractional
shares of Common Stock in connection  with the exercise of the JMS Warrants.  In
any case where the JMS Warrant  Holder would,  except for the provisions of this
Section  5(b),  be  entitled  under the  terms of this  Agreement  to  receive a
fraction of a share of Common Stock upon the exercise of the JMS  Warrants,  the
Company  shall,  upon  the  exercise  of the JMS  Warrants  and  receipt  of the
Underlying  Securities  Purchase Price, issue the largest number of whole shares
of Common Stock  purchasable upon exercise of the JMS Warrants.  The JMS Warrant
Holder  expressly  waives  his or her  right to  receive  a  certificate  of any
fraction of a share of Common  Stock upon the  exercise  hereof.  However,  with
respect to any  fraction of a share of Common Stock called for upon any exercise
hereof,  the Company shall pay to the JMS Warrant Holder an amount in cash equal
to such  fraction  multiplied  by the current  market  price per share of Common
Stock determined pursuant to Section 4(f) hereof.

     (c) Absolute Owner.  Prior to due presentment for  registration of transfer
of the JMS Warrant Certificates,  the Company may deem and treat the JMS Warrant
Holder as the absolute owner of the JMS Warrants for the purpose of any exercise
thereof and for all other  purposes and the Company shall not be affected by any
notice to the contrary.

     SECTION 6. Division,  Split-Up,  Combination,  Exchange and Transfer of JMS
Warrants

     (a)  Request.  The JMS  Warrants  may be  divided,  split up,  combined  or
exchanged  for other JMS  Warrants  of like tenor to  purchase a like  aggregate
number of Underlying  Securities.  If the JMS Warrant  Holder desires to divide,
split up,  combine  or  exchange  the JMS  Warrants,  he or she shall  make such
request  in writing  delivered  to the  Company at its office in  Winston-Salem,
North Carolina,  or as otherwise  directed by the Company in writing,  and shall
surrender such JMS Warrant Certificates to be so divided,  split up, combined or
exchanged  at said office.  Upon any such  surrender  for a division,  split-up,
combination or exchange,  the Company shall execute and deliver to the person or
persons entitled thereto a new JMS Warrant  Certificate(s) as so requested.  The
Company may require the JMS Warrant  Holder to pay a sum sufficient to cover any
tax,  governmental  or other charge that may be imposed in  connection  with any
division, split-up, combination or exchange of the JMS Warrants.

     (b) Initial  Issuance to JMS. The Company shall issue the right to purchase
80,000  Underlying  Securities  to JMS (such  number  being equal to ten percent
(10%) of the  number of shares of  Private  Placement  Common  Stock sold in the
Offering), as represented by a JMS Warrant Certificate issued to JMS in the form
attached  hereto as Exhibit A or to such officers,  managers or employees of JMS
as JMS may direct.

     (c) Assignment;  Replacement of JMS Warrant Certificates.  The JMS Warrants
may be sold, transferred,  assigned or hypothecated by JMS at any time, in whole
or in part,  subject to compliance with federal and state  securities  laws. Any
division or assignment  permitted of the JMS Warrants shall be made by surrender
of the JMS Warrant  Certificates to the Company at its principal office with the
Form of  Assignment  attached as Exhibit C hereto duly  executed  and with funds
sufficient to pay any transfer tax. In such event,  the Company  shall,  without
charge,  execute and deliver a new JMS  Warrant  Certificate  in the name of the
assignee named in such  instrument of assignment and the surrendered JMS Warrant
Certificates shall promptly be canceled. Upon receipt by the Company of evidence
satisfactory  to it of the loss,  theft,  destruction  or  mutilation of the JMS
Warrant  Certificates  and (in the  case  of  loss,  theft  or  destruction)  of
reasonably  satisfactory  indemnification,  and (in the case of mutilation) upon
surrender and  cancellation of such JMS Warrant  Certificates,  the Company will
execute and deliver a new JMS Warrant Certificate of like tenor and date and any
such lost, stolen or destroyed JMS Warrant  Certificates  shall thereupon become
void.

     SECTION 7. Other Matters.

     (a) Taxes and  Charges.  The Company will from time to time  promptly  pay,
subject  to the  provisions  of  paragraph  (v) of Section  2(b),  all taxes and
charges  that may be imposed  upon the  Company in  respect of the  issuance  or
delivery,  but  not  the  transfer,  of  the  JMS  Warrants  or  the  Underlying
Securities.

     (b)  Notices.  Notice or demand  pursuant to this  Agreement to be given or
made by the JMS Warrant Holder to or on the Company shall be sufficiently  given
or made if delivered  personally or by overnight courier,  or sent by registered
or certified mail, postage prepaid,  return receipt  requested,  or by facsimile
transmission,  electronically confirmed and addressed,  until another address is
designated in writing by the Company, as follows:

                           Frisby Technologies, Inc.
                           3195 Centre Park Boulevard
                           Winston-Salem, North Carolina  27107
                           Attention: President
                           Telephone No.: (336) 784-7754
                           Facsimile No.:  (336) 784-8682

                           With a copy to:

                           Ruskin Moscou Evans & Faltischek, P.C.
                           170 Old Country Road
                           Mineola, New York  11501
                           Attention:  Norman Friedland, Esq.
                           Telephone No.: (516) 663-6600
                           Facsimile No.:  (516) 663-6642

     Notices to the JMS Warrant Holder  provided for in this Agreement  shall be
deemed  given or made by the Company if  delivered  personally  or by  overnight
courier,  or sent by  registered  or certified  mail,  postage  prepaid,  return
receipt requested or facsimile transmission electronically confirmed,  addressed
to the JMS Warrant  Holder at his or her last known address or facsimile  number
as shall  appear  on the  registry  books of the  Company  and at the  following
address for JMS:

                           Janney Montgomery Scott LLC
                           26 Broadway
                           New York, New York 10004
                           Attention: Herbert M. Gardner
                           Telephone No.: (212) 510-0600
                           Facsimile No.:  (212) 510-0683

                           With a copy to:

                           Baer Marks & Upham LLP
                           805 Third Avenue
                           New York, New York  10022
                           Attention:  Eric D. Martins, Esq.
                           Telephone No.: (212) 702-5700
                           Facsimile No.:  (212) 702-5835

     Notices  delivered in  accordance  with the  foregoing  provisions  of this
Section 7(b) shall be effective (i) when delivered,  if delivered  personally or
by facsimile transmission  electronically confirmed, (ii) one business day after
being delivered (properly addressed and all fees paid) for overnight delivery to
a courier (such as Federal  Express) which  regularly  provides such service and
regularly obtains executed receipts evidencing delivery or (iii) five days after
being sent by registered or certified  mail,  postage  prepaid,  return  receipt
requested.

     (c) Governing  Law. The validity,  interpretation  and  performance of this
Agreement  shall be governed by the laws of the State of New York without giving
effect to the conflicts of laws principles thereof.

     (d) Dispute Resolution. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by arbitration in the
City, County and State of New York in accordance with the Commercial Arbitration
Rules of the  American  Arbitration  Association  as  supplemented  by its Large
Complex Case Procedures, and judgment upon the award may be entered in any court
having  jurisdiction  thereof.  The  prevailing  party,  as  determined  by  the
arbitrators,  shall be entitled to receive an award of its reasonable attorneys'
fees, costs and disbursements.

(e) Exclusive Benefit.  Nothing in this Agreement  expressed or nothing that may
be implied from any of the provisions hereof is intended, or shall be construed,
to confer upon,  or give to, any person or  corporation  other than the Company,
JMS and the JMS Warrant  Holder any right,  remedy or claim  hereunder,  and all
covenants, conditions,  stipulations,  promises and agreements contained in this
Agreement shall be for the sole and exclusive  benefit of such persons and their
successors, survivors and permitted assigns hereunder. This Agreement is for the
benefit of and is enforceable by any subsequent JMS Warrant Holder.

     (f) Headings.  The article headings herein are for convenience only and are
not part of this Agreement and shall not affect the interpretation hereof.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and delivered as of the date first above written.

                                       FRISBY TECHNOLOGIES, INC.

                                       By:
                                          -------------------------------------
                                          Greg Frisby
                                          Chairman and Chief Executive Officer

                                       JANNEY MONTGOMERY SCOTT LLC

                                       By:
                                          -------------------------------------
                                          Herbert M. Gardner
                                          Senior Vice President

<PAGE>


                                                                       EXHIBIT A

THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE  SECURITIES  ACT OF 1933,  AS AMENDED (THE "ACT"),  OR ANY STATE  SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED, ENCUMBERED
OR  OTHERWISE  DISPOSED  OF EXCEPT  PURSUANT  TO (I) AN  EFFECTIVE  REGISTRATION
STATEMENT UNDER THE ACT, (II) TO THE EXTENT  APPLICABLE,  RULE 144 UNDER THE ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE  DISPOSITION OF SECURITIES),
OR (III) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL TO THE ISSUER,  THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.

No. 001

                             JMS Warrant Certificate

                            FRISBY TECHNOLOGIES, INC.

     This warrant certificate certifies that Janney Montgomery Scott, LLC or its
registered  assigns,  is the registered holder of JMS Warrants  representing the
right to purchase 80,000 Units (the "Underlying  Securities") each consisting of
one share of common  stock,  par value $0.001 per share (the "Common  Stock") of
Frisby Technologies,  Inc. (the "Company") and one warrant to purchase one share
of  Common  Stock in  accordance  with the  terms of that  certain  JMS  Warrant
Agreement dated May 31, 2000 between the Company and Janney Montgomery Scott LLC
(the "JMS Warrant  Agreement").  The JMS Warrants with respect to the Underlying
Securities expire on May 31, 2005 (the "Underlying Securities Expiration Date"),
or on such expiration dates as may be extended  pursuant to the terms of the JMS
Warrant Agreement. Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to such terms in the JMS Warrant Agreement.

     The JMS Warrants entitle the registered holder,  upon exercise from time to
time from 9:00 a.m.  New York City time on or after May 31, 2000 until 5:00 p.m.
New York City time on the  Underlying  Securities  Expiration  Date to  purchase
Underlying Securities at an exercise price per Underlying Security of $6.00 (the
"Underlying  Securities Purchase Price") in lawful money of the United States of
America  upon  surrender  of this  certificate  and  payment  of the  Underlying
Securities  Purchase  Price  in  accordance  with the  terms of the JMS  Warrant
Agreement.  The Underlying  Securities  Purchase Price, the number of Underlying
Securities  issuable upon exercise of the JMS Warrants are subject to adjustment
upon the occurrence of certain events set forth in the JMS Warrant Agreement.

     The JMS  Warrants  with  respect to the  Underlying  Securities  may not be
exercised after 5:00 p.m. on the Underlying  Securities  Expiration Date, and to
the extent not exercised by such time such JMS Warrants shall become void.

     This warrant  certificate  shall be governed by and construed in accordance
with the laws of the State of New York,  without  regard  to  conflicts  of laws
principles thereof.  Any controversy or claim arising out of or relating to this
Agreement,  or the breach thereof,  shall be settled by arbitration in the City,
County and State of New York in accordance with the Commercial Arbitration Rules
of the American  Arbitration  Association as  supplemented  by its Large Complex
Case Procedures,  and judgment upon the award may be entered in any court having
jurisdiction  thereof.  The prevailing  party, as determined by the arbitrators,
shall be entitled to receive an award of its reasonable  attorneys'  fees, costs
and disbursements.

     IN WITNESS  WHEREOF,  Frisby  Technologies,  Inc.  has caused this  warrant
certificate to be signed by its duly authorized officers.

Dated:_________________

                                      FRISBY TECHNOLOGIES, INC.

                                      By:
                                         ------------------------------------
                                         Name:
                                         Title:


                                      By:
                                         ------------------------------------
                                         Name:
                                         Title:


<PAGE>


                                                                      EXHIBIT B

                             CASHLESS EXERCISE FORM

(To be executed  upon  exercise of JMS Warrants  pursuant to Section 2(c) of the
JMS Warrant Agreement)

     The undersigned hereby  irrevocably elects to surrender  ____________ Units
or shares  purchasable under the JMS Warrants for such shares of Common Stock or
warrants  issuable  in  exchange  therefor  pursuant  to the  Cashless  Exercise
provisions of the within JMS  Warrants,  as provided for in Section 2(c) of such
JMS Warrant Agreement.

     Please issue a certificate or  certificates  for such Units or Common Stock
in the name of, and pay cash for fractional shares in the name of:

     (Please print name, address, and social security number/tax  identification
number:)

     and, if said number of Units or shares of Common Stock shall not be all the
Units or shares of Common Stock purchasable  thereunder,  that a new JMS Warrant
Certificate  for the balance  remaining  of the Units or shares of Common  Stock
purchasable  under the  within JMS  Warrants  be  registered  in the name of the
undersigned  JMS  Warrant  Holder  or its  transferee  as  below  indicated  and
delivered to the address stated below.

Dated:____________________________

Name of Warrant Holder

or transferee:
              ----------------------------------------------------------------
                                  (Please print)

Address:
        ----------------------------------------------------------------------


Signature:
          --------------------------------------------------------------------

                  NOTE: Signature must conform to the name of JMS Warrant Holder
                  as  specified on the face of the JMS Warrants or with the name
                  of the transferee appearing in the form of assignment attached
                  as Exhibit C to the JMS Warrant Agreement.


<PAGE>

                                                                      EXHIBIT C

                               FORM OF ASSIGNMENT

     For value  received,  the undersigned  hereby sells,  assigns and transfers
unto ______________________,  whose address is _____________________________ and
whose social security or other identifying  number is  ________________________,
the right to purchase ___________________ Underlying Securities evidenced by the
within JMS  Warrants,  and  hereby  irrevocably  constitutes  and  appoints  the
Secretary  of Frisby  Technologies,  Inc.  (the  "Company")  as his,  her or its
attorney-in-fact  to  transfer  the same on the books of the  Company  with full
power  of  substitution  and  re-substitution.  If  said  number  of  Underlying
Securities is less than all of the Underlying Securities  purchasable hereunder,
the undersigned  requests that a new warrant certificate  representing the right
to purchase the balance of such Underlying  Securities be registered in the name
of        _________________________________,        whose       address       is
___________________________,  whose social security or other identifying  number
if ______________________________________,  and that such warrant certificate be
delivered      to      _________________________,      whose      address     is
__________________________.

Date:_______________________                     _______________________________
                                                 Name:





<PAGE>


                                                                      EXHIBIT D

                                SUBSCRIPTION FORM

     The  undersigned   hereby   irrevocably   elects  to  exercise  the  right,
represented  by  this  warrant   certificate,   to  purchase   _________________
Underlying  Securities and tenders payment herewith in the amount $____________.
The undersigned requests that a certificate(s) for such Underlying Securities be
registered   in   the   name   of   ____________________,   whose   address   is
_____________________  and whose social security or other identifying  number is
___________________,  and  that  such  Underlying  Securities  be  delivered  to
___________________, whose address is _______________________. If said number of
Underlying Securities is less than all of the Underlying Securities  purchasable
hereunder,  the undersigned requests that a new warrant certificate representing
the right to purchase the balance of such Underlying Securities be registered in
the name of  ________________,  whose  address is  __________________  and whose
social security or other identifying number is  _____________________,  and that
such  warrant  certificate  be  delivered  to  _________________________,  whose
address is _______________________.

Date:_______________________                         __________________________
                                                     Name:





<PAGE>


                                                                       EXHIBIT E

THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED UNDER
THE  SECURITIES  ACT OF 1933,  AS AMENDED (THE "ACT"),  OR ANY STATE  SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED, ENCUMBERED
OR  OTHERWISE  DISPOSED  OF EXCEPT  PURSUANT  TO (I) AN  EFFECTIVE  REGISTRATION
STATEMENT UNDER THE ACT, (II) TO THE EXTENT  APPLICABLE,  RULE 144 UNDER THE ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE  DISPOSITION OF SECURITIES),
OR (III) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL TO THE ISSUER,  THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.

No. _______

                               Warrant Certificate

                            FRISBY TECHNOLOGIES, INC.

     This warrant certificate certifies that Janney Montgomery Scott, LLC or its
registered  assigns,  is the registered holder of JMS Warrants  representing the
right to purchase ______ shares of common stock, par value $0.001 per share (the
"Common Stock") of Frisby Technologies,  Inc. (the "Company") in accordance with
the terms of that certain JMS Warrant  Agreement  dated May 31, 2000 between the
Company  and Janney  Montgomery  Scott LLC (the "JMS  Warrant  Agreement").  The
Warrants expire on May 31, 2005 (the "Securities  Expiration  Date"), or on such
expiration  dates as may be  extended  pursuant  to the terms of the JMS Warrant
Agreement.  Capitalized  terms used but not otherwise  defined herein shall have
the meanings ascribed to such terms in the JMS Warrant Agreement.

     The  Warrants  entitle  the  registered  holder,  upon  exercise of the JMS
Warrant (as defined and  described  in the JMS Warrant  Agreement)  from time to
time from 9:00 a.m.  New York City time on or after May 31, 2000 until 5:00 p.m.
New York City time on the Securities Expiration Date to purchase Common Stock at
an exercise price per share of $6.00 (the "Securities Purchase Price") in lawful
money of the United  States of America upon  surrender of this  certificate  and
payment of the Securities Purchase Price in accordance with the terms of the JMS
Warrant  Agreement.  The  Securities  Purchase Price and the number of shares of
Common Stock issuable upon exercise of the JMS Warrants  and/or shares of Common
Stock issuable upon exercise of such Warrants are subject to adjustment upon the
occurrence of certain events set forth in the JMS Warrant Agreement.

     The Warrants  with  respect to the Common Stock may not be exercised  after
5:00 p.m. on the Securities  Expiration Date, and to the extent not exercised by
such time such Warrants shall become void.

     This warrant  certificate  shall be governed by and construed in accordance
with the laws of the State of New York,  without  regard  to  conflicts  of laws
principles thereof.  Any controversy or claim arising out of or relating to this
Agreement,  or the breach thereof,  shall be settled by arbitration in the City,
County and State of New York in accordance with the Commercial Arbitration Rules
of the American  Arbitration  Association as  supplemented  by its Large Complex
Case Procedures,  and judgment upon the award may be entered in any court having
jurisdiction  thereof.  The prevailing  party, as determined by the arbitrators,
shall be entitled to receive an award of its reasonable  attorneys'  fees, costs
and disbursements.

     IN WITNESS  WHEREOF,  Frisby  Technologies,  Inc.  has caused this  warrant
certificate to be signed by its duly authorized officers.

Dated:_________________

                                              FRISBY TECHNOLOGIES, INC.

                                              By:
                                                 ------------------------------
                                                 Name:
                                                 Title:


                                              By:
                                                 ------------------------------
                                                 Name:
                                                 Title: