TRANSFER AGENT INSTRUCTIONS
 
PHANTOM FIBER CORPORATION
 
January 4, 2006
 

PacWest Transfer, LLC
360 Main Street
P.O. Box 393
Washington, Virgina 22747
Attention: Laurel Poffenroth
Ladies and Gentlemen:
 
Reference is made to that certain Securities Purchase Agreement, dated as of
January 5, 2006 (the "Agreement"), by and among Phantom Fiber Corporation, a
Delaware corporation (the "Company"), and the investors named on the Schedule of
Buyers attached thereto (collectively, the "Holders"), pursuant to which the
Company (x) is issuing to the Holders (i) convertible notes (the "Notes"), which
are convertible into shares of the common stock of the Company, $0.001 par value
per share (the "Common Stock"), and (ii) warrants (the "Warrants"), which are
exercisable to purchase shares of Common Stock.
 
This letter shall serve as our authorization and direction to you (provided that
you are the transfer agent of the Company at such time):
 
(i)  to issue shares of Common Stock upon conversion of the Notes (the
"Conversion Shares") to or upon the order of a Holder from time to time upon
delivery to you of a properly completed and duly executed Conversion Notice, in
the form attached hereto as Exhibit I, which has been acknowledged by the
Company as indicated by the signature of a duly authorized officer of the
Company thereon;
 
(ii)  to issue shares of Common Stock upon exercise of the Warrants (the
"Warrant Shares") to or upon the order of a Holder from time to time upon
delivery to you of a properly completed and duly executed Exercise Notice, in
the form attached hereto as Exhibit II, which has been acknowledged by the
Company as indicated by the signature of a duly authorized officer of the
Company thereon.
 
You acknowledge and agree that so long as you have previously received (a)
written confirmation from the General Counsel of the Company (or its outside
legal counsel) that either (i) a registration statement covering resales of the
Conversion Shares or the Warrant Shares has been declared effective by the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act"), or (ii) that sales of the Conversion Shares and the
Warrant Shares may be made in conformity with Rule 144 under the 1933 Act, and
(b) if applicable, a copy of such registration statement, then, within three (3)
business days after your receipt of a notice of transfer, Conversion Notice or
the Exercise Notice, you shall issue the certificates representing the
Conversion Shares and/or the Warrant Shares, as applicable, and such
certificates shall not bear any legend restricting transfer of the Conversion
Shares or the Warrant Shares thereby and should not be subject to any
stop-transfer restriction; provided, however, that if such Conversion Shares and
Warrant Shares are not registered for resale under the 1933 Act or able to be
sold under Rule 144, then the certificates for such Conversion Shares and/or
Warrant Shares shall bear the following legend:
 

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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 
A form of written confirmation from the General Counsel of the Company or the
Company's outside legal counsel that a registration statement covering resales
of the Conversion Shares and the Warrant Shares has been declared effective by
the SEC under the 1933 Act is attached hereto as Exhibit III.
 
Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact me at (416) 703-0900.
 
Very truly yours,
 
PHANTOM FIBER CORPORATION
 

By: /s/ Jeffrey Halloran_______________
Name: Jeffrey Halloran
Title: Chief Executive Officer
 

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THE FOREGOING INSTRUCTIONS ARE
ACKNOWLEDGED AND AGREED TO
 
this 5th day of January 2006
 
PACWEST TRANSFER, LLC
 
 
By:  /s/ Laurel Poffenroth
Name: Laurel Poffenroth 
Title: President 
 
Enclosures
 
cc:      Magnetar Capital Master Fund, Ltd.
Eleazer N. Klein, Esq.
Mark J. Nuovo
Konstantine (Gus) John Luas
Pamela Ritchie
The Sutherland Family Trust
Linda Anne Abrams
Russo Living Trust 5/1/98
Mark P. DeVitre
Howard Shapiro
Financial Trading Consultants Pension Plan
Meuqer Masters International Pension Plan
Timothy Livak
John Cramer and Sharon R. Hawkins
Robert Kantor
Harry D. Forman
Philip Barone
 

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EXHIBIT I

PHANTOM FIBER CORPORATION
CONVERSION NOTICE

Reference is made to the Senior Secured Convertible Note (the "Note") issued to
the undersigned by PHANTOM FIBER CORPORATION (the "Company"). In accordance with
and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock $0.001 par value per share (the "Common Stock"), as of
the date specified below.
 
 
Date of Conversion:
 
 
Aggregate Conversion Amount to be converted:
 
 
Please confirm the following information:
 
Conversion Price:
 
 
Number of shares of Common Stock to be issued:
 
 
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
 
Issue to:
         
 
Facsimile Number:
 
 
Authorization:
 
 
By:
 
 
Title:
 
 
Dated:
 
 
Account Number:
 
  (if electronic book entry transfer)
 
 
Transaction Code Number:
 
  (if electronic book entry transfer)
 

 

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ACKNOWLEDGMENT
 
The Company hereby acknowledges this Conversion Notice and hereby directs
PacWest Transfer, LLC to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated January __, 2006
from the Company and acknowledged and agreed to by PacWest Transfer, LLC.
 

        PHANTOM FIBER CORPORATION  
   
   
    By:   /s/   

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Name:
Title:
 
 

 
 

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EXHIBIT II

The undersigned holder hereby exercises the right to purchase _________________
of the shares of Common Stock ("Warrant Shares") of Phantom Fiber Corporation, a
Delaware corporation (the "Company"), evidenced by the attached Warrant to
Purchase Common Stock (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

____________ a "Cash Exercise" with respect to _________________ Warrant Shares;
and/or

____________ a "Cashless Exercise" with respect to _______________ Warrant
Shares.

2. Notwithstanding anything to the contrary contained herein, this Exercise
Notice shall constitute a representation by the Holder of the Warrant submitting
this Exercise Notice that, after giving effect to the exercise provided for in
this Exercise Notice, such Holder (together with its affiliates) will not have
beneficial ownership (together with the beneficial ownership of such Person's
affiliates) of a number of shares of Common Stock which exceeds the maximum
percentage of the total outstanding shares of Common Stock as determined
pursuant to the provisions of Section 1(f)(i) of the Warrant.

3. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

4. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

Date: _____________________, ______
 
 
_________________________________
Name of Registered Holder

By: ______________________________   
Name:
Title:

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ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and hereby directs PacWest
Transfer, LLC to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated January [ ], 2006 from the
Company and acknowledged and agreed to by PacWest Transfer, LLC.

PHANTOM FIBER CORPORATION

By: _______________________________
Name:
Title:

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EXHIBIT III
 
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
 
 
[Transfer Agent]
[Address]
Attention:

Re: Phantom Fiber Corporation
 
Ladies and Gentlemen:
 
 
[We are][I am] counsel to Phantom Fiber Corporation, a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Securities Purchase Agreement") entered into
by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to which the Company issued to the Holders senior secured
convertible notes (the "Notes") convertible into the Company's common stock,
$0.001 par value per share (the "Common Stock"), warrants exercisable for shares
of Common Stock (the "Warrants"). Pursuant to the Securities Purchase Agreement,
the Company also has entered into a Registration Rights Agreement with the
Holders (the "Registration Rights Agreement") pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined
in the Registration Rights Agreement), including the shares of Common Stock
issuable upon conversion of the Notes and the shares of Common Stock issuable
upon exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, on January ___, 2006, the Company filed a Registration
Statement on Form SB-2 (File No. 333-_____________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities which names each of the Holders as a selling
shareholder thereunder.
 
In connection with the foregoing, [we][I] advise you that a member of the SEC's
staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
 
This letter shall serve as our standing opinion to you that the shares of Common
Stock are freely transferable by the Holders pursuant to the Registration
Statement. You need not require further letters from us to effect any future
legend-free issuance or reissuance of shares of Common Stock to the Holders as
contemplated by the Company's Irrevocable Transfer
 

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Agent Instructions dated January __, 2006.
 
 
Very truly yours,
 
[ISSUER'S COUNSEL]
 
By:_____________________
CC: [LIST NAMES OF HOLDERS]

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