EXECUTION
      COPY

     

    

      [FORM
        OF WARRANT]

      


      NEITHER
        THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
        THE
        SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE 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 PURSUANT TO
        AN
        AVAILABLE EXEMPTION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
        ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
        SECURITIES.

      


      PHANTOM
        FIBER CORPORATION

      


      WARRANT
        TO
        PURCHASE
        COMMON
        STOCK

       

      Warrant
        No.:    

      Number
        of
        Shares of Common Stock: [    ]

      Date
        of
        Issuance: December [    ], 2005 ("Issuance
        Date")

      


      Phantom
        Fiber Corporation, a Delaware corporation (the "Company"),
        hereby certifies that, for good and valuable consideration, the receipt and
        sufficiency of which are hereby acknowledged, MAGNETAR CAPITAL MASTER FUND,
        LTD., the registered holder hereof or its permitted assigns (the "Holder"),
        is
        entitled, subject to the terms set forth below, to purchase from the Company,
        at
        the Exercise Price (as defined below) then in effect, upon surrender of this
        Warrant to Purchase Common Stock (including any Warrants to Purchase Common
        Stock issued in exchange, transfer or replacement hereof, the "Warrant"),
        at
        any time or times on or after the date hereof but not after 11:59 p.m., New
        York
        Time, on the Expiration Date (as defined below), [ ] ([ ])1 
        fully
        paid nonassessable shares of Common Stock (as defined below) (the
        "Warrant
        Shares").
        Except as otherwise defined herein, capitalized terms in this Warrant shall
        have
        the meanings set forth in Section 15. This Warrant is one of the Warrants
        to
        purchase Common Stock (the "SPA
        Warrants")
        issued
        pursuant to Section 1 of that certain Securities Purchase Agreement, dated
        as of
        December 30, 2005 (the "Subscription
        Date"),
        by
        and among the Company and the investors (the "Buyers")
        referred to therein (the "Securities
        Purchase Agreement").

       

       

      

        

        
          1
            Insert a
            number equal to 50% of the number of Conversion Shares.

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      1.  EXERCISE
        OF WARRANT.

       

      (a)  Mechanics
        of Exercise.
        Subject
        to the terms and conditions hereof (including, without limitation, the
        limitations set forth in Section 1(f)), this Warrant may be exercised by
        the
        Holder on any day on or after the date hereof, in whole or in part, by
        (i) delivery of a written notice, in the form attached hereto as
Exhibit
        A
        (the
        "Exercise
        Notice"),
        of
        the Holder's election to exercise this Warrant and (ii) (A) payment to the
        Company of an amount equal to the applicable Exercise Price multiplied by
        the
        number of Warrant Shares as to which this Warrant is being exercised (the
        "Aggregate
        Exercise Price")
        in
        cash or wire transfer of immediately available funds or (B) by notifying
        the
        Company that this Warrant is being exercised pursuant to a Cashless Exercise
        (as
        defined in Section 1(d)). The Holder shall not be required to deliver the
        original Warrant in order to effect an exercise hereunder. Execution and
        delivery of the Exercise Notice with respect to less than all of the Warrant
        Shares shall have the same effect as cancellation of the original Warrant
        and
        issuance of a new Warrant evidencing the right to purchase the remaining
        number
        of Warrant Shares. On or before the first Business Day following the date
        on
        which the Company has received each of the Exercise Notice and the Aggregate
        Exercise Price (or notice of a Cashless Exercise) (the "Exercise
        Delivery Documents"),
        the
        Company shall transmit by facsimile an acknowledgment of confirmation of
        receipt
        of the Exercise Delivery Documents to the Holder and the Company's transfer
        agent (the "Transfer
        Agent").
        On or
        before the third Business Day following the date on which the Company has
        received all of the Exercise Delivery Documents (the "Share
        Delivery Date"),
        the
        Company shall (X) provided that the Transfer Agent is participating in The
        Depository Trust Company ("DTC")
        Fast
        Automated Securities Transfer Program, upon the request of the Holder, credit
        such aggregate number of shares of Common Stock to which the Holder is entitled
        pursuant to such exercise to the Holder's or its designee's balance account
        with
        DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
        Transfer Agent is not participating in the DTC Fast Automated Securities
        Transfer Program, issue and dispatch by overnight courier to the address
        as
        specified in the Exercise Notice, a certificate, registered in the Company's
        share register in the name of the Holder or its designee, for the number
        of
        shares of Common Stock to which the Holder is entitled pursuant to such
        exercise. Upon delivery of the Exercise Notice and Aggregate Exercise Price
        referred to in clause (ii)(A) above or notification to the Company of a Cashless
        Exercise referred to in Section 1(d), the Holder shall be deemed for all
        corporate purposes to have become the holder of record of the Warrant Shares
        with respect to which this Warrant has been exercised, irrespective of the
        date
        of delivery of the certificates evidencing such Warrant Shares. If this Warrant
        is submitted in connection with any exercise pursuant to this Section 1(a)
        and
        the number of Warrant Shares represented by this Warrant submitted for exercise
        is greater than the number of Warrant Shares being acquired upon an exercise,
        then the Company shall as soon as practicable and in no event later than
        five
        Business Days after any exercise and at its own expense, issue a new Warrant
        (in
        accordance with Section 7(d)) representing the right to purchase the number
        of
        Warrant Shares purchasable immediately prior to such exercise under this
        Warrant, less the number of Warrant Shares with respect to which this Warrant
        is
        exercised. No fractional shares of Common Stock are to be issued upon the
        exercise of this Warrant, but rather the number of shares of Common Stock
        to be
        issued shall be rounded up to the nearest whole number. The Company shall
        pay
        any and all taxes which may be payable with respect to the issuance and delivery
        of Warrant Shares upon exercise of this Warrant. 

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

      (b)  Exercise
        Price.
        For
        purposes of this Warrant, "Exercise
        Price"
        means
        $[ ]2,
        subject
        to adjustment as provided herein.

       

      (c)  Company's
        Failure to Timely Deliver Securities.
        If the
        Company shall fail for any reason or for no reason to issue to the Holder
        within
        three (3) Business Days of receipt of the Exercise Delivery Documents, a
        certificate for the number of shares of Common Stock to which the Holder
        is
        entitled and register such shares of Common Stock on the Company's share
        register or to credit the Holder's balance account with DTC for such number
        of
        shares of Common Stock to which the Holder is entitled upon the Holder's
        exercise of this Warrant, and if on or after such Business Day the Holder
        purchases (in an open market transaction or otherwise) shares of Common Stock
        to
        deliver in satisfaction of a sale by the Holder of shares of Common Stock
        issuable upon such exercise that the Holder anticipated receiving from the
        Company (a "Buy-In"),
        then
        the Company shall, within three (3) Business Days after the Holder's request
        and
        in the Holder's discretion, either (i) pay cash to the Holder in an amount
        equal
        to the Holder's total purchase price (including brokerage commissions, if
        any)
        for the shares of Common Stock so purchased (the "Buy-In
        Price"),
        at
        which point the Company's obligation to deliver such certificate (and to
        issue
        such shares of Common Stock) shall terminate, or (ii) promptly honor its
        obligation to deliver to the Holder a certificate or certificates representing
        such shares of Common Stock and pay cash to the Holder in an amount equal
        to the
        excess (if any) of the Buy-In Price over the product of (A) such number of
        shares of Common Stock, times (B) the Closing Bid Price on the date of
        exercise.

       

      (d)  Cashless
        Exercise.
         Notwithstanding
        anything contained herein to the contrary, if a Registration Statement (as
        defined in the Registration Rights Agreement) covering the Warrant Shares
        that
        are the subject of the Exercise Notice (the "Unavailable
        Warrant Shares")
        is not
        available for the resale of such Unavailable Warrant Shares, the Holder may,
        in
        its sole discretion, exercise this Warrant in whole or in part and, in lieu
        of
        making the cash payment otherwise contemplated to be made to the Company
        upon
        such exercise in payment of the Aggregate Exercise Price, elect instead to
        receive upon such exercise the "Net Number" of shares of Common Stock determined
        according to the following formula (a "Cashless
        Exercise"):

       

      
        
          
            
              

            

          

          
            2
              Insert
              in Series A Warrants: $1.50. Insert in Series B Warrants: the arithmetic
              average
              of the Weighted Average Price over the five (5) Trading Days ending
              on the
              Trading Day immediately preceding the Subscription Date.

             

          

        

      

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

      Net
        Number = (A
        x
        B) - (A x C)

       

      B

      For
        purposes of the foregoing formula:

       

      A=
        the
        total number of Warrant Shares with respect to which this Warrant is then
        being
        exercised.

       

      B=
        the
        Closing Sale Price of the shares of Common Stock (as reported by Bloomberg)
        on
        the date immediately preceding the date of the Exercise Notice.

       

      C=
        the
        Exercise Price then in effect for the applicable Warrant Shares at the time
        of
        such exercise.

      


      (e)  Disputes.
        In the
        case of a dispute as to the determination of the Exercise Price or the
        arithmetic calculation of the Warrant Shares, the Company shall promptly
        issue
        to the Holder the number of Warrant Shares that are not disputed and resolve
        such dispute in accordance with Section 12.

       

      (f)  Limitations
        on Exercises; Beneficial Ownership.
        The
        Company shall not effect the exercise of this Warrant, and the Holder shall
        not
        have the right to exercise this Warrant, to the extent that after giving
        effect
        to such exercise, such Person (together with such Person's affiliates) would
        beneficially own (directly or indirectly through Warrant Shares or otherwise)
        in
        excess of 4.99% of the shares of Common Stock outstanding immediately after
        giving effect to such exercise. For purposes of the foregoing sentence, the
        aggregate number of shares of Common Stock beneficially owned (directly or
        indirectly through Warrant Shares or otherwise) by such Person and its
        affiliates shall include the number of shares of Common Stock issuable upon
        exercise of this Warrant with respect to which the determination of such
        sentence is being made, but shall exclude shares of Common Stock which would
        be
        issuable upon (i) exercise of the remaining, unexercised portion of this
        Warrant
        beneficially owned by such Person and its affiliates and (ii) exercise or
        conversion of the unexercised or unconverted portion of any other securities
        of
        the Company beneficially owned by such Person and its affiliates (including,
        without limitation, any convertible notes or convertible preferred stock
        or
        warrants) subject to a limitation on conversion or exercise analogous to
        the
        limitation contained herein. Except as set forth in the preceding sentence,
        for
        purposes of this subsection, beneficial ownership shall be calculated in
        accordance with Section 13(d) of the Securities Exchange Act of 1934, as
        amended. For purposes of this Warrant, in determining the number of outstanding
        shares of Common Stock, the Holder may rely on the number of outstanding
        shares
        of Common Stock as reflected in (1) the Company's most recent Form 10-K,
        Form
        10-Q, Current Report on Form 8-K or other public filing with the Securities
        and
        Exchange Commission, as the case may be, (2) a more recent public announcement
        by the Company or (3) any other notice by the Company or the Transfer Agent
        setting forth the number of shares of Common Stock outstanding. For any reason
        at any time, upon the written or oral request of the Holder, the Company
        shall
        within one Business Day confirm orally and in writing to the Holder the number
        of shares of Common Stock then outstanding. In any case, the number of
        outstanding shares of Common Stock shall be determined after giving effect
        to
        the conversion or exercise of securities of the Company, including the SPA
        Securities and the SPA Warrants, by the Holder and its affiliates since the
        date
        as of which such number of outstanding shares of Common Stock was reported.
        By
        written notice to the Company, the Holder may increase or decrease the Maximum
        Percentage to any other percentage not in excess of 9.99% specified in such
        notice; provided that (i) any such increase will not be effective until the
        sixty-first (61st)
        day
        after such notice is delivered to the Company, and (ii) any such increase
        or
        decrease will apply only to the Holder and not to any other holder of SPA
        Warrants.

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

      2.  ADJUSTMENT
        OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
        The
        Exercise Price and the number of Warrant Shares shall be adjusted from time
        to
        time as follows:

       

      (a)  Adjustment
        upon Issuance of shares of Common Stock.
        If and
        whenever on or after the Subscription Date the Company issues or sells, or
        in
        accordance with this Section 2 is deemed to have issued or sold, any shares
        of
        Common Stock (including the issuance or sale of shares of Common Stock owned
        or
        held by or for the account of the Company, but excluding shares of Common
        Stock
        deemed to have been issued by the Company in connection with any Excluded
        Securities (as defined in the SPA Securities) for a consideration per share
        (the
        "New
        Issuance Price")
        less
        than a price (the "Applicable
        Price")
        equal
        to the Exercise Price in effect immediately prior to such issue or sale or
        deemed issuance or sale (the foregoing a "Dilutive
        Issuance"),
        then
        immediately after such Dilutive Issuance, the Exercise Price then in effect
        shall be reduced to an amount equal to the New
        Issuance Price.
        Upon
        each such adjustment of the Exercise Price hereunder, the number of Warrant
        Shares shall be adjusted to the number of shares of Common Stock determined
        by
        multiplying the Exercise Price in effect immediately prior to such adjustment
        by
        the number of Warrant Shares acquirable upon exercise of this Warrant
        immediately prior to such adjustment and dividing the product thereof by
        the
        Exercise Price resulting from such adjustment. For purposes of determining
        the
        adjusted Exercise Price under this Section 2(a), the following shall be
        applicable:

       

      (i) 
        Issuance
        of Options.
        If the
        Company in any manner grants any Options and the lowest price per share for
        which one share of Common Stock is issuable upon the exercise of any such
        Option
        or upon conversion, exercise or exchange of any Convertible Securities issuable
        upon exercise of any such Option is less than the Applicable Price, then
        such
        share of Common Stock shall be deemed to be outstanding and to have been
        issued
        and sold by the Company at the time of the granting or sale of such Option
        for
        such price per share. For purposes of this Section 2(a)(i), the "lowest price
        per share for which one share of Common Stock is issuable upon exercise of
        such
        Options or upon conversion, exercise or exchange of such Convertible Securities"
        shall be equal to the sum of the lowest amounts of consideration (if any)
        received or receivable by the Company with respect to any one share of Common
        Stock upon the granting or sale of the Option, upon exercise of the Option
        and
        upon conversion, exercise or exchange of any Convertible Security issuable
        upon
        exercise of such Option. No further adjustment of the Exercise Price or number
        of Warrant Shares shall be made upon the actual issuance of such shares of
        Common Stock or of such Convertible Securities upon the exercise of such
        Options
        or upon the actual issuance of such shares of Common Stock upon conversion,
        exercise or exchange of such Convertible Securities. 

       

      
        
          
          

        

        
          -5-

          
            

          

        

        
          
          

        

        (ii) 
          Issuance
          of Convertible Securities.
          If the
          Company in any manner issues or sells any Convertible Securities and the
          lowest
          price per share for which one share of Common Stock is issuable upon the
          conversion, exercise or exchange thereof is less than the Applicable Price,
          then
          such share of Common Stock shall be deemed to be outstanding and to have
          been
          issued and sold by the Company at the time of the issuance or sale of such
          Convertible Securities for such price per share. For the purposes of this
          Section 2(a)(ii), the "lowest price per share for which one share of Common
          Stock is issuable upon the conversion, exercise or exchange" shall be equal
          to
          the sum of the lowest amounts of consideration (if any) received or receivable
          by the Company with respect to one share of Common Stock upon the issuance
          or
          sale of the Convertible Security and upon conversion, exercise or exchange
          of
          such Convertible Security. No further adjustment of the Exercise Price
          or number
          of Warrant Shares shall be made upon the actual issuance of such shares
          of
          Common Stock upon conversion, exercise or exchange of such Convertible
          Securities, and if any such issue or sale of such Convertible Securities
          is made
          upon exercise of any Options for which adjustment of this Warrant has been
          or is
          to be made pursuant to other provisions of this Section 2(a), no further
          adjustment of the Exercise Price or number of Warrant Shares shall be made
          by
          reason of such issue or sale. 

         

        (iii) 
          Change
          in Option Price or Rate of Conversion.
          If the
          purchase price provided for in any Options, the additional consideration,
          if
          any, payable upon the issue, conversion, exercise or exchange of any Convertible
          Securities, or the rate at which any Convertible Securities are convertible
          into
          or exercisable or exchangeable for shares of Common Stock increases or
          decreases
          at any time, the Exercise Price and the number of Warrant Shares in effect
          at
          the time of such increase or decrease shall be adjusted to the Exercise
          Price
          and the number of Warrant Shares which would have been in effect at such
          time
          had such Options or Convertible Securities provided for such increased
          or
          decreased purchase price, additional consideration or increased or decreased
          conversion rate, as the case may be, at the time initially granted, issued
          or
          sold. For purposes of this Section 2(a)(iii), if the terms of any Option
          or
          Convertible Security that was outstanding as of the date of issuance of
          this
          Warrant are increased or decreased in the manner described in the immediately
          preceding sentence, then such Option or Convertible Security and the shares
          of
          Common Stock deemed issuable upon exercise, conversion or exchange thereof
          shall
          be deemed to have been issued as of the date of such increase or decrease.
          No
          adjustment pursuant to this Section 2(a) shall be made if such adjustment
          would
          result in an increase of the Exercise Price then in effect or a decrease
          in the
          number of Warrant Shares.

      

       

      
        
          
          

        

        
          -6-

          
            

          

        

         

         

        (iv) 
          Calculation
          of Consideration Received.
          In case
          any Option is issued in connection with the issue or sale of other securities
          of
          the Company, together comprising one integrated transaction in which no
          specific
          consideration is allocated to such Options by the parties thereto, the
          Options
          will be deemed to have been issued for a consideration of $0.01. If any
          shares
          of Common Stock, Options or Convertible Securities are issued or sold or
          deemed
          to have been issued or sold for cash, the consideration received therefor
          will
          be deemed to be the net amount received by the Company therefor. If any
          shares
          of Common Stock, Options or Convertible Securities are issued or sold for
          a
          consideration other than cash, the amount of such consideration received
          by the
          Company will be the fair value of such consideration, except where such
          consideration consists of securities, in which case the amount of consideration
          received by the Company will be the Closing Sale Price of such security
          on the
          date of receipt. If any shares of Common Stock, Options or Convertible
          Securities are issued to the owners of the non-surviving entity in connection
          with any merger in which the Company is the surviving entity, the amount
          of
          consideration therefor will be deemed to be the fair value of such portion
          of
          the net assets and business of the non-surviving entity as is attributable
          to
          such shares of Common Stock, Options or Convertible Securities, as the
          case may
          be. The fair value of any consideration other than cash or securities will
          be
          determined jointly by the Company and the Required Holders. If such parties
          are
          unable to reach agreement within ten (10) days after the occurrence of
          an event
          requiring valuation (the "Valuation
          Event"),
          the
          fair value of such consideration will be determined within five (5) Business
          Days after the tenth day following the Valuation Event by an independent,
          reputable appraiser jointly selected by the Company and the Required Holders.
          The determination of such appraiser shall be final and binding upon all
          parties
          absent manifest error and the fees and expenses of such appraiser shall
          be borne
          by the Company.

         

        (v) 
          Record
          Date.
          If the
          Company takes a record of the holders of shares of Common Stock for the
          purpose
          of entitling them (A) to receive a dividend or other distribution payable
          in shares of Common Stock, Options or in Convertible Securities or (B) to
          subscribe for or purchase shares of Common Stock, Options or Convertible
          Securities, then such record date will be deemed to be the date of the
          issue or
          sale of the shares of Common Stock deemed to have been issued or sold upon
          the
          declaration of such dividend or the making of such other distribution or
          the
          date of the granting of such right of subscription or purchase, as the
          case may
          be.

      

       

      
        
          
          

        

        
          -7-

          
            

          

        

        
          
          

        

      

      (b)  Adjustment
        upon Subdivision or Combination of shares of Common Stock.
        If the
        Company at any time on or after the Subscription Date subdivides (by any
        stock
        split, stock dividend, recapitalization or otherwise) one or more classes
        of its
        outstanding shares of Common Stock into a greater number of shares, the Exercise
        Price in effect immediately prior to such subdivision will be proportionately
        reduced and the number of Warrant Shares will be proportionately increased.
        If
        the Company at any time on or after the Subscription Date combines (by
        combination, reverse stock split or otherwise) one or more classes of its
        outstanding shares of Common Stock into a smaller number of shares, the Exercise
        Price in effect immediately prior to such combination will be proportionately
        increased and the number of Warrant Shares will be proportionately decreased.
        Any adjustment under this Section 2(b) shall become effective at the close
        of
        business on the date the subdivision or combination becomes effective.
        Notwithstanding the foregoing, no adjustment shall be made pursuant to this
        Section 2(b) as a result of the one-for-20 reverse stock split of the
        outstanding shares of Common Stock which was ratified and approved by the
        Company’s shareholders on December 12, 2005 as described in that certain
        Preliminary Schedule 14C filed by the Company with the SEC on December 19,
        2005.

       

      (c)  Other
        Events.
        If any
        event occurs of the type contemplated by the provisions of this Section 2
        but
        not expressly provided for by such provisions (including, without limitation,
        the granting of stock appreciation rights, phantom stock rights or other
        rights
        with equity features), then the Company's Board of Directors will make an
        appropriate adjustment in the Exercise Price and the number of Warrant Shares
        so
        as to protect the rights of the Holder; provided that no such adjustment
        pursuant to this Section 2(c) will increase the Exercise Price or decrease
        the
        number of Warrant Shares as otherwise determined pursuant to this Section
        2.

       

      3.  RIGHTS
        UPON DISTRIBUTION OF ASSETS.
        If the
        Company shall declare or make any dividend or other distribution of its assets
        (or rights to acquire its assets) to holders of shares of Common Stock, by
        way
        of return of capital or otherwise (including, without limitation, any
        distribution of cash, stock or other securities, property or options by way
        of a
        dividend, spin off, reclassification, corporate rearrangement, scheme of
        arrangement or other similar transaction) (a "Distribution"),
        at
        any time after the issuance of this Warrant, then, in each such
        case:

       

      (a)  any
        Exercise Price in effect immediately prior to the close of business on the
        record date fixed for the determination of holders of shares of Common Stock
        entitled to receive the Distribution shall be reduced, effective as of the
        close
        of business on such record date, to a price determined by multiplying such
        Exercise Price by a fraction of which (i) the numerator shall be the Closing
        Bid
        Price of a share of Common Stock on the trading day immediately preceding
        such
        record date minus the value of the Distribution (as determined in good faith
        by
        the Company's Board of Directors) applicable to one share of Common Stock,
        and
        (ii) the denominator shall be the Closing Bid Price of the shares of Common
        Stock on the trading day immediately preceding such record date;
        and

       

      (b)  the
        number of Warrant Shares shall be increased to a number of shares equal to
        the
        number of shares of Common Stock obtainable immediately prior to the close
        of
        business on the record date fixed for the determination of holders of shares
        of
        Common Stock entitled to receive the Distribution multiplied by the reciprocal
        of the fraction set forth in the immediately preceding paragraph (a); provided
        that in the event that the Distribution is of shares of Common Stock (or
        common
        stock) ("Other
        Shares of Common Stock")
        of a
        company whose common shares are traded on a national securities exchange
        or a
        national automated quotation system, then the Holder may elect to receive
        a
        warrant to purchase Other Shares of Common Stock in lieu of an increase in
        the
        number of Warrant Shares, the terms of which shall be identical to those
        of this
        Warrant, except that such warrant shall be exercisable into the number of
        shares
        of Other Shares of Common Stock that would have been payable to the Holder
        pursuant to the Distribution had the Holder exercised this Warrant immediately
        prior to such record date and with an aggregate exercise price equal to the
        product of the amount by which the exercise price of this Warrant was decreased
        with respect to the Distribution pursuant to the terms of the immediately
        preceding paragraph (a) and the number of Warrant Shares calculated in
        accordance with the first part of this paragraph (b).

       

      
        
          
          

        

        
          -8-

          
            

          

        

        
          
          

        

      

      4.  PURCHASE
        RIGHTS; FUNDAMENTAL TRANSACTIONS.

       

      (a)  Purchase
        Rights.
        In
        addition to any adjustments pursuant to Section 2 above, if at any time the
        Company grants, issues or sells any Options, Convertible Securities or rights
        to
        purchase stock, warrants, securities or other property pro rata to the record
        holders of any class of shares of Common Stock (the "Purchase
        Rights"),
        then
        the Holder will be entitled to acquire, upon the terms applicable to such
        Purchase Rights, the aggregate Purchase Rights which the Holder could have
        acquired if the Holder had held the number of shares of Common Stock acquirable
        upon complete exercise of this Warrant (without regard to any limitations
        on the
        exercise of this Warrant) immediately before the date on which a record is
        taken
        for the grant, issuance or sale of such Purchase Rights, or, if no such record
        is taken, the date as of which the record holders of shares of Common Stock
        are
        to be determined for the grant, issue or sale of such Purchase
        Rights.

       

      (b)  Fundamental
        Transactions.
        If the
        Company enters into or is party to a Fundamental Transaction, then the Holder
        shall have the right to either (A) purchase and receive upon the basis and
        upon
        the terms and conditions herein specified and in lieu of the Warrant Shares
        immediately theretofore issuable upon exercise of the Warrant, such shares
        of
        stock, securities or assets (including cash) as would have been issuable
        or
        payable with respect to or in exchange for a number of Warrant Shares equal
        to
        the number of Warrant Shares immediately theretofore issuable upon exercise
        of
        the Warrant, had such Fundamental Transaction not taken place or (B) require
        the
        repurchase of this Warrant for a purchase price, payable in cash within five
        (5)
        business days after such request, equal to the Black Scholes Value of the
        remaining unexercised portion of this Warrant on the date of such request.
        The
        terms of any agreement pursuant to which a Fundamental Transaction is effected
        shall include terms requiring any such successor or surviving entity and
        Holder
        to comply with the provisions of this Section
        4(b).
        The
        provisions of this Section shall apply similarly and equally to successive
        Fundamental Transactions and shall be applied without regard to any limitations
        on the exercise of this Warrant.

       

      5.  NONCIRCUMVENTION.
        The
        Company hereby covenants and agrees that the Company will not, by amendment
        of
        its Articles of Incorporation, Bylaws or through any reorganization, transfer
        of
        assets, consolidation, merger, scheme of arrangement, dissolution, issue
        or sale
        of securities, or any other voluntary action, for the purpose of avoiding
        or
        seeking to avoid the observance or performance of any of the terms of this
        Warrant, and will at all times in good faith carry out all the provisions
        of
        this Warrant and take all action that is required hereunder to protect the
        rights of the Holder. Without limiting the generality of the foregoing, the
        Company (i) shall not increase the par value of any shares of Common Stock
        receivable upon the exercise of this Warrant above the Exercise Price then
        in
        effect, (ii) shall take all such actions as may be necessary or appropriate
        in order that the Company may validly and legally issue fully paid and
        nonassessable shares of Common Stock upon the exercise of this Warrant, and
        (iii) shall, so long as any of the SPA Warrants are outstanding, take all
        action
        necessary to reserve and keep available out of its authorized and unissued
        shares of Common Stock, solely for the purpose of effecting the exercise
        of the
        SPA Warrants, 125% of the number of shares of Common Stock as shall from
        time to
        time be necessary to effect the exercise of the SPA Warrants then outstanding
        (without regard to any limitations on exercise).

       

      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

      

      6.  WARRANT
        HOLDER NOT DEEMED A STOCKHOLDER.
        Except
        as otherwise specifically provided herein, the Holder, solely in such Person's
        capacity as a holder of this Warrant, shall not be entitled to vote or receive
        dividends or be deemed the holder of share capital of the Company for any
        purpose, nor shall anything contained in this Warrant be construed to confer
        upon the Holder, solely in such Person's capacity as the Holder of this Warrant,
        any of the rights of a shareholder of the Company or any right to vote, give
        or
        withhold consent to any corporate action (whether any reorganization, issue
        of
        stock, reclassification of stock, consolidation, merger, conveyance or
        otherwise), receive notice of meetings, receive dividends or subscription
        rights, or otherwise, prior to the issuance to the Holder of the Warrant
        Shares
        which such Person is then entitled to receive upon the due exercise of this
        Warrant. In addition, nothing contained in this Warrant shall be construed
        as
        imposing any liabilities on the Holder to purchase any securities (upon exercise
        of this Warrant or otherwise) or as a shareholder of the Company, whether
        such
        liabilities are asserted by the Company or by creditors of the Company.
        Notwithstanding this Section 6, the Company shall provide the Holder with
        copies
        of the same notices and other information given to the shareholders of the
        Company generally, contemporaneously with the giving thereof to its
        shareholders.

       

      7.  REISSUANCE
        OF WARRANTS.

       

      (a)  Transfer
        of Warrant.
        If this
        Warrant is to be transferred, the Holder shall surrender this Warrant to
        the
        Company, whereupon the Company will forthwith issue and deliver upon the
        order
        of the Holder a new Warrant (in accordance with Section 7(d)), registered
        as the
        Holder may request, representing the right to purchase the number of Warrant
        Shares being transferred by the Holder and, if less then the total number
        of
        Warrant Shares then underlying this Warrant is being transferred, a new Warrant
        (in accordance with Section 7(d)) to the Holder representing the right to
        purchase the number of Warrant Shares not being transferred.

       

      (b)  Lost,
        Stolen or Mutilated Warrant.
        Upon
        receipt by the Company of evidence reasonably satisfactory to the Company
        of the
        loss, theft, destruction or mutilation of this Warrant, and, in the case
        of
        loss, theft or destruction, of any indemnification undertaking by the Holder
        to
        the Company in customary form and, in the case of mutilation, upon surrender
        and
        cancellation of this Warrant, the Company shall execute and deliver to the
        Holder a new Warrant (in accordance with Section 7(d)) representing the right
        to
        purchase the Warrant Shares then underlying this Warrant.

       

      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

      

      (c)  Exchangeable
        for Multiple Warrants.
        This
        Warrant is exchangeable, upon the surrender hereof by the Holder at the
        principal office of the Company, for a new Warrant or Warrants (in accordance
        with Section 7(d)) representing in the aggregate the right to purchase the
        number of Warrant Shares then underlying this Warrant, and each such new
        Warrant
        will represent the right to purchase such portion of such Warrant Shares
        as is
        designated by the Holder at the time of such surrender; provided, however,
        that
        no Warrants for fractional shares of Common Stock shall be given.

       

      (d)  Issuance
        of New Warrants.
        Whenever the Company is required to issue a new Warrant pursuant to the terms
        of
        this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
        (ii) shall represent, as indicated on the face of such new Warrant, the right
        to
        purchase the Warrant Shares then underlying this Warrant (or in the case
        of a
        new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant
        Shares designated by the Holder which, when added to the number of shares
        of
        Common Stock underlying the other new Warrants issued in connection with
        such
        issuance, does not exceed the number of Warrant Shares then underlying this
        Warrant), (iii) shall have an issuance date, as indicated on the face of
        such
        new Warrant which is the same as the Issuance Date, and (iv) shall have the
        same
        rights and conditions as this Warrant.

       

      8.  NOTICES.
        Whenever notice is required to be given under this Warrant, unless otherwise
        provided herein, such notice shall be given in accordance with Section 9(f)
        of
        the Securities Purchase Agreement. The Company shall provide the Holder with
        prompt written notice of all actions taken pursuant to this Warrant, including
        in reasonable detail a description of such action and the reason therefore.
        Without limiting the generality of the foregoing, the Company will give written
        notice to the Holder (i) promptly after any adjustment of the Exercise Price,
        setting forth in reasonable detail, and certifying, the calculation of such
        adjustment and (ii) at least ten days prior to the date on which the
        Company closes its books or takes a record (A) with respect to any dividend
        or
        distribution upon the shares of Common Stock, (B) with respect to any grants,
        issuances or sales of any Options, Convertible Securities or rights to purchase
        stock, warrants, securities or other property to all holders of shares of
        Common
        Stock or (C) for determining rights to vote with respect to any Fundamental
        Transaction, dissolution or liquidation, provided in each case that such
        information shall be made known to the public prior to or in conjunction
        with
        such notice being provided to the Holder.

       

      9.  AMENDMENT
        AND WAIVER.
        Except
        as otherwise provided herein, the provisions of this Warrant may be amended
        and
        the Company may take any action herein prohibited, or omit to perform any
        act
        herein required to be performed by it, only if the Company has obtained the
        written consent of the Required Holders; provided that no such action may
        increase the exercise price of any SPA Warrant or decrease the number of
        shares
        or class of stock obtainable upon exercise of any SPA Warrant without the
        written consent of the Holder. No such amendment shall be effective to the
        extent that it applies to less than all of the holders of the SPA Warrants
        then
        outstanding.

       

      10.  SEVERABILITY.
        If any
        provision of this Warrant or the application thereof becomes or is declared
        by a
        court of competent jurisdiction to be illegal, void or unenforceable, the
        remainder of the terms of this Warrant will continue in full force and
        effect.

       

      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      

      11.  GOVERNING
        LAW.
        This
        Warrant shall be governed by and construed and enforced in accor-dance with,
        and
        all questions concerning the construction, validity, interpretation and
        performance of this Warrant shall be governed by, the internal laws of the
        State
        of New York, without giving effect to any choice of law or conflict of law
        provision or rule (whether of the State of New York or any other jurisdictions)
        that would cause the application of the laws of any jurisdictions other than
        the
        State of New York.

       

      12.  CONSTRUCTION;
        HEADINGS.
        This
        Warrant shall be deemed to be jointly drafted by the Company and all the
        Buyers
        and shall not be construed against any person as the drafter hereof. The
        headings of this Warrant are for convenience of reference and shall not form
        part of, or affect the interpretation of, this Warrant.

       

      13.  DISPUTE
        RESOLUTION.
        In the
        case of a dispute as to the determination of the Exercise Price or the
        arithmetic calculation of the Warrant Shares, the Company shall submit the
        disputed determinations or arithmetic calculations via facsimile within two
        Business Days of receipt of the Exercise Notice giving rise to such dispute,
        as
        the case may be, to the Holder. If the Holder and the Company are unable
        to
        agree upon such determination or calculation of the Exercise Price or the
        Warrant Shares within three Business Days of such disputed determination
        or
        arithmetic calculation being submitted to the Holder, then the Company shall,
        within two Business Days submit via facsimile (a) the disputed determination
        of
        the Exercise Price to an independent, reputable investment bank selected
        by the
        Company and approved by the Holder or (b) the disputed arithmetic calculation
        of
        the Warrant Shares to the Company's independent, outside accountant. The
        Company
        shall cause, at its expense, the investment bank or the accountant, as the
        case
        may be, to perform the determinations or calculations and notify the Company
        and
        the Holder of the results no later than ten Business Days from the time it
        receives the disputed determinations or calculations. Such investment bank's
        or
        accountant's determination or calculation, as the case may be, shall be binding
        upon all parties absent demonstrable error.

       

      14.  REMEDIES,
        OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
        The
        remedies provided in this Warrant shall be cumulative and in addition to
        all
        other remedies available under this Warrant and the other Transaction Documents,
        at law or in equity (including a decree of specific performance and/or other
        injunctive relief), and nothing herein shall limit the right of the Holder
        right
        to pursue actual damages for any failure by the Company to comply with the
        terms
        of this Warrant. The Company acknowledges that a breach by it of its obligations
        hereunder will cause irreparable harm to the Holder and that the remedy at
        law
        for any such breach may be inadequate. The Company therefore agrees that,
        in the
        event of any such breach or threatened breach, the holder of this Warrant
        shall
        be entitled, in addition to all other available remedies, to an injunction
        restraining any breach, without the necessity of showing economic loss and
        without any bond or other security being required.

       

      15.  TRANSFER.This
        Warrant may be offered for sale, sold, transferred or assigned without the
        consent of the Company, except as may otherwise be required by Section 2(g)
        of
        the Securities Purchase Agreement.

       

      
        
          
          

        

        
          -12-

          
            

          

        

        
          
          

        

      

      16.  CERTAIN
        DEFINITIONS.
        For
        purposes of this Warrant, the following terms shall have the following
        meanings:

       

      (a)  "Black
        Scholes Value"
        means
        the value of this Warrant based on the Black and Scholes Option Pricing Model
        obtained from the "OV" function on Bloomberg determined as of the day
        immediately following the public announcement of the applicable Fundamental
        Transaction and reflecting (i) a risk-free interest rate corresponding to
        the
        U.S. Treasury rate for a period equal to the remaining term of this Warrant
        as
        of such date of request and (ii) an expected volatility equal to the greater
        of
        60% and the 100 day volatility obtained from the HVT function on
        Bloomberg.

       

      (b)  "Bloomberg"
        means
        Bloomberg Financial Markets.

       

      (c)  "Business
        Day"
        means
        any day other than Saturday, Sunday or other day on which commercial banks
        in
        The City of New York are authorized or required by law to remain
        closed.

       

      (d)  "Closing
        Bid Price"
        and
        "Closing
        Sale Price"
        means,
        for any security as of any date, the last closing bid price and last closing
        trade price, respectively, for such security on the Principal Market, as
        reported by Bloomberg, or, if the Principal Market begins to operate on an
        extended hours basis and does not designate the closing bid price or the
        closing
        trade price, as the case may be, then the last bid price or last trade price,
        respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
        by Bloomberg, or, if the Principal Market is not the principal securities
        exchange or trading market for such security, the last closing bid price
        or last
        trade price, respectively, of such security on the principal securities exchange
        or trading market where such security is listed or traded as reported by
        Bloomberg, or if the foregoing do not apply, the last closing bid price or
        last
        trade price, respectively, of such security in the over-the-counter market
        on
        the electronic bulletin board for such security as reported by Bloomberg,
        or, if
        no closing bid price or last trade price, respectively, is reported for such
        security by Bloomberg, the average of the bid prices, or the ask prices,
        respectively, of any market makers for such security as reported in the "pink
        sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).
        If
        the Closing Bid Price or the Closing Sale Price cannot be calculated for
        a
        security on a particular date on any of the foregoing bases, the Closing
        Bid
        Price or the Closing Sale Price, as the case may be, of such security on
        such
        date shall be the fair market value as mutually determined by the Company
        and
        the Holder. If the Company and the Holder are unable to agree upon the fair
        market value of such security, then such dispute shall be resolved pursuant
        to
        Section 12. All such determinations to be appropriately adjusted for any
        stock
        dividend, stock split, stock combination or other similar transaction during
        the
        applicable calculation period.

       

      
        (e)  "Common
          Stock"
          means
          (i) the Company's shares of Common Stock, $0.001 par value per share, and
          (ii) any share capital into which such Common Stock shall have been changed
          or any share capital resulting from a reclassification of such Common
          Stock.

         

        (f)  "Convertible
          Securities"
          means
          any stock or securities (other than Options) directly or indirectly convertible
          into or exercisable or exchangeable for shares of Common Stock.

         

      

      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      

      (g)  "Eligible
        Market"
        means
        the Principal Market, the American Stock Exchange, The New York Stock Exchange,
        Inc., the Nasdaq National Market or the Nasdaq Capital Market.

       

      (h)  "Expiration
        Date"
        means
        the date thirty-six months after the Issuance Date or, if such date falls
        on a
        day other than a Business Day or on which trading does not take place on
        the
        Principal Market (a "Holiday"),
        the
        next date that is not a Holiday.

       

      (i)  "Fundamental
        Transaction"
        means
        that the Company shall, directly or indirectly, in one or more related
        transactions, (i) consolidate or merge with or into (whether or not the Company
        is the surviving corporation) another Person, or (ii) sell, assign, transfer,
        convey or otherwise dispose of all or substantially all of the properties
        or
        assets of the Company to another Person, or (iii) allow another Person to
        make a
        purchase, tender or exchange offer that is accepted by such number of holders
        of
        outstanding shares of Common Stock resulting in such Person (together with
        any
        affiliates of such Person) holding more than 50% of the outstanding Common
        Stock
        of the Company following such purchase, tender or exchange offer, or (iv)
        consummate a stock purchase agreement or other business combination (including,
        without limitation, a reorganization, recapitalization, spin-off or scheme
        of
        arrangement) with another Person resulting in such other Person (together
        with
        any affiliates of such person) holding more than the 50% of the outstanding
        Common Stock of the Company following such stock purchase agreement or other
        business combination), or (v) reorganize, recapitalize or reclassify its
        Common
        Stock.

       

      (j)  "Options"
        means
        any rights, warrants or options to subscribe for or purchase shares of Common
        Stock or Convertible Securities.

       

      (k)  "Person"
        means
        an individual, a limited liability company, a partnership, a joint venture,
        a
        corporation, a trust, an unincorporated organization, any other entity and
        a
        government or any department or agency thereof.

       

      (l)  "Principal
        Market"
        means
        the OTC Bulletin Board.

       

      (m)  "Registration
        Rights Agreement"
        means
        that certain registration rights agreement by and among the Company and the
        Buyers.

       

      (n)  "Required
        Holders"
        means
        the holders of the SPA Warrants representing at least a majority of shares
        of
        Common Stock underlying the SPA Warrants then outstanding.

       

      (o)  "SPA
        Securities"
        means
        the Notes issued pursuant to the Securities Purchase Agreement.

       

      [Signature
        Page Follows]

      


      
        
          
          

        

        
          -14-

          
            

          

        

        
          
          

        

      

      
        
 

      

      IN
        WITNESS WHEREOF,
        the
        Company has caused this Warrant to Purchase Common Stock to be duly executed
        as
        of the Issuance Date set out above.

       

      
        
          	 	 	 
	 	
                  PHANTOM
                    FIBER CORPORATION

                
	 
 	 
 	 
 
	 	By:  	 
	 	
                  
                    

                  

                  Name: Jeffrey
                    Halloran

                  Title: Chief
                    Executive Officer

                
	 	 


        



      
        
          
          

        

        
          -15-

          
            

          

        

        
          
          

        

      



      EXHIBIT
        A

      


      EXERCISE
        NOTICE

       

      TO
        BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
        TO PURCHASE COMMON STOCK

      


      PHANTOM
        FIBER CORPORATION

       

      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:


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      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 December 30, 2005 from
        the
        Company and acknowledged and agreed to by PacWest Transfer, LLC.

       

      
        
          	 	 	 
	 	PHANTOM
                  FIBER CORPORATION
	 
 	 
 	 
 
	 	By:  	 
	 	
                  

                  Name:

                  Title