Document:

EXECUTION
      COPY

     

    [FORM
      OF SENIOR CONVERTIBLE NOTE]

     

    NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
      THE
      SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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 IN CONNECTION
      WITH
      A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
      THE
      SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
      THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 17(a) HEREOF. THE PRINCIPAL AMOUNT
      REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
      CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
      PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

     

     

    PHANTOM
      FIBER
      CORPORATION

     

    Senior
      Convertible Note

     

    
      	
              Issuance
                Date: [           ],
                2005

            	
              Principal:
                U.S. $_____________

            

    

    

    FOR
      VALUE RECEIVED,
      Phantom
      Fiber Corporation, a Delaware corporation (the "Company"),
      hereby promises to pay to the order of [MAGNETAR CAPITAL MASTER FUND,
      LTD.][OTHER BUYERS] or registered assigns ("Holder")
      the
      amount set out above as the Principal (as reduced pursuant to the terms hereof
      pursuant to redemption, conversion or otherwise, the "Principal")
      when
      due, whether upon the Maturity Date (as defined below), acceleration, redemption
      or otherwise (in each case in accordance with the terms hereof) and to pay
      interest ("Interest")
      on any
      outstanding Principal at a rate equal to one percent (1.0%) per annum (the
      "Interest
      Rate"),
      from
      the date set out above as the Issuance Date (the "Issuance Date")
      until
      the same becomes due and payable, whether upon an Interest Date (as defined
      below) or, the Maturity Date, acceleration, conversion, redemption or otherwise
      (in each case in accordance with the terms hereof). This Senior Convertible
      Note
      (including all Senior Convertible Notes issued in exchange, transfer or
      replacement hereof, this "Note")
      is one
      of an issue of Senior Convertible Notes issued pursuant to the Securities
      Purchase Agreement (as defined below) on the Closing Date (collectively, the
      "Notes"
      and
      such other Senior Convertible Notes, the "Other Notes").
      Certain capitalized terms used herein are defined in Section 28.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (1)  MATURITY.
      On the
      Maturity Date, the Holder shall surrender the Note to the Company and the
      Company shall pay to the Holder an amount in cash representing all outstanding
      Principal and accrued and unpaid Interest and accrued and unpaid Late Charges,
      if any. 

     

    (2)  INTEREST;
      INTEREST RATE.
      Interest on this Note shall commence accruing on the Issuance Date and shall
      be
      computed on the basis of a 365-day year and actual days elapsed and shall be
      payable semi-annually in arrears on each [January 1st
      and July
      1st]
      during
      the period beginning on the Issuance Date and ending on, and including, the
      Maturity Date (each, an "Interest Date")
      with
      the first Interest Date being July 1, 2006. Interest shall be payable on each
      Interest Date, to the record holder of this Note on the applicable Interest
      Date, and to the extent that any Principal amount of this Note is converted
      prior to such Interest Date, accrued and unpaid Interest with respect to such
      converted Principal amount and accrued and unpaid Late Charges with respect
      to
      such Principal and Interest shall be paid through the Conversion Date (as
      defined below) on the next succeeding Interest Date to the record holder of
      this
      Note on the applicable Conversion Date, in shares of Common Stock ("Interest
      Shares")
      or, at
      the option of the Company, in cash ("Cash
      Interest")
      or a
      combination thereof, provided that the Interest which accrued during any period
      may be payable in Interest Shares if, and only if, the Company delivers written
      notice (each, an "Interest
      Election Notice")
      of
      such election to each holder of the Notes on or prior to the tenth
      (10th)
      Trading
      Day prior to the Interest Date (each, an "Interest
      Notice Due Date").
      Each
      Interest Election Notice must specify the amount of Interest that shall be
      paid
      in Interest Shares and the amount of Interest, if any, that shall be paid as
      Cash Interest. Interest to be paid on an Interest Date in Interest Shares shall
      be paid in a number of fully paid and nonassessable shares (rounded to the
      nearest whole share in accordance with Section 3(a)) of Common Stock equal
      to
      the quotient of (a) the amount of Interest payable on such Interest Date less
      any Cash Interest paid and (b) the Interest Conversion Price in effect on the
      applicable Interest Date. If any Interest Shares are to be paid on an Interest
      Date, then the Company shall (X) provided that the Transfer Agent is
      participating in the DTC Fast Automated Securities Transfer Program and such
      action is not prohibited by applicable law or regulation or any applicable
      policy of DTC, credit such aggregate number of Interest Shares to which the
      Holder shall be entitled to the Holder's or its designee's balance account
      with
      DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
      foregoing shall not apply, issue and deliver on the applicable Interest Date,
      to
      the address set forth in the register maintained by the Company for such purpose
      pursuant to the Securities Purchase Agreement or to such address as specified
      by
      the Holder in writing to the Company at least two (2) Business Days prior to
      the
      applicable Interest Date, a certificate, registered in the name of the Holder
      or
      its designee, for the number of Interest Shares to which the Holder shall be
      entitled. Notwithstanding the foregoing, the Company shall not be entitled
      to
      pay Interest in Interest Shares and shall be required to pay such Interest
      in
      cash as Cash Interest on the applicable Interest Date if, unless consented
      to in
      writing by the Holder, there has been an Equity Conditions Failure. Prior to
      the
      payment of Interest on an Interest Date, Interest on this Note shall accrue
      at
      the Interest Rate. Upon the occurrence and during the continuance of an Event
      of
      Default, the Interest Rate shall be increased to fifteen percent (15%). In
      the
      event that such Event of Default is subsequently cured, the adjustment referred
      to in the preceding sentence shall cease to be effective as of the date of
      such
      cure; provided that the Interest as calculated and unpaid at such increased
      rate
      during the continuance of such Event of Default shall continue to apply to
      the
      extent relating to the days after the occurrence of such Event of Default
      through and including the date of cure of such Event of Default. The Company
      shall pay any and all taxes that may be payable with respect to the issuance
      and
      delivery of Interest Shares; provided
      that the
      Company shall not be required to pay any tax that may be payable in respect
      of
      any issuance of Interest Shares to any Person other than the Holder or with
      respect to any income tax due by the Holder with respect to such Interest
      Shares.

     

    
      
        
        

      

      
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    (3)  CONVERSION
      OF NOTES.
      This
      Note shall be convertible into shares of the Company's common stock, par value
      $0.001 per share (the "Common
      Stock"),
      on
      the terms and conditions set forth in this Section 3.

     

    (a)  Conversion
      Right.
      Subject
      to the provisions of Section 3(d), at any time or times on or after the Issuance
      Date, the Holder shall be entitled to convert any portion of the outstanding
      and
      unpaid Conversion Amount (as defined below) into fully paid and nonassessable
      shares of Common Stock in accordance with Section 3(c), at the Conversion Rate
      (as defined below). The Company shall not issue any fraction of a share of
      Common Stock upon any conversion. If the issuance would result in the issuance
      of a fraction of a share of Common Stock, the Company shall round such fraction
      of a share of Common Stock up to the nearest whole share. The Company shall
      pay
      any and all taxes that may be payable with respect to the issuance and delivery
      of Common Stock upon conversion of any Conversion Amount.

     

    (b)  Conversion
      Rate.
      The
      number of shares of Common Stock issuable upon conversion of any Conversion
      Amount pursuant to Section 3(a) shall be determined by dividing (x) such
      Conversion Amount by (y) the Conversion Price (the "Conversion
      Rate").

     

    (i)  "Conversion
      Amount"
      means
      the portion of the Principal to be converted, redeemed or otherwise with respect
      to which this determination is being made.

     

    (ii)  "Conversion
      Price"
      means,
      as of any Conversion Date (as defined below) or other date of determination,
      $0.50, subject to adjustment as provided herein. 

     

    (c)  Mechanics
      of Conversion.

     

    (i)  Optional
      Conversion.
      To
      convert any Conversion Amount into shares of Common Stock on any date (a
      "Conversion
      Date"),
      the
      Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
      on or
      prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice
      of conversion in the form attached hereto as Exhibit
      I
      (the
      "Conversion
      Notice")
      to the
      Company and (B) if required by Section 3(c)(iii), surrender this Note to a
      common carrier for delivery to the Company as soon as practicable on or
      following such date (or an indemnification undertaking with respect to this
      Note
      in the case of its loss, theft or destruction). On or before the first
      (1st)
      Business Day following the date of receipt of a Conversion Notice, the Company
      shall transmit by facsimile a confirmation of receipt of such Conversion Notice
      to the Holder and the Transfer Agent. On or before the second (2nd)
      Business Day following the date of receipt of a Conversion Notice (the
      "Share
      Delivery Date"),
      the
      Company shall (X) provided that the Transfer Agent is participating in the
      DTC
      Fast Automated Securities Transfer Program, credit such aggregate number of
      shares of Common Stock to which the Holder shall be entitled 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 deliver to the address
      as
      specified in the Conversion Notice, a certificate, registered in the name of
      the
      Holder or its designee, for the number of shares of Common Stock to which the
      Holder shall be entitled. If this Note is physically surrendered for conversion
      as required by Section 3(c)(iii) and the outstanding Principal of this Note
      is
      greater than the Principal portion of the Conversion Amount being converted,
      then the Company shall as soon as practicable and in no event later than three
      (3) Business Days after receipt of this Note and at its own expense, issue
      and
      deliver to the holder a new Note (in accordance with Section 17(d)) representing
      the outstanding Principal not converted. The Person or Persons entitled to
      receive the shares of Common Stock issuable upon a conversion of this Note
      shall
      be treated for all purposes as the record holder or holders of such shares
      of
      Common Stock on the Conversion Date. 

     

    
      
        
        

      

      
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    (ii)  Company's
      Failure to Timely Convert.
      If the
      Company shall fail to issue a certificate to the Holder or credit the Holder's
      balance account with DTC for the number of shares of Common Stock to which
      the
      Holder is entitled upon conversion of any Conversion Amount on or prior to
      the
      date which is three (3) Trading Days after the Conversion Date (a "Conversion
      Failure"),
      then
      (A) the Company shall pay damages to the Holder in cash for each day of such
      Conversion Failure in an amount equal to 3.0% of the product of (I) the sum
      of
      the number of shares of Common Stock not issued to the Holder on or prior to
      the
      Share Delivery Date and to which the Holder is entitled, and (II) the Closing
      Sale Price of the shares of Common Stock on the Share Delivery Date and (B)
      the
      Holder, upon written notice to the Company, may void its Conversion Notice
      with
      respect to, and retain or have returned, as the case may be, any portion of
      this
      Note that has not been converted pursuant to such Conversion Notice;
provided
      that the
      voiding of a Conversion Notice shall not affect the Company's obligations to
      make any payments which have accrued prior to the date of such notice pursuant
      to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within
      three (3) Trading Days after the Company's receipt of the facsimile copy of
      a
      Conversion Notice the Company shall fail to issue and deliver a certificate
      to
      the Holder or credit the Holder's balance account with DTC for the number of
      shares of Common Stock to which the Holder is entitled upon such holder's
      conversion of any Conversion Amount (a "Conversion
      Failure"),
      and
      if on or after such Trading Day the Holder purchases (in an open market
      transaction or otherwise) Common Stock to deliver in satisfaction of a sale
      by
      the Holder of Common Stock issuable upon such conversion 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 Common Stock) shall terminate, or (ii) promptly honor its obligation to
      deliver to the Holder a certificate or certificates representing such 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 Conversion Date.

     

    (iii)  Book-Entry.
      Notwithstanding anything to the contrary set forth herein, upon conversion
      of
      any portion of this Note in accordance with the terms hereof, the Holder shall
      not be required to physically surrender this Note to the Company unless (A)
      the
      full Conversion Amount represented by this Note is being converted or (B) the
      Holder has provided the Company with prior written notice (which notice may
      be
      included in a Conversion Notice) requesting reissuance of this Note upon
      physical surrender of this Note. The Holder and the Company shall maintain
      records showing the Principal, Interest and Late Charges converted and the
      dates
      of such conversions or shall use such other method, reasonably satisfactory
      to
      the Holder and the Company, so as not to require physical surrender of this
      Note
      upon conversion.

     

    
      
        
        

      

      
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    (iv)  Pro
      Rata Conversion; Disputes.
      In the
      event that the Company receives a Conversion Notice from more than one holder
      of
      Notes for the same Conversion Date and the Company can convert some, but not
      all, of such portions of the Notes submitted for conversion, the Company,
      subject to Section 3(d), shall convert from each holder of Notes electing to
      have Notes converted on such date a pro rata amount of such holder's portion
      of
      its Notes submitted for conversion based on the principal amount of Notes
      submitted for conversion on such date by such holder relative to the aggregate
      principal amount of all Notes submitted for conversion on such date. In the
      event of a dispute as to the number of shares of Common Stock issuable to the
      Holder in connection with a conversion of this Note, the Company shall issue
      to
      the Holder the number of shares of Common Stock not in dispute and resolve
      such
      dispute in accordance with Section 22.

     

    (d)  Limitations
      on Conversions.
      The
      Company shall not effect any conversion of this Note, and the Holder of this
      Note shall not have the right to convert any portion of this Note pursuant
      to
      Section 3(a), to the extent that after giving effect to such conversion, the
      Holder (together with the Holder's affiliates) would beneficially own in excess
      of 4.99% (the "Maximum
      Percentage")
      of the
      number of shares of Common Stock outstanding immediately after giving effect
      to
      such conversion. For purposes of the foregoing sentence, the number of shares
      of
      Common Stock beneficially owned by the Holder and its affiliates shall include
      the number of shares of Common Stock issuable upon conversion of this Note
      with
      respect to which the determination of such sentence is being made, but shall
      exclude the number of shares of Common Stock which would be issuable upon (A)
      conversion of the remaining, nonconverted portion of this Note beneficially
      owned by the Holder or any of its affiliates and (B) exercise or conversion
      of
      the unexercised or nonconverted portion of any other securities of the Company
      (including, without limitation, any Other Notes or warrants) subject to a
      limitation on conversion or exercise analogous to the limitation contained
      herein beneficially owned by the Holder or any of its affiliates. Except as
      set
      forth in the preceding sentence, for purposes of this Section 3(d)(i),
      beneficial ownership shall be calculated in accordance with Section 13(d) of
      the
      Securities Exchange Act of 1934, as amended. For purposes of this Section
      3(d)(i), 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 (x) the Company's most recent Form 10-Q or Form 8-K, as the case may be
      (y) a
      more recent public announcement by the Company or (z) 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 this Note, by the Holder or 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
      Notes.

     

    
      
        
        

      

      
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    (4)  RIGHTS
      UPON EVENT OF DEFAULT.

     

    (a)  Event
      of Default.
      Each of
      the following events shall constitute an "Event
      of Default":

     

    (i)  the
      failure of the applicable Registration Statement required to be filed pursuant
      to the Registration Rights Agreement to be declared effective by the SEC on
      or
      prior to the date that is sixty (60) days after the applicable Effectiveness
      Deadline (as defined in the Registration Rights Agreement), or, while the
      applicable Registration Statement is required to be maintained effective
      pursuant to the terms of the Registration Rights Agreement, the effectiveness
      of
      the applicable Registration Statement lapses for any reason (including, without
      limitation, the issuance of a stop order) or is unavailable to any holder of
      the
      Notes for sale of all of such holder's Registrable Securities (as defined in
      the
      Registration Rights Agreement) in accordance with the terms of the Registration
      Rights Agreement, and such lapse or unavailability continues for a period of
      ten
      (10) consecutive days or for more than an aggregate of thirty (30) days in
      any
      365-day period (other than days during an Allowable Grace Period (as defined
      in
      the Registration Rights Agreement));

     

    (ii)  the
      suspension from trading or failure of the Common Stock to be listed on an
      Eligible Market for a period of five (5) consecutive days or for more than
      an
      aggregate of ten (10) days in any 365-day period;

     

    (iii)  the
      Company's (A) failure to cure a Conversion Failure by delivery of the required
      number of shares of Common Stock within ten (10) Business Days after the
      applicable Conversion Date or (B) notice, written or oral, to any holder of
      the
      Notes, including by way of public announcement or through any of its agents,
      at
      any time, of its intention not to comply with a request for conversion of any
      Notes into shares of Common Stock that is tendered in accordance with the
      provisions of the Notes, other than pursuant to Section 3(d);

     

    (iv)  at
      any
      time following the tenth (10th)
      consecutive Business Day that the Holder's Authorized Share Allocation is less
      than the number of shares of Common Stock that the Holder would be entitled
      to
      receive upon a conversion of the full Conversion Amount of this Note (without
      regard to any limitations on conversion set forth in Section 3(d) or
      otherwise);

     

    (v)  the
      Company's failure to pay to the Holder any amount of Principal, Interest, Late
      Charges or other amounts when and as due under this Note (including, without
      limitation, the Company's failure to pay any redemption payments or amounts
      hereunder) or any other Transaction Document (as defined in the Securities
      Purchase Agreement) or any other agreement, document, certificate or other
      instrument delivered in connection with the transactions contemplated hereby
      and
      thereby to which the Holder is a party, except, in the case of a failure to
      pay
      Interest and Late Charges when and as due, in which case only if such failure
      continues for a period of at least five (5) Business Days;

     

    
      
        
        

      

      
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    (vi)  any
      default under, redemption of or acceleration prior to maturity of any
      Indebtedness (as defined in Section 3(s) of the Securities Purchase Agreement)
      in excess of $100,000 of the Company or any of its Subsidiaries (as defined
      in
      Section 3(a) of the Securities Purchase Agreement) other than with respect
      to
      any Other Notes;

     

    (vii)  the
      Company or any of its Subsidiaries, pursuant to or within the meaning of Title
      11, U.S. Code, or any similar Federal, foreign or state law for the relief
      of
      debtors (collectively, "Bankruptcy
      Law"),
      (A)
      commences a voluntary case, (B) consents to the entry of an order for relief
      against it in an involuntary case, (C) consents to the appointment of a
      receiver, trustee, assignee, liquidator or similar official (a "Custodian"),
      (D)
      makes a general assignment for the benefit of its creditors or (E) admits in
      writing that it is generally unable to pay its debts as they become
      due;

     

    (viii)  a
      court
      of competent jurisdiction enters an order or decree under any Bankruptcy Law
      that (A) is for relief against the Company or any of its Subsidiaries in an
      involuntary case, (B) appoints a Custodian of the Company or any of its
      Subsidiaries or (C) orders the liquidation of the Company or any of its
      Subsidiaries;

     

    (ix)  a
      final
      judgment or judgments for the payment of money aggregating in excess of $100,000
      are rendered against the Company or any of its Subsidiaries and which judgments
      are not, within sixty (60) days after the entry thereof, bonded, discharged
      or
      stayed pending appeal, or are not discharged within sixty (60) days after the
      expiration of such stay; provided, however, that any judgment which is covered
      by insurance or an indemnity from a credit worthy party shall not be included
      in
      calculating the $100,000 amount set forth above so long as the Company provides
      the Holder a written statement from such insurer or indemnity provider (which
      written statement shall be reasonably satisfactory to the Holder) to the effect
      that such judgment is covered by insurance or an indemnity and the Company
      will
      receive the proceeds of such insurance or indemnity within thirty (30) days
      of
      the issuance of such judgment;

     

    (x)  the
      Company breaches any representation, warranty, covenant or other term or
      condition of any Transaction Document, except, in the case of a breach of a
      covenant or other term or condition of any Transaction Document which is
      curable, only if such breach continues for a period of at least ten (10)
      consecutive Business Days;

     

    (xi)  any
      breach or failure in any respect to comply with either of Section 13 of this
      Note; or

     

    (xii)  any
      Event
      of Default (as defined in the Other Notes) occurs with respect to any Other
      Notes.

     

    
      
        
        

      

      
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    (b)  Redemption
      Right.
      Promptly after the occurrence of an Event of Default with respect to this Note
      or any Other Note, the Company shall deliver written notice thereof via
      facsimile and overnight courier (an "Event
      of Default Notice")
      to the
      Holder. At any time after the earlier of the Holder's receipt of an Event of
      Default Notice and the Holder becoming aware of an Event of Default, the Holder
      may require the Company to redeem all or any portion of this Note by delivering
      written notice thereof (the "Event
      of Default Redemption Notice")
      to the
      Company, which Event of Default Redemption Notice shall indicate the portion
      of
      this Note the Holder is electing to redeem. Each portion of this Note subject
      to
      redemption by the Company pursuant to this Section 4(b) shall be redeemed by
      the
      Company at a price equal to the greater of (i) the product of (x) the sum of
      the
      Conversion Amount to be redeemed together with accrued and unpaid Interest
      with
      respect to such Conversion Amount and accrued and unpaid Late Charges with
      respect to such Conversion Amount and Interest and (y) the Redemption Premium
      and (ii) the product of (A) the Conversion Rate with respect to such sum of
      the
      Conversion Amount together with accrued and unpaid Interest with respect to
      such
      Conversion Amount and accrued and unpaid Late Charges with respect to such
      Conversion Amount and Interest in effect at such time as the Holder delivers
      an
      Event of Default Redemption Notice and (B) the Closing Sale Price of the Common
      Stock on the date immediately preceding such Event of Default (the "Event
      of Default Redemption
      Price").
      Redemptions required by this Section 4(b) shall be made in accordance with
      the
      provisions of Section 11. To the extent redemptions required by this Section
      4(b) are deemed or determined by a court of competent jurisdiction to be
      prepayments of the Note by the Company, such redemptions shall be deemed to
      be
      voluntary prepayments. The parties hereto agree that in the event of the
      Company's redemption of any portion of the Note under this Section 4(b), the
      Holder's damages would be uncertain and difficult to estimate because of the
      parties' inability to predict future interest rates and the uncertainty of
      the
      availability of a suitable substitute investment opportunity for the Holder.
      Accordingly, any Redemption Premium due under this Section 4(b) is intended
      by
      the parties to be, and shall be deemed, a reasonable estimate of the Holder's
      actual loss of its investment opportunity and not as a penalty. 

     

    (5)  RIGHTS
      UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

     

    (a)  Assumption.
      The
      Company shall not enter into or be party to a Fundamental Transaction unless
      (i)  the Successor Entity assumes in writing all of the obligations of the
      Company under this Note and the other Transaction Documents in accordance with
      the provisions of this Section 5(a) pursuant to written agreements in form
      and
      substance reasonably satisfactory to the Required Holders and approved by the
      Required Holders prior to such Fundamental Transaction, including agreements
      to
      deliver to each holder of Notes in exchange for such Notes a security of the
      Successor Entity evidenced by a written instrument substantially similar in
      form
      and substance to the Notes, including, without limitation, having a principal
      amount and interest rate equal to the principal amounts and the interest rates
      of the Notes held by such holder and having similar ranking to the Notes, and
      satisfactory to the Required Holders and (ii)  the Successor Entity
      (including its Parent Entity) is a publicly traded corporation whose common
      stock is quoted on or listed for trading on an Eligible Market (a "Public
      Successor Entity").
      Upon
      the occurrence of any Fundamental Transaction, the Successor Entity shall
      succeed to, and be substituted for (so that from and after the date of such
      Fundamental Transaction, the provisions of this Note referring to the "Company"
      shall refer instead to the Successor Entity), and may exercise every right
      and
      power of the Company and shall assume all of the obligations of the Company
      under this Note with the same effect as if such Successor Entity had been named
      as the Company herein. Upon consummation of the Fundamental Transaction, the
      Successor Entity shall deliver to the Holder confirmation that there shall
      be
      issued upon conversion or redemption of this Note at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      shares of the Company's Common Stock (or
      other
      securities, cash, assets or other property) purchasable
      upon the conversion or redemption of the Notes prior to such Fundamental
      Transaction,
      such
      shares of the publicly traded common stock (or its equivalent) of the Successor
      Entity (including its Parent Entity), as adjusted in accordance with the
      provisions of this Note. 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 conversion or redemption of this Note.

     

    
      
        
        

      

      
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    (b)  Redemption
      Right.
      No
      sooner than fifteen (15) days nor later than ten (10) days prior to the
      consummation of a Change of Control, but not prior to the public announcement
      of
      such Change of Control, the Company shall deliver written notice thereof via
      facsimile and overnight courier to the Holder (a "Change
      of Control Notice").
      At
      any time during the period beginning after the Holder's receipt of a Change
      of
      Control Notice and ending on the date of the consummation of such Change of
      Control (or, in the event a Change of Control Notice is not delivered at least
      ten (10) days prior to a Change of Control, at any time on or after the date
      which is ten (10) days prior to a Change of Control and ending ten (10) days
      after the consummation of such Change of Control), the Holder may require the
      Company to redeem all or any portion of this Note by delivering written notice
      thereof ("Change
      of Control Redemption Notice")
      to the
      Company, which Change of Control Redemption Notice shall indicate the Conversion
      Amount the Holder is electing to redeem. The portion of this Note subject to
      redemption pursuant to this Section 5 shall be redeemed by the Company at a
      price equal to the greater of (i) the product of (x) 125% of the sum of the
      Conversion Amount being redeemed together with accrued and unpaid Interest
      with
      respect to such Conversion Amount and accrued and unpaid Late Charges with
      respect to such Conversion Amount and Interest and (y) the quotient determined
      by dividing (A) the Closing Sale Price of the Common Stock immediately following
      the public announcement of such proposed Change of Control by (B) the Conversion
      Price and (ii) 125% of the sum of the Conversion Amount being redeemed together
      with accrued and unpaid Interest with respect to such Conversion Amount and
      accrued and unpaid Late Charges with respect to such Conversion Amount and
      Interest (the "Change
      of Control Redemption Price").
      Redemptions required by this Section 5 shall be made in accordance with the
      provisions of Section 11 and shall have priority to payments to stockholders
      in
      connection with a Change of Control. To the extent redemptions required by
      this
      Section 5(b) are deemed or determined by a court of competent jurisdiction
      to be
      prepayments of the Note by the Company, such redemptions shall be deemed to
      be
      voluntary prepayments. Notwithstanding anything to the contrary in this Section
      5, but subject to Section 3(d), until the Change of Control Redemption Price
      (together with any interest thereon) is paid in full, the Conversion Amount
      submitted for redemption under this Section 5(c) (together with any interest
      thereon) may be converted, in whole or in part, by the Holder into Common Stock
      pursuant to Section 3. The parties hereto agree that in the event of the
      Company's redemption of any portion of the Note under this Section 5(b), the
      Holder's damages would be uncertain and difficult to estimate because of the
      parties' inability to predict future interest rates and the uncertainty of
      the
      availability of a suitable substitute investment opportunity for the Holder.
      Accordingly, any redemption premium due under this Section 5(b) is intended
      by
      the parties to be, and shall be deemed, a reasonable estimate of the Holder's
      actual loss of its investment opportunity and not as a penalty. 

     

    
      
        
        

      

      
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    (6)  RIGHTS
      UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a)  Purchase
      Rights.
      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 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 conversion of this Note (without taking into account any
      limitations or restrictions on the convertibility of this Note) 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 Common Stock are to be determined for the grant, issue or
      sale
      of such Purchase Rights.

     

    (b)  Other
      Corporate Events.
      In
      addition to and not in substitution for any other rights hereunder, prior to
      the
      consummation of any Fundamental Transaction pursuant to which holders of shares
      of Common Stock are entitled to receive securities or other assets with respect
      to or in exchange for shares of Common Stock (a "Corporate
      Event"),
      the
      Company shall make appropriate provision to insure that the Holder will
      thereafter have the right to receive upon a conversion of this Note, (i) in
      addition to the shares of Common Stock receivable upon such conversion, such
      securities or other assets to which the Holder would have been entitled with
      respect to such shares of Common Stock had such shares of Common Stock been
      held
      by the Holder upon the consummation of such Corporate Event (without taking
      into
      account any limitations or restrictions on the convertibility of this Note)
      or
      (ii) in lieu of the shares of Common Stock otherwise receivable upon such
      conversion, such securities or other assets received by the holders of shares
      of
      Common Stock in connection with the consummation of such Corporate Event in
      such
      amounts as the Holder would have been entitled to receive had this Note
      initially been issued with conversion rights for the form of such consideration
      (as opposed to shares of Common Stock) at a conversion rate for such
      consideration commensurate with the Conversion Rate. Provision made pursuant
      to
      the preceding sentence shall be in a form and substance satisfactory to the
      Required Holders. The provisions of this Section shall apply similarly and
      equally to successive Corporate Events and shall be applied without regard
      to
      any limitations on the conversion or redemption of this Note.

     

    (7)  RIGHTS
      UPON ISSUANCE OF OTHER SECURITIES.

     

    (a)  Adjustment
      of Conversion Price upon Issuance of Common Stock.
      If and
      whenever on or after the Subscription Date, the Company issues or sells, or
      in
      accordance with this Section 7(a) 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 or sold by the Company in connection with
      any
      Excluded Security) for a consideration per share (the "New
      Issuance Price")
      less
      than a price (the "Applicable
      Price")
      equal
      to the Conversion Price in effect immediately prior to such issue or sale (the
      foregoing a "Dilutive
      Issuance"),
      then
      immediately after such Dilutive Issuance the Conversion Price then in effect
      shall be reduced to an amount equal to the New
      Issuance Price. For
      purposes of determining the adjusted Conversion Price under this Section 7(a),
      the following shall be applicable:

     

    
      
        
        

      

      
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    (i)  Issuance
      of Options.
      If the
      Company in any manner grants or sells 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 or
      exchange or exercise of any Convertible Securities issuable upon exercise of
      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 7(a)(i), the "lowest price per share for
      which one share
      of
Common
      Stock is issuable upon the exercise of any such Option or upon conversion or
      exchange or exercise of any Convertible Securities issuable upon exercise of
      such Option" 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 granting or sale of the Option, upon exercise of the Option and
      upon
      conversion or exchange or exercise of any Convertible Security issuable upon
      exercise of such Option. No further adjustment of the Conversion Price shall
      be
      made upon the actual issuance of such Common Stock or of such Convertible
      Securities upon the exercise of such Options or upon the actual issuance of
      such
      Common Stock upon conversion or exchange or exercise of such Convertible
      Securities.

     

    (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 such
      conversion or exchange or exercise 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 of sale of
      such
      Convertible Securities for such price per share. For the purposes of this
      Section 7(a)(ii), the "price per share for which one share of Common Stock
      is
      issuable upon such conversion or exchange or exercise" 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 issuance or
      sale
      of the Convertible Security and upon the conversion or exchange or exercise
      of
      such Convertible Security. No further adjustment of the Conversion Price shall
      be made upon the actual issuance of such Common Stock upon conversion or
      exchange or exercise 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 the Conversion Price had been or are to be made pursuant
      to
      other provisions of this Section 7(a), no further adjustment of the Conversion
      Price 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, exchange or exercise of any Convertible
      Securities, or the rate at which any Convertible Securities are convertible
      into
      or exchangeable or exercisable for Common Stock changes at any time, the
      Conversion Price in effect at the time of such change shall be adjusted to
      the
      Conversion Price which would have been in effect at such time had such Options
      or Convertible Securities provided for such changed purchase price, additional
      consideration or changed conversion rate, as the case may be, at the time
      initially granted, issued or sold. For purposes of this Section 7(a)(iii),
      if
      the terms of any Option or Convertible Security that was outstanding as of
      the
      Subscription Date are changed in the manner described in the immediately
      preceding sentence, then such Option or Convertible Security and the Common
      Stock deemed issuable upon exercise, conversion or exchange thereof shall be
      deemed to have been issued as of the date of such change. No adjustment shall
      be
      made if such adjustment would result in an increase of the Conversion Price
      then
      in effect.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    (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 $.01. If any 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 Common Stock,
      Options or Convertible Securities are issued or sold for a consideration other
      than cash, the amount of the consideration other than cash 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 securities on
      the
      date of receipt. If any 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 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 (10th)
      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 deemed 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 Common Stock for the purpose of
      entitling them (A) to receive a dividend or other distribution payable in Common
      Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
      Common Stock, Options or Convertible Securities, then such record date will
      be
      deemed to be the date of the issue or sale of the 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.

     

    (b)  Adjustment
      of Conversion Price upon Subdivision or Combination 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
      Conversion Price in effect immediately prior to such subdivision will be
      proportionately reduced. 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 Conversion Price in effect immediately prior to such combination
      will be proportionately increased. Notwithstanding the foregoing, no adjustment
      shall be made pursuant to this Section 7(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.

     

    
      
        
        

      

      
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    (c)  Other
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section 7 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 Conversion Price so as to protect the rights
      of
      the Holder under this Note; provided that no such adjustment will increase
      the
      Conversion Price as otherwise determined pursuant to this Section
      7.

     

    (d)  Adjustment.
      If (i)
      the Company fails to meet the Agreements Condition and (ii) there is no ten
      (10)
      consecutive Trading Day period following the Issuance Date and prior to December
      31, 2006 during which the Closing Sale Price of the Common Stock for each
      Trading Day during such period is greater than $2.00 per share of Common Stock,
      then there shall be a one time adjustment to the Conversion Price such that
      the
      Conversion Price shall be reset to equal 75% of the Conversion Price then in
      effect.

     

    (8)  COMPANY'S
      RIGHT OF MANDATORY CONVERSION.

     

    (a)  Mandatory
      Conversion.
      If at
      any time (i) the Closing Sale Price of the Common Stock for each Trading Day
      of
      any twenty (20) consecutive Trading Day period following the Issuance Date
      (the
      "Mandatory
      Conversion Measuring Period")
      exceeds either (x) $2.00 (subject to appropriate adjustments for stock splits,
      stock dividends, stock combinations and other similar transactions after the
      Subscription Date), (ii) the average daily trading volume (as reported on
      Bloomberg) of the Common Stock for each day of the Mandatory Conversion
      Measuring Period exceeds 100,000 shares and (iii) there has been no Equity
      Conditions Failure, the Company shall have the right to require the Holder
      to
      convert all, but not less than all, of the Conversion Amount then remaining
      under this Note, in each case as
      designated in the Mandatory Conversion Notice (as defined below) into fully
      paid, validly issued and nonassessable shares of Common Stock in accordance
      with
      Section 3(c) hereof at the Conversion Rate as of the Mandatory Conversion
      Date (as defined below) (a "Mandatory
      Conversion").
      The
      Company may exercise its right to require conversion under this Section 8(a)
      by
      delivering within not more than two (2) Trading Days following
      the end of such Mandatory Conversion Measuring Period a
      written
      notice thereof by facsimile and overnight courier to all, but not less than
      all,
      of the holders of Notes and the Transfer Agent (the "Mandatory
      Conversion Notice"
      and the
      date all of the holders received such notice by facsimile is referred to as
      the
      "Mandatory
      Conversion Notice Date").
      The
      Mandatory Conversion Notice shall be irrevocable. The Mandatory Conversion
      Notice shall state (i) the Trading Day selected for the Mandatory Conversion
      in
      accordance with this Section 8(a), which Trading Day shall be at least twenty
      (20) Business Days but not more than sixty (60) Business Days following the
      Mandatory Conversion Notice Date (the "Mandatory
      Conversion Date"),
      (ii)
      the aggregate Conversion Amount of the Notes subject to mandatory conversion
      from the Holder and all of the holders of the Notes pursuant to this Section
      8
      (and analogous provisions under the Other Notes) and (iii) the number of shares
      of Common Stock to be issued to such Holder on the Mandatory Conversion Date.
      Any shares of Common Stock delivered in connection with a Mandatory Conversion
      hereunder shall be accompanied by any accrued and unpaid Interest with respect
      to such Conversion Amount subject to such Mandatory Conversion and accrued
      and
      unpaid Late Charges with respect to such Conversion Amount and
      Interest.

     

    
      
        
        

      

      
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    (b)  Pro
      Rata Conversion Requirement.
      If the
      Company elects to cause a conversion of any Conversion Amount of this Note
      pursuant to Section 8(a), then it must simultaneously take the same action
      in
      the same proportion with respect to the Other Notes. All Conversion Amounts
      converted by the Holder after the Mandatory Conversion Notice Date shall reduce
      the Conversion Amount of this Note required to be converted on the Mandatory
      Conversion Date. If the Company has elected a Mandatory Conversion, the
      mechanics of conversion set forth in Section 3(c) shall apply, to the extent
      applicable, as if the Company and the Transfer Agent had received from the
      Holder on the Mandatory Conversion Date a Conversion Notice with respect to
      the
      Conversion Amount being converted pursuant to the Mandatory
      Conversion.

     

    (9)  NONCIRCUMVENTION.
      The
      Company hereby covenants and agrees that the Company will not, by amendment
      of
      its Certificate 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, avoid or seek to avoid the
      observance or performance of any of the terms of this Note, and will at all
      times in good faith carry out all of the provisions of this Note and take all
      action as may be required to protect the rights of the Holder of this Note.
      

     

    (10)  RESERVATION
      OF AUTHORIZED SHARES.

     

    (a)  Reservation.
      The
      Company shall initially reserve out of its authorized and unissued Common Stock
      a number of shares of Common Stock for each of the Notes equal to 125% of the
      Conversion Rate with respect to the Conversion Amount of each such Note as
      of
      the Issuance Date.
      So
      long as any of the Notes are outstanding, the Company shall take all action
      necessary to reserve and keep available out of its authorized and unissued
      Common Stock, solely for the purpose of effecting the conversion of the Notes,
      125% of the number of shares of Common Stock as shall from time to time be
      necessary to effect the conversion of all of the Notes then outstanding;
      provided that at no time shall the number of shares of Common Stock so reserved
      be less than the number of shares required to be reserved by the previous
      sentence (without regard to any limitations on conversions) (the "Required
      Reserve Amount").
      The
      initial number of shares of Common Stock reserved for conversions of the Notes
      and each increase in the number of shares so reserved shall be allocated pro
      rata among the holders of the Notes based on the principal amount of the Notes
      held by each holder at the Closing (as defined in the Securities Purchase
      Agreement) or increase in the number of reserved shares, as the case may be
      (the
      "Authorized
      Share Allocation").
      In
      the event that a holder shall sell or otherwise transfer any of such holder's
      Notes, each transferee shall be allocated a pro rata portion of such holder's
      Authorized Share Allocation. Any shares of Common Stock reserved and allocated
      to any Person which ceases to hold any Notes shall be allocated to the remaining
      holders of Notes, pro rata based on the principal amount of the Notes then
      held
      by such holders.

     

    
      
        
        

      

      
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    (b)  Insufficient
      Authorized Shares.
      If at
      any time while any of the Notes remain outstanding the Company does not have
      a
      sufficient number of authorized and unreserved shares of Common Stock to satisfy
      its obligation to reserve for issuance upon conversion of the Notes at least
      a
      number of shares of Common Stock equal to the Required Reserve Amount (an
      "Authorized
      Share Failure"),
      then
      the Company shall immediately take all action necessary to increase the
      Company's authorized shares of Common Stock to an amount sufficient to allow
      the
      Company to reserve the Required Reserve Amount for the Notes then outstanding.
      Without limiting the generality of the foregoing sentence, as soon as
      practicable after the date of the occurrence of an Authorized Share Failure,
      but
      in no event later than sixty (60) days after the occurrence of such Authorized
      Share Failure, the Company shall hold a meeting of its stockholders for the
      approval of an increase in the number of authorized shares of Common Stock.
      In
      connection with such meeting, the Company shall provide each stockholder with
      a
      proxy statement and shall use its best efforts to solicit its stockholders'
      approval of such increase in authorized shares of Common Stock and to cause
      its
      board of directors to recommend to the stockholders that they approve such
      proposal.

     

    (11)  HOLDER'S
      REDEMPTIONS.

     

    (a)  Mechanics.
      The
      Company shall deliver the applicable Event of Default Redemption Price to the
      Holder within five Business Days after the Company's receipt of the Holder's
      Event of Default Redemption Notice. If the Holder has submitted a Change of
      Control Redemption Notice in accordance with Section 5(b), the Company shall
      deliver the applicable Change of Control Redemption Price to the Holder
      concurrently with the consummation of such Change of Control if such notice
      is
      received prior to the consummation of such Change of Control and within five
      (5)
      Business Days after the Company's receipt of such notice otherwise. In the
      event
      of a redemption of less than all of the Conversion Amount of this Note, the
      Company shall promptly cause to be issued and delivered to the Holder a new
      Note
      (in accordance with Section 17(d)) representing the outstanding Principal which
      has not been redeemed. In the event that the Company does not pay the applicable
      Redemption Price to the Holder within the time period required, at any time
      thereafter and until the Company pays such unpaid Redemption Price in full,
      the
      Holder shall have the option, in lieu of redemption, to require the Company
      to
      promptly return to the Holder all or any portion of this Note representing
      the
      Conversion Amount that was submitted for redemption and for which the applicable
      Redemption Price (together with any Late Charges thereon) has not been paid.
      Upon the Company's receipt of such notice, (x) the applicable Redemption Notice
      shall be null and void with respect to such Conversion Amount, (y) the Company
      shall immediately return this Note, or issue a new Note (in accordance with
      Section 17(d)) to the Holder representing the sum of such Conversion Amount
      to
      be redeemed together with accrued and unpaid Interest with respect to such
      Conversion Amount and accrued and unpaid Late Charges with respect to such
      Conversion Amount and Interest and (z) the Conversion Price of this Note or
      such
      new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
      effect on the date on which the applicable Redemption Notice is voided and
      (B)
      the lowest Closing Bid Price of the Common Stock during the period beginning
      on
      and including the date on which the applicable Redemption Notice is delivered
      to
      the Company and ending on and including the date on which the applicable
      Redemption Notice is voided. The Holder's delivery of a notice voiding a
      Redemption Notice and exercise of its rights following such notice shall not
      affect the Company's obligations to make any payments of Late Charges which
      have
      accrued prior to the date of such notice with respect to the Conversion Amount
      subject to such notice.

     

    
      
        
        

      

      
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    (b)  Redemption
      by Other Holders.
      Upon
      the Company's receipt of notice from any of the holders of the Other Notes
      for
      redemption or repayment as a result of an event or occurrence substantially
      similar to the events or occurrences described in Section 4(b) or Section 5(b)
      (each, an "Other
      Redemption Notice"),
      the
      Company shall immediately forward to the Holder by facsimile a copy of such
      notice. If the Company receives a Redemption Notice and one or more Other
      Redemption Notices, during the seven (7) Business Day period beginning on and
      including the date which is three (3) Business Days prior to the Company's
      receipt of the Holder's Redemption Notice and ending on and including the date
      which is three (3) Business Days after the Company's receipt of the Holder's
      Redemption Notice and the Company is unable to redeem all principal, interest
      and other amounts designated in such Redemption Notice and such Other Redemption
      Notices received during such seven (7) Business Day period, then the Company
      shall redeem a pro rata amount from each holder of the Notes (including the
      Holder) based on the principal amount of the Notes submitted for redemption
      pursuant to such Redemption Notice and such Other Redemption Notices received
      by
      the Company during such seven Business Day period.

     

    (12)  VOTING
      RIGHTS.
      The
      Holder shall have no voting rights as the holder of this Note, except as
      required by law, including, but not limited to, the General Corporation Law
      of
      the State of Delaware, and as expressly provided in this Note.

     

    (13)  COVENANTS.

     

    (a)  Rank.All
      payments due under this Note (a) shall rank pari
      passu
      with all
      Other Notes and (b) shall be senior to all other Indebtedness of the Company
      and
      its Subsidiaries.

     

    (b)  Incurrence
      of Indebtedness.
      So long
      as this Note is outstanding, the Company shall not, and the Company shall not
      permit any of its Subsidiaries to, directly or indirectly, incur or guarantee,
      assume or suffer to exist any Indebtedness, other than (i) the Indebtedness
      evidenced by this Note and the Other Notes and (ii) Permitted
      Indebtedness.

     

    (c)  Existence
      of Liens.
      So long
      as this Note is outstanding, the Company shall not, and the Company shall not
      permit any of its Subsidiaries to, directly or indirectly, allow or suffer
      to
      exist any mortgage, lien, pledge, charge, security interest or other encumbrance
      upon or in any property or assets (including accounts and contract rights)
      owned
      by the Company or any of its Subsidiaries (collectively, "Liens")
      other
      than Permitted Liens.

     

    (d)  Restricted
      Payments.
      The
      Company shall not, and the Company shall not permit any of its Subsidiaries
      to,
      directly or indirectly, redeem, defease, repurchase, repay or make any payments
      in respect of, by the payment of cash or cash equivalents (in whole or in part,
      whether by way of open market purchases, tender offers, private transactions
      or
      otherwise), all or any portion of any Permitted Indebtedness, whether by way
      of
      payment in respect of principal of (or premium, if any) or interest on, such
      Indebtedness if at the time such payment is due or is otherwise made or, after
      giving effect to such payment, an event constituting, or that with the passage
      of time and without being cured would constitute, an Event of Default has
      occurred and is continuing.

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    (e)  Restriction
      on Transfer of Assets.
      Other
      than in connection with a Fundamental Transaction, the Company shall not, and
      shall not permit any Subsidiary to sell, lease, convey or otherwise dispose
      of
      any assets or rights of the Company, or Subsidiaries taken as a whole, owned
      or
      hereafter acquired whether in a single transaction or a series of related
      transactions, that have fair market value in excess of $100,000 in any twelve
      (12) month period.

     

    (14)  PARTICIPATION.
      The
      Holder, as the holder of this Note, shall be entitled to receive such dividends
      paid and distributions made to the holders of Common Stock to the same extent
      as
      if the Holder had converted this Note into Common Stock (without regard to
      any
      limitations on conversion herein or elsewhere) and had held such shares of
      Common Stock on the record date for such dividends and distributions. Payments
      under the preceding sentence shall be made concurrently with the dividend or
      distribution to the holders of Common Stock. 

     

    (15)  VOTE
      TO ISSUE, OR CHANGE THE TERMS OF, NOTES.
      The
      affirmative vote at a meeting duly called for such purpose or the written
      consent without a meeting of the Required Holders shall be required for any
      change or amendment to this Note or the Other Notes.

     

    (16)  TRANSFER.
      This
      Note and any shares of Common Stock issued upon conversion of this Note may
      be
      offered, sold, assigned or transferred by the Holder without the consent of
      the
      Company, subject only to the provisions of Section 2(f) of the Securities
      Purchase Agreement.

     

    (17)  REISSUANCE
      OF THIS NOTE.

     

    (a)  Transfer.
      If this
      Note is to be transferred, the Holder shall surrender this Note to the Company,
      whereupon the Company will forthwith issue and deliver upon the order of the
      Holder a new Note (in accordance with Section 17(d)), registered as the Holder
      may request, representing the outstanding Principal being transferred by the
      Holder and, if less then the entire outstanding Principal is being transferred,
      a new Note (in accordance with Section 17(d)) to the Holder representing the
      outstanding Principal not being transferred. The Holder and any assignee, by
      acceptance of this Note, acknowledge and agree that, by reason of the provisions
      of Section 3(c)(iii) following conversion or redemption of any portion of this
      Note, the outstanding Principal represented by this Note may be less than the
      Principal stated on the face of this Note.

     

    (b)  Lost,
      Stolen or Mutilated Note.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Note, 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 Note, the Company shall execute and deliver to the Holder
      a
      new Note (in accordance with Section 17(d)) representing the outstanding
      Principal.

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    (c)  Note
      Exchangeable for Different Denominations.
      This
      Note is exchangeable, upon the surrender hereof by the Holder at the principal
      office of the Company, for a new Note or Notes (in accordance with Section
      17(d)
      and in principal amounts of at least $100,000) representing in the aggregate
      the
      outstanding Principal of this Note, and each such new Note will represent such
      portion of such outstanding Principal as is designated by the Holder at the
      time
      of such surrender.

     

    (d)  Issuance
      of New Notes.
      Whenever the Company is required to issue a new Note pursuant to the terms
      of
      this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall
      represent, as indicated on the face of such new Note, the Principal remaining
      outstanding (or in the case of a new Note being issued pursuant to Section
      17(a)
      or Section 17(c), the Principal designated by the Holder which, when added
      to
      the principal represented by the other new Notes issued in connection with
      such
      issuance, does not exceed the Principal remaining outstanding under this Note
      immediately prior to such issuance of new Notes), (iii) shall have an issuance
      date, as indicated on the face of such new Note, which is the same as the
      Issuance Date of this Note, (iv) shall have the same rights and conditions
      as
      this Note, and (v) shall represent accrued Interest and Late Charges on the
      Principal and Interest of this Note, from the Issuance Date.

     

    (18)  REMEDIES,
      CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
      RELIEF.
      The
      remedies provided in this Note shall be cumulative and in addition to all other
      remedies available under this Note and any of 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 Holder's right to pursue
      actual and consequential damages for any failure by the Company to comply with
      the terms of this Note. Amounts set forth or provided for herein with respect
      to
      payments, conversion and the like (and the computation thereof) shall be the
      amounts to be received by the Holder and shall not, except as expressly provided
      herein, be subject to any other obligation of the Company (or the performance
      thereof). 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 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.

     

    (19)  PAYMENT
      OF COLLECTION, ENFORCEMENT AND OTHER COSTS.
      If (a)
      this Note is placed in the hands of an attorney for collection or enforcement
      or
      is collected or enforced through any legal proceeding or the Holder otherwise
      takes action to collect amounts due under this Note or to enforce the provisions
      of this Note or (b) there occurs any bankruptcy, reorganization, receivership
      of
      the Company or other proceedings affecting Company creditors' rights and
      involving a claim under this Note, then the Company shall pay the costs incurred
      by the Holder for such collection, enforcement or action or in connection with
      such bankruptcy, reorganization, receivership or other proceeding, including,
      but not limited to, attorneys' fees and disbursements.

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

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

     

    (21)  FAILURE
      OR INDULGENCE NOT WAIVER.
      No
      failure or delay on the part of the Holder in the exercise of any power, right
      or privilege hereunder shall operate as a waiver thereof, nor shall any single
      or partial exercise of any such power, right or privilege preclude other or
      further exercise thereof or of any other right, power or privilege.

     

    (22)  DISPUTE
      RESOLUTION.
      In the
      case of a dispute as to the determination of the Closing Bid Price, the Closing
      Sale Price or the Weighted Average Price or the arithmetic calculation of the
      Conversion Rate or the Redemption Price, the Company shall submit the disputed
      determinations or arithmetic calculations via facsimile within one (1) Business
      Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice
      or other event 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 within one (1) Business Day of such disputed determination or
      arithmetic calculation being submitted to the Holder, then the Company shall,
      within one Business Day submit via facsimile (a) the disputed determination
      of
      the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
      to
      an independent, reputable investment bank selected by the Company and approved
      by the Holder or (b) the disputed arithmetic calculation of the Conversion
      Rate
      or the Redemption Price to the Company's independent, outside accountant. The
      Company, at the Company's expense, shall cause 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 five (5)
      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.

     

    (23)  NOTICES;
      CURRENCY; TAXES; PAYMENTS.

     

    (a)  Notices.
      Whenever notice is required to be given under this Note, 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 Note, 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) immediately upon any adjustment of the Conversion Price,
      setting forth in reasonable detail, and certifying, the calculation of such
      adjustment and (ii) at least twenty (20) 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 Common Stock, (B) with respect to any pro rata
      subscription offer to holders 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.

     

    (b)  Currency.
      All
      principal, interest and other amounts owing under this Note or any Transaction
      Document that, in accordance with their terms, are paid in cash shall be paid
      in
      US dollars. All amounts denominated in other currencies shall be converted
      in
      the US dollar equivalent amount in accordance with the Exchange Rate on the
      date
      of calculation. "Exchange
      Rate"
      means,
      in relation to any amount of currency to be converted into US dollars pursuant
      to this Note, the US dollar exchange rate as published in the Wall Street
      Journal on the relevant date of calculation (it being understood and agreed
      that
      where an amount is calculated with reference to, or over, a period of time,
      the
      date of calculation shall be the final date of such period of
      time).

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    (c)  Taxes.

     

    (i)  Any
      and
      all payments made by the Company hereunder, including any amounts received
      on a
      conversion or redemption of the Note and any amounts on account of interest
      or
      deemed interest, must be made by it without any Tax Deduction, unless a Tax
      Deduction is required by law. If the Company is aware that it must make a Tax
      Deduction (or that there is a change in the rate or the basis of a Tax
      Deduction), it must notify the Holder promptly.

     

    (ii)  If
      a Tax
      Deduction is required by law to be made by the Company, subject to Section
      9(a) above, the amount of the payment due from the Company will be increased
      to
      an amount which (after making the Tax Deduction) leaves an amount equal to
      the
      payment which would have been due if no Tax Deduction had been required. If
      the
      Company is required to make a Tax Deduction, it must make the minimum Tax
      Deduction allowed by law and must make any payment required in connection with
      that Tax Deduction within the time allowed by law.

     

    (iii)  As
      soon
      as practicable after making a Tax Deduction or a payment required in connection
      with a Tax Deduction, the Company must deliver to the Holder any
      official receipt or form, if any, provided by or required by the taxing
      authority to whom the Tax Deduction was paid.

     

    (iv)  In
      addition, the Company agrees to pay in accordance with applicable law any
      present or future stamp or documentary taxes or any other excise or property
      taxes, charges or similar levies that arise from any payment made hereunder
      or
      in connection with the execution, delivery, registration or performance of,
      or
      otherwise with respect to, this Note ("Other
      Taxes").
      As
      soon
      as practicable after making a payment of Other Taxes, the Company must deliver
      to the Holder any official receipt or form, if any, provided by or required
      by
      the taxing authority to whom the Tax Deduction was paid.

     

    (d)  Payments.
      Whenever any payment of cash is to be made by the Company to any Person pursuant
      to this Note, such payment shall be made in lawful money of the United States
      of
      America by a check drawn on the account of the Company and sent via overnight
      courier service to such Person at such address as previously provided to the
      Company in writing (which address, in the case of each of the Purchasers, shall
      initially be as set forth on the Schedule of Buyers attached to the Securities
      Purchase Agreement); provided that the Holder may elect to receive a payment
      of
      cash via wire transfer of immediately available funds by providing the Company
      with prior written notice setting out such request and the Holder's wire
      transfer instructions. Whenever any amount expressed to be due by the terms
      of
      this Note is due on any day which is not a Business Day, the same shall instead
      be due on the next succeeding day which is a Business Day and, in the case
      of
      any Interest Date which is not the date on which this Note is paid in full,
      the
      extension of the due date thereof shall not be taken into account for purposes
      of determining the amount of Interest due on such date. Any amount of Principal
      or other amounts due under the Transaction Documents, other than Interest,
      which
      is not paid when due shall result in a late charge being incurred and payable
      by
      the Company in an amount equal to interest on such amount at the rate of
      eighteen percent (18)% per annum from the date such amount was due until the
      same is paid in full ("Late
      Charge").

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

    (24)  CANCELLATION.
      After
      all Principal, accrued Interest and other amounts at any time owed on this
      Note
      have been paid in full, this Note shall automatically be deemed canceled, shall
      be surrendered to the Company for cancellation and shall not be
      reissued.

     

    (25)  WAIVER
      OF NOTICE.
      To the
      extent permitted by law, the Company hereby waives demand, notice, protest
      and
      all other demands and notices in connection with the delivery, acceptance,
      performance, default or enforcement of this Note and the Securities Purchase
      Agreement.

     

    (26)  GOVERNING
      LAW.
      This
      Note shall be construed and enforced in accor-dance with, and all questions
      concerning the construction, validity, interpretation and performance of this
      Note 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.

     

    (27)  JUDGMENT
      CURRENCY.

     

    (a)  If
      for
      the purpose of obtaining or enforcing judgment against the Company in any court
      in any jurisdiction it becomes necessary to convert into any other currency
      (such other currency being hereinafter in this Section 27 referred to as the
      "Judgment
      Currency")
      an
      amount due in US dollars under this Note, the conversion shall be made at the
      Exchange Rate prevailing on the business day immediately preceding:

     

    (i)  the
      date
      actual payment of the amount due, in the case of any proceeding in the courts
      of
      New York or in the courts of any other jurisdiction that will give effect to
      such conversion being made on such date: or 

     

    (ii)  the
      date
      on which the foreign court determines, in the case of any proceeding in the
      courts of any other jurisdiction (the date as of which such conversion is made
      pursuant to this Section 27(a)(ii) being hereinafter referred to as the
      "Judgment
      Conversion Date").

     

    (b)  If
      in the
      case of any proceeding in the court of any jurisdiction referred to in Section
      27(a)(ii) above, there is a change in the Exchange Rate prevailing between
      the
      Judgment Conversion Date and the date of actual payment of the amount due,
      the
      applicable party shall pay such adjusted amount as may be necessary to ensure
      that the amount paid in the Judgment Currency, when converted at the Exchange
      Rate prevailing on the date of payment, will produce the amount of US dollars
      which could have been purchased with the amount of Judgment Currency stipulated
      in the judgment or judicial order at the Exchange Rate prevailing on the
      Judgment Conversion Date.

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

    (c)  Any
      amount due from the Company under this provision shall be due as a separate
      debt
      and shall not be affected by judgment being obtained for any other amounts
      due
      under or in respect of this Note.

     

    (28)  CERTAIN
      DEFINITIONS.
      For
      purposes of this Note, the following terms shall have the following
      meanings:

     

    (a)  "Agreements
      Condition"
      means
      that, on or prior to December 31, 2006, the Company has at least 40 gaming
      related sites live for the availability of its wireless software platform to
      its
      end users and the aggregate number of end users under all such agreements to
      which such platform is available is not less than 2,000. 

     

    (b)  "Approved
      Stock Plan"
      means
      any employee benefit plan which has been approved by the Board of Directors
      of
      the Company, pursuant to which the Company's securities may be issued to any
      employee, officer or director for services provided to the Company.

     

    (c)  "Bloomberg"
      means
      Bloomberg Financial Markets.

     

    (d)  "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.

     

    (e)  "Change
      of Control"
      means
      any Fundamental Transaction other than (i) any
      reorganization, recapitalization or reclassification of the Common Stock in
      which holders of the Company’s voting power immediately prior to such
      reorganization, recapitalization or reclassification continue after such
      reorganization, recapitalization or reclassification to hold publicly traded
      securities and, directly or indirectly, the voting power of the surviving entity
      or entities necessary to elect a majority of the members of the board of
      directors (or their equivalent if other than a corporation) of such entity
      or
      entities, or (ii) pursuant to a migratory merger effected solely for the purpose
      of changing the jurisdiction of incorporation of the Company.

     

    (f)  "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 22. All such determinations to be appropriately adjusted for any stock
      dividend, stock split, stock combination or other similar transaction during
      the
      applicable calculation period.

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    (g)  "Closing
      Date"
      shall
      have the meaning set forth in the Securities Purchase Agreement, which date
      is
      the date the Company initially issued Notes pursuant to the terms of the
      Securities Purchase Agreement.

     

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

     

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

     

    (j)  "Equity
      Conditions"
      means
      that each of the following conditions is satisfied: (i) on each day during
      the
      period beginning six (6) month prior to the applicable date of determination
      and
      ending on and including the applicable date of determination (the "Equity
      Conditions Measuring Period"),
      either
      (x) the Registration Statement filed pursuant to the Registration Rights
      Agreement shall be effective and available for the resale of all remaining
      Registrable Securities in accordance with the terms of the Registration Rights
      Agreement and
      there
      shall not have been any Grace Periods (as
      defined in the Registration Rights Agreement) or (y)
      all
      shares of Common Stock issuable upon conversion of the Notes and exercise of
      the
      Warrants shall be eligible for sale without restriction and without the need
      for
      registration under any applicable federal or state securities laws;
      (ii) on
      each day during the Equity Conditions Measuring Period, the Common
      Stock
      is
      designated for quotation on the Principal Market and shall not have been
      suspended from trading on such exchange or market (other than suspensions of
      not
      more than two (2) days and occurring prior to the applicable date of
      determination due to business announcements by the Company) nor shall delisting
      or suspension by such exchange or market been threatened or pending either
      (A)
      in writing by such exchange or market or (B) by falling below the then effective
      minimum listing maintenance requirements of such exchange or market; (iii)
      during the one (1) year period ending on and including the date immediately
      preceding the applicable date of determination, the Company shall have delivered
      Conversion Shares upon conversion of the Notes and Warrant Shares upon exercise
      of the Warrants to the holders on a timely basis as set forth in Section 3(c)(i)
      hereof (and analogous provisions under the Other Notes) and Section 1(a) of
      the
      Warrants; (iv) any applicable shares of Common
      Stock to
      be
      issued in connection with the event requiring determination may be issued in
      full without violating Section 3(d) hereof and the rules or regulations of
      the
      Principal Market; (v) the Company shall not have failed to timely make any
      payments within five (5) Business Days of when such payment is due pursuant
      to
      any Transaction Document; (vi) during the Equity Conditions Measuring Period,
      there shall not have occurred either (A) the public announcement of a pending,
      proposed or intended Fundamental Transaction which has not been abandoned,
      terminated or consummated, or (B) an
      Event
      of Default or (vii) an
      event
      that with the passage of time or giving of notice would constitute an
      Event
      of Default;
      (viii)
      the Company shall have no knowledge of any fact that would cause (x) the
      Registration Statements required pursuant to the Registration Rights Agreement
      not to be effective and available for the resale of all remaining Registrable
      Securities in accordance with the terms of the Registration Rights Agreement
      or
      (y) any shares of Common Stock issuable upon conversion of the Notes and shares
      of Common Stock issuable upon exercise of the Warrants not to be eligible for
      sale without restriction pursuant to Rule 144(k) and any applicable state
      securities laws; and (ix) the
      Company otherwise shall have been in material compliance with and shall not
      have
      materially breached any provision, covenant, representation or warranty of
      any
      Transaction Document.

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    (k)  "Equity
      Conditions Failure"
      means
      that on any day during any period commencing with (i) the delivery of the
      Maturity Election Notice through the Maturity Date, (ii) the applicable Interest
      Notice Due Date through the applicable Interest Date and (iii) the Mandatory
      Conversion Notice Date through the applicable Mandatory Conversion Date, the
      Equity Conditions have not been satisfied (or waived in writing by the
      Holder).

     

    (l)  "Excluded
      Securities"
      means
      any Common Stock issued or issuable: (i) in connection with any Approved Stock
      Plan; (ii) upon conversion of the Notes or the exercise of the Warrants; (iii)
      in connection with the payment of any Interest Shares on the Notes; and (iv)
      upon conversion of any Options or Convertible Securities which are outstanding
      on the day immediately preceding the Subscription Date, provided that the terms
      of such Options or Convertible Securities are not amended, modified or changed
      on or after the Subscription Date.

     

    (m)  "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 the holders of more
      than
      the 50% of the outstanding shares of Common Stock (not including any shares
      of
      Common Stock held by the Person or Persons making or party to, or associated
      or
      affiliated with the Persons making or party to, 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 whereby such other Person
      acquires more than the 50% of the outstanding shares of Common Stock (not
      including any shares of Common Stock held by the other Person or other Persons
      making or party to, or associated or affiliated with the other Persons making
      or
      party to, such stock purchase agreement or other business combination), or
      (v)
      reorganize, recapitalize or reclassify its Common Stock.

     

    (n)  "GAAP"
      means
      United States generally accepted accounting principles, consistently
      applied.

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    (o)  "Interest
      Conversion Price"
      means,
      with respect to any Interest Date, that price which shall be computed as 90%
      of
      the arithmetic average of the Weighted Average Price of the Common Stock on
      each
      of the thirty (30) consecutive Trading Days immediately preceding the applicable
      Interest Date. All such determinations to be appropriately adjusted for any
      stock split, stock dividend, stock combination or other similar transaction
      during such period.

     

    (p)  "Maturity Date"
      means
      December __, 2007; provided further, however, that the Maturity Date may be
      extended at the option of the Holder (i) in the event that, and for so long
      as,
      an Event of Default shall have occurred and be continuing or any event shall
      have occurred and be continuing which with the passage of time and the failure
      to cure would result in an Event of Default and (ii) through the date that
      is
      ten (10) Business Days after the consummation of a Change of Control in the
      event that a Change of Control is publicly announced or a Change of Control
      Notice (is delivered prior to the Maturity Date.

     

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

     

    (r)  "Parent
      Entity"
      of a
      Person means an entity that, directly or indirectly, controls the applicable
      Person and whose common stock or equivalent equity security is quoted or listed
      on an Eligible Market, or, if there is more than one such Person or Parent
      Entity, the Person or Parent Entity with the largest public market
      capitalization as of the date of consummation of the Fundamental
      Transaction.

     

    (s)  "Permitted
      Indebtedness"
      means
      Indebtedness incurred by the Company that is made expressly subordinate in
      right
      of payment to the Indebtedness evidenced by this Note, as reflected in a written
      agreement acceptable to the Holder and approved by the Holder in writing, and
      which Indebtedness does not provide at any time for (1) the payment, prepayment,
      repayment, repurchase or defeasance, directly or indirectly, of any principal
      or
      premium, if any, thereon until ninety-one (91) days after the Maturity Date
      or
      later and (2) total interest and fees at a rate in excess of six percent (6.0%)
      per annum.

     

    (t)  "Permitted
      Liens"
      means
      (i) any Lien for taxes not yet due or delinquent or being contested in good
      faith by appropriate proceedings for which adequate reserves have been
      established in accordance with GAAP, (ii) any statutory Lien arising in the
      ordinary course of business by operation of law with respect to a liability
      that
      is not yet due or delinquent and (iii) any Lien created by operation of law,
      such as materialmen's liens, mechanics' liens and other similar liens, arising
      in the ordinary course of business with respect to a liability that is not
      yet
      due or delinquent or that are being contested in good faith by appropriate
      proceedings.

     

    (u)  "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.

     

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

     

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

    (w)  "Redemption
      Premium"
      means
      (i) in the case of the Events of Default described in Section 4(a)(i) (vi)
      and
      (ix), (xii) 125% or (ii) in the case of the Events of Default described in
      Section 4(a)(vii) (viii), 100%.

     

    (x)  "Registration
      Rights Agreement"
      means
      that certain registration rights agreement dated as of the Subscription Date
      by
      and among the Company and the initial holders of the Notes relating to, among
      other things, the registration of the resale of the Common Stock issuable upon
      conversion of the Notes and exercise of the Warrants.

     

    (y)  "Required
      Holders"
      means
      the holders of Notes representing at least a majority of the aggregate principal
      amount of the Notes then outstanding.

     

    (z)  "SEC"
      means
      the United States Securities and Exchange Commission.

     

    (aa)  "Securities
      Purchase Agreement"
      means
      that certain securities purchase agreement dated as of the Subscription Date
      by
      and among the Company and the initial holders of the Notes pursuant to which
      the
      Company issued the Notes.

     

    (bb)  "Subscription
      Date"
      means
      December __, 2005.

     

    (cc)  "Successor
      Entity"
      means
      the Person, which may be the Company, formed by, resulting from or surviving
      any
      Fundamental Transaction or the Person with which such Fundamental Transaction
      shall have been made, provided that if such Person is not a publicly traded
      entity whose common stock or equivalent equity security is quoted or listed
      for
      trading on an Eligible Market, Successor Entity shall mean such Person's Parent
      Entity.

     

    (dd)  "Trading
      Day"
      means
      any day on which the Common Stock is traded on the Principal Market, or, if
      the
      Principal Market is not the principal trading market for the Common Stock,
      then
      on the principal securities exchange or securities market on which the Common
      Stock is then traded; provided that "Trading Day" shall not include any day
      on
      which the Common Stock is scheduled to trade on such exchange or market for
      less
      than 4.5 hours or any day that the Common Stock is suspended from trading during
      the final hour of trading on such exchange or market (or if such exchange or
      market does not designate in advance the closing time of trading on such
      exchange or market, then during the hour ending at 4:00:00 p.m., New York
      Time).

     

    (ee)  "Warrants"
      has the
      meaning ascribed to such term in the Securities Purchase Agreement, and shall
      include all warrants issued in exchange therefor or replacement
      thereof.

     

    (ff)  "Weighted
      Average Price"
      means,
      for any security as of any date, the dollar volume-weighted average price for
      such security on the Principal Market during the period beginning at 9:30:01
      a.m., New York Time (or such other time as the Principal Market publicly
      announces is the official open of trading), and ending at 4:00:00 p.m., New
      York
      Time (or such other time as the Principal Market publicly announces is the
      official close of trading) as reported by Bloomberg through its "Volume at
      Price" functions, or, if the foregoing does not apply, the dollar
      volume-weighted average price of such security in the over-the-counter market
      on
      the electronic bulletin board for such security during the period beginning
      at
      9:30:01 a.m., New York Time (or such other time as such market publicly
      announces is the official open of trading), and ending at 4:00:00 p.m., New
      York
      Time (or such other time as such market publicly announces is the official
      close
      of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
      price is reported for such security by Bloomberg for such hours, the average
      of
      the highest closing bid price and the lowest closing ask price of any of the
      market makers for such security as reported in the "pink sheets" by Pink Sheets
      LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average
      Price cannot be calculated for a security on a particular date on any of the
      foregoing bases, the Weighted Average Price 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 22.
      All
      such determinations to be appropriately adjusted for any stock dividend, stock
      split, stock combination or other similar transaction during the applicable
      calculation period.

     

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

    (29)  DISCLOSURE.
      Upon
      receipt or delivery by the Company of any notice in accordance with the terms
      of
      this Note, unless the Company has in good faith determined that the matters
      relating to such notice do not constitute material, nonpublic information
      relating to the Company or its Subsidiaries, the Company shall within one (1)
      Business Day after any such receipt or delivery publicly disclose such material,
      nonpublic information on a Current Report on Form 8-K or otherwise. In the
      event
      that the Company believes that a notice contains material, nonpublic information
      relating to the Company or its Subsidiaries, the Company so shall indicate
      to
      such Holder contemporaneously with delivery of such notice, and in the absence
      of any such indication, the Holder shall be allowed to presume that all matters
      relating to such notice do not constitute material, nonpublic information
      relating to the Company or its Subsidiaries.

     

    [Signature
      Page Follows]

     

    

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

    

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

     

    
      	 	 	 
	 	Phantom
              Fiber Corporation
	 
 	 
 	 
 
	 	By:  	 
	 	
              
                

              

              Name:
                Jeffrey Halloran

              Title:
                Chief Executive Officer

            
	 	 

    

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      I

     

    PHANTOM
      FIBER CORPORATION

    CONVERSION
      NOTICE

     

    Reference
      is made to the Senior 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 par value $0.001 per share (the "Common
      Stock")
      of the
      Company, 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)

            	 

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

     

    
      	 	 	 
	 	PHANTOM
              FIBER CORPORATION
	 
 	 
 	 
 
	 	By:  	 
	 	
              
                

              

              Name:

              Title: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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00096-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00096-of-00352.parquet"}]]