INTELLECTUAL PROPERTY SECURITY AGREEMENT

             INTELLECTUAL PROPERTY SECURITY AGREEMENT (this Agreement dated
as of March 23, 2006, by and among Palomar Enterprises, Inc., a Nevada
corporation (the  Company ), and the secured parties signatory hereto
and their respective endorsees, transferees and assigns (collectively,
the  Secured Party ).

                          W I T N E S S E T H :

       WHEREAS, pursuant to a Securities Purchase Agreement, dated the date
hereof, between Company and the Secured Party (the  Purchase Agreement ),
Company has agreed to issue to the Secured Party and the Secured Party has
agreed to purchase from Company certain of Company s 6% Callable Secured
Convertible Notes, due three years from the date of issue (the  Notes ),
which are convertible into shares of Company s Common Stock, par value
$.00001 per share (the  Common Stock ).  In connection therewith, Company
shall issue the Secured Party certain Common Stock purchase warrants
(the  Warrants ); and

       WHEREAS, in order to induce the Secured Party to purchase the Notes,
Company has agreed to execute and deliver to the Secured Party this
Agreement for the benefit of the Secured Party and to grant to it a first
priority security interest in certain Intellectual Property (defined below)
of Company to secure the prompt payment, performance and discharge in full
of all of Company s obligations under the Notes and exercise and discharge
in full of Company s obligations under the Warrants; and

       NOW, THEREFORE, in consideration of the agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:

             1. Defined Terms.  Unless otherwise defined herein, terms which
are defined in the Purchase Agreement and used herein are so used as so
defined; and the following terms shall have the following meanings:

                     Software Intellectual Property  shall mean:

                    (a) all software programs (including all source code,
object code and all related applications and data files), whether now owned,
upgraded, enhanced, licensed or leased or hereafter acquired by the Company,
above;
                    (b) all computers and electronic data processing
hardware and firmware associated therewith;

                    (c) all documentation (including flow charts, logic
diagrams, manuals, guides and specifications) with respect to such software,
hardware and firmware described in the preceding clauses (a) and (b); and

                    (d) all rights with respect to all of the foregoing,
including, without limitation, any and all upgrades, modifications,
copyrights, licenses, options, warranties, service contracts, program
services, test rights, maintenance rights, support rights, improvement
rights, renewal rights and indemnifications and substitutions, replacements,
additions, or model conversions of any of the foregoing.


                     Copyrights  shall mean (a) all copyrights,
registrations and applications for registration, issued or filed, including
any reissues, extensions or renewals thereof, by or with the United States
Copyright Office or any similar office or agency of the United States, any
state thereof, or any other country or political subdivision thereof, or
otherwise, including, all rights in and to the material constituting the
subject matter thereof, including, without limitation, any referred to in
Schedule B hereto, and (b) any rights in any material which is copyrightable
or which is protected by common law, United States copyright laws or similar
laws or any law of any State, including, without limitation, any thereof
referred to in Schedule B hereto.

                     Copyright License  shall mean any agreement, written or
oral, providing for a grant by the Company of any right in any Copyright,
including, without limitation, any thereof referred to in Schedule B hereto.

                     Intellectual Property  shall means, collectively, the
Software Intellectual Property, Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks, Trademark Licenses and Trade Secrets.

                     Obligations  means all of the Company s obligations
under this Agreement and the Notes, in each case, whether now or hereafter
existing, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with
others, and whether or not from time to time decreased or extinguished and
later decreased, created or incurred, and all or any portion of such
obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from the Secured
Party as a preference, fraudulent transfer or otherwise as such obligations
may be amended, supplemented, converted, extended or modified from time to
time.

                     Patents  shall mean (a) all letters patent of the
United States or any other country or any political subdivision thereof,
and all reissues and extensions thereof, including, without limitation, any
thereof referred to in Schedule B hereto, and (b) all applications for letter
s patent of the United States and all divisions, continuations and
continuations-in-part thereof or any other country or any political
subdivision, including, without limitation, any thereof referred to in
Schedule B hereto.

                     Patent License  shall mean all agreements, whether
written or oral, providing for the grant by the Company of any right to
manufacture, use or sell any invention covered by a Patent, including,
without limitation, any thereof referred to in Schedule B hereto.

                     Security Agreement  shall mean the a Security
Agreement, dated the date hereof between Company and the Secured Party.

                     Trademarks  shall mean (a) all trademarks, trade names,
corporate names, company names, business names, fictitious business names,
trade styles, service marks, logos and other source or business identifiers,
and the goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any state
thereof or any other country or any political subdivision thereof, or
otherwise, including, without limitation, any thereof referred to in
Schedule B hereto, and (b) all reissues, extensions or renewals thereof.

                     Trademark License  shall mean any agreement, written
or oral, providing for the grant by the Company of any right to use any
Trademark, including, without limitation, any thereof referred to in
Schedule B hereto.

                     Trade Secrets  shall mean common law and statutory
trade secrets and all other confidential or proprietary or useful
information and all know-how obtained by or used in or contemplated at any
time for use in the business of the Company (all of the foregoing being
collectively called a  Trade Secret ), whether or not such Trade Secret has
been reduced to a writing or other tangible form, including all documents
and things embodying, incorporating or referring in any way to such Trade
Secret, all Trade Secret licenses, including each Trade Secret license
referred to in Schedule B hereto, and including the right to sue for and to
enjoin and to collect damages for the actual or threatened misappropriation
of any Trade Secret and for the breach or enforcement of any such Trade
Secret license.

             2. Grant of Security Interest.  In accordance with Section
3(m) of the Security Agreement, to secure the complete and timely payment,
performance and discharge in full, as the case may be, of all of the
Obligations, the Company hereby, unconditionally and irrevocably, pledges,
grants and hypothecates to the Secured Party, a continuing security interest
in, a continuing first lien upon, an unqualified right to possession and
disposition of and a right of set-off against, in each case to the fullest
extent permitted by law, all of the Company s right, title and interest of
whatsoever kind and nature in and to the Intellectual Property
(the  Security Interest ).

             3. Representations and Warranties.  The Company hereby
represents and warrants, and covenants and agrees with, the Secured Party
as follows:

                    (a) The Company has the requisite corporate power and
authority to enter into this Agreement and otherwise to carry out its
obligations thereunder.  The execution, delivery and performance by the
Company of this Agreement and the filings contemplated therein have been
duly authorized by all necessary action on the part of the Company and
no further action is required by the Company.  This Agreement constitutes
a legal, valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditor s rights generally.

                    (b) The Company represents and warrants that it has no
place of business or offices where its respective books of account and record
s are kept (other than temporarily at the offices of its attorneys or
accountants) or places where the Intellectual Property is stored or located,
except as set forth on Schedule A attached hereto;

                    (c) The Company is the sole owner of the Intellectual
Property (except for non-exclusive licenses granted by the Company in the
ordinary course of business), free and clear of any liens, security
interests, encumbrances, rights or claims, and is fully authorized to grant
the Security Interest in and to pledge the Intellectual Property, except as
set forth on Schedule D.  There is not on file in any governmental or
regulatory authority, agency or recording office an effective financing
statement, security agreement, license or transfer or any notice of any of
the foregoing (other than those that have been filed in favor of the Secured
Party pursuant to this Agreement) covering or affecting any of the
Intellectual Property, except as set forth on Schedule D.  So long as this
Agreement shall be in effect, the Company shall not execute and shall not
knowingly permit to be on file in any such office or agency any such
financing statement or other document or instrument (except to the extent
filed or recorded in favor of the Secured Party pursuant to the terms of
this Agreement), except as set forth on Schedule D  or for a financing
statement covering assets acquired by the Company after the date hereof,
provided that the value of the Intellectual Property covered by this
Agreement along with the Collateral (as defined in the Security Agreement)
is equal to at least 150% of the Obligations.

                    (d) The Company shall at all times maintain its books
of account and records relating to the Intellectual Property at its
principal place of business and its Intellectual Property at the locations
set forth on Schedule A attached hereto and may not relocate such books of
account and records unless it delivers to the Secured Party at least 30 days
prior to such relocation (i) written notice of such relocation and the new
location thereof (which must be within the United States) and (ii) evidence
that the necessary documents have been filed and recorded and other steps
have been taken to perfect the Security Interest to create in favor of the
Secured Party valid, perfected and continuing first priority liens in the
Intellectual Property to the extent they can be perfected through such
filings.

                    (e) This Agreement creates in favor of the Secured Party
a valid security interest in the Intellectual Property securing the payment
and performance of the Obligations and, upon making the filings required
hereunder, a perfected first priority security interest in such Intellectual
Property to the extent that it can be perfected through such filings.

                    (f)  Upon request of the Secured Party, the Company
shall execute and deliver any and all agreements, instruments, documents,
and papers as the Secured Party may request to evidence the Secured Party s
security interest in the Intellectual Property and the goodwill and general
intangibles of the Company relating thereto or represented thereby, and the
Company hereby appoints the Secured Party its attorney-in-fact to execute
and file all such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power being coupled with
an interest is irrevocable until the Obligations have been fully satisfied
and are paid in full.

                    (g) Except as set forth on Schedule D, the execution,
delivery and performance of this Agreement does not conflict with or cause
a breach or default, or an event that with or without the passage of time
or notice, shall constitute a breach or default, under any agreement to
which the Company is a party or by which the Company is bound.  No consent
(including, without limitation, from stock holders or creditors of the
Company) is required for the Company to enter into and perform its
obligations hereunder.


                    (h) The Company shall at all times maintain the liens
and Security Interest provided for hereunder as valid and perfected first
priority liens and security interests in the Intellectual Property to the
extent they can be perfected by filing in favor of the Secured Party until
this Agreement and the Security Interest hereunder shall terminate pursuant
to Section 11.  The Company hereby agrees to defend the same against any and
all persons.  The Company shall safeguard and protect all Intellectual
Property for the account of the Secured Party.  Without limiting the
generality of the foregoing, the Company shall pay all fees, taxes and
other amounts necessary to maintain the Intellectual Property and the
Security Interest hereunder, and the Company shall obtain and furnish to
the Secured Party from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder.

                    (i) The Company will not transfer, pledge, hypothecate,
encumber, license (except for non-exclusive licenses granted by the Company
in the ordinary course of business), sell or otherwise dispose of any of the
Intellectual Property without the prior written consent of the Secured
Party, which consent will not be unreasonably withheld.

                    (j) The Company shall, within ten (10) days of obtaining
knowledge thereof, advise the Secured Party promptly, in sufficient detail,
of any substantial change in the Intellectual Property, and of the
occurrence of any event which would have a material adverse effect on the
value of the Intellectual Property or on the Secured Party s security
interest therein.

                    (k) The Company shall permit the Secured Party and its
representatives and agents to inspect the Intellectual Property at any time,
and to make copies of records pertaining to the Intellectual Property as
may be requested by the Secured Party from time to time.

                    (l) The Company will take all steps reasonably necessary
to diligently pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable in respect of the
Intellectual Property.

                    (m) The Company shall promptly notify the Secured Party
in sufficient detail upon becoming aware of any  attachment, garnishment,
execution or other legal process levied against any Intellectual Property
and of any other information received by the Company that may materially
affect the value of the Intellectual Property, the Security Interest or the
rights and remedies of the Secured Party hereunder.

                    (n) All information heretofore, herein or hereafter
supplied to the Secured Party by or on behalf of the Company with respect
to the Intellectual Property is accurate and complete in all material
respects as of the date furnished.

                    (o) Schedule A attached hereto contains a list of all
of the subsidiaries of Company.

                    (p) Schedule B attached hereto includes all Licenses,
and all Patents and Patent Licenses, if any, owned by the Company in its
own name as of the date hereof.  Schedule B hereto includes all Trademarks
and Trademark Licenses, if any, owned by the Company in its own name as of
the date hereof.  Schedule B hereto includes all Copyrights and Copyright
Licenses, if any, owned by the Company in its own name as of the date hereof.
Schedule B hereto includes all Trade Secrets and Trade Secret Licenses, if
any, owned by the Company as of the date hereof.  To the best of the
Company s knowledge, each License, Patent, Trademark, Copyright and Trade
Secret is valid, subsisting, unexpired, enforceable and has not been
abandoned.  Except as set forth in Schedule B, none of such Licenses,
Patents, Trademarks, Copyrights and Trade Secrets is the subject of any
licensing or franchise agreement.  To the best of the Company s knowledge,
no holding, decision or judgment has been rendered by any Governmental Body
which would limit, cancel or question the validity of any License, Patent,
Trademark, Copyright and Trade Secrets .  Except as set forth in Schedule
B, no action or proceeding is pending (i) seeking to limit, cancel or
question the validity of any License, Patent, Trademark, Copyright or Trade
Secret, or (ii) which, if adversely determined, would have a material
adverse effect on the value of any License, Patent, Trademark, Copyright or
Trade Secret.  The Company has used and will continue to use for the
duration of this Agreement, proper statutory notice in connection with its
use of the Patents, Trademarks and Copyrights and consistent standards of
quality in products leased or sold under the Patents, Trademarks and
Copyrights.

                    (q) With respect to any Intellectual Property:

(i) such Intellectual Property is subsisting and has
not been adjudged invalid or unenforceable, in whole or in part;

                (ii) such Intellectual Property is valid and enforceable;

(iii) the Company has made all necessary filings and
recordations to protect its interest in such Intellectual Property,
including, without limitation, recordations of all of its interests in
the Patents, Patent Licenses, Trademarks and Trademark Licenses in the
United States Patent and Trademark Office and in corresponding offices
throughout the world and its claims to the Copyrights and Copyright
Licenses in the United States Copyright Office and in corresponding
offices throughout the world;

(iv) other than as set forth in Schedule B, the Company
is the exclusive owner of the entire and unencumbered right, title and
interest in and to such Intellectual Property and no claim has been made
that the use of such Intellectual Property infringes on the asserted
rights of any third party; and

(v) the Company has performed and will continue to
perform all acts and has paid all required fees and taxes to maintain
each and every item of Intellectual Property in full force and effect
throughout the world, as applicable.

                    (r) Except with respect to any Trademark or Copyright
that the Company shall reasonably determine is of negligible economic value
to the Company, the Company shall:

                   (i) maintain each Trademark and Copyright in full force
free from any claim of abandonment for non-use, maintain as in the past the
quality of products and services offered under such Trademark or Copyright;
employ such Trademark or Copyright with the appropriate notice of
registration; not adopt or use any mark which is confusingly similar or a
colorable imitation of such Trademark or Copyright unless the Secured
Party shall obtain a perfected security interest in such mark pursuant to
this Agreement; and not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby any Trademark
or Copyright may become invalidated;

                    (ii) not, except with respect to any Patent that it
shall reasonably determine is of negligible economic value to it, do any
act, or omit to do any act, whereby any Patent may become abandoned or
dedicated; and

                    (iii) notify the Secured Party immediately if it knows,
or has reason to know, that any application or registration relating to any
Patent, Trademark or Copyright may become abandoned or dedicated, or of any
adverse determination or development (including, without limitation, the
institution of, or any such determination or development in, any proceeding
in the United States Patent and Trademark Office, United States Copyright
Office or any court or tribunal in any country) regarding its ownership of
any Patent, Trademark or Copyright or its right to register the same or to
keep and maintain the same.

                    (s) Whenever the Company, either by itself or through
any agent, employee, licensee or designee, shall file an application for
the registration of any Patent, Trademark or Copyright with the United
States Patent and Trademark Office, United States Copyright Office or any
similar office or agency in any other country or any political subdivision
thereof or acquire rights to any new Patent, Trademark or Copyright whether
or not registered, report such filing to the Secured Party within five
business days after the last day of the fiscal quarter in which such filing
occurs.
                    (t) The Company shall take all reasonable and necessary
steps, including, without limitation, in any proceeding before the United
States Patent and Trademark Office, United States Copyright Office or any
similar office or agency in any other country or any political subdivision
thereof, to maintain and pursue each application (and to obtain the relevant
registration) and to maintain each registration of the Patents, Trademarks
and Copyrights, including, without limitation, filing of applications for
renewal, affidavits of use and affidavits of incontestability.

                    (u) In the event that any Patent, Trademark or Copyright
included in the Intellectual Property is infringed, misappropriated or
diluted by a third party, promptly notify the Secured Party after it learns
thereof and shall, unless it shall reasonably determine that such Patent,
Trademark or Copyright is of negligible economic value to it, which
determination it shall promptly report to the Secured Party, promptly sue
for infringement, misappropriation or dilution, to seek injunctive relief
where appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as it shall
reasonably deem appropriate under the circumstances to protect such Patent,
Trademark or Copyright.  If the Company lacks the financial resources to
comply with this Section 3(t), the Company shall so notify the Secured Party
and shall cooperate fully with any enforcement action undertaken by the
Secured Party on behalf of the Company.



             4. Defaults.  The following events shall be  Events of Default :

                    (a) The occurrence of an Event of Default (as defined in
the Notes) under the Notes;
                    (b) Any representation or warranty of the Company in this
Agreement or in the Security Agreement shall prove to have been incorrect
in any material respect when made;
                    (c) The failure by the Company to observe or perform any
of its obligations hereunder or in the Security Agreement for ten (10) days
after receipt by the Company of notice of such failure from the Secured
Party; and
                    (d) Any breach of, or default under, the Warrants.

             5. Duty To Hold In Trust.  Upon the occurrence of any Event of
Default and at any time thereafter, the Company shall, upon receipt by it
of any revenue, income or other sums subject to the Security Interest,
whether payable pursuant to the Notes or otherwise, or of any check, draft,
note, trade acceptance or other instrument evidencing an obligation to pay
any such sum, hold the same in trust for the Secured Party and shall
forthwith endorse and transfer any such sums or instruments, or both, to
the Secured Party for application to the satisfaction of the Obligations.

             6. Rights and Remedies Upon Default.  Upon occurrence of any
Event of Default and at any time thereafter, the Secured Party shall have
the right to exercise all of the remedies conferred hereunder and under
the Notes, and the Secured Party shall have all the rights and remedies of
a secured party under the UCC and/or any other applicable law (including
the Uniform Commercial Code of any jurisdiction in which any Intellectual
Property is then located).  Without limitation, the Secured Party shall
have the following rights and powers:

                    (a) The Secured Party shall have the right to take
possession of the Intellectual Property and, for that purpose, enter, with
the aid and assistance of any person, any premises where the Intellectual
Property, or any part thereof, is or may be placed and remove the same,
and the Company shall assemble the Intellectual Property and make it
available to the Secured Party at places which the Secured Party shall
reasonably select, whether at the Company s premises or elsewhere, and
make available to the Secured Party, without rent, all of the Company s
respective premises and facilities for the purpose of the Secured Party
taking possession of, removing or putting the Intellectual Property in
saleable or disposable form.

                    (b) The Secured Party shall have the right to operate
the business of the Company using the Intellectual Property and shall
have the right to assign, sell, lease or otherwise dispose of and deliver
all or any part of the Intellectual Property, at public or private sale
or otherwise, either with or without special conditions or stipulations,
for cash or on credit or for future delivery, in such parcel or parcels
and at such time or times and at such place or places, and upon such
terms and conditions as the Secured Party may deem commercially
reasonable, all without (except as shall be required by applicable
statute and cannot be waived) advertisement or demand upon or notice
to the Company or right of redemption of the Company, which are hereby
expressly waived.  Upon each such sale, lease, assignment or other
transfer of Intellectual Property, the Secured Party may, unless
prohibited by applicable law which cannot be waived, purchase all
or any part of the Intellectual Property being sold, free from and
discharged of all trusts, claims, right of redemption and equities
of the Company, which are hereby waived and released.

             7. Applications of Proceeds.  The proceeds of any such
sale, lease or other disposition of the Intellectual Property hereunder
shall be applied first, to the expenses of retaking, holding, storing,
processing and preparing for sale, selling, and the like (including,
without limitation, any taxes, fees and other costs incurred in
connection therewith) of the Intellectual Property, to the reasonable
attorneys  fees and expenses incurred by the Secured Party in enforcing
its rights hereunder and in connection with collecting, storing and
disposing of the Intellectual Property, and then to satisfaction of
the Obligations, and to the payment of any other amounts required by
applicable law, after which the Secured Party shall pay to the Company
any surplus proceeds.  If, upon the sale, license or other disposition
of the Intellectual Property, the proceeds thereof are insufficient to
pay all amounts to which the Secured Party is legally entitled, the
Company will be liable for the deficiency, together with interest
thereon, at the rate of 15% per annum (the  Default Rate ), and the
reasonable fees of any attorneys employed by the Secured Party to
collect such deficiency.  To the extent permitted by applicable law,
the Company waives all claims, damages and demands against the Secured
Party arising out of the repossession, removal, retention or sale of
the Intellectual Property, unless due to the gross negligence or
willful misconduct of the Secured Party.

             8. Costs and Expenses.	The Company agrees to pay
all out-of-pocket fees, costs and expenses incurred in connection
with any filing required hereunder, including without limitation,
any financing statements, continuation statements, partial release
s and/or termination statements related thereto or any expenses of
any searches reasonably required by the Secured Party.  The
Company shall also pay all other claims and charges which in
the reasonable opinion of the Secured Party might prejudice,
imperil or otherwise affect the Intellectual Property or the
Security Interest therein.  The Company will also, upon demand,
pay to the Secured Party the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Secured Party
may incur in connection with (i) the enforcement of this
Agreement, (ii) the custody or preservation of, or the sale of
collection from, or other realization upon, any of the
Intellectual Property, or (iii) the exercise or enforcement
of any of the rights of the Secured Party under the Notes.
Until so paid, any fees payable hereunder shall be added to
the principal amount of the Notes and shall bear interest at
the Default Rate.

             9. Responsibility for Intellectual Property.  The
Company assumes all liabilities and responsibility in
connection with all Intellectual Property, and the obligations
of the Company hereunder or under the Notes and the Warrants
shall in no way be affected or diminished by reason of the loss,
destruction, damage or theft of any of the Intellectual
Property or its unavailability for any reason.

             10. Security Interest Absolute.  All rights of
the Secured Party and all Obligations of the Company hereunder,
shall be absolute and unconditional, irrespective of: (a) any
lack of validity or enforceability of this Agreement, the
Notes, the Warrants or any agreement entered into in connection
with the foregoing, or any portion hereof or thereof; (b) any
change in the time, manner or place of payment or performance
of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any
departure from the Notes, the Warrants  or any other agreement
entered into in connection with the foregoing; (c) any
exchange, release or nonperfection of any of the Intellectual
Property, or any release or amendment or waiver of or consent
to departure from any other Intellectual Property for, or any
guaranty, or any other security, for all or any of the
Obligations; (d) any action by the Secured Party to obtain,
adjust, settle and cancel in its sole discretion any insurance
claims or matters made or arising in connection with the
Intellectual Property; or (e) any other circumstance which
might otherwise constitute any legal or equitable defense
available to the Company, or a discharge of all or any part
of the Security Interest granted hereby.  Until the
Obligations shall have been paid and performed in full,
the rights of the Secured Party shall continue even if
the Obligations are barred for any reason, including,
without limitation, the running of the statute of
limitations or bankruptcy.  The Company expressly waives
presentment, protest, notice of protest, demand, notice
of nonpayment and demand for performance. In the event
that at any time any transfer of any Intellectual
Property or any payment received by the Secured Party
hereunder shall be deemed by final order of a court of
competent jurisdiction to have been a voidable preference
or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be
otherwise due to any party other than the Secured Party,
then, in any such event, the Company s obligations hereunder
shall survive cancellation of this Agreement, and shall not be
discharged or satisfied by any prior payment thereof and/or
cancellation of this Agreement, but shall remain a valid and
binding obligation enforceable in accordance with the terms
and provisions hereof.  The Company waives all right to
require the Secured Party to proceed against any other
person or to apply any Intellectual Property which the
Secured Party may hold at any time, or to marshal assets,
or to pursue any other remedy.  The Company waives any
defense arising by reason of the application of the statute
of limitations to any obligation secured hereby.

             11. Term of Agreement.  This Agreement and the
Security Interest shall terminate on the date on which all
payments under the Notes have been made in full and all
other Obligations have been paid or discharged.  Upon such
termination, the Secured Party, at the request and at the
expense of the Company, will join in executing any termination
statement with respect to any financing statement executed
and filed pursuant to this Agreement.

             12. Power of Attorney; Further Assurances.

             (a) The Company authorizes the Secured
Party, and does hereby make, constitute and appoint it, and
its respective officers, agents, successors or assigns with
full power of substitution, as the Company s true and lawful
attorney-in-fact, with power, in its own name or in the name
of the Company, to, after the occurrence and during the
continuance of an Event of Default, (i) endorse any notes,
checks, drafts, money orders, or other instruments of payment
(including payments payable under or in respect of any policy
of insurance) in respect of the Intellectual Property that
may come into possession of the Secured Party; (ii) to sign
and endorse any UCC financing statement or any invoice,
freight or express bill, bill of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications
and notices in connection with accounts, and other documents
relating to the Intellectual Property; (iii) to pay or
discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on or threatened
against the Intellectual Property; (iv) to demand, collect,
receipt for, compromise, settle and sue for monies due in
respect of the Intellectual Property; and (v) generally, to
do, at the option of the Secured Party, and at the Company s
expense, at any time, or from time to time, all acts and
things which the Secured Party deems necessary to protect,
preserve and realize upon the Intellectual Property and the
Security Interest granted therein in order to effect the
intent of this Agreement, the Notes and the Warrants, all
as fully and effectually as the Company might or could do;
and the Company hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof.  This power
of attorney is coupled with an interest and shall be
irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.

                    (b) On a continuing basis, the Company
will make, execute, acknowledge, deliver, file and record,
as the case may be, in the proper filing and recording places
in any jurisdiction, including, without limitation, the
jurisdictions indicated on Schedule C, attached hereto, all
such instruments, and take all such action as may reasonably
be deemed necessary or advisable, or as reasonably requested
by the Secured Party, to perfect the Security Interest
granted hereunder and otherwise to carry out the intent
and purposes of this Agreement, or for assuring and confirming
to the Secured Party the grant or perfection of a security
interest in all the Intellectual Property.

                    (c) The Company hereby irrevocably
appoints the Secured Party as the Company s attorney-in-fact,
with full authority in the place and stead of the Company
and in the name of the Company, from time to time in the
Secured Party s discretion, to take any action and to execute
any instrument which the Secured Party may deem necessary
or advisable to accomplish the purposes of this Agreement,
including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto,
relative to any of the Intellectual Property without the
signature of the Company where permitted by law.

             13. Notices.  All notices, requests, demands
and other communications hereunder shall be in writing, with
copies to all the other parties hereto, and shall be deemed
to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of
sending thereof, (iii) if sent by nationally recognized
overnight delivery service (receipt requested), the next
business day or (iv) if mailed by first-class registered
or certified mail, return receipt requested, postage
prepaid, four days after posting in the U.S. mails, in
each case if delivered to the following addresses:

If to the Company:	Palomar Enterprises, Inc.
1802 N. Carson Street, Suite 212-3018
Carson City, NV 89701
Attention:  Chief Executive Officer
Telephone:  (775) 887-0670
Facsimile:  (775)

With a copy to:
Attention:
Telephone:
Facsimile:

If to the Secured Party:
AJW Partners, LLC
AJW Offshore, Ltd.
AJW Qualified Partners, LLC
New Millennium Capital Partners, II, LLC
1044 Northern Boulevard
Suite 302
Roslyn, New York  11576
Attention:  Corey Ribotsky
Facsimile:  516-739-7115

With copies to:
Ballard Spahr Andrews &
Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania  19103
Attention:  Gerald J. Guarcini, Esquire
Facsimile:  215-864-8999

             14. Other Security.  To the extent that the Obligations
are now or hereafter secured by property other than the Intellectual
Property or by the guarantee, endorsement or property of any other
person, firm, corporation or other entity, then the Secured Party
shall have the right, in its sole discretion, to pursue, relinquish,
subordinate, modify or take any other action with respect thereto,
without in any way modifying or affecting any of the Secured
Party's rights and remedies hereunder.

             15. Miscellaneous.

                    (a) No course of dealing between the
Company and the Secured Party, nor any failure to
exercise, nor any delay in exercising, on the part of
the Secured Party, any right, power or privilege hereunder
or under the Notes shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power
or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other
right, power or privilege.
                    (b) All of the rights and remedies of
the Secured Party with respect to the Intellectual Property,
whether established hereby or by the Notes or by any other
agreements, instruments or documents or by law shall be
cumulative and may be exercised singly or concurrently.

                    (c) This Agreement and the Security
Agreement constitute the entire agreement of the parties
with respect to the subject matter hereof and is intended
to supersede all prior negotiations, understandings and
agreements with respect thereto.  Except as specifically
set forth in this Agreement, no provision of this
Agreement may be modified or amended except by a written
agreement specifically referring to this Agreement and
signed by the parties hereto.

                    (d) In the event that any provision
of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction for any reason, unless
such provision is narrowed by judicial construction,
this Agreement shall, as to such jurisdiction, be construed
as if such invalid, prohibited or unenforceable provision
had been more narrowly drawn so as not to be invalid,
prohibited or unenforceable.  If, notwithstanding the
foregoing, any provision of this Agreement is held to
be invalid, prohibited or unenforceable in any jurisdiction,
such provision, as to such jurisdiction, shall be
ineffective to the extent of such invalidity, prohibition
or unenforceability without invalidating the remaining
portion of such provision or the other provisions of this
Agreement and without affecting the validity or
enforceability of such provision or the other provisions
of this Agreement in any other jurisdiction.

                    (e) No waiver of any breach or default
or any right under this Agreement shall be considered valid
unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of
any subsequent breach or default or right, whether of the
same or similar nature or otherwise.

                    (f) This Agreement shall be binding
upon and inure to the benefit of each party hereto and its
successors and assigns.


                    (g) Each party shall take such further
action and execute and deliver such further documents as
may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.

                    (h) This Agreement shall be construed
in accordance with the laws of the State of New York,
except to the extent the validity, perfection or enforcement
of a security interest hereunder in respect of any
particular Intellectual Property which are governed by a
jurisdiction other than the State of New York in which
case such law shall govern.  Each of the parties hereto
irrevocably submit to the exclusive jurisdiction of any
New York State or United States Federal court sitting in
Manhattan county over any action or proceeding arising
out of or relating to this Agreement, and the parties
hereto hereby irrevocably agree that all claims in respect
of such action or proceeding may be heard and determined
in such New York State or Federal court.  The parties
hereto agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any
other manner provided by law.  The parties hereto further
waive any objection to venue in the State of New York and
any objection to an action or proceeding in the State of
New York on the basis of forum non conveniens.

                    (i) EACH PARTY HERETO HEREBY AGREES
TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT
AND THAT RELATE TO THE SUBJECT MATER OF THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER
IS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED
ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT
EACH PARTY WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR
RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY
WAIVES ITS RIGHTS TO A JURY TRIAL FOLLOWING SUCH
CONSULTATION.  THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS
AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.  IN
THE EVENT OF A LITIGATION, THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.

                    (j) This Agreement may be executed in
any number of counterparts, each of which when so executed
shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.  In
the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and
effect as if such facsimile signature were the original
thereof.

          [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the day and year first
above written.

PALOMAR ENTERPRISES, INC.
/S/ Steve Bonenberger
Chief Executive Officer

AJW PARTNERS, LLC
By: SMS Group, LLC
/S/ Corey S. Ribotsky
Manager

AJW OFFSHORE, LTD.
By:  First Street Manager II, LLC
/S/ Corey S. Ribotsky
Manager

AJW QUALIFIED PARTNERS, LLC
By:  AJW Manager, LLC
/S/ Corey S. Ribotsky
Manager

NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By:  First Street Manager II, LLC

/S/ Corey S. Ribotsky
Manager

SCHEDULE A
Principal Place of Business of the Company:



Locations Where Intellectual Property is Located or
Stored:



List of Subsidiaries of the Company:

SCHEDULE B

A. Licenses, Patents and Patent Licenses


Registration or
Patent	Application or Registration No.
Country	Filing Date


B. Trademarks and Trademark Licenses

                              Registration or
Trademark	Application or Registration No.
 	Country	Filing Date


C. Copyrights and Copyright Licenses



                         Registration or
Name	Application or Registration No.
Country	Filing Date


D.	Trade Secrets and Trade Secret Licenses

                      Registration or
Name	Application or Registration No.
Country	Filing Date




SCHEDULE C


Jurisdictions: