Document:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT).  THE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION
OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER
SAID ACT.

                 CALLABLE SECURED CONVERTIBLE NOTE
                        Carson City, Nevada
March 23, 2006	                                           $305,000

              FOR VALUE RECEIVED, PALOMAR ENTERPRISES, INC., a Nevada
Corporation (hereinafter called the Borrower), hereby promises to pay
to the order of AJW OFFSHORE, LTD. or registered assigns (the Holder)
the sum of $305,000, on March 23, 2009 (the Maturity Date), and to
pay interest on the unpaid principal balance hereof at the rate of six
percent (6%) (the Interest Rate) per annum from March 23, 2006 (the
Issue Date) until the same becomes due and payable, whether at
maturity or upon acceleration or by prepayment or otherwise.  Any
amount of principal or interest on this Note which is not paid when due
shall bear interest at the rate of fifteen percent (15%) per annum from
the due date thereof until the same is paid (Default Interest).
Interest shall commence accruing on the Issue Date, shall be computed
on the basis of a 365-day year and the actual number of days elapsed
and shall be payable quarterly provided that no interest shall be due
and payable for any month in which the Trading Price (as such term is
defined below) is greater than $.05625 for each Trading Day (as such
term is defined below) of the month. All payments due hereunder (to the
extent not converted into common stock, $.0001 par value per share
(the Common Stock) in accordance with the terms hereof) shall be made
in lawful money of the United States of America.  All payments shall be
made at such address as the Holder shall hereafter give to the Borrower
by written notice made in accordance with the provisions of this Note.
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 payment 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.  As used in this Note, the term business day shall mean any
day other than a Saturday, Sunday or a day on which commercial banks in
the city of New York, New York are authorized or required by law or
executive order to remain closed.  Each capitalized term used herein,
and not otherwise defined, shall have the meaning ascribed thereto in
that certain Securities Purchase Agreement, dated March 23, 2006,
pursuant to which this Note was originally issued (the Purchase
Agreement).

       This Note is free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of shareholders of the Borrower and will
not impose personal liability upon the holder thereof.  The obligations
of the Borrower under this Note shall be secured by that certain
Security Agreement and Intellectual Property Security Agreement,
each dated March 23, 2006 by and between the Borrower and the Holder.

       The following terms shall apply to this Note:

Article I. CONVERSION RIGHTS

              1.1 Conversion Right.  The Holder shall have the right
from time to time, and at any time on or prior to the earlier of (i)
the Maturity Date and (ii) the date of payment of the Default Amount
(as defined in Article III) pursuant to Section 1.6(a) or Article III,
the Optional Prepayment Amount (as defined in Section 5.1 or any
payments pursuant to Section 1.7, each in respect of the remaining
outstanding principal amount of this Note to convert all or any part of
the outstanding and unpaid principal amount of this Note into fully paid
and non-assessable shares of Common Stock, as such Common Stock exists
on the Issue Date, or any shares of capital stock or other securities of
the Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price  (the Conversion Price)
determined as provided herein (a Conversion); provided, however, that
in no event shall the Holder be entitled to convert any portion of this
Note in excess of that portion of this Note upon conversion of which
the sum of (1) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the
unconverted portion of the Notes or the unexercised or unconverted
portion of any other security of the Borrower (including, without
limitation, the warrants issued by the Borrower pursuant to the
Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number of
shares of Common Stock issuable upon the conversion of the portion of
this Note with respect to which the determination of this proviso is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock
and provided further that the Holder shall not be entitled to convert
any portion of this Note during any month immediately succeeding a
Determination Date on which the Borrower exercises its prepayment
option pursuant to Section 5.2 of this Note.  For purposes of the
proviso to the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such proviso.
The number of shares of Common Stock to be issued upon each conversion
of this Note shall be determined by dividing the Conversion Amount
(as defined below) by the applicable Conversion Price then in effect
on the date specified in the notice of conversion, in the form attached
hereto as Exhibit A (the Notice of Conversion), delivered to the
Borrower by the Holder in accordance with Section 1.4 below; provided
that the Notice of Conversion is submitted by facsimile (or by other
means resulting in, or reasonably expected to result in, notice) to the
Borrower before 6:00 p.m., New York, New York time on such conversion
date (the Conversion Date).  The term Conversion Amount means, with
respect to any conversion of this Note, the sum of (1) the principal
amount of this Note to be converted in such conversion plus (2) accrued
and unpaid interest, if any, on such principal amount at the interest
rates provided in this Note to the Conversion Date, provided, however,
that the Company shall have the right to pay any or all interest in cash
plus (3) Default Interest, if any, on the amounts referred to in the
immediately preceding clauses (1) and/or (2) plus (4) at the Holders
option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4
(g) hereof or pursuant to Section 2(c) of that certain Registration
Rights Agreement, dated as of March 23, 2006, executed in connection
with the initial issuance of this Note and the other Notes issued on
the Issue Date (the Registration Rights Agreement).  The term
Determination Date means the last business day of each month after
the Issue Date.

              1.2 Conversion Price.

                     (a) Calculation of Conversion Price.  The
Conversion Price shall be the Variable Conversion Price (as defined
herein) (subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Borrower relating to
the Borrowers securities or the securities of any subsidiary of the
Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events).  The Variable
Conversion Price shall mean the Applicable Percentage (as defined
herein) multiplied by the Market Price (as defined herein).  Market
Price means the average of the lowest three (3) Trading Prices
(as defined below) for the Common Stock during the twenty (20) Trading
Day period ending one Trading Day prior to the date the Conversion
Notice is sent by the Holder to the Borrower via facsimile
(the Conversion Date).  Trading Price means, for any security as of
any date, the intraday trading price on the Over-the-Counter Bulletin
Board (the OTCBB) as reported by a reliable reporting service
(Reporting Service) mutually acceptable to Borrower and Holder and
hereafter designated by Holders of a majority in interest of the Notes
and the Borrower or, if the OTCBB is not the principal trading market
for such security, the intraday trading price of such security on the
principal securities exchange or trading market where such security is
listed or traded or, if no intraday trading price of such security is
available in any of the foregoing manners, the average of the intraday
trading prices of any market makers for such security that are listed
in the pink sheets by the National Quotation Bureau, Inc.  If the
Trading Price cannot be calculated for such security on such date in
the manner provided above, the Trading Price shall be the fair market
value as mutually determined by the Borrower and the holders of a
majority in interest of the Notes being converted for which the
calculation of the Trading Price is required in order to determine the
Conversion Price of such Notes.  Trading Day shall mean any day on
which the Common Stock is traded for any period on the OTCBB, or on the
principal securities exchange or other securities market on which the
Common Stock is then being traded. Applicable Percentage shall mean
50%; provided, however, that the Applicable Percentage shall be
increased to (i) 55% in the event that the Registration Statement
(as defined in the Registration Rights Agreement) is filed on or before
the Filing Date (as defined in the in the Registration Rights Agreement)
and (ii) 60% in the event that the Registration Statement (as defined
in the Registration Rights Agreement) becomes effective on or before
the Effectiveness Deadline (as defined in the Registration Rights
Agreement).  In addition, the Holder agrees that it will limit all of
its conversions to no more than the greater of (1) $60,000 per calendar
month; or (2) the average daily dollar volume calculated during the
ten (10) business days prior to a conversion, per conversion.

                     (b) Conversion Price During Major Announcements.
Notwithstanding anything contained in Section 1.2(a) to the contrary,
in the event the Borrower (i) makes a public announcement that it
intends to consolidate or merge with any other corporation (other than
a merger in which the Borrower is the surviving or continuing
corporation and its capital stock is unchanged) or sell or transfer all
or substantially all of the assets of the Borrower or (ii) any
person, group or entity (including the Borrower) publicly announces a
tender offer to purchase 50% or more of the Borrowers Common Stock
(or any other takeover scheme) (the date of the announcement referred
to in clause (i) or (ii) is hereinafter referred to as the
Announcement Date), then the Conversion Price shall, effective upon
the Announcement Date and continuing through the Adjusted Conversion
Price Termination Date (as defined below), be equal to the lower of (x)
the Conversion Price which would have been applicable for a Conversion
occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion
Price Termination Date, the Conversion Price shall be determined as set
forth in this Section 1.2(a).  For purposes hereof,  Adjusted
Conversion Price Termination Date shall mean, with respect to any
proposed transaction or tender offer (or takeover scheme) for which a
public announcement as contemplated by this Section 1.2(b) has been
made, the date upon which the Borrower (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii)
above) consummates or publicly announces the termination or abandonment
of the proposed transaction or tender offer (or takeover scheme) which
caused this Section 1.2(b) to become operative.

              1.3 Authorized Shares.  The Borrower covenants that during
the period the conversion right exists, the Borrower will reserve from
its authorized and unissued Common Stock a sufficient number of shares,
free from preemptive rights, to provide for the issuance of Common Stock
upon the full conversion of this Note and the other Notes issued
pursuant to the Purchase Agreement.  The Borrower is required at all
times to have authorized and reserved two times the number of shares
that is actually issuable upon full conversion of the Notes (based on
the Conversion Price of the Notes or the Exercise Price of the Warrants
in effect from time to time) (the Reserved Amount).  The Reserved
Amount shall be increased from time to time in accordance with the
Borrowers obligations pursuant to Section 4(h) of the Purchase
Agreement.  The Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable.  In
addition, if the Borrower shall issue any securities or make any change
to its capital structure which would change the number of shares of
Common Stock into which the Notes shall be convertible at the then
current Conversion Price, the Borrower shall at the same time make
proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive
rights, for conversion of the outstanding Notes.  The Borrower (i)
acknowledges that it has irrevocably instructed its transfer agent to
issue certificates for the Common Stock issuable upon conversion of
this Note, and (ii)agrees that its issuance of this Note shall
constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock in accordance with the
terms and conditions of this Note.

             If, at any time a Holder of this Note submits a Notice of
Conversion, and the Borrower does not have sufficient authorized but
unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article I (a Conversion Default)
subject to Section 4.8, the Borrower shall issue to the Holder all of
the shares of Common Stock which are then available to effect such
conversion.  The portion of this Note which the Holder included in its
Conversion Notice and which exceeds the amount which is then convertible
into available shares of Common Stock (the Excess Amount) shall,
notwithstanding anything to the contrary contained herein, not be
convertible into Common Stock in accordance with the terms hereof until
(and at the Holders option at any time after) the date additional
shares of Common Stock are authorized by the Borrower to permit such
conversion, at which time the Conversion Price in respect thereof shall
be the lesser of (i) the Conversion Price on the Conversion Default
Date (as defined below) and (ii) the Conversion Price on the Conversion
Date thereafter elected by the Holder in respect thereof.  In addition,
the Borrower shall pay to the Holder payments (Conversion Default
Payments) for a Conversion Default in the amount of (x) the sum of (1)
the then outstanding principal amount of this Note plus (2) accrued and
unpaid interest on the unpaid principal amount of this Note through the
Authorization Date (as defined below) plus (3) Default Interest, if any,
on the amounts referred to in clauses (1) and/or (2), multiplied by (y)
..24, multiplied by (z) (N/365), where N = the number of days from the day
the holder submits a Notice of Conversion giving rise to a Conversion
Default (the Conversion Default Date) to the date (the Authorization
Date) that the Borrower authorizes a sufficient number of shares of
Common Stock to effect conversion of the full outstanding principal
balance of this Note.  The Borrower shall use its best efforts to
authorize a sufficient number of shares of Common Stock as soon as
practicable following the earlier of (i) such time that the Holder
notifies the Borrower or that the Borrower otherwise becomes aware that
there are or likely will be insufficient authorized and unissued shares
to allow full conversion thereof and (ii) a Conversion Default.  The
Borrower shall send notice to the Holder of the authorization of
additional shares of Common Stock, the Authorization Date and the
amount of Holders accrued Conversion Default Payments.  The accrued
Conversion Default Payments for each calendar month shall be paid in
cash or shall be convertible into Common Stock (at such time as there
are sufficient authorized shares of Common Stock) at the applicable
Conversion Price, at the Borrowers option, as follows:

                    (a) In the event Holder elects to take such payment
in cash, cash payment shall be made to Holder by the fifth (5th) day of
the month following the month in which it has accrued; and

                    (b) In the event Holder elects to take such payment
in Common Stock, the Holder may convert such payment amount into Common
Stock at the Conversion Price (as in effect at the time of conversion)
at any time after the fifth day of the month following the month in
which it has accrued in accordance with the terms of this Article I
(so long as there is then a sufficient number of authorized shares of
Common Stock).

             The Holders election shall be made in writing to the
Borrower at any time prior to 6:00 p.m., New York, New York time, on
the third day of the month following the month in which Conversion
Default payments have accrued.  If no election is made, the Holder
shall be deemed to have elected to receive cash.  Nothing herein shall
limit the Holders right to pursue actual damages (to the extent in
excess of the Conversion Default Payments) for the Borrowers failure
to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available
at law or in equity (including degree of specific performance and/or
injunctive relief).

              1.4 Method of Conversion.

                     (a) Mechanics of Conversion.  Subject to Section
1.1, this Note may be converted by the Holder in whole or in part at
any time from time to time after the Issue Date, by (A)submitting to
the Borrower a Notice of Conversion (by facsimile or other reasonable
means of communication dispatched on the Conversion Date prior to 6:00
p.m., New York, New York time) and (B)subject to Section 1.4(b),
surrendering this Note at the principal office of the Borrower.

                     (b) Surrender of Note Upon Conversion.
Notwithstanding anything to the contrary set forth herein, upon
conversion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to
the Borrower unless the entire unpaid principal amount of this Note
is so converted.  The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to
the Holder and the Borrower, so as not to require physical surrender of
this Note upon each such conversion.  In the event of any dispute or
discrepancy, such records of the Borrower shall be controlling and
determinative in the absence of manifest error.  Notwithstanding the
foregoing, if any portion of this Note is converted as aforesaid, the
Holder may not transfer this Note unless the Holder first physically
surrenders this Note to the Borrower, whereupon the Borrower will
forthwith issue and deliver upon the order of the Holder a new Note of
like tenor, registered as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, representing in the aggregate
the remaining unpaid principal amount of this Note.  The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of
this Note represented by this Note may be less than the amount stated
on the face hereof.

                     (c) Payment of Taxes.  The Borrower shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common Stock or other
securities or property on conversion of this Note in a name other than
that of the Holder (or in street name), and the Borrower shall not be
required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the Holder
or the custodian in whose street name such shares are to be held for
the Holders account) requesting the issuance thereof shall have paid
to the Borrower the amount of any such tax or shall have established to
the satisfaction of the Borrower that such tax has been paid.

                     (d) Delivery of Common Stock Upon Conversion.
Upon receipt by the Borrower from the Holder of a facsimile transmission
(or other reasonable means of communication) of a Notice of Conversion
meeting the requirements for conversion as provided in this Section 1.4,
the Borrower shall issue and deliver or cause to be issued and
delivered to or upon the order of the Holder certificates for the
Common Stock issuable upon such conversion within three (3) business
days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Note) (such
third business day being hereinafter referred to as the Deadline) in
accordance with the terms hereof and the Purchase Agreement (including,
without limitation, in accordance with the requirements of Section 2(g)
of the Purchase Agreement that certificates for shares of Common Stock
issued on or after the effective date of the Registration Statement upon
conversion of this Note shall not bear any restrictive legend).

                     (e) Obligation of Borrower to Deliver Common Stock.
Upon receipt by the Borrower of a Notice of Conversion, the Holder
shall be deemed to be the holder of record of the Common Stock issuable
upon such conversion, the outstanding principal amount and the amount
of accrued and unpaid interest on this Note shall be reduced to reflect
such conversion, and, unless the Borrower defaults on its obligations
under this Article I, all rights with respect to the portion of this
Note being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets, as
herein provided, on such conversion.  If the Holder shall have given a
Notice of Conversion as provided herein, the Borrowers obligation to
issue and deliver the certificates for Common Stock shall be absolute
and unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or
any action to enforce the same, any failure or delay in the enforcement
of any other obligation of the Borrower to the holder of record, or any
setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder of any obligation to the
Borrower, and irrespective of any other circumstance which might
otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion.  The Conversion Date specified in the
Notice of Conversion shall be the Conversion Date so long as the Notice
of Conversion is received by the Borrower before 6:00 p.m., New York,
New York time, on such date.

                     (f) Delivery of Common Stock by Electronic
Transfer.  In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Borrowers transfer
agent is participating in the Depository Trust Company (DTC) Fast
Automated Securities Transfer (FAST) program, upon request of the
Holder and its compliance with the provisions contained in Section 1.1
and in this Section 1.4, the Borrower shall use its best efforts to
cause its transfer agent to electronically transmit the Common Stock
issuable upon conversion to the Holder by crediting the account of
Holders Prime Broker with DTC through its Deposit Withdrawal Agent
Commission (DWAC) system.

                     (g) Failure to Deliver Common Stock Prior to
Deadline.  Without in any way limiting the Holders right to pursue
other remedies, including actual damages and/or equitable relief, the
parties agree that if delivery of the Common Stock issuable upon
conversion of this Note is more than three (3) business days after the
Deadline (other than a failure due to the circumstances described in
Section 1.3 above, which failure shall be governed by such Section) the
Borrower shall pay to the Holder $1,000 per day in cash, for each day
beyond the Deadline that the Borrower fails to deliver such Common
Stock.  Such cash amount shall be paid to Holder by the fifth day of
the month following the month in which it has accrued or, at the option
of the Holder (by written notice to the Borrower by the first day of
the month following the month in which it has accrued), shall be added
to the principal amount of this Note, in which event interest shall
accrue thereon in accordance with the terms of this Note and such
additional principal amount shall be convertible into Common Stock in
accordance with the terms of this Note.

              1.5 Concerning the Shares.  The shares of Common Stock
issuable upon conversion of this Note may not be sold or transferred
unless  (i) such shares are sold pursuant to an effective registration
statement under the Act or (ii) the Borrower or its transfer agent
shall have been furnished with an opinion of  counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the shares to be sold or
transferred may be sold or transferred pursuant to an exemption from
such registration or (iii) such shares are sold or transferred pursuant
to Rule 144 under the Act (or a successor rule) (Rule 144) or (iv)
such shares are transferred to an affiliate (as defined in Rule 144)
of the Borrower who agrees to sell or otherwise transfer the shares
only in accordance with this Section 1.5 and who is an Accredited
Investor (as defined in the Purchase Agreement).  Except as otherwise
provided in the Purchase Agreement (and subject to the removal
provisions set forth below), until such time as the shares of Common
Stock issuable upon conversion of this Note have been registered under
the Act as contemplated by the Registration Rights Agreement or
otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then
be immediately sold, each certificate for shares of Common Stock
issuable upon conversion of this Note that has not been so included in
an effective registration statement or that has not been sold pursuant
to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the
following form, as appropriate:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN
OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS
OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
S UNDER SAID ACT.

             The legend set forth above shall be removed and the
Borrower shall issue to the Holder a new certificate therefor free of
any transfer legend if (i) the Borrower or its transfer agent shall
have received an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the
effect that a public sale or transfer of such Common Stock may be made
without registration under the Act and the shares are so sold or transfer
red, (ii) such Holder provides the Borrower or its transfer agent with
reasonable assurances that the Common Stock issuable upon conversion of
this Note (to the extent such securities are deemed to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in
the case of the Common Stock issuable upon conversion of this Note, such
security is registered for sale by the Holder under an effective
registration statement filed under the Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately sold.
Nothing in this Note shall (i) limit the Borrowers obligation under
the Registration Rights Agreement or (ii) affect in any way the Holders
obligations to comply with applicable prospectus delivery requirements
upon the resale of the securities referred to herein.

              1.6 Effect of Certain Events.

                     (a) Effect of Merger, Consolidation, Etc.  At the
option of the Holder, the sale, conveyance or disposition of all or
substantially all of the assets of the Borrower, the effectuation by
the Borrower of a transaction or series of related transactions in
which more than 50% of the voting power of the Borrower is disposed of,
or the consolidation, merger or other business combination of the
Borrower with or into any other Person (as defined below) or Persons
when the Borrower is not the survivor shall either:  (i) be deemed to
be an Event of Default (as defined in Article III) pursuant to which
the Borrower shall be required to pay to the Holder upon the
consummation of and as a condition to such transaction an amount equal
to the Default Amount (as defined in Article III) or (ii) be treated
pursuant to Section 1.6(b) hereof.  Person shall mean any individual,
corporation, limited liability company, partnership, association, trust
or other entity or organization.

                     (b) Adjustment Due to Merger, Consolidation, Etc.
If, at any time when this Note is issued and outstanding and prior to
conversion of all of the Notes, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar
event, as a result of which shares of Common Stock of the Borrower shall
be changed into the same or a different number of shares of another
class or classes of stock or securities of the Borrower or another
entity, or in case of any sale or conveyance of all or substantially
all of the assets of the Borrower other than in connection with a plan
of complete liquidation of the Borrower, then the Holder of this Note
shall thereafter have the right to receive upon conversion of this Note,
upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore issuable
upon conversion, such stock, securities or assets which the Holder would
have been entitled to receive in such transaction had this Note been
converted in full immediately prior to such transaction (without regard
to any limitations on conversion set forth herein), and in any such
case appropriate provisions shall be made with respect to the rights
and interests of the Holder of this Note to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of
the Note) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter
deliverable upon the conversion hereof.  The Borrower shall not effect
any transaction described in this Section 1.6(b) unless (a) it first
gives, to the extent practicable, thirty (30) days prior written notice
(but in any event at least fifteen (15) days prior written notice) of
the record date of the special meeting of shareholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or
other similar event or sale of assets (during which time the Holder
shall be entitled to convert this Note) and (b) the resulting successor
or acquiring entity (if not the Borrower) assumes by written instrument
the obligations of this Section 1.6(b).  The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers
or share exchanges.
                     (c) Adjustment Due to Distribution.  If the Borrower
shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or otherwise (including any
dividend or distribution to the Borrowers shareholders in cash or
shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a Distribution), then the Holder of this Note
shall be entitled, upon any conversion of this Note after the date of
record for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the
Holder with respect to the shares of Common Stock issuable upon such
conversion had such Holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled
to such Distribution.

                     (d) Adjustment Due to Dilutive Issuance.  If, at
any time when any Notes are issued and outstanding, the Borrower issues
or sells, or in accordance with this Section 1.6(d) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable
expenses or commissions or underwriting discounts or allowances in
connection therewith) less than the Fixed Conversion Price in effect on
the date of such issuance (or deemed issuance) of such shares of Common
Stock (a Dilutive Issuance), then immediately upon the Dilutive
Issuance, the Variable Conversion Price will be reduced to the amount
of the consideration per share received by the Borrower in such Dilutive
Issuance; provided that only one adjustment will be made for each
Dilutive Issuance.

                    The Borrower shall be deemed to have issued or sold
shares of Common Stock if the Borrower in any manner issues or grants
any warrants, rights or options (not including employee stock option
plans), whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities convertible into or
exchangeable for Common Stock (Convertible Securities) (such warrants,
rights and options to purchase Common Stock or Convertible Securities
are hereinafter referred to as Options) and the price per share for
which Common Stock is issuable upon the exercise of such Options is
less than the Variable Conversion Price then in effect, then the
Variable Conversion Price shall be equal to such price per share.  For
purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon the exercise of such Options is
determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as consideration for the issuance or
granting of all such Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Borrower upon the
exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion
or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if applicable).
No further adjustment to the Conversion Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Options
or upon the conversion or exchange of Convertible Securities issuable
upon exercise of such Options.

                    Additionally, the Borrower shall be deemed to have
issued or sold shares of Common Stock if the Borrower in any manner
issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise
of Options), and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Variable Conversion
Price then in effect, then the Variable Conversion Price shall be equal
to such price per share.  For the purposes of the preceding sentence,
the price per share for which Common Stock is issuable upon such
conversion or exchange is determined by dividing (i) the total amount,
if any, received or receivable by the Borrower as consideration for the
issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Borrower upon the conversion or exchange thereof at the time such
Convertible Securities first become convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities.  No
further adjustment to the Variable Conversion Price will be made upon
the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.

                     (e) Purchase Rights.  If, at any time when any
Notes are issued and outstanding, the Borrower issues any convertible
securities or rights to purchase stock, warrants, securities or other
property (the Purchase Rights) pro rata to the record holders of any
class of Common Stock, then the Holder of this Note will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if
such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Note (without regard to any
limitations on conversion contained herein) 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.

                     (f) Notice of Adjustments.  Upon the occurrence of
each adjustment or readjustment of the Conversion Price as a result of
the events described in this Section 1.6, the Borrower, at its expense,
shall promptly compute such adjustment or readjustment and prepare and
furnish to the Holder of a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment
or readjustment is based.  The Borrower shall, upon the written request
at any time of the Holder, furnish to such Holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion
Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Note.

              1.7 Trading Market Limitations.  Unless permitted by the
applicable rules and regulations of the principal securities market on
which the Common Stock is then listed or traded, in no event shall the
Borrower issue upon conversion of or otherwise pursuant to this Note
and the other Notes issued pursuant to the Purchase Agreement more than
the maximum number of shares of Common Stock that the Borrower can
issue pursuant to any rule of the principal United States securities
market on which the Common Stock is then traded (the Maximum Share
Amount), which shall be 19.99% of the total shares outstanding on the
Closing Date (as defined in the Purchase Agreement), subject to
equitable adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events
relating to the Common Stock occurring after the date hereof.  Once the
Maximum Share Amount has been issued (the date of which is hereinafter
referred to as the Maximum Conversion Date), if the Borrower fails
to eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, inter-dealer quotation system or
other self-regulatory organization with jurisdiction over the Borrower
or any of its securities on the Borrowers ability to issue shares of
Common Stock in excess of the Maximum Share Amount (a Trading Market
Prepayment Event), in lieu of any further right to convert this Note
, and in full satisfaction of the Borrowers obligations under this Note,
the Borrower shall pay to the Holder, within fifteen (15) business days
of the Maximum Conversion Date (the Trading Market Prepayment Date),
an amount equal to 130% times the sum of (a) the then outstanding
principal amount of this Note immediately following the Maximum
Conversion Date, plus (b) accrued and unpaid interest on the unpaid
principal amount of this Note to the Trading Market Prepayment Date,
plus (c) Default Interest, if any, on the amounts referred to in
clause (a) and/or (b) above, plus (d) any optional amounts that may
be added thereto at the Maximum Conversion Date by the Holder in
accordance with the terms hereof (the then outstanding principal
amount of this Note immediately following the Maximum Conversion
Date, plus the amounts referred to in clauses (b), (c) and (d)
above shall collectively be referred to as the Remaining Convertible
Amount).  With respect to each Holder of Notes, the Maximum Share
Amount shall refer to such Holders pro rata share thereof determined
in accordance with Section 4.8 below.  In the event that the sum of
(x) the aggregate number of shares of Common Stock issued upon
conversion of this Note and the other Notes issued pursuant to the
Purchase Agreement plus (y) the aggregate number of shares of Common
Stock that remain issuable upon conversion of this Note and the other
Notes issued pursuant to the Purchase Agreement, represents at least
one hundred percent (100%) of the Maximum Share Amount (the Triggering
Event), the Borrower will use its best efforts to seek and obtain
Shareholder Approval (or obtain such other relief as will allow
conversions hereunder in excess of the Maximum Share Amount) as soon
as practicable following the Triggering Event and before the Maximum
Conversion Date.  As used herein, Shareholder Approval means approval
by the shareholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Notes but for the Maximum Share
Amount.
              1.8 Status as Shareholder.  Upon submission of a Notice of
Conversion by a Holder, (i) the shares covered thereby (other than the
shares, if any, which cannot be issued because their issuance would
exceed such Holders allocated portion of the Reserved Amount or Maximum
Share Amount) shall be deemed converted into shares of Common Stock and
(ii) the Holders rights as a Holder of such converted portion of this
Note shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Borrower to comply with the terms
of this Note.  Notwithstanding the foregoing, if a Holder has not
received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Deadline with respect
to a conversion of any portion of this Note for any reason, then
(unless the Holder otherwise elects to retain its status as a holder of
Common Stock by so notifying the Borrower) the Holder shall regain the
rights of a Holder of this Note with respect to such unconverted
portions of this Note and the Borrower shall, as soon as practicable,
return such unconverted Note to the Holder or, if the Note has not been
surrendered, adjust its records to reflect that such portion of this
Note has not been converted.  In all cases, the Holder shall retain all
of its rights and remedies (including, without limitation, (i) the
right to receive Conversion Default Payments pursuant to Section 1.3 to
the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion
Price with respect to subsequent conversions determined in accordance
with Section 1.3) for the Borrowers failure to convert this Note.

Article II. CERTAIN COVENANTS

              2.1 Distributions on Capital Stock.  So long as the
Borrower shall have any obligation under this Note, the Borrower shall
not without the Holders written consent (a) pay, declare or set apart
for such payment, any dividend or other distribution (whether in cash,
property or other securities) on shares of capital stock other than
dividends on shares of Common Stock solely in the form of additional
shares of Common Stock or (b) directly or indirectly or through any
subsidiary make any other payment or distribution in respect of its
capital stock except for distributions pursuant to any shareholders
rights plan which is approved by a majority of the Borrowers
disinterested directors.

              2.2 Restriction on Stock Repurchases.  So long as the
Borrower shall have any obligation under this Note, the Borrower shall
not without the Holders written consent redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other
securities or otherwise) in any one transaction or series of related
transactions any shares of capital stock of the Borrower or any warrants,
rights or options to purchase or acquire any such shares.

              2.3 Borrowings.  So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the Holders
written consent, create, incur, assume or suffer to exist any liability
for borrowed money, except (a) borrowings in existence or committed on
the date hereof and of which the Borrower has informed Holder in writing
prior to the date hereof, (b) indebtedness to trade creditors or
financial institutions incurred in the ordinary course of business or
(c) borrowings, the proceeds of which shall be used to repay this Note.

              2.4 Sale of Assets.  So long as the Borrower shall have
any obligation under this Note, the Borrower shall not, without the
Holders written consent, sell, lease or otherwise dispose of any
significant portion of its assets outside the ordinary course of
business.  Any consent to the disposition of any assets may be
conditioned on a specified use of the proceeds of disposition.
The Holder will have ten (10) days to respond to said sale and Holders
consent can not be unreasonably withheld.

              2.5 Advances and Loans.  So long as the Borrower shall
have any obligation under this Note, the Borrower shall not, without
the Holders written consent, lend money, give credit or make advances
to any person, firm, joint venture or corporation, including, without
limitation, officers, directors, employees, subsidiaries and affiliates
of the Borrower, except loans, credits or advances (a) in existence or
committed on the date hereof and which the Borrower has informed Holder
in writing prior to the date hereof, (b) made in the ordinary course of
business or (c) not in excess of $50,000.  This paragraph does not apply
to the following subsidiary of the Borrower: Millenia Hope
Pharmaceuticals aka Millenia Hope Biopharma.

              2.6 Contingent Liabilities.  So long as the Borrower
shall have any obligation under this Note, the Borrower shall not,
without the Holders written consent, which shall not be unreasonably
withheld, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm,
partnership, joint venture or corporation, except by the endorsement of
negotiable instruments for deposit or collection and except assumptions,
guarantees, endorsements and contingencies (a) in existence or
committed on the date hereof and which the Borrower has informed Holder
in writing prior to the date hereof, and (b) similar transactions in the
ordinary course of business.

Article III. EVENTS OF DEFAULT

             If any of the following events of default (each, an Event
of Default) shall occur:

              3.1 Failure to Pay Principal or Interest.  The Borrower
fails to pay the principal hereof or interest thereon when due on this
Note, whether at maturity, upon a Trading Market Prepayment Event
pursuant to Section 1.7, upon acceleration or otherwise;

              3.2 Conversion and the Shares.  The Borrower fails to
issue shares of Common Stock to the Holder (or announces or threatens
that it will not honor its obligation to do so) upon exercise by the
Holder of the conversion rights of the Holder in accordance with the
terms of this Note, fails to transfer or cause its transfer agent to
transfer (electronically or in certificated form) any certificate for
shares of Common Stock issued to the Holder upon conversion of or
otherwise pursuant to this Note as and when required by this Note or
the Registration Rights Agreement, or fails to remove any restrictive
legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate for any shares of Common Stock issued to
the Holder upon conversion of or otherwise pursuant to this Note as and
when required by this Note or the Registration Rights Agreement (or
makes any announcement, statement or threat that it does not intend to
honor the obligations described in this paragraph) and any such failure
shall continue uncured (or any announcement, statement or threat not
to honor its obligations shall not be rescinded in writing) for three
(3) business days after the Borrower shall have been notified thereof
in writing by the Holder;

              3.3 Failure to Timely File Registration or Effect
Registration.  The Borrower fails to file the Registration Statement
within forty-five (45) days following the Closing Date (as defined in
the Purchase Agreement) or obtain effectiveness with the Securities and
Exchange Commission of the Registration Statement within one hundred
thirty-five (135) days following the Closing Date (as defined in the
Purchase Agreement) or such Registration Statement lapses in effect
(or sales cannot otherwise be made thereunder effective, whether by
reason of the Borrowers failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement
or otherwise) for more than ten (10) consecutive days or twenty (20)
days in any twelve month period after the Registration Statement
becomes effective;

              3.4 Breach of Covenants.  The Borrower breaches any
material covenant or other material term or condition contained in
Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e), 4(h)
, 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues
for a period of ten (10) days after written notice thereof to the
Borrower from the Holder;

              3.5 Breach of Representations and Warranties.  Any
representation or warranty of the Borrower made herein or in any
agreement, statement or certificate given in writing pursuant hereto
or in connection herewith (including, without limitation, the Purchase
Agreement and the Registration Rights Agreement), shall be false or
misleading in any material respect when made and the breach of which
has (or with the passage of time will have) a material adverse effect
on the rights of the Holder with respect to this Note, the Purchase
Agreement or the Registration Rights Agreement;

              3.6 Receiver or Trustee.  The Borrower or any subsidiary
of the Borrower shall make an assignment for the benefit of creditors,
or apply for or consent to the appointment of a receiver or trustee for
it or for a substantial part of its property or business, or such a
receiver or trustee shall otherwise be appointed;

              3.7 Judgments.  Any money judgment, writ or similar
process shall be entered or filed against the Borrower or any
subsidiary of the Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for
a period of twenty (20) days unless otherwise consented to by the Holder
, which consent will not be unreasonably withheld;

              3.8 Bankruptcy.  Bankruptcy, insolvency, reorganization
or liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be instituted
by or against the Borrower or any subsidiary of the Borrower, unless
such proceeding shall be stayed within thirty (30) days;

              3.9 Delisting of Common Stock.  The Borrower shall fail
to maintain the listing of the Common Stock on at least one of the
OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
the Nasdaq SmallCap Market, the New York Stock Exchange, or the
American Stock Exchange; or

              3.10 Default Under Other Notes.  An Event of Default
has occurred and is continuing under any of the other Notes issued
pursuant to the Purchase Agreement, then, upon the occurrence and
during the continuation of any Event of Default specified in
Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal
amount of the outstanding Notes issued pursuant to the Purchase
Agreement exercisable through the delivery of written notice to the
Borrower by such Holders (the Default Notice), and upon the occurrence
of an Event of Default specified in Section 3.6 or 3.8 (unless, under
Section 3.8, such proceeding shall be stayed within 30 days), the Notes
shall become immediately due and payable and the Borrower shall pay to
the Holder, in full satisfaction of its obligations hereunder, an amount
equal to the greater of (i) 140% times the sum of (w) the then
outstanding principal amount of this Note plus (x) accrued and unpaid
interest on the unpaid principal amount of this Note to the date of
payment (the Mandatory Prepayment Date) plus (y) Default Interest, if
any, on the amounts referred to in clauses (w) and/or (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
or pursuant to Section 2(c) of the Registration Rights Agreement (the
then outstanding principal amount of this Note to the date of payment
plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the Default Sum) or (ii) the parity value
of the Default Sum to be prepaid, where parity value means (a) the
highest number of shares of Common Stock issuable upon conversion of or
otherwise pursuant to such Default Sum in accordance with Article I,
treating the Trading Day immediately preceding the Mandatory Prepayment
Date as the Conversion Date for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result
of a breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied by (b) the
highest Closing Price for the Common Stock during the period beginning
on the date of first occurrence of the Event of Default and ending one
day prior to the Mandatory Prepayment Date (the Default Amount) and
all other amounts payable hereunder shall immediately become due and
payable, all without demand, presentment or notice, all of which hereby
are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder
shall be entitled to exercise all other rights and remedies available
at law or in equity.  If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due
and payable, then the Holder shall have the right at any time, so long
as the Borrower remains in default (and so long and to the extent that
there are sufficient authorized shares), to require the Borrower, upon
written notice, to immediately issue, in lieu of the Default Amount,
the number of shares of Common Stock of the Borrower equal to the Default
Amount divided by the Conversion Price then in effect.

Article IV. MISCELLANEOUS

              4.1 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 privileges.  All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.

              4.2 Notices.  Any notice herein required or permitted to
be given shall be in writing and may be personally served or delivered
by courier or sent by United States mail and shall be deemed to have
been given upon receipt if personally served (which shall include
telephone line facsimile transmission) or sent by courier or three (3)
days after being deposited in the United States mail, certified, with
postage pre-paid and properly addressed, if sent by mail.  For the
purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 1802
N. Carson Street, Suite 212-3018, Carson City, NV 89701, facsimile
number: (775) .  Both the Holder and the Borrower may change the address
for service by service of written notice to the other as herein
provided.

              4.3 Amendments.  This Note and any provision hereof may
only be amended by an instrument in writing signed by the Borrower and
the Holder.  The term Note and all reference thereto, as used
throughout this instrument, shall mean this instrument (and the other
Notes issued pursuant to the Purchase Agreement) as originally executed,
or if later amended or supplemented, then as so amended or supplemented.

              4.4 Assignability.  This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to be the
benefit of the Holder and its successors and assigns.  Each transferee
of this Note must be an accredited investor (as defined in Rule 501(a)
of the 1933 Act).  Notwithstanding anything in this Note to the
contrary, this Note may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.

              4.5 Cost of Collection.  If default is made in the payment
of this Note, the Borrower shall pay the Holder hereof costs of
collection, including reasonable attorneys fees.

              4.6 Governing Law.  THIS NOTE SHALL BE ENFORCED, GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE
BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED
STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY
DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL
BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY
IN ANY SUCH SUIT OR PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER
PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH
SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE
SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.

              4.7 Certain Amounts.  Whenever pursuant to this Note the
Borrower is required to pay an amount in excess of the outstanding
principal amount (or the portion thereof required to be paid at that
time) plus accrued and unpaid interest plus Default Interest on such
interest, the Borrower and the Holder agree that the actual damages to
the Holder from the receipt of cash payment on this Note may be
difficult to determine and the amount to be so paid by the Borrower
represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert
this Note and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Note at a price in excess of the price
paid for such shares pursuant to this Note.  The Borrower and the
Holder hereby agree that such amount of stipulated damages is not
plainly disproportionate to the possible loss to the Holder from the
receipt of a cash payment without the opportunity to convert this Note
into shares of Common Stock.

              4.8 Allocations of Maximum Share Amount and Reserved
Amount.  The Maximum Share Amount and Reserved Amount shall be
allocated pro rata among the Holders of Notes based on the principal
amount of such Notes issued to each Holder.  Each increase to the
Maximum Share Amount and Reserved Amount shall be allocated pro rata
among the Holders of Notes based on the principal amount of such Notes
held by each Holder at the time of the increase in the Maximum Share
Amount or Reserved Amount.  In the event a Holder shall sell or
otherwise transfer any of such Holders Notes, each transferee shall
be allocated a pro rata portion of such transferors Maximum Share
Amount and Reserved Amount.  Any portion of the Maximum Share Amount
or Reserved Amount which remains allocated to any person or entity
which does not hold any Notes shall be allocated to the remaining
Holders of Notes, pro rata based on the principal amount of such Notes
then held by such Holders.

              4.9 Damages Shares.  The shares of Common Stock that may
be issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
and pursuant to Section 2(c) of the Registration Rights Agreement
(Damages Shares) shall be treated as Common Stock issuable upon
conversion of this Note for all purposes hereof and shall be subject to
all of the limitations and afforded all of the rights of the other
shares of Common Stock issuable hereunder, including without
limitation, the right to be included in the Registration Statement
filed pursuant to the Registration Rights Agreement.  For purposes
of calculating interest payable on the outstanding principal amount
hereof, except as otherwise provided herein, amounts convertible
into Damages Shares (Damages Amounts) shall not bear interest but
must be converted prior to the conversion of any outstanding
principal amount hereof, until the outstanding Damages Amounts
is zero.

              4.10 Denominations.  At the request of the Holder, upon
surrender of this Note, the Borrower shall promptly issue new Notes in
the aggregate outstanding principal amount hereof, in the form hereof,
in such denominations of at least $50,000 as the Holder shall request.

              4.11 Purchase Agreement.  By its acceptance of this Note,
each Holder agrees to be bound by the applicable terms of the Purchase
Agreement.

              4.12 Notice of Corporate Events.  Except as otherwise
provided below, the Holder of this Note shall have no rights as a Holder
of Common Stock unless and only to the extent that it converts this
Note into Common Stock.  The Borrower shall provide the Holder with
prior notification of any meeting of the Borrowers shareholders (and
copies of proxy materials and other information sent to shareholders).
In the event of any taking by the Borrower of a record of its
shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire (including by way
of merger, consolidation, reclassification or recapitalization) any
share of any class or any other securities or property, or to receive
any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or
conveyance of all or substantially all of the assets of the Borrower
or any proposed liquidation, dissolution or winding up of the Borrower,
the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days
prior to the consummation of the transaction or event, whichever is
earlier), of the date on which any such record is to be taken for the
purpose of such dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
The Borrower shall make a public announcement of any event requiring
notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this
Section 4.12.

              4.13 Remedies.  The Borrower acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the
Holder, by vitiating the intent and purpose of the transaction
contemplated hereby.  Accordingly, the Borrower acknowledges that the
remedy at law for a breach of its obligations under this Note will be
inadequate and agrees, in the event of a breach or threatened breach by
the Borrower of the provisions of this Note, that the Holder shall be
entitled, in addition to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an
injunction or injunctions restraining, preventing or curing any breach
of this Note and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any
bond or other security being required.

Article V. CALL OPTION

              5.1 Call Option.  Notwithstanding anything to the
contrary contained in this Article V, so long as no Event of Default
or Trading Market Prepayment Event shall have occurred and be
continuing, the Borrower has a sufficient number of authorized shares
of Common Stock reserved for issuance upon full conversion of the Notes,
then at any time after the Issue Date, and the Common Stock is
trading at or below $..05 per share, the Borrower shall have the right,
exercisable on not less than ten (10) Trading Days prior written notice
to the Holders of the Notes (which notice may not be sent to the Holders
of the Notes until the Borrower is permitted to prepay the Notes
pursuant to this Section 5.1), to prepay all of the outstanding Notes in
accordance with this Section 5.1.  Any notice of prepayment hereunder
(an Optional Prepayment) shall be delivered to the Holders of the Notes
at their registered addresses appearing on the books and records of the
Borrower and shall state (1) that the Borrower is exercising its right
to prepay all of the Notes issued on the Issue Date and (2) the date of
prepayment (the Optional Prepayment Notice).  On the date fixed for
prepayment (the Optional Prepayment Date), the Borrower shall make
payment of the Optional Prepayment Amount (as defined below) to or upon
the order of the Holders as specified by the Holders in writing to the
Borrower at least one (1) business day prior to the Optional Prepayment
Date.  If the Borrower exercises its right to prepay the Notes, the
Borrower shall make payment to the holders of an amount in cash (the
Optional Prepayment Amount) equal to either(i) 120% (for prepayments
occurring within thirty (30) days of the Issue Date), (ii) 130% for
prepayments occurring between thirty-one (31) and sixty  (60) days of
the Issue Date, or (iii) 140% (for prepayments occurring after the
sixtieth (60th) day following the Issue Date), multiplied by the sum
of (w) the then outstanding principal amount of this Note plus
(x)accrued and unpaid interest on the unpaid principal amount of this
Note to the Optional Prepayment Date plus (y) Default Interest, if any,
on the amounts referred to in clauses (w) and (x) plus (z) any amounts
owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
pursuant to Section 2(c) of the Registration Rights Agreement (the then
outstanding principal amount of this Note to the date of payment plus
the amounts referred to in clauses (x), (y) and (z) shall collectively
be known as the Optional Prepayment Sum). Notwithstanding notice of an
Optional Prepayment, the Holders shall at all times prior to the
Optional Prepayment Date maintain the right to convert all or any
portion of the Notes in accordance with Article I and any portion of
Notes so converted after receipt of an Optional Prepayment Notice and
prior to the Optional Prepayment Date set forth in such notice and
payment of the aggregate Optional Prepayment Amount shall be deducted
from the principal amount of Notes which are otherwise subject to
prepayment pursuant to such notice.  If the Borrower delivers an
Optional Prepayment Notice and fails to pay the Optional Prepayment
Amount due to the Holders of the Notes within two (2) business days
following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to redeem the Notes pursuant to this Section 5.1.

              5.2 Partial Call Option.  Notwithstanding anything to
the contrary contained in this Article V, in the event that the
Average Daily Price of the Common Stock, as reported by the Reporting
Service, for each day of the month ending on any Determination Date is
below the Initial Market Price, the Borrower may, at its option,
prepay a portion of the outstanding principal amount of the Notes equal
to 101% of the principal amount hereof divided by thirty-six (36) plus
one months interest.  The term Initial Market Price shall mean the
volume weighted average price of the Common Stock for the five (5)
Trading Days immediately preceding the Closing which is $.05.

            [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer this 23rd day of March, 2006.

PALOMAR ENTERPRISES, INC.

________________________________
By: Steve Bonenberger
    Chief Executive Officer

                                EXHIBIT A
                           NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Notes)

             The undersigned hereby irrevocably elects to convert
$__________ principal amount of the Note (defined below) into shares of
common stock, par value $.0001 per share (Common Stock), of Palomar
Enterprises, Inc., a Delaware corporation (the Borrower) according to
the conditions of the convertible Notes of the Borrower dated as of
March 23, 2006 (the Notes), as of the date written below.  If
securities are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates.  No fee
will be charged to the Holder for any conversion, except for transfer
taxes, if any.  A copy of each Note is attached hereto (or evidence of
loss, theft or destruction thereof).

             The Borrower shall electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account of
the undersigned or its nominee with DTC through its Deposit Withdrawal
Agent Commission system (DWAC Transfer).
Name of DTC Prime Broker:

       Account Number:

             In lieu of receiving shares of Common Stock issuable
pursuant to this Notice of Conversion by way of a DWAC Transfer, the
undersigned hereby requests that the Borrower issue a certificate or
certificates for the number of shares of Common Stock set forth below
(which numbers are based on the Holders calculation attached hereto)
in the name(s) specified immediately below or, if additional space is
necessary, on an attachment hereto:

Name:
Address:

             The undersigned represents and warrants that all offers
and sales by the undersigned of the securities issuable to the
undersigned upon conversion of the Notes shall be made pursuant to
registration of the securities under the Securities Act of 1933, as
amended (the Act), or pursuant to an exemption from registration
under the Act.

Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Notes:______________
Signature:___________________________________
Name:______________________________________
Address:____________________________________

The Borrower shall issue and deliver shares of Common Stock to an
overnight courier not later than three business days following receipt
of the original Note(s) to be converted, and shall make payments
pursuant to the Notes for the number of business days such issuance and
delivery is late.EX 10.3

     

    

      SERVICE
        AGREEMENT

       

      Amendment
        No. 2

       

      THIS
        SERVICE AGREEMENT
        is made
        effective the 15th
        day of
        November, 2005.

       

      BETWEEN:

      Tora
        Technologies Inc.

      205-1990
        Kent Ave. SE

      Vancouver,
        BC

      Canada,
        V5P 4X5

       

      (hereinafter
        called “TORA”)

       

      AND:

      LA
        Embroidery Inc.

      818
        Renfrew St.

      Vancouver,
        BC

      Canada,
        V4K 4B6

       

      (hereinafter
        called “LA”)

       

      WHEREAS:

       

      
        	1.  	
                TORA
                  is in the business of Internet marketing of custom embroidery,
                  contract
                  embroidery, monogramming, digitizing and other
                  services.

              

      

       

      
        	2.  	
                LA
                  wishes to increase its market exposure by offering its products
                  and
                  services via the Internet.

              

      

       

      
        	3.  	
                TORA
                  considers it to be in the best interest to enter into a service
                  agreement
                  with LA for fulfillment services to enable TORA to market custom
                  embroidery services on the
                  Internet.

              

      

       

      
        	4.  	
                TORA
                  and LA previously entered into a Service Agreement on October 20,
                  2003,
                  and an amended agreement on November 15, 2004 which this Service
                  Agreement
                  amends and supersedes.

              

      

       

      
        	1
                  	
                NOW
                  THEREFORE THIS AGREEMENT WITNESS THAT the parties mutually agree
                  as
                  follows:ENGAGEMENT

              

      

       

      
        
          
          

        

        
          Page
            - 1

          
            

          

        

        
          
          

        

      

       

      Subject
        to the terms and conditions hereof, TORA hereby enters into a service agreement
        with LA for fulfillment services.

       

      Both
        parties obligations under this agreement shall commence on the day (the
“Effective Date”) following the day both parties execute this
        Agreement.

       

      
        	2
                  	
                TERMS
                  OF AGREEMENT

              

      

       

      
        	2.1
                  	
                LA
                  has received USD $5,000 (Five Thousand US Dollars) from TORA and
                  250,000
                  (Two Hundred and Fifty Thousand) shares of TORA's common
                  stock.

              

      

       

      
        	2.2
                  	
                TORA
                  will receive the non-exclusive right to market LA's custom embroidery
                  services via the Internet.

              

      

       

      
        	2.3
                  	
                TORA
                  commits to ordering on a cumulative basis a minimum of LA's products
                  and
                  services under the following terms:

              

      

       

      
        By
          December 31, 2005 an amount of USD $12,000

      

      By
        December 31, 2006 an amount of USD $25,000

      By
        December 31, 2007 an amount of USD $50,000

       

      
        	2.4
                  	
                LA
                  commits to providing full fulfillment services to TORA such that
                  TORA may
                  operate as an Internet only provider.

              

      

       

      
        	2.5
                  	
                LA
                  commits to providing TORA with wholesale pricing from the LA's
                  vendors and
                  internal employees plus 15%. TORA has the right to request price
                  audits
                  from time to time to confirm LA's wholesale
                  pricing.

              

      

       

      
        	2.6
                  	
                When
                  TORA has fulfilled its commitments in 2.3 above LA will provide
                  TORA with
                  wholesale pricing until the termination of this
                  agreement.

              

      

       

      
        	3
                  	
                RELATIONSHIP
                  OF THE PARTIES

              

      

       

      
        	3.1
                  	
                This
                  Agreement and the rights or benefits arising thereunder are assignable
                  by
                  either party.

              

      

       

       

      
        
          
          

        

        
          Page
            - 2

          
            

          

        

        
          
          

        

      

       

      
        	4
                  	
                NOTICES

              

      

       

      
        	4.1
                  	
                Any
                  notice, direction or other instrument required or permitted to
                  be given
                  under the provisions of the Agreement will be in writing and may
                  be given
                  by delivery of the same or by mailing the same by prepaid, registered
                  or
                  certified mail, in each case addressed as
                  follows:

              

      

       

      
        	
                If
                  to TORA at:

                 

                205-1990
                  Kent Ave. SE

                Vancouver,
                  BC

                Canada,
                  V5P 4X5

              	
                If
                  to LA at:

                 

                818
                  Renfrew St.

                Vancouver,
                  BC

                Canada,
                  V4K 4B6

              

      

       

      
        	4.2
                  	
                Any
                  notice, direction or other instrument aforesaid, if delivered,
                  will be
                  deemed to have been given and received on the day it was delivered,
                  and if
                  mailed, will be deemed to have been given and received on the fifth
                  business day following the day of mailing except in the event of
                  disruption of the postal service in which event notice will be
                  deemed to
                  be received only when actually received and, if sent by fax or
                  other
                  similar form of electronic communication, be deemed to have given
                  or
                  received on the day it was so sent.

              

      

       

      
        	4.3
                  	
                Any
                  party at any time given to the other notice in writing of any change
                  of
                  address of the party giving such notice and from and after the
                  giving of
                  such notice the address or addresses therein will be deemed to
                  be the
                  address of such party for the purposes of giving notice hereunder.
                  

              

      

       

      
        	5
                  	
                FURTHER
                  ASSURANCES

              

      

       

      
        	5.1
                  	
                Each
                  party will at any time from time to time, upon request of the other,
                  execute and deliver such further documents and do such further
                  acts and
                  things as such other party may reasonably request in order to evidence,
                  carry our and give full effect to the terms, conditions, intent
                  and
                  meaning of this Agreement.

              

      

       

      
        	5.2
                  	
                This
                  Agreement constitutes the entire Agreement between the parties
                  and
                  supersedes any prior or contemporaneous agreements, oral or written.
                  This
                  Agreement is amendable by either party in writing upon signed acceptance
                  by both parties.

              

      

       

      
        	5.3
                  	
                TORA
                  and LA agree to binding arbitration via an Arbitration Council
                  selected by
                  TORA if required for settlement of any disputes arising
                  herein.

              

      

       

      
        	6
                  	
                EXPIRATION

              

      

       

      
        	6.1
                  	
                This
                  Agreement expires on December 31, 2008 unless terminated earlier
                  subject
                  to termination clause 7.1 below.

              

      

       

      
        
          
          

        

        
          Page
            - 3

          
            

          

        

        
          
          

        

      

       

       

      
        	7
                  	
                TERMINATION

              

      

       

      
        	1.1
                  	
                Either
                  party may terminate this Agreement with 30 days notice if the terms
                  of
                  this Agreement defined hereabove are breeched. A termination notice
                  must
                  be provided in writing under the terms of the the notice provision
                  defined
                  hereabove.

              

      

       

      
        	2
                  	
                ENUREMENT

              

      

       

      
        	2.1
                  	
                This
                  Agreement shall enure to the benefit of and be binding on the parties
                  to
                  this Agreement and their respective successors and permitted
                  assigns.

              

      

       

      
        	3
                  	
                GOVERNING
                  LAW

              

      

       

      
        	3.1
                  	
                This
                  Agreement shall be governed by and construed in accordance of the
                  laws of
                  the province of British Columbia, Canada, and the parties hereby
                  irrevocably attorn to the courts of such
                  province.

              

      

       

      IN
        WITNESS WHEREOF the parties have executed this Agreement by their duly
        authorized signatories as the day and year first above
        written.

       

      
        	
                Tora
                  Technologies, Inc.

                 

                Per:
                  /s/
                  Ralph Biggar

                 

                Ralph
                  Biggar

              	
                LA
                  Embroidery Inc.

                 

                Per:
                  /s/
                  Antonio Pires

                 

                Antonio
                  Pires

              

      

      

      
        
          
          

        

        
          Page
            - 4

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