Document:

THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  EXCEPT AS
OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF
MARCH 23, 2006, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH 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 SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 OR REGULATION S UNDER SUCH ACT.

Right to Purchase 260,000 Shares of Common Stock, par value $.00001 per share

                  STOCK PURCHASE WARRANT (SERIES A WARRANT)
                  -----------------------------------------

       THIS CERTIFIES THAT, for value received, NEW MILLENNIUM CAPITAL
PARTNERS II, LLC or its registered assigns, is entitled to purchase
from Palomar Enterprises, Inc., a Nevada corporation (the Company),
at any time or from time to time during the period specified in
Paragraph 2 hereof, 260,000 fully paid and nonassessable shares of
the Company's Common Stock, par value $.00001 per share (the Common Stock),
at an exercise price per share equal to $.13 (the Exercise Price).  The
term Warrant Shares, as used herein, refers to the shares of Common Stock
purchasable hereunder.  The Warrant Shares and the Exercise Price are
subject to adjustment as provided in Paragraph 4 hereof.  The term Warrants
means this Warrant and the other warrants issued pursuant to that certain
Securities Purchase Agreement, dated March 23, 2006, by and among the
Company and the Buyers listed on the execution page thereof (the
Securities Purchase Agreement).

This Warrant is subject to the following terms, provisions, and
conditions:

1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part, by the surrender of this Warrant,
together with a completed exercise agreement in the form attached hereto
(the Exercise Agreement), to the Company during normal business hours on
any business day at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the holder
hereof), and upon (i) payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of
the Exercise Price for the Warrant Shares specified in the Exercise Agreement
or (ii) if the resale of the Warrant Shares by the holder is not then
registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the Securities Act), delivery to the
Company of a written notice of an election to effect a Cashless Exercise
(as defined in Section 11(c) below) for the Warrant Shares specified in the
Exercise Agreement.  The Warrant Shares so purchased shall be deemed to be
issued to the holder hereof or such holders designee, as the record owner
of such shares, as of the close of business on the date on which this Warrant
shall have been surrendered, the completed Exercise Agreement shall have
been delivered, and payment shall have been made for such shares as set
forth above.  Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall
be delivered to the holder hereof within a reasonable time, not exceeding
five (5) business days, after this Warrant shall have been so exercised.
The certificates so delivered shall be in such denominations as may be
requested by the holder hereof and shall be registered in the name of such
holder or such other name as shall be designated by such holder.  If this
Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of
such certificates, deliver to the holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have been
exercised.  In addition to all other available remedies at law or in equity,
if the Company fails to deliver certificates for the Warrant Shares within
five (5) business days after this Warrant is exercised, then the Company
shall pay to the holder in cash a penalty (the Penalty) equal to 2% of the
number of Warrant Shares that the holder is entitled to multiplied by the
Market Price (as hereinafter defined) for each day that the Company fails to
deliver certificates for the Warrant Shares.  For example, if the holder is
entitled to 100,000 Warrant Shares and the Market Price is $2.00, then the
Company shall pay to the holder $4,000 for each day that the Company fails
to deliver certificates for the Warrant Shares.  The Penalty shall be paid
to the holder by the fifth day of the month following the month in which it
has accrued.
             Notwithstanding anything in this Warrant to the contrary, in no
event shall the holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants
(or portions thereof) upon exercise of which the sum of (i) 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 unexercised Warrants and the unexercised or
unconverted portion of any other securities of the Company (including the
Notes (as defined in the Securities Purchase Agreement)) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein) and (ii) the number of shares of Common Stock issuable upon exercise
of the Warrants (or portions thereof) with respect to which the
determination described herein is being made, would result in beneficial
ownership by the holder and its affiliates of more than 4.9% of the
outstanding shares of Common Stock.  For purposes of 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
Regulation 13D-G thereunder, except as otherwise provided in clause (i) of
the preceding sentence.  Notwithstanding anything to the contrary contained
herein, the limitation on exercise of this Warrant set forth herein may not
be amended without (i) the written consent of the holder hereof and the
Company and (ii) the approval of a majority of shareholders of the Company.

2. Period of Exercise.
This Warrant is exercisable at any time or from time to time on or after
the date on which this Warrant is issued and delivered pursuant to the terms
of the Securities Purchase Agreement and before 6:00 p.m., New York, New
York time on the seventh (7th) anniversary of the date of issuance
(the Exercise Period).

      3. Certain Agreements of the Company.
The Company hereby covenants and agrees as follows:

(a) Shares to be Fully Paid.  All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges
with respect to the issue thereof.

              (b) Reservation of Shares.  During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.

              (c) Listing.  The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or automated quotation
system.
              (d) Certain Actions Prohibited.  The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed by it hereunder, but will
at all times in good faith assist in the carrying out of all the provisions
of this Warrant and in the taking of all such action as may reasonably be
requested by the holder of this Warrant in order to protect the exercise
privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant.  Without
limiting the generality of the foregoing, the Company (i) will not increase
the par value of any shares of Common Stock receivable upon the exercise of
this Warrant above the Exercise Price then in effect, and (ii) will take all
such actions as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant.

              (e) Successors and Assigns.  This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.

      4. Antidilution Provisions.
During the Exercise Period, the Exercise Price and the number of Warrant
Shares shall be subject to adjustment from time to time as provided in this
Paragraph 4.
       In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded
up to the nearest cent.

(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock.  Except as otherwise provided in Paragraphs 4(c)
and 4(e) hereof, if and whenever on or after the date of issuance of this
Warrant, the Company issues or sells, or in accordance with Paragraph 4(b)
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 Market Price on the date of issuance
(a Dilutive Issuance), then immediately upon the Dilutive Issuance, the
Exercise Price will be reduced to a price determined by multiplying the
Exercise Price in effect immediately prior to the Dilutive Issuance by a
fraction, (i) the numerator of which is an amount equal to the sum of (x)
the number of shares of Common Stock actually outstanding immediately prior
to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received
by the Company upon such Dilutive Issuance divided by the Market Price in
effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding
(as defined below) immediately after the Dilutive Issuance.

(b) Effect on Exercise Price of Certain Events.  For purposes
of determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:

(i) Issuance of Rights or Options.  If the Company in
any manner issues or grants any warrants, rights or options, 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 Market Price on the date of
issuance or grant of such Options, then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options will, as of the
date of the issuance or grant of such Options, be deemed to be outstanding
and to have been issued and sold by the Company for 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
Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company 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 Exercise 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.
                     (ii) Issuance of Convertible Securities.  If the Company
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 Market Price on
the date of issuance, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by
the Company for 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 Company 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 Company 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 Exercise Price will be
made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.

(iii) Change in Option Price or Conversion Rate.  If
there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the conversion
or exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided
for such changed additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.

                     (iv) Treatment of Expired Options and Unexercised
Convertible Securities.  If, in any case, the total number of shares of
Common Stock issuable upon exercise of any Option or upon conversion or
exchange of any Convertible Securities is not, in fact, issued and the
rights to exercise such Option or to convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in
effect will be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of
shares of Common Stock issued upon exercise or conversion thereof), never
been issued.

                     (v) Calculation of Consideration Received.  If any
Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with such
issuance, grant or sale.  In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of which shall
be other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Market Price thereof as
of the date of receipt.  In case any Common Stock, Options or Convertible
Securities are issued in connection with any acquisition, merger or
consolidation in which the Company is the surviving corporation, the amount
of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as
is attributable to such Common Stock, Options or Convertible Securities, as
the case may be.  The fair value of any consideration other than cash or
securities will be determined in good faith by the Board of Directors of the
Company.

                     (vi) Exceptions to Adjustment of Exercise Price.  No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding
on the date of issuance of this Warrant; (ii) upon the grant or exercise of
any stock or options which may hereafter be granted or exercised under any
employee benefit plan, stock option plan or restricted stock plan of the
Company now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority
of the members of a committee of independent directors established for such
purpose; or (iii) upon the exercise of the Warrants.
              (c) Subdivision or Combination of Common Stock.  If the
Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares
of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price
in effect immediately prior to such subdivision will be proportionately
reduced.  If the Company at any time combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) the shares
of Common Stock acquirable hereunder into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price
in effect immediately prior to such combination will be proportionately
increased.
              (d) Adjustment in Number of Shares.  Upon each adjustment of
the Exercise Price pursuant to the provisions of this Paragraph 4, the
number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares of
Common Stock issuable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
 Price.
              (e) Consolidation, Merger or Sale.  In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially
all of the assets of the Company other than in connection with a plan of
complete liquidation of the Company, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and
receive upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this
Warrant had such consolidation, merger or sale or conveyance not taken place.
In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock or
securities thereafter deliverable upon the exercise of this Warrant.
The Company will not effect any consolidation, merger or sale or conveyance
unless prior to the consummation thereof, the successor corporation (if
other than the Company) assumes by written instrument the obligations under
this Paragraph 4 and the obligations to deliver to the holder of this Warrant
 such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the holder may be entitled to acquire.
              (f) Distribution of Assets.  In case the Company shall declare
or make any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital
or otherwise, then, after the date of record for determining shareholders
entitled to such distribution, but prior to the date of distribution, the
holder of this Warrant shall be entitled upon exercise of this Warrant for
the purchase of any or all of the shares of Common Stock subject hereto, to
receive the amount of such assets which would have been payable to the
holder 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.
              (g) Notice of Adjustment.  Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment
and the increase or decrease in the number of Warrant Shares purchasable at
such price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.  Such
calculation shall be certified by the Chief Financial Officer of the Company.

              (h) Minimum Adjustment of Exercise Price.  No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made
, but any such lesser adjustment shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which, together
with any adjustments so carried forward, shall amount to not less than 1%
of such Exercise Price.
              (i) No Fractional Shares.  No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.

              (j) Other Notices.  In case at any time:
                    (i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
                    (ii) the Company shall offer for subscription pro rata
to the holders of the Common Stock any additional shares of stock of any
class or other rights;
                    (iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all its assets
to, another corporation or entity; or
                    (iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in each such case, the Company shall give to the holder of this
Warrant (a) notice of the date on which the books of the Company shall close
or a record shall be taken for determining the holders of Common Stock
entitled to receive any such dividend, distribution, or subscription rights
or for determining the holders of Common Stock entitled to vote in respect of
any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take
place.  Such notice shall also specify the date on which the holders of
Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be.  Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are
closed in respect thereto.  Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
              (k) Certain Events.  If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not
expressly provided for by such provisions, the Company will give notice of
such event as provided in Paragraph 4(g) hereof, and the Company's Board of
Directors will make an appropriate adjustment in the Exercise Price and the
number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the holder shall be neither enhanced nor diminished by
such event.
              (l) Certain Definitions.
                     (i) Common Stock Deemed Outstanding shall mean the
number of shares of Common Stock actually outstanding (not including shares
of Common Stock held in the treasury of the Company), plus (x) pursuant to
Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or
grant of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof,
the maximum total number of shares of Common Stock issuable upon conversion
or exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
                     (ii) Market Price, as of any date, (i) means the
average of the last reported sale prices for the shares of Common Stock on
the OTCBB for the five (5) Trading Days immediately preceding such date as
reported by Bloomberg, or (ii) if the OTCBB is not the principal trading
market for the shares of Common Stock, the average of the last reported sale
prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price
shall be the fair market value as reasonably determined in good faith by (a)
the Board of Directors of the Company or, at the option of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the corporation. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in
respect of which a determination as to market value must be made hereunder.

                     (iii) Common Stock, for purposes of this Paragraph 4,
includes the Common Stock, par value $.00001 per share, and any additional
class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant
to this Warrant shall include only shares of Common Stock, par value $.00001
per share, in respect of which this Warrant is exercisable, or shares
resulting from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Paragraph 4(e) hereof, the stock or
other securities or property provided for in such Paragraph.

      5. Issue Tax.
The issuance of certificates for Warrant Shares upon the exercise of this
Warrant shall be made without charge to the holder of this Warrant or such
shares for any issuance tax or other costs in respect thereof, provided that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

      6. No Rights or Liabilities as a Shareholder.
This Warrant shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company.  No provision of this Warrant,
in the absence of affirmative action by the holder hereof to purchase
Warrant Shares, and no mere enumeration herein of the rights or privileges
of the holder hereof, shall give rise to any liability of such holder for
the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.

      7. Transfer, Exchange, and Replacement of Warrant.
              (a) Restriction on Transfer.  This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in
the form attached hereto, at the office or agency of the Company referred to
in Paragraph 7(e) below, provided, however, that any transfer or assignment
shall be subject to the conditions set forth in Paragraph 7(f) hereof and
to the applicable provisions of the Securities Purchase Agreement.  Until
due presentment for registration of transfer on the books of the Company,
the Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any notice
to the contrary.  Notwithstanding anything to the contrary contained herein,
the registration rights described in Paragraph 8 are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated March 23, 2006, by and among the Company and the other signatories
thereto (the Registration Rights Agreement).
              (b) Warrant Exchangeable for Different Denominations.  This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Paragraph 7(e) below, for
new Warrants of like tenor representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by the holder hereof at the time of
such surrender.
              (c) Replacement of Warrant.  Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
              (d) Cancellation; Payment of Expenses.  Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by the
Company.  The Company shall pay all taxes (other than securities transfer
taxes) and all other expenses (other than legal expenses, if any, incurred
by the holder or transferees) and charges payable in connection with the
preparation, execution, and delivery of Warrants pursuant to this Paragraph

      7.
              (e) Register.  The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
              (f) Exercise or Transfer Without Registration.  If, at the
time of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act of 1933, as amended (the Securities Act) and
under applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such exercise, transfer, or exchange, (i) that
the holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under
applicable state securities or blue sky laws, (ii) that the holder or
transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
accredited investor as defined in Rule 501(a) promulgated under the
Securities Act; provided that no such opinion, letter or status as an
accredited investor shall be required in connection with a transfer
pursuant to Rule 144 under the Securities Act.  The first holder of this
Warrant, by taking and holding the same, represents to the Company that
such holder is acquiring this Warrant for investment and not with a view to
the distribution thereof.

      8. Registration Rights.
The initial holder of this Warrant (and certain assignees thereof) is
entitled to the benefit of such registration rights in respect of the
Warrant Shares as are set forth in Section 2 of the Registration Rights
Agreement.

      9. Notices.
All notices, requests, and other communications required or permitted to
be given or delivered hereunder to the holder of this Warrant shall be in
writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid
and addressed, to such holder at the address shown for such holder on the
books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder.  All notices, requests, and other
communications required or permitted to be given or delivered hereunder to
the Company shall be in writing, and shall be personally delivered, or shall
be sent by certified or registered mail or by recognized overnight mail
courier, postage prepaid and addressed, to the office of the Company at
1802 N. Carson Street, Suite 212-3018, Carson City, NV 89701, Attention:
Chief Executive Officer, or at such other address as shall have been
furnished to the holder of this Warrant by notice from the Company.  Any
such notice, request, or other communication may be sent by facsimile, but
shall in such case be subsequently confirmed by a writing personally
delivered or sent by certified or registered mail or by recognized overnight
mail courier as provided above.  All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address
of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier
upon deposit with the United States Post Office or such overnight mail
courier, if postage is prepaid and the mailing is properly addressed, as
the case may be.

     10. Governing Law.
THIS WARRANT 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 PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW
YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT, 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 WARRANT SHALL BE RESPONSIBLE FOR
ALL FEES AND EXPENSES, INCLUDING ATTORNEYS FEES, INCURRED BY THE PREVAILING
PARTY IN CONNECTION WITH SUCH DISPUTE.

      11. Miscellaneous.
              (a) Amendments.  This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the holder
hereof.
              (b) Descriptive Headings.  The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the
provisions hereof.
              (c) Cashless Exercise.  Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by
the holder is not then registered pursuant to an effective registration
statement under the Securities Act, this Warrant may be exercised by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holders intention to effect
a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof (a Cashless Exercise).  In the event of a Cashless Exercise, in
lieu of paying the Exercise Price in cash, the holder shall surrender this
Warrant for that number of shares of Common Stock determined by multiplying
the number of Warrant Shares to which it would otherwise be entitled by a
fraction, the numerator of which shall be the difference between the then
current Market Price per share of the Common Stock and the Exercise Price,
and the denominator of which shall be the then current Market Price per
share of Common Stock.  For example, if the holder is exercising 100,000
Warrants with a per Warrant exercise price of $0.75 per share through a
cashless exercise when the Common Stocks current Market Price per share is
$2.00 per share, then upon such Cashless Exercise the holder will receive
62,500 shares of Common Stock.
              (d) Remedies.  The Company 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 Company acknowledges that the remedy at law for a breach
of its obligations under this Warrant will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
this Warrant, 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 Warrant 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.

                [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

              IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.

PALOMAR ENTERPRISES, INC.

By: _______________________________
Steve Bonenberger
Chief Executive Officer

Dated as of March 23, 2006

FORM OF EXERCISE AGREEMENT

Dated:  ________ __, 200_

To:	______________________

       The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered
by such Warrant, and makes payment herewith in full therefor at the price
per share provided by such Warrant in cash or by certified or official bank
check in the amount of, or, if the resale of such Common Stock by the
undersigned is not currently registered pursuant to an effective registration
statement under the Securities Act of 1933, as amended, by surrender of
securities issued by the Company (including a portion of the Warrant) having
a market value (in the case of a portion of this Warrant, determined in
accordance with Section 11(c) of the Warrant) equal to $_________.  Please
issue a certificate or certificates for such shares of Common Stock in the
name of and pay any cash for any fractional share to:

Name: 	______________________________

Signature:
Address:____________________________
	_____________________________

Note:	The above signature should correspond exactly with the name on the
face of the within Warrant, if applicable.

and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the
name of said undersigned covering the balance of the shares purchasable
thereunder less any fraction of a share paid in cash.

FORM OF ASSIGNMENT

       FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant,
with respect to the number of shares of Common Stock covered thereby set
forth hereinbelow, to:

Name of Assignee			Address
No of Shares

, and hereby irrevocably constitutes and appoints
___________________________________ as agent and attorney-in-fact to
transfer said Warrant on the books of the within-named corporation, with
full power of substitution in the premises.

Dated:	________ __, 200_

In the presence of:
______________________________
Name:______________________________

Signature:_________________________
Title of Signing Officer or Agent (if any):
		______________________________
Address:	______________________________
		______________________________

Note:	The above signature should correspond exactly with the name on the
face of the within Warrant, if applicable.REGISTRATION RIGHTS AGREEMENT

     REGISTRATION RIGHTS AGREEMENT (this Agreement), dated as of March 23,
2006, by and among Palomar Enterprises, Inc., a Nevada corporation with its
headquarters located at 1802 N. Carson Street, Suite 212-3018, Carson City,
NV 89701 (the Company), and each of the undersigned (together with
their respective affiliates and any assignee or transferee of all of their
respective rights hereunder, the Initial Investors).

       WHEREAS:

       A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the Securities Purchase
Agreement), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors
secured convertible notes in the aggregate principal amount of up to One
Million Three Hundred and Fifty Thousand Dollars ($1,350,000) (the Notes)
that are convertible into shares of the Company's common stock
(the Common Stock), upon the terms and subject to the limitations and
conditions set forth in such Notes, Series A warrants (the Series A
Warrants) to acquire an aggregate of 36,000,000 shares of Common Stock,
upon the terms and conditions and subject to the limitations and
conditions set forth in the Series A Warrants; and

       B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute
(collectively, the 1933 Act), and applicable state securities laws;

       NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
each of the Initial Investors hereby agree as follows:

              1. DEFINITIONS.

                    a. As used in this Agreement, the following terms shall
have the following meanings:

                           (i) Investors means the Initial Investors and
any transferee or assignee who agrees to become bound by the provisions of
this Agreement in accordance with Section 9 hereof.

                           (ii) register, registered, and
registration refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule providing for
offering securities on a continuous basis (Rule 415), and the
declaration or ordering of effectiveness of such Registration Statement by
the United States Securities and Exchange Commission (the SEC).

                            (iii) Registration Price means the lesser of
(a)the Initial Market Price (as defined in the Notes) and (b)the
Conversion Price (as defined in the Notes, provided that for purposes of
this definition, the Applicable Percentage (as defined in the Notes) shall
be 60%).
                           (iv) Registrable Securities means the
Conversion Shares issued or issuable upon conversion or otherwise pursuant
to the Notes and Additional Notes (as defined in the Securities Purchase
Agreement) including, without limitation, Damages Shares (as defined in the
Notes) issued or issuable pursuant to the Notes, shares of Common Stock
issued or issuable in payment of the Standard Liquidated Damages Amount
(as defined in the Securities Purchase Agreement), shares issued or
issuable in respect of interest or in redemption of the Notes in accordance
with the terms thereof) and Warrant Shares issuable, upon exercise or
otherwise pursuant to the Series A Warrants and the Series B Warrants and
the Additional Warrants (as defined in the Securities Purchase Agreement),
and any shares of capital stock issued or issuable as a dividend on or in
exchange for or otherwise with respect to any of the foregoing.

                           (v) Registration Statement means a
registration statement of the Company under the 1933 Act.

                    b. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the
Securities Purchase Agreement or the Convertible Note.

              2. REGISTRATION.

                     a. Mandatory Registration.  The Company shall prepare,
and, on or prior to thirty (30) days from the date of Closing (as defined
in the Securities Purchase Agreement) (the Filing Date), file with the
SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to
effect a registration of the Registrable Securities, subject to the consent
of the Initial Investors, which consent will not be unreasonably withheld)
covering the resale of the Registrable Securities underlying the Notes and
Warrants issued or issuable pursuant to the Securities Purchase Agreement
which Registration Statement, to the extent allowable under the 1933 Act
and the rules and regulations promulgated thereunder (including Rule 416),
shall state that such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of or otherwise pursuant to the Notes and exercise of the
Warrants to prevent dilution resulting from stock splits, stock dividends
or similar transactions.  The number of shares of Common Stock initially
included in such Registration Statement shall be no less than an amount
equal to 2.25 times the sum of the number of Conversion Shares that are
then issuable upon conversion of the Notes and Additional Notes (based on
the Registration Price (as defined herein)), and the number of Warrant
Shares that are then issuable upon exercise of the Warrants, without regard
to any limitation on the Investors ability to convert the Notes or
exercise the Warrants.  The Company acknowledges that the number of shares
initially included in the Registration Statement represents a good faith
estimate of the maximum number of shares issuable upon conversion of the
Notes and upon exercise of the Warrants.

                     b. Underwritten Offering.  If any offering pursuant to
a Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering, with the
consent of a majority-in-interest of the Initial Investors, shall have the
right to select one legal counsel and an investment banker or bankers and
manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the
Company.

                     c. Payments by the Company.  The Company shall use its
best efforts to obtain effectiveness of the Registration Statement as soon
as practicable.  If the Registration Statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to
Section 2(a) hereof is not filed by the Filing Date or declared effective
by the SEC on or prior to one hundred and twenty (120) days from the date
of Closing (as defined in the Securities Purchase Agreement)
(the Effectiveness Deadline), or after the Registration Statement has
been declared effective by the SEC, sales of all of the Registrable
Securities cannot be made pursuant to the Registration Statement, or the
Common Stock is not listed or included for quotation on the Nasdaq National
Market (Nasdaq), the Nasdaq SmallCap Market (Nasdaq SmallCap), the
New York Stock Exchange (the NYSE) or the American Stock Exchange
(the AMEX) after being so listed or included for quotation after the date
hereof, or the Common Stock ceases to be traded on the Over-the-Counter
Bulletin Board (the OTCBB) or any equivalent replacement exchange prior
to being listed or included for quotation on one of the aforementioned
markets, then the Company will make payments to the Investors in such
amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any
such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies
available at law or in equity).  The Company shall pay to each holder of
the Notes or Registrable Securities an amount equal to the then outstanding
principal amount of the Notes (and, in the case of holders of Registrable
Securities, the principal amount of Notes from which such Registrable
Securities were converted) (Outstanding Principal Amount), multiplied by
the Applicable Percentage (as defined below) times the sum of:  (i) the
number of months (prorated for partial months) after the Filing Date or the
end of the aforementioned one hundred and twenty (120) day period and
prior to the date the Registration Statement is declared effective by the
SEC, provided, however, that there shall be excluded from such period any
delays which are solely attributable to changes required by the Investors
in the Registration Statement with respect to information relating to the
Investors, including, without limitation, changes to the plan of
distribution, or to the failure of the Investors to conduct their review of
the Registration Statement pursuant to Section 3(h) below in a reasonably
prompt manner; (ii) the number of months (prorated for partial months) that
sales of all of the Registrable Securities cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by
reason of the Company's failure to properly supplement or amend the
prospectus included therein in accordance with the terms of this Agreement,
but excluding any days during an Allowed Delay (as defined in Section
3(f)); and (iii) the number of months (prorated for partial months) that
the Common Stock is not listed or included for quotation on the OTCBB,
Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted
after the Registration Statement has been declared effective.  The term
Applicable Percentage means two hundredths (.02).  (For example, if the
Registration Statement becomes effective one (1) month after the end of
such one hundred and twenty (120) day period, the Company would pay $5,000
for each $250,000 of Outstanding Principal Amount.  If thereafter, sales
could not be made pursuant to the Registration Statement for an additional
period of one (1) month, the Company would pay an additional $5,000 for
each $250,000 of Outstanding Principal Amount.)  Such amounts shall be paid
in cash or, at the Company's option, in shares of Common Stock priced at
the Conversion Price (as defined in the Notes, provided that for purposes
of the calculation of the Conversion Price pursuant to this Section 2(c),
the Applicable Percentage (as defined in the Notes) shall be 60%) on such
payment date. For purposes of this Agreement, all amounts paid to the
Investors pursuant to this section shall be capped at 6%.

                     d. Piggy-Back Registrations.  Subject to the last
sentence of this Section 2(d), if at any time prior to the expiration of
the Registration Period (as hereinafter defined) the Company shall
determine to file with the SEC a Registration Statement relating to an
offering for its own account or the account of others under the 1933 Act
of any of its equity securities (other than on Form S-4 or Form S-8 or
their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other bona fide,
employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(d) written notice of
such determination and, if within fifteen (15) days after the effective
date of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that
if, in connection with any underwritten public offering for the account
of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in
the Registration Statement because, in such underwriter(s) judgment,
marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking
to include Registrable Securities in proportion to the number of
Registrable Securities sought to be included by such Investors; provided,
however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having
the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in
such Registration Statement by reason of demand registration rights.  No
right to registration of Registrable Securities under this Section 2(d)
shall be construed to limit any registration required under Section 2(a)
hereof.  If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then
each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer
and sell such Registrable Securities in an underwritten offering using the
same underwriter or underwriters and, subject to the provisions of this
Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering.  Notwithstanding anything to the
contrary set forth herein, the registration rights of the Investors
pursuant to this Section 2(d) shall only be available in the event the
Company fails to timely file, obtain effectiveness or maintain effectiveness
of any Registration Statement to be filed pursuant to Section 2(a) in
accordance with the terms of this Agreement.

                     e. Eligibility for Form S-3, SB-2 or S-1; Conversion
to Form S-3.  The Company represents and warrants that it meets the
requirements for the use of Form S-3, SB-2 or S-1 for registration of the
sale by the Initial Investors and any other Investors of the Registrable
Securities.   The Company agrees to file all reports required to be filed
by the Company with the SEC in a timely manner so as to remain eligible or
become eligible, as the case may be, and thereafter to maintain its
eligibility, for the use of Form S-3.  If the Company is not currently
eligible to use Form S-3, not later than five (5) business days after the
Company first meets the registration eligibility and transaction
requirements for the use of Form S-3 (or any successor form) for
registration of the offer and sale by the Initial Investors and any other
Investors of Registrable Securities, the Company shall file a Registration
Statement on Form S-3 (or such successor form) with respect to the
Registrable Securities covered by the Registration Statement on Form SB-2
or Form S-1, whichever is applicable, filed pursuant to Section 2(a)
(and include in such Registration Statement on Form S-3 the information
required by Rule 429 under the 1933 Act) or convert the Registration
Statement on Form SB-2 or Form S-1, whichever is applicable, filed pursuant
to Section 2(a) to a Form S-3 pursuant to Rule 429 under the 1933 Act and
cause such Registration Statement (or such amendment) to be declared
effective no later than thirty (30) days after filing.  In the event of a
breach by the Company of the provisions of this Section 2(e), the Company
will be required to make payments pursuant to Section 2(c) hereof.

              3. OBLIGATIONS OF THE COMPANY.

       In connection with the registration of the Registrable Securities,
the Company shall have the following obligations:

                    a. The Company shall prepare promptly, and file with
the SEC not later than the Filing Date, a Registration Statement with
respect to the number of Registrable Securities provided in Section 2(a),
and thereafter use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as possible
after such filing but in no event later than the Effectiveness Deadline,
and keep the Registration Statement effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of
the Registrable Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the 1933 Act (the Registration Period), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary
to make the statements therein not misleading.

                    b. The Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to
the Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration
Statements effective at all times during the Registration Period, and,
during such period, comply with the provisions of the 1933 Act with respect
to the disposition of all Registrable Securities of the Company covered by
the Registration Statements until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the
Registration Statements.  In the event the number of shares available under
a Registration Statement filed pursuant to this Agreement is insufficient
to cover all of the Registrable Securities issued or issuable upon
conversion of the Notes and exercise of the Warrants, the Company shall
amend the Registration Statement, or file a new Registration Statement
(on the short form available therefor, if applicable), or both, so as to
cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and other
relevant factors on which the Company reasonably elects to rely).  The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following
the filing thereof, but in any event within thirty (30) days after the
date on which the Company reasonably first determines (or reasonably should
have determined) the need therefor.  The provisions of Section 2(c) above
shall be applicable with respect to such obligation, with the one hundred
and twenty (120) days running from the day the Company reasonably first
determines (or reasonably should have determined) the need therefor.

                    c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and its
legal counsel promptly (but in no event more than two (2) business days)
after the same is prepared and publicly distributed, filed with the SEC,
or received by the Company, one copy of each Registration Statement and
any amendment thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration
Statement referred to in Section 2(a), each letter written by or on behalf
of the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating
to such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential
treatment), and promptly (but in no event more than two (2) business days)
after the Registration Statement is declared effective by the SEC, such
number of copies of a prospectus, including a preliminary prospectus, and
all amendments and supplements thereto and such other documents as such
Investor may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Investor.  The Company will
immediately notify each Investor by facsimile of the effectiveness of each
Registration Statement or any post-effective amendment.  The Company will
promptly respond to any and all comments received from the SEC (which
comments shall promptly be made available to the Investors upon request),
with a view towards causing each Registration Statement or any amendment
thereto to be declared effective by the SEC as soon as practicable, shall
promptly file an acceleration request as soon as practicable (but in no
event more than two (2) business days) following the resolution or
clearance of all SEC comments or, if applicable, following notification by
the SEC that any such Registration Statement or any amendment thereto will
not be subject to review and shall promptly file with the SEC a final
prospectus pursuant to SEC Rule 424(b) as soon as practicable (but in no
event more than two (2) business days) following the effective date of the
Registration Statement.  In the event of a breach by the Company of the
provisions of this Section 3(c), the Company will be required to make
payments pursuant to Section 2(c) hereof.

                    d. The Company shall use reasonable efforts to
register and qualify the Registrable Securities covered by the
Registration Statements under such other securities or blue sky laws of
such jurisdictions in the United States as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations
and qualifications as may be necessary to maintain the effectiveness
thereof during the Registration Period, take such other actions as may be
necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period, and take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, that the Company shall not
be required in connection therewith or as a condition thereto to qualify
to do business in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d), subject itself to general taxation
in any such jurisdiction, file a general consent to service of process in
any such jurisdiction, provide any undertakings that cause the Company
undue expense or burden, or make any change in its charter or bylaws,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its shareholders.

                    e. In the event Investors who hold a
majority-in-interest of the Registrable Securities being offered in the
offering  (with the approval of a majority-in-interest of the Initial
Investors) select underwriters for the offering, the Company shall enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.

                    f. As promptly as practicable after becoming aware of
such event, the Company shall notify each Investor of the happening of any
event, of which the Company has knowledge, as a result of which the
prospectus included in any Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and use its best efforts promptly to
prepare a supplement or amendment to any Registration Statement to correct
such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than ten (10) consecutive
trading days (or a total of not more than twenty (20) trading days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as prospectus or
Registration Statement updating) the disclosure of which at the time is not
in the good faith opinion of the Company, in the best interests of the
Company (an Allowed Delay); provided, further, that the Company shall
promptly notify the Investors in writing of the existence of (but in no
event, without the prior written consent of an Investor, shall the Company
disclose to such investor any of the facts or circumstances regarding)
material non-public information giving rise to an Allowed Delay and
advise the Investors in writing to cease all sales under such Registration
Statement until the end of the Allowed Delay. Upon expiration of the
Allowed Delay, the Company shall again be bound by the first sentence of
this Section 3(f) with respect to the information giving rise thereto.

                    g. The Company shall use its best efforts to prevent
the issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of
such order and the resolution thereof.

                    h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review such Registration Statement
and all amendments and supplements thereto (as well as all requests for
acceleration or effectiveness thereof) a reasonable period of time prior
to their filing with the SEC, and not file any document in a form to which
such counsel reasonably objects and will not request acceleration of such
Registration Statement without prior notice to such counsel.  The sections
of such Registration Statement covering information with respect to the
Investors, the Investors beneficial ownership of securities of the
Company or the Investors intended method of disposition of Registrable
Securities shall conform to the information provided to the Company by
each of the Investors.

                    i. The Company shall make generally available to its
security holders as soon as practicable, but not later than one hundred
and twenty (120) days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of Rule 158 under
the 1933 Act) covering a twelve-month period beginning not later than the
first day of the Company's fiscal quarter next following the effective date
of the Registration Statement.

                    j. At the request of any Investor, the Company shall
furnish, on the date that Registrable Securities are delivered to an
underwriter, if any, for sale in connection with any Registration Statement
or, if such securities are not being sold by an underwriter, on the date
of effectiveness thereof an opinion, dated as of such date, from counsel
representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters, if any, and the Investors and a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and the Investors.

                    k. The Company shall make available for inspection by
any Investor, any underwriter participating in any disposition pursuant
to a Registration Statement, one firm of attorneys and one firm of
accountants or other agents retained by the Initial Investors, one firm
of attorneys and one firm of accountants or other agents retained by all
other Investors, and one firm of attorneys retained by all such
underwriters (collectively, the Inspectors) all pertinent financial and
other records, and pertinent corporate documents and properties of the
Company, including without limitation, records of conversions by other
holders of convertible securities issued by the Company and the issuance
of stock to such holders pursuant to the conversions (collectively, the
Records), as shall be reasonably deemed necessary by each Inspector to
enable each Inspector to exercise its due diligence responsibility, and
cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of
such due diligence; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so
notified, unless the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, the
release of such Records is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction, or the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement.
The Company shall not be required to disclose any confidential information
in such Records to any Inspector until and unless such Inspector shall
have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k).  Each Investor agrees that
it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.  Nothing
herein (or in any other confidentiality agreement between the Company and
any Investor) shall be deemed to limit the Investors ability to sell
Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.

                    l. The Company shall hold in confidence and not make
any disclosure of information concerning an Investor provided to the
Company unless disclosure of such information is necessary to comply with
federal or state securities laws, the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction, or such information has been made generally
available to the public other than by disclosure in violation of this or
any other agreement.  The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by
a court or governmental body of competent jurisdiction or through other
means, give prompt notice to such Investor prior to making such disclosure,
and allow the Investor, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such
information.

                    m. The Company shall cause all the Registrable
Securities covered by the Registration Statement to be listed on each
national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such
exchange, or to the extent the securities of the same class or series are
not then listed on a national securities exchange, secure the designation
and quotation, of all the Registrable Securities covered by the
Registration Statement on Nasdaq or, if not eligible for Nasdaq, on Nasdaq
SmallCap or, if not eligible for Nasdaq or Nasdaq SmallCap, on the OTCBB
and, without limiting the generality of the foregoing, to arrange for at
least two market makers to register with the National Association of
Securities Dealers, Inc. (NASD) as such with respect to such Registrable
Securities.
                    n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities
not later than the effective date of the Registration Statement.

                    o. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to a Registration Statement
and enable such certificates to be in such denominations or amounts, as
the case may be, as the managing underwriter or underwriters, if any, or
the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may
request, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective
by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction
in the form attached hereto as Exhibit 1 and an opinion of such counsel
in the form attached hereto as Exhibit 2.

                    p. At the request of the holders of a
majority-in-interest of the Registrable Securities, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and any prospectus
used in connection with the Registration Statement as may be necessary in
order to change the plan of distribution set forth in such Registration
Statement.

                    q. From and after the date of this Agreement, the
Company shall not, and shall not agree to, allow the holders of any
securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the
holders of a majority-in-interest of the Registrable Securities.

                    r. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.

              4. OBLIGATIONS OF THE INVESTORS.

       In connection with the registration of the Registrable Securities,
the Investors shall have the following obligations:

                    a. It shall be a condition precedent to the obligations
of the Company to complete the registration pursuant to this Agreement
with respect to the Registrable Securities of a particular Investor that
such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and
shall execute such documents in connection with such registration as the
Company may reasonably request.  At least three (3) business days prior to
the first anticipated filing date of the Registration Statement, the
Company shall notify each Investor of the information the Company requires
from each such Investor.

                    b. Each Investor, by such Investors acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of
the Registration Statements hereunder, unless such Investor has notified
the Company in writing of such Investors election to exclude all of such
Investors Registrable Securities from the Registration Statements.

                    c. In the event Investors holding a
majority-in-interest of the Registrable Securities being registered
(with the approval of the Initial Investors) determine to engage the
services of an underwriter, each Investor agrees to enter into and perform
such Investors obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification
and contribution obligations, with the managing underwriter of such
offering and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities,
unless such Investor has notified the Company in writing of such Investors
election to exclude all of such Investors Registrable Securities from
such Registration Statement.

                    d. Each Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 3(f) or 3(g), such Investor will immediately
discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Investors receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) or 3(g) and, if so directed by the Company,
such Investor shall deliver to the Company (at the expense of the Company)
or destroy (and deliver to the Company a certificate of destruction) all
copies in such Investors possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.

                    e. No Investor may participate in any underwritten
registration hereunder unless such Investor agrees to sell such Investors
Registrable Securities on the basis provided in any underwriting
arrangements in usual and customary form entered into by the Company,
completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and agrees to
pay its pro rata share of all underwriting discounts and commissions and
any expenses in excess of those payable by the Company pursuant to Section
5 below.

              5. EXPENSES OF REGISTRATION.

       All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualification fees, printers and accounting
fees, the fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the
Company and shall be included in the fees paid to counsel under the
Securities Purchase Agreement for purposes of counsel selected by the
Initial Investors.

              6. INDEMNIFICATION.

       In the event any Registrable Securities are included in a
Registration Statement under this Agreement:

                    a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees,
agents and each person who controls any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended
(the 1934 Act), if any, any underwriter (as defined in the 1933 Act)
for the Investors, and the directors, officers, partners, employees and
each person who controls any such underwriter within the meaning of the
1933 Act or the 1934 Act, if any (each, an Indemnified Person), against
any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced or
threatened, in respect thereof, Claims) to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein
a material fact required to be stated or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not
misleading; or (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to
the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, Violations).
Subject to the restrictions set forth in Section 6(c) with respect to the
number of legal counsel, the Company shall reimburse the Indemnified
Person, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not
apply to a Claim arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information furnished in writing
to the Company by any Indemnified Person or underwriter for such
Indemnified Person expressly for use in connection with the preparation
of such Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(c) hereof; (ii) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in
the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and
the Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a Violation and such
Indemnified Person, notwithstanding such advice, used it.  Such indemnity
shall remain in full force and effect regardless of any investigation made
by or on behalf of the Indemnified Person and shall survive the transfer
of the Registrable Securities by the Investors pursuant to Section 9.

                    b. In connection with any Registration Statement in
which an Investor is participating, each such Investor agrees severally
and not jointly to indemnify, hold harmless and defend, to the same extent
and in the same manner set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement, each
person, if any, who controls the Company within the meaning of the 1933 Act
or the 1934 Act, any underwriter and any other shareholder selling
securities pursuant to the Registration Statement or any of its directors
or officers or any person who controls such shareholder or underwriter
within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an Indemnified Party), against any
Claim to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation by such Investor, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity
with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and
subject to Section 6(c) such Investor will reimburse any legal or other
expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending
any such Claim; provided, however, that the indemnity agreement contained
in this Section 6(b) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld; provided,
further, however, that the Investor shall be liable under this Agreement
(including this Section 6(b) and Section 7) for only that amount as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement.  Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of
any Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.

                    c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall
have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of
the Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding.  The indemnifying party
shall pay for only one separate legal counsel for  the Indemnified Persons
or the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority-in-interest of the  Registrable
Securities included in the Registration Statement to which the Claim
relates (with the approval of a majority-in-interest of the Initial
Investors), if the Investors are entitled to indemnification hereunder, or
the Company, if the Company is entitled to indemnification hereunder, as
applicable.  The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to
the extent that the indemnifying party is actually prejudiced in its
ability to defend such action.  The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.

              7. CONTRIBUTION.

       To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6, no
seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty
of such fraudulent misrepresentation, and contribution (together with any
indemnification or other obligations under this Agreement) by any seller
of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable
Securities.

              8. REPORTS UNDER THE 1934 ACT.

With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the investors to sell
securities of the Company to the public without registration (Rule 144),
the Company agrees to:

                    a. make and keep public information available, as those
terms are understood and defined in Rule 144;

                    b. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934
Act so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations under
Section 4(c) of the Securities Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of
Rule 144; and

                    c. furnish to each Investor so long as such Investor
owns Registrable Securities, promptly upon request, a written statement
by the Company that it has complied with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so
filed by the Company, and such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule
144 without registration.

              9. ASSIGNMENT OF REGISTRATION RIGHTS.

The rights under this Agreement shall be automatically assignable
by the Investors to any transferee of all or any portion of Registrable
Securities if: (i)the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished
to the Company within a reasonable time after such assignment, (ii)the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of the name and address of such transferee
or assignee, and the securities with respect to which such registration
rights are being transferred or assigned, (iii) following such transfer or
assignment, the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities
laws, (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence, the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein, (v) such transfer shall have been made in accordance
with the applicable requirements of the Securities Purchase Agreement, and
(vi) such transferee shall be an accredited investor as that term defined
in Rule 501 of Regulation D promulgated under the 1933 Act.

              10. AMENDMENT OF REGISTRATION RIGHTS.

Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with written consent of the
Company, each of the Initial Investors (to the extent such Initial Investor
still owns Registrable Securities) and Investors who hold a majority
interest of the Registrable Securities.  Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and
the Company.

              11. MISCELLANEOUS.

                    a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities.  If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to
the same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.

                    b. Any notices required or permitted to be given under
the terms hereof shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by regular
United States mail, or upon receipt, if delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile, in
each case addressed to a party.  The addresses for such communications
shall be:

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 an Investor: to the address set forth immediately below such
Investors name on the signature pages to the Securities Purchase
Agreement.

With a copy to:

Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
51st Floor
Philadelphia, Pennsylvania  19103
Attention:  Gerald J. Guarcini, Esq.
Telephone:  215-865-8625
Facsimile:  215-864-8999

                    c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.

                    d.  THIS AGREEMENT 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 PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS
AGREEMENT, 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 AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,
INCLUDING ATTORNEYS FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION
WITH SUCH DISPUTE.

                    e. In the event that any provision of this Agreement
is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law.  Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.

                    f. This Agreement, the Notes, the Warrants and the
Securities Purchase Agreement (including all schedules and exhibits
thereto) constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof.  There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein.  This Agreement and the
Securities Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject
matter hereof and thereof.

                    g. Subject to the requirements of Section 9 hereof,
this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns.

                    h. The headings in this Agreement are for convenience
of reference only and shall not form part of, or affect the interpretation
of, this Agreement.

                    i. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the
other party.  This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

                    j. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

                    k. Except as otherwise provided herein, all consents
and other determinations to be made by the Investors pursuant to this
Agreement shall be made by Investors holding a majority of the Registrable
Securities, determined as if the all of the Notes then outstanding have
been converted into for Registrable Securities.

                    l. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for breach of
its obligations under this Agreement will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of any of the
provisions under this Agreement, that each Investor shall be entitled, in
addition to all other available remedies in 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 Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security
being required.

                    m. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

                    [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the Company and the undersigned Initial Investors have
caused this Agreement to be duly executed as of the date first above
written.
PALOMAR ENTERPRISES, INC.
______________________________________
Steve Bonenberger
Chief Executive Officer
AJW PARTNERS, LLC
By:  SMS Group, LLC
______________________________________
Corey S. Ribotsky
Manager
AJW OFFSHORE, LTD.
By:  First Street Manager II, LLC

______________________________________
Corey S. Ribotsky
Manager

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

NEW MILLENNIUM CAPITAL PARTNERS, II, LLC
By:  First Street Manager II, LLC
______________________________________
Corey S. Ribotsky
Manager

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