SECURITIES PURCHASE AGREEMENT


     SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"),  dated as of December 20,
2002, by and among  Peabodys  Coffee,  Inc., a Nevada  corporation  (d/b/a Black
Rhino  Coffee),  with  headquarters  located  at 3845  Atherton  Road,  Suite 9,
Rocklin,  CA 95765 (the "COMPANY"),  and each of the purchasers set forth on the
signature pages hereto (the "BUYERS").

     WHEREAS:

     A. The Company and the Buyers are executing and  delivering  this Agreement
in reliance  upon the exemption  from  securities  registration  afforded by the
rules and  regulations  as  promulgated  by the  United  States  Securities  and
Exchange  Commission  (the "SEC") under the  Securities  Act of 1933, as amended
(the "1933 Act");

     B.  Buyers  desire to purchase  and the Company  desires to issue and sell,
upon the terms and conditions  set forth in this  Agreement (i) 10%  convertible
debentures of the Company,  in the form  attached  hereto as EXHIBIT "A", in the
aggregate  principal amount of Seven Hundred Fifty Thousand  Dollars  ($750,000)
(together with any debenture(s)  issued in replacement  thereof or as a dividend
thereon or otherwise with respect  thereto in accordance with the terms thereof,
the "DEBENTURES"),  convertible into shares of common stock, par value $.001 per
share,  of the Company (the "COMMON  STOCK"),  upon the terms and subject to the
limitations  and conditions set forth in such  Debentures and (ii) warrants,  in
the form  attached  hereto as EXHIBIT "B", to purchase One Million Eight Hundred
Seventy-Five Thousand (1,875,000) shares of Common Stock (the "WARRANTS").

     C. Each Buyer wishes to purchase,  upon the terms and conditions  stated in
this Agreement, such principal amount of Debentures and number of Warrants as is
set forth immediately below its name on the signature pages hereto; and

     D. Contemporaneous  with the execution and delivery of this Agreement,  the
parties hereto are executing and delivering a Registration Rights Agreement,  in
the form attached hereto as EXHIBIT "C" (the "REGISTRATION  RIGHTS  AGREEMENT"),
pursuant to which the Company has agreed to provide certain  registration rights
under the 1933 Act and the rules and  regulations  promulgated  thereunder,  and
applicable state securities laws.

     NOW  THEREFORE,  the  Company  and each of the  Buyers  severally  (and not
jointly) hereby agree as follows:

     1.   PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

          A.  PURCHASE OF  DEBENTURES  AND  WARRANTS.  On the  Closing  Date (as
defined  below),  the Company  shall issue and sell to each Buyer and each Buyer
severally  agrees  to  purchase  from  the  Company  such  principal  amount  of
Debentures and number of Warrants as is set forth immediately below such Buyer's
name on the signature pages hereto.

          B. FORM OF PAYMENT.  On the Closing Date (as defined below),  (i) each
Buyer shall pay the  purchase  price for the  Debentures  and the Warrants to be
issued and

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sold to it at the  Closing (as defined  below)  (the  "PURCHASE  PRICE") by wire
transfer of immediately  available funds to the Company,  in accordance with the
Company's written wiring instructions, against delivery of the Debentures in the
principal  amount equal to the  Purchase  Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages hereto, and
(ii) the Company  shall  deliver such  Debentures  and Warrants duly executed on
behalf of the Company, to such Buyer, against delivery of such Purchase Price.

          C. CLOSING DATE.  Subject to the  satisfaction  (or written waiver) of
the conditions  thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance  and sale of the  Debentures  and the Warrants  pursuant to
this Agreement (the "CLOSING DATE") shall be 12:00 noon,  Eastern  Standard Time
on December 20, 2002 or such other mutually agreed upon time. The closing of the
transactions  contemplated by this Agreement (the "CLOSING")  shall occur on the
Closing Date at such location as may be agreed to by the parties.

     2. BUYERS'  REPRESENTATIONS  AND WARRANTIES.  Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer that:

          A. INVESTMENT  PURPOSE. As of the date hereof, the Buyer is purchasing
the  Debentures  and the shares of Common Stock  issuable upon  conversion of or
otherwise  pursuant  to the  Debentures  (including,  without  limitation,  such
additional  shares of Common  Stock,  if any, as are  issuable (i) on account of
interest on the Debentures, (ii) as a result of the events described in Sections
1.3 and 1.4(g) of the  Debentures  and Section 2(c) of the  Registration  Rights
Agreement  or (iii) in payment of the  Standard  Liquidated  Damages  Amount (as
defined in Section 2(f) below) pursuant to this Agreement, such shares of Common
Stock being collectively  referred to herein as the "CONVERSION SHARES") and the
Warrants  and the shares of Common Stock  issuable  upon  exercise  thereof (the
"WARRANT SHARES" and, collectively with the Debentures,  Warrants and Conversion
Shares,  the  "SECURITIES")  for its own  account  and not with a  present  view
towards  the public  sale or  distribution  thereof,  except  pursuant  to sales
registered or exempted from registration under the 1933 Act; provided,  however,
that by making the representations  herein, the Buyer does not agree to hold any
of the  Securities for any minimum or other specific term and reserves the right
to dispose of the  Securities  at any time in  accordance  with or pursuant to a
registration statement or an exemption under the 1933 Act.

          B. ACCREDITED  INVESTOR STATUS. The Buyer is an "accredited  investor"
as  that  term is  defined  in  Rule  501(a)  of  Regulation  D (an  "ACCREDITED
INVESTOR").

          C. RELIANCE ON EXEMPTIONS.  The Buyer  understands that the Securities
are being offered and sold to it in reliance upon specific  exemptions  from the
registration requirements of United States federal and state securities laws and
that the  Company is relying  upon the truth and  accuracy  of, and the  Buyer's
compliance with, the representations,  warranties,  agreements,  acknowledgments
and  understandings  of the  Buyer set forth  herein in order to  determine  the
availability  of such exemptions and the eligibility of the Buyer to acquire the
Securities.

          D. INFORMATION. The Buyer and its advisors, if any, have been, and for
so long as the Debentures and Warrants remain  outstanding  will continue to be,
furnished

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with all  materials  relating to the  business,  finances and  operations of the
Company and  materials  relating to the offer and sale of the  Securities  which
have been requested by the Buyer or its advisors. The Buyer and its advisors, if
any,  have  been,  and  for  so  long  as the  Debentures  and  Warrants  remain
outstanding  will continue to be,  afforded the  opportunity to ask questions of
the Company. Notwithstanding the foregoing, the Company has not disclosed to the
Buyer any material nonpublic  information and will not disclose such information
unless  such  information  is  disclosed  to the  public  prior  to or  promptly
following such disclosure to the Buyer. Neither such inquiries nor any other due
diligence   investigation   conducted  by  Buyer  or  any  of  its  advisors  or
representatives  shall  modify,  amend or  affect  Buyer's  right to rely on the
Company's representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities  involves a significant degree
of risk.

          E.  GOVERNMENTAL  REVIEW.  The Buyer understands that no United States
federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any recommendation or endorsement of the Securities.

          F.  TRANSFER  OR  RE-SALE.  The Buyer  understands  that (i) except as
provided  in the  Registration  Rights  Agreement,  the sale or  re-sale  of the
Securities  has not been and is not being  registered  under the 1933 Act or any
applicable  state  securities  laws,  and the  Securities may not be transferred
unless  (a) the  Securities  are  sold  pursuant  to an  effective  registration
statement  under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel that shall be in form,  substance and scope  customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred  may be sold or  transferred  pursuant to an exemption
from such registration,  which opinion shall be accepted by the Company, (c) the
Securities are sold or  transferred  to an  "affiliate"  (as defined in Rule 144
promulgated  under the 1933 Act (or a successor rule) ("RULE 144")) of the Buyer
who agrees to sell or otherwise  transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the  Securities  are sold  pursuant to Regulation S
under the 1933 Act (or a successor rule)  ("REGULATION  S"), and the Buyer shall
have  delivered  to the  Company an  opinion  of counsel  that shall be in form,
substance and scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of such Securities
made in  reliance on Rule 144 may be made only in  accordance  with the terms of
said Rule and  further,  if said Rule is not  applicable,  any  re-sale  of such
Securities  under  circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require  compliance  with some other  exemption under the 1933
Act or the rules and  regulations of the SEC  thereunder;  and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state  securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to the
Registration  Rights Agreement).  Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.  In the
event that the Company  does not accept the  opinion of counsel  provided by the
Buyer with respect to the transfer of Securities  pursuant to an exemption  from
registration,  such as Rule 144 or  Regulation S, within three (3) business days
of delivery of the opinion to the  Company,  the Company  shall pay to the Buyer
liquidated  damages  of three  percent  (3%) of the  outstanding  amount  of the
Debentures  per month  plus  accrued  and  unpaid  interest  on the  Debentures,
prorated for partial months, in cash or shares

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at the option of the Buyer ("STANDARD  LIQUIDATED DAMAGES AMOUNT"). If the Buyer
elects to be paid the  Standard  Liquidated  Damages  Amount in shares of Common
Stock,  such  shares  shall be  issued  at the  Conversion  Price at the time of
payment.

          G. LEGENDS. The Buyer understands that the Debentures and the Warrants
and,  until such time as the  Conversion  Shares and  Warrant  Shares  have been
registered  under  the  1933  Act as  contemplated  by the  Registration  Rights
Agreement or otherwise  may be sold pursuant to Rule 144 or Regulation S without
any  restriction as to the number of securities as of a particular date that can
then be immediately  sold,  the Conversion  Shares and Warrant Shares may bear a
restrictive  legend in  substantially  the following  form (and a  stop-transfer
order may be placed against transfer of the certificates for such Securities):

          "The  securities   represented  by  this  certificate  have  not  been
          registered  under  the  Securities  Act  of  1933,  as  amended.   The
          securities may not be sold,  transferred or assigned in the absence of
          an effective registration statement for the securities under said Act,
          or an opinion of counsel,  in form,  substance and scope customary for
          opinions of counsel in comparable  transactions,  that registration is
          not  required  under said Act or unless  sold  pursuant to Rule 144 or
          Regulation S under said Act."

     The legend set forth above  shall be removed and the Company  shall issue a
certificate  without such legend to the holder of any Security  upon which it is
stamped,  if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective  registration  statement
filed  under  the  1933 Act or  otherwise  may be sold  pursuant  to Rule 144 or
Regulation  S without any  restriction  as to the number of  securities  as of a
particular  date that can then be immediately  sold, or (b) such holder provides
the Company with an opinion of counsel,  in form,  substance and scope customary
for opinions of counsel in comparable transactions,  to the effect that a public
sale or transfer of such  Security  may be made without  registration  under the
1933 Act,  which  opinion  shall be  accepted by the Company so that the sale or
transfer is effected or (c) such holder  provides  the Company  with  reasonable
assurances  that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer  agrees  to sell all  Securities,  including  those  represented  by a
certificate(s)  from which the  legend  has been  removed,  in  compliance  with
applicable prospectus delivery requirements, if any.

          H.  AUTHORIZATION;  ENFORCEMENT.  This Agreement and the  Registration
Rights Agreement have been duly and validly authorized.  This Agreement has been
duly  executed  and  delivered  on  behalf  of the  Buyer,  and  this  Agreement
constitutes,  and upon  execution and delivery by the Buyer of the  Registration
Rights Agreement,  such agreement will constitute,  valid and binding agreements
of the Buyer enforceable in accordance with their terms.

          I. RESIDENCY.  The Buyer is a resident of the  jurisdiction  set forth
immediately below such Buyer's name on the signature pages hereto.

     3.  REPRESENTATIONS  AND WARRANTIES OF THE COMPANY.  The Company represents
and warrants to each Buyer that:

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          A.  ORGANIZATION  AND  QUALIFICATION.  The  Company  and  each  of its
Subsidiaries  (as defined  below),  if any,  is a  corporation  duly  organized,
validly  existing and in good  standing  under the laws of the  jurisdiction  in
which it is incorporated, with full power and authority (corporate and other) to
own,  lease,  use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted.  SCHEDULE 3(A) sets forth
a list of all of the  Subsidiaries of the Company and the  jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a  foreign  corporation  to do  business  and is in good  standing  in  every
jurisdiction  in which its  ownership  or use of  property  or the nature of the
business  conducted by it makes such  qualification  necessary  except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect.  "MATERIAL  ADVERSE  EFFECT"  means any material  adverse  effect on the
business, operations, assets, financial condition or prospects of the Company or
its Subsidiaries,  if any, taken as a whole, or on the transactions contemplated
hereby or by the  agreements  or  instruments  to be entered into in  connection
herewith.  "SUBSIDIARIES"  means any corporation or other organization,  whether
incorporated  or  unincorporated,   in  which  the  Company  owns,  directly  or
indirectly, any equity or other ownership interest.

          B.  AUTHORIZATION;  ENFORCEMENT.  (i) The  Company  has all  requisite
corporate  power and  authority  to enter into and perform this  Agreement,  the
Registration Rights Agreement, the Debentures and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this  Agreement,  the  Registration  Rights  Agreement,  the  Debentures and the
Warrants  by  the  Company  and  the  consummation  by  it of  the  transactions
contemplated hereby and thereby (including without  limitation,  the issuance of
the Debentures and the Warrants and the issuance and reservation for issuance of
the Conversion  Shares and Warrant Shares  issuable upon  conversion or exercise
thereof) have been duly  authorized  by the Company's  Board of Directors and no
further consent or authorization of the Company, its Board of Directors,  or its
shareholders  is  required,  (iii) this  Agreement  has been duly  executed  and
delivered by the Company by its authorized  representative,  and such authorized
representative  is the true and official  representative  with authority to sign
this Agreement and the other documents executed in connection  herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, the Debentures
and the Warrants,  each of such instruments will constitute,  a legal, valid and
binding obligation of the Company  enforceable against the Company in accordance
with its terms.

          C. CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company  consists of: (i)  50,000,000  shares of Common  Stock,  of which
21,567,120 shares are issued and outstanding,  5,481,336 shares are reserved for
issuance  pursuant to the Company's  stock option plans,  no shares are reserved
for issuance pursuant to securities (other than the Debentures and the Warrants)
exercisable  for, or convertible into or exchangeable for shares of Common Stock
and  12,083,333  shares  are  reserved  for  issuance  upon  conversion  of  the
Debentures  and the  Additional  Debentures  (as  defined in  Section  4(l)) and
exercise of the  Warrants  and the  Additional  Warrants  (as defined in Section
4(l))  (subject to adjustment  pursuant to the  Company's  covenant set forth in
Section  4(h)  below);  and  (ii) no  shares  of  preferred  stock.  All of such
outstanding  shares  of  capital  stock  are,  or upon  issuance  will be,  duly
authorized,  validly issued, fully paid and nonassessable.  No shares of capital
stock of the

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Company  are subject to  preemptive  rights or any other  similar  rights of the
shareholders  of the Company or any liens or  encumbrances  imposed  through the
actions or failure to act of the Company.  Except as disclosed in SCHEDULE 3(C),
as of the  effective  date of  this  Agreement,  (i)  there  are no  outstanding
options,  warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal,  agreements,  understandings,  claims or other commitments or rights of
any character  whatsoever  relating to, or securities or rights convertible into
or  exchangeable  for any shares of capital  stock of the  Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue  additional  shares of capital stock of the Company
or any of its Subsidiaries,  (ii) there are no agreements or arrangements  under
which the Company or any of its  Subsidiaries  is obligated to register the sale
of any of its or their  securities  under the 1933 Act (except the  Registration
Rights  Agreement)  and (iii)  there are no  anti-dilution  or price  adjustment
provisions  contained in any security issued by the Company (or in any agreement
providing rights to security  holders) that will be triggered by the issuance of
the  Debentures,  the Warrants,  the Conversion  Shares or Warrant  Shares.  The
Company  has  furnished  to the Buyer true and correct  copies of the  Company's
Articles  of  Incorporation  as in  effect  on the  date  hereof  ("ARTICLES  OF
INCORPORATION"),  the  Company's  By-laws,  as in effect on the date hereof (the
"BY-LAWS"),  and the terms of all securities convertible into or exercisable for
Common  Stock of the Company and the material  rights of the holders  thereof in
respect  thereto.  The Company shall provide the Buyer with a written  update of
this  representation  signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.

          D. ISSUANCE OF SHARES.  The  Conversion  Shares and Warrant Shares are
duly authorized and reserved for issuance and, upon conversion of the Debentures
and exercise of the Warrants in accordance with their respective  terms, will be
validly issued,  fully paid and non-assessable,  and free from all taxes, liens,
claims  and  encumbrances  with  respect to the issue  thereof  and shall not be
subject to preemptive  rights or other  similar  rights of  shareholders  of the
Company and will not impose personal liability upon the holder thereof.

          E.   ACKNOWLEDGMENT   OF  DILUTION.   The  Company   understands   and
acknowledges  the  potentially  dilutive  effect to the  Common  Stock  upon the
issuance of the  Conversion  Shares and Warrant  Shares upon  conversion  of the
Debenture or exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion  Shares and Warrant Shares upon conversion of the
Debentures or exercise of the Warrants in accordance  with this  Agreement,  the
Debentures  and the Warrants is absolute  and  unconditional  regardless  of the
dilutive effect that such issuance may have on the ownership  interests of other
shareholders of the Company.

          F. NO  CONFLICTS.  The  execution,  delivery and  performance  of this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including,  without limitation, the issuance and reservation
for issuance of the Conversion  Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Articles of  Incorporation
or  By-laws  or (ii)  violate  or  conflict  with,  or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse of
time or both  could  become a  default)  under,  or give to others any rights of
termination,   amendment,   acceleration  or  cancellation  of,  any  agreement,
indenture, patent, patent license or instrument to

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which the Company or any of its  Subsidiaries  is a party,  or (iii) result in a
violation of any law, rule,  regulation,  order,  judgment or decree  (including
federal  and  state  securities  laws and  regulations  and  regulations  of any
self-regulatory  organizations  to  which  the  Company  or its  securities  are
subject)  applicable to the Company or any of its  Subsidiaries  or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
(except for such conflicts, defaults, terminations,  amendments,  accelerations,
cancellations  and  violations as would not,  individually  or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries
is  in   violation  of  its   Articles  of   Incorporation,   By-laws  or  other
organizational  documents and neither the Company nor any of its Subsidiaries is
in default (and no event has occurred which with notice or lapse of time or both
could put the Company or any of its  Subsidiaries in default) under, and neither
the Company nor any of its  Subsidiaries  has taken any action or failed to take
any action  that would  give to others  any  rights of  termination,  amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its  Subsidiaries  is a party or by which any  property or
assets of the Company or any of its  Subsidiaries  is bound or affected,  except
for possible  defaults as would not,  individually  or in the aggregate,  have a
Material Adverse Effect. The businesses of the Company and its Subsidiaries,  if
any, are not being conducted, and shall not be conducted so long as a Buyer owns
any of the Securities,  in violation of any law,  ordinance or regulation of any
governmental entity.  Except as specifically  contemplated by this Agreement and
as required under the 1933 Act and any  applicable  state  securities  laws, the
Company is not  required to obtain any  consent,  authorization  or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for  it to  execute,  deliver  or  perform  any of its  obligations  under  this
Agreement,  the Registration Rights Agreement, the Debentures or the Warrants in
accordance  with the terms hereof or thereof or to issue and sell the Debentures
and Warrants in  accordance  with the terms  hereof and to issue the  Conversion
Shares upon conversion of the Debentures and the Warrant Shares upon exercise of
the   Warrants.   Except  as  disclosed   in  SCHEDULE   3(F),   all   consents,
authorizations,  orders, filings and registrations which the Company is required
to obtain  pursuant to the preceding  sentence have been obtained or effected on
or prior to the date  hereof.  The  Company is not in  violation  of the listing
requirements of the  Over-the-Counter  Bulletin Board (the "OTCBB") and does not
reasonably anticipate that the Common Stock will be delisted by the OTCBB in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.

          G.  SEC  DOCUMENTS;  FINANCIAL  STATEMENTS.  Except  as  disclosed  in
SCHEDULE  3(G),  the Company has timely  filed all  reports,  schedules,  forms,
statements and other documents  required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934  ACT") (all of the  foregoing  filed prior to the date hereof and all
exhibits  included  therein and financial  statements and schedules  thereto and
documents  (other than  exhibits to such  documents)  incorporated  by reference
therein,  being  hereinafter  referred  to herein as the "SEC  DOCUMENTS").  The
Company  has  delivered  to each  Buyer  true  and  complete  copies  of the SEC
Documents,  except for such  exhibits and  incorporated  documents.  As of their
respective  dates, the SEC Documents  complied in all material respects with the
requirements  of the  1934  Act  and  the  rules  and  regulations  of  the  SEC
promulgated  thereunder  applicable  to the SEC  Documents,  and none of the SEC
Documents,  at the time they  were  filed  with the SEC,  contained  any  untrue
statement of a material  fact or omitted to state a material fact required to be
stated therein or necessary in order to make the

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statements  therein,  in light of the circumstances  under which they were made,
not misleading. None of the statements made in any such SEC Documents is, or has
been,  required to be amended or updated under  applicable  law (except for such
statements as have been amended or updated in subsequent  filings prior the date
hereof).  As of their respective dates, the financial  statements of the Company
included in the SEC Documents  complied as to form in all material respects with
applicable  accounting  requirements  and the published rules and regulations of
the SEC with respect  thereto.  Such financial  statements have been prepared in
accordance  with  United  States  generally  accepted   accounting   principles,
consistently  applied,  during  the  periods  involved  (except  (i)  as  may be
otherwise  indicated in such financial  statements or the notes thereto, or (ii)
in the case of unaudited interim statements,  to the extent they may not include
footnotes or may be condensed or summary  statements)  and fairly present in all
material  respects the  consolidated  financial  position of the Company and its
consolidated  Subsidiaries as of the dates thereof and the consolidated  results
of their  operations and cash flows for the periods then ended (subject,  in the
case of unaudited statements,  to normal year-end audit adjustments).  Except as
set  forth  in the  financial  statements  of the  Company  included  in the SEC
Documents, the Company has no liabilities,  contingent or otherwise,  other than
(i) liabilities  incurred in the ordinary course of business subsequent to March
31, 2002 and (ii)  obligations  under contracts and commitments  incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in such financial statements,  which, individually or
in the  aggregate,  are not  material to the  financial  condition  or operating
results of the Company.

          H. ABSENCE OF CERTAIN  CHANGES.  Except as set forth on SCHEDULE 3(H),
since March 31, 2002,  there has been no material adverse change and no material
adverse   development  in  the  assets,   liabilities,   business,   properties,
operations,  financial  condition,  results of  operations  or  prospects of the
Company or any of its Subsidiaries.

          I. ABSENCE OF LITIGATION. There is no action, suit, claim, proceeding,
inquiry  or  investigation  before or by any  court,  public  board,  government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries,  threatened against or affecting the Company
or any of its Subsidiaries,  or their officers or directors in their capacity as
such,  that could have a  Material  Adverse  Effect.  SCHEDULE  3(I)  contains a
complete list and summary  description  of any pending or threatened  proceeding
against or affecting the Company or any of its  Subsidiaries,  without regard to
whether  it  would  have  a  Material  Adverse  Effect.   The  Company  and  its
Subsidiaries are unaware of any facts or circumstances  which might give rise to
any of the foregoing.

          J.   PATENTS, COPYRIGHTS, ETC.

               (i) The Company and each of its  Subsidiaries  owns or  possesses
the requisite licenses or rights to use all patents, patent applications, patent
rights, inventions, know-how, trade secrets, trademarks, trademark applications,
service  marks,  service  names,  trade  names  and  copyrights   ("INTELLECTUAL
PROPERTY")  necessary to enable it to conduct its business as now operated (and,
except  as set  forth in  SCHEDULE  3(J)  hereof,  to the best of the  Company's
knowledge,  as presently contemplated to be operated in the future); there is no
claim or action by any person  pertaining to, or proceeding  pending,  or to the
Company's knowledge threatened,  which challenges the right of the Company or of
a Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except

                                       8
<PAGE>

as set forth in SCHEDULE 3(J) hereof, to the best of the Company's knowledge, as
presently  contemplated  to be  operated  in the  future);  to the  best  of the
Company's  knowledge,  the Company's or its  Subsidiaries'  current and intended
products, services and processes do not infringe on any Intellectual Property or
other  rights  held by any  person;  and the  Company is unaware of any facts or
circumstances  which  might give rise to any of the  foregoing.  The Company and
each of its Subsidiaries have taken reasonable  security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.

               (ii)  All  of  the  Company's   computer  software  and  computer
hardware,  and other  similar or related  items of  automated,  computerized  or
software systems that are used or relied on by the Company in the conduct of its
business or that were, or currently  are being,  sold or licensed by the Company
to customers (collectively,  "INFORMATION TECHNOLOGY"), are Year 2000 Compliant.
For  purposes of this  Agreement,  the term "YEAR 2000  Compliant"  means,  with
respect to the Company's Information Technology, that the Information Technology
is designed to be used prior to,  during and after the calendar  Year 2000,  and
the  Information  Technology  used during each such time period will  accurately
receive, provide and process date and time data (including,  but not limited to,
calculating,  comparing and sequencing) from, into and between the 20th and 21st
centuries,  including the years 1999 and 2000, and leap-year  calculations,  and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of the date or time  data,  to the  extent  that  other  information
technology,  used in  combination  with  the  Information  Technology,  properly
exchanges  date and time data with it. The Company has  delivered  to the Buyers
true and correct copies of all analyses,  reports,  studies and similar  written
information,  whether  prepared  by the  Company or another  party,  relating to
whether the Information Technology is Year 2000 Compliant, if any.

          K. NO MATERIALLY ADVERSE  CONTRACTS,  ETC. Neither the Company nor any
of its  Subsidiaries  is  subject  to any  charter,  corporate  or  other  legal
restriction,  or any judgment,  decree,  order,  rule or regulation which in the
judgment of the  Company's  officers  has or is expected in the future to have a
Material  Adverse Effect.  Neither the Company nor any of its  Subsidiaries is a
party to any  contract  or  agreement  which in the  judgment  of the  Company's
officers has or is expected to have a Material Adverse Effect.

          L. TAX STATUS.  Except as set forth on SCHEDULE  3(L), the Company and
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject  (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books  provisions  reasonably  adequate
for the payment of all unpaid and  unreported  taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such  returns,  reports and  declarations,  except those
being  contested  in good  faith  and  has set  aside  on its  books  provisions
reasonably  adequate for the payment of all taxes for periods  subsequent to the
periods  to which such  returns,  reports or  declarations  apply.  There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction,  and the officers of the Company know of no basis for any such
claim.  The  Company has not  executed a waiver  with  respect to the statute of
limitations  relating to the  assessment or collection of any foreign,  federal,
state or local tax.  Except as set forth on SCHEDULE 3(L), none of the Company's
tax returns is presently being audited by any taxing authority.

                                       9
<PAGE>

          M.  CERTAIN  TRANSACTIONS.  Except as set forth on  SCHEDULE  3(M) and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries  makes  payments in the ordinary  course of business  upon terms no
less  favorable  than the Company or any of its  Subsidiaries  could obtain from
third  parties and other than the grant of stock  options  disclosed on SCHEDULE
3(C), none of the officers,  directors, or employees of the Company is presently
a party to any transaction  with the Company or any of its  Subsidiaries  (other
than for services as employees, officers and directors), including any contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer,  director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

          N. DISCLOSURE.  All information  relating to or concerning the Company
or any of its  Subsidiaries  set forth in this  Agreement  and  provided  to the
Buyers  pursuant to Section  2(d) hereof and  otherwise in  connection  with the
transactions  contemplated  hereby is true and correct in all material  respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein,  in light of the circumstances under
which they were made, not misleading.  No event or circumstance  has occurred or
exists with  respect to the Company or any of its  Subsidiaries  or its or their
business,  properties,  prospects,  operations or financial  conditions,  which,
under  applicable  law,  rule  or  regulation,  requires  public  disclosure  or
announcement  by the  Company but which has not been so  publicly  announced  or
disclosed  (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective  registration  statement filed
by the Company under the 1933 Act).

          O.  ACKNOWLEDGMENT  REGARDING  BUYERS'  PURCHASE  OF  SECURITIES.  The
Company  acknowledges  and  agrees  that the  Buyers  are  acting  solely in the
capacity of arm's  length  purchasers  with  respect to this  Agreement  and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial  advisor or fiduciary of the Company (or in any similar
capacity)  with  respect to this  Agreement  and the  transactions  contemplated
hereby  and  any  statement  made  by  any  Buyer  or any  of  their  respective
representatives or agents in connection with this Agreement and the transactions
contemplated  hereby is not advice or a recommendation  and is merely incidental
to the Buyers'  purchase of the Securities.  The Company  further  represents to
each Buyer that the  Company's  decision to enter into this  Agreement  has been
based   solely  on  the   independent   evaluation   of  the   Company  and  its
representatives.

          P.  NO  INTEGRATED  OFFERING.  Neither  the  Company,  nor  any of its
affiliates,  nor any  person  acting on its or their  behalf,  has  directly  or
indirectly  made any offers or sales in any security or solicited  any offers to
buy any security under  circumstances that would require  registration under the
1933 Act of the issuance of the  Securities  to the Buyers.  The issuance of the
Securities to the Buyers will not be integrated  with any other  issuance of the
Company's  securities (past,  current or future) for purposes of any shareholder
approval provisions applicable to the Company or its securities.

                                       10
<PAGE>

          Q. NO BROKERS.  Except as set forth on Schedule  3(q), the Company has
taken no action  which would give rise to any claim by any person for  brokerage
commissions,  transaction fees or similar payments relating to this Agreement or
the transactions contemplated hereby.

          R. PERMITS; COMPLIANCE. The Company and each of its Subsidiaries is in
possession  of  all  franchises,  grants,  authorizations,   licenses,  permits,
easements, variances, exemptions,  consents, certificates,  approvals and orders
necessary to own,  lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "COMPANY PERMITS"), and there is
no action  pending or, to the  knowledge  of the Company,  threatened  regarding
suspension or  cancellation of any of the Company  Permits.  Neither the Company
nor any of its  Subsidiaries is in conflict with, or in default or violation of,
any of  the  Company  Permits,  except  for  any  such  conflicts,  defaults  or
violations  which,  individually  or in the  aggregate,  would not reasonably be
expected to have a Material  Adverse Effect.  Since March 31, 2002,  neither the
Company nor any of its Subsidiaries  has received any notification  with respect
to possible  conflicts,  defaults or violations of applicable  laws,  except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.

          S. ENVIRONMENTAL MATTERS.

               (i)  Except as set forth in  SCHEDULE  3(S),  there  are,  to the
Company's  knowledge,  with respect to the Company or any of its Subsidiaries or
any predecessor of the Company,  no past or present  violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities,   circumstances,   conditions,  events,  incidents,  or  contractual
obligations which may give rise to any common law environmental liability or any
liability  under the  Comprehensive  Environmental  Response,  Compensation  and
Liability  Act of 1980 or similar  federal,  state,  local or  foreign  laws and
neither the Company nor any of its  Subsidiaries  has  received  any notice with
respect to any of the foregoing,  nor is any action pending or, to the Company's
knowledge,  threatened  in  connection  with  any of  the  foregoing.  The  term
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment  (including,  without
limitation,  ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions,  discharges,
releases or threatened releases of chemicals,  pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all  authorizations,  codes,  decrees,  demands  or  demand  letters,
injunctions,  judgments,  licenses,  notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

               (ii) Other than those that are or were  stored,  used or disposed
of in compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or any of
its Subsidiaries,  and no Hazardous Materials were released on or about any real
property  previously  owned,  leased  or  used  by  the  Company  or  any of its
Subsidiaries during the period the property was owned, leased

                                       11
<PAGE>

or used by the Company or any of its  Subsidiaries,  except in the normal course
of the Company's or any of its Subsidiaries' business.

               (iii)  Except  as  set  forth  in  SCHEDULE  3(S),  there  are no
underground storage tanks on or under any real property owned, leased or used by
the  Company  or  any of its  Subsidiaries  that  are  not  in  compliance  with
applicable law.

          T. TITLE TO PROPERTY.  The Company and its Subsidiaries  have good and
marketable  title in fee  simple to all real  property  and good and  marketable
title to all personal  property  owned by them which is material to the business
of the Company and its  Subsidiaries,  in each case free and clear of all liens,
encumbrances  and defects  except such as are described in SCHEDULE 3(T) or such
as would not have a Material  Adverse  Effect.  Any real property and facilities
held under  lease by the  Company  and its  Subsidiaries  are held by them under
valid,  subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.

          U. INSURANCE.  The Company and each of its Subsidiaries are insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such  amounts as  management  of the  Company  believes to be prudent and
customary  in the  businesses  in which the  Company  and its  Subsidiaries  are
engaged.  Neither the Company nor any such  Subsidiary has any reason to believe
that it will not be able to renew its  existing  insurance  coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be  necessary  to continue its business at a cost that would not have a Material
Adverse Effect. The Company has provided to Buyer true and correct copies of all
policies  relating to directors' and officers'  liability  coverage,  errors and
omissions coverage, and commercial general liability coverage.

          V.  INTERNAL  ACCOUNTING  CONTROLS.   The  Company  and  each  of  its
Subsidiaries  maintain a system of internal accounting controls  sufficient,  in
the  judgment  of the  Company's  board  of  directors,  to  provide  reasonable
assurance that (i)  transactions  are executed in accordance  with  management's
general or specific authorizations,  (ii) transactions are recorded as necessary
to permit  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  and to maintain  asset  accountability,  (iii)
access to assets is permitted only in accordance  with  management's  general or
specific  authorization  and (iv) the  recorded  accountability  for  assets  is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

          W. FOREIGN  CORRUPT  PRACTICES.  Neither the  Company,  nor any of its
Subsidiaries,  nor any director, officer, agent, employee or other person acting
on behalf of the  Company or any  Subsidiary  has,  in the course of his actions
for, or on behalf of, the  Company,  used any  corporate  funds for any unlawful
contribution,  gift,  entertainment  or  other  unlawful  expenses  relating  to
political activity;  made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate,  payoff,  influence payment,  kickback or
other  unlawful  payment  to any  foreign or  domestic  government  official  or
employee.

                                       12
<PAGE>

          X. SOLVENCY.  Except as set forth on Schedule 3(x), the Company (after
giving effect to the  transactions  contemplated  by this  Agreement) is solvent
(i.e.,  its assets have a fair market value in excess of the amount  required to
pay its probable  liabilities on its existing debts as they become  absolute and
matured)  and  currently  the Company has no  information  that would lead it to
reasonably  conclude  that the Company  would not,  after  giving  effect to the
transaction  contemplated  by this  Agreement,  have the ability to, nor does it
intend to take any action  that would  impair its ability to, pay its debts from
time to time  incurred in connection  therewith as such debts mature.  Except as
set forth on Schedule 3(x), the Company did not receive a qualified opinion from
its auditors with respect to its most recent  fiscal year end and,  after giving
effect to the transactions  contemplated by this Agreement,  does not anticipate
or know of any basis upon which its auditors might issue a qualified  opinion in
respect of its current fiscal year.

          Y. NO  INVESTMENT  COMPANY.  The Company is not, and upon the issuance
and sale of the  Securities as  contemplated  by this  Agreement  will not be an
"investment  company" required to be registered under the Investment Company Act
of  1940  (an  "INVESTMENT  COMPANY").  The  Company  is  not  controlled  by an
Investment Company.

          Z. BREACH OF  REPRESENTATIONS  AND  WARRANTIES BY THE COMPANY.  If the
Company  breaches any of the  representations  or  warranties  set forth in this
Section  3, and in  addition  to any  other  remedies  available  to the  Buyers
pursuant  to this  Agreement,  the Company  shall pay to the Buyer the  Standard
Liquidated  Damages Amount in cash or in shares of Common Stock at the option of
the  Buyer,  until  such  breach is cured.  If the  Buyers  elect to be paid the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.

     4.   COVENANTS.

          A. BEST  EFFORTS.  The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this Agreement.

          B.  FORM D; BLUE SKY LAWS.  The  Company  agrees to file a Form D with
respect to the Securities as required  under  Regulation D and to provide a copy
thereof to each Buyer  promptly  after such  filing.  The Company  shall,  on or
before the  Closing  Date,  take such  action as the  Company  shall  reasonably
determine is necessary to qualify the  Securities  for sale to the Buyers at the
applicable  closing  pursuant to this Agreement under  applicable  securities or
"blue sky" laws of the states of the  United  States (or to obtain an  exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.

          C.  REPORTING  STATUS;  ELIGIBILITY TO USE FORM S-3, SB-2 OR FORM S-1.
The Company's  Common Stock is  registered  under Section 12(g) of the 1934 Act.
The Company  represents and warrants that it meets the  requirements for the use
of Form S-3 (or if the Company is not eligible for the use of Form S-3 as of the
Filing Date (as defined in the Registration  Rights Agreement),  the Company may
use the  form of  registration  for  which  it is  eligible  at that  time)  for
registration of the sale by the Buyer of the Registrable  Securities (as defined
in the Registration  Rights  Agreement).  So long as the Buyer beneficially owns
any of the

                                       13
<PAGE>

Securities,  the Company shall timely file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would permit such termination.  The Company
further agrees to file all reports  required to be filed by the Company with the
SEC in a timely manner so as to become eligible,  and thereafter to maintain its
eligibility,  for the use of Form S-3. The Company  shall issue a press  release
describing the materials terms of the transaction contemplated hereby as soon as
practicable  following  the  Closing  Date  but in no  event  more  than two (2)
business days of the Closing Date, which press release shall be subject to prior
review by the Buyers.  The  Company  agrees  that such press  release  shall not
disclose the name of the Buyers unless expressly  consented to in writing by the
Buyers or unless required by applicable law or regulation,  and then only to the
extent of such requirement.

          D. USE OF PROCEEDS.  The Company  shall use the proceeds from the sale
of the  Debentures  and the  Warrants in the manner set forth in  SCHEDULE  4(D)
attached  hereto and made a part hereof and shall not,  directly or  indirectly,
use  such  proceeds  for any loan to or  investment  in any  other  corporation,
partnership, enterprise or other person (except in connection with its currently
existing direct or indirect Subsidiaries)

          E. FUTURE  OFFERINGS.  Subject to the exceptions  described below, the
Company will not, without the prior written consent of a majority-in-interest of
the Buyers,  not to be  unreasonably  withheld,  negotiate or contract  with any
party to obtain  additional  equity financing  (including debt financing with an
equity  component)  that involves (A) the issuance of Common Stock at a discount
to the market  price of the Common  Stock on the date of issuance  (taking  into
account the value of any  warrants or options to acquire  Common Stock issued in
connection  therewith) or (B) the issuance of  convertible  securities  that are
convertible  into an  indeterminate  number of shares of Common Stock or (C) the
issuance of warrants during the period (the "LOCK-UP  PERIOD")  beginning on the
Closing Date and ending on the later of (i) two hundred  seventy (270) days from
the  Closing  Date and (ii) one  hundred  eighty  (180)  days  from the date the
Registration  Statement  (as defined in the  Registration  Rights  Agreement) is
declared effective (plus any days in which sales cannot be made thereunder).  In
addition,  subject to the  exceptions  described  below,  the  Company  will not
conduct any equity financing  (including debt with an equity component) ("FUTURE
OFFERINGS")  during the period  beginning on the Closing Date and ending two (2)
years after the end of the Lock-up  Period unless it shall have first  delivered
to each Buyer,  at least twenty (20)  business days prior to the closing of such
Future  Offering,  written  notice  describing  the  proposed  Future  Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection  therewith,  and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the  aggregate  principal  amount of
Debentures  purchased by it hereunder bears to the aggregate principal amount of
Debentures  purchased  hereunder) of the securities  being offered in the Future
Offering  on the  same  terms  as  contemplated  by such  Future  Offering  (the
limitations  referred  to in  this  sentence  and  the  preceding  sentence  are
collectively referred to as the "CAPITAL RAISING LIMITATIONS"). In the event the
terms and  conditions of a proposed  Future  Offering are amended in any respect
after  delivery  of the  notice to the Buyers  concerning  the  proposed  Future
Offering,  the Company shall deliver a new notice to each Buyer  describing  the
amended  terms and  conditions  of the proposed  Future  Offering and each Buyer
thereafter shall have an option during

                                       14
<PAGE>

the fifteen  (15) day period  following  delivery of such new notice to purchase
its pro  rata  share  of the  securities  being  offered  on the  same  terms as
contemplated  by such  proposed  Future  Offering,  as  amended.  The  foregoing
sentence shall apply to successive amendments to the terms and conditions of any
proposed Future Offering. The Capital Raising Limitations shall not apply to any
transaction   involving  (i)  issuances  of  securities  in  a  firm  commitment
underwritten  public offering  (excluding a continuous offering pursuant to Rule
415 under the 1933 Act) or (ii) issuances of securities as  consideration  for a
merger, consolidation or purchase of assets, or in connection with any strategic
partnership  or joint  venture  (the  primary  purpose  of which is not to raise
equity  capital),  or in connection  with the  disposition  or  acquisition of a
business,  product or license by the Company.  The Capital  Raising  Limitations
also shall not apply to the issuance of  securities  upon exercise or conversion
of the Company's options,  warrants or other convertible  securities outstanding
as of the date hereof or to the grant of additional options or warrants,  or the
issuance of additional securities,  under any Company stock option or restricted
stock plan approved by the shareholders of the Company.

          F. EXPENSES.  At the Closing,  the Company shall reimburse  Buyers for
expenses  incurred  by them in  connection  with the  negotiation,  preparation,
execution,  delivery and performance of this Agreement and the other  agreements
to  be  executed  in  connection  herewith  ("Documents"),   including,  without
limitation,  attorneys' and consultants' fees and expenses, transfer agent fees,
fees  for  stock  quotation  services,   fees  relating  to  any  amendments  or
modifications  of the  Documents or any consents or waivers of provisions in the
Documents,  fees for the  preparation  of opinions of counsel,  escrow fees, and
costs of  restructuring  the  transactions  contemplated by the Documents.  When
possible,  the Company must pay these fees directly,  otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately  upon written notice by the Buyer or the submission of an invoice by
the Buyer If the Company  fails to reimburse  the Buyer in full within three (3)
business days of the written  notice or submission of invoice by the Buyer,  the
Company  shall pay  interest on the total amount of fees to be  reimbursed  at a
rate of 15% per annum.

          G.  FINANCIAL  INFORMATION.  The Company  agrees to send the following
reports to each Buyer until such Buyer transfers,  assigns,  or sells all of the
Securities:  (i) within  ten (10) days after the filing  with the SEC, a copy of
its Annual Report on Form 10-KSB,  its Quarterly  Reports on Form 10-QSB and any
Current  Reports on Form 8-K; (ii) within one (1) day after  release,  copies of
all press releases issued by the Company or any of its  Subsidiaries;  and (iii)
contemporaneously with the making available or giving to the shareholders of the
Company,  copies of any notices or other information the Company makes available
or gives to such shareholders.

          H.  AUTHORIZATION AND RESERVATION OF SHARES.  The Company shall at all
times have  authorized,  and reserved for the purpose of issuance,  a sufficient
number of shares of Common Stock to provide for the full  conversion or exercise
of the outstanding Debentures and Warrants and issuance of the Conversion Shares
and Warrant Shares in connection therewith (based on the Conversion Price of the
Debentures or Exercise Price of the Warrants in effect from time to time) and as
otherwise required by the Debentures. The Company shall not reduce the number of
shares of Common Stock  reserved for issuance upon  conversion of Debentures and
exercise of the Warrants without the consent of each Buyer. The Company shall at
all times

                                       15
<PAGE>

maintain  the number of shares of Common  Stock so reserved  for  issuance at an
amount  ("RESERVED  AMOUNT") equal to no less than two (2) times the number that
is then actually  issuable upon full conversion of the Debentures and Additional
Debentures and upon exercise of the Warrants and the Additional  Warrants (based
on the Conversion  Price of the Debentures or the Exercise Price of the Warrants
in  effect  from time to  time).  If at any time the  number of shares of Common
Stock authorized and reserved for issuance ("AUTHORIZED AND RESERVED SHARES") is
below the Reserved  Amount,  the Company will promptly take all corporate action
necessary to authorize  and reserve a  sufficient  number of shares,  including,
without  limitation,  calling a special  meeting of  shareholders  to  authorize
additional shares to meet the Company's  obligations under this Section 4(h), in
the case of an  insufficient  number of authorized  shares,  obtain  shareholder
approval  of an  increase in such  authorized  number of shares,  and voting the
management  shares of the  Company  in favor of an  increase  in the  authorized
shares  of the  Company  to  ensure  that the  number  of  authorized  shares is
sufficient  to meet the  Reserved  Amount.  If the Company  fails to obtain such
shareholder  approval  within  thirty (30) days  following the date on which the
number of  Authorized  and  Reserved  Shares  exceeds the Reserved  Amount,  the
Company shall pay to the Borrower the Standard  Liquidated  Damages  Amount,  in
cash or in shares  of Common  Stock at the  option  of the  Buyer.  If the Buyer
elects to be paid the  Standard  Liquidated  Damages  Amount in shares of Common
Stock,  such  shares  shall be  issued  at the  Conversion  Price at the time of
payment.  In order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times,  the Company must deliver to
the Buyer at the end of every month a list  detailing (1) the current  amount of
shares  authorized by the Company and reserved for the Buyer;  and (2) amount of
shares  issuable  upon  conversion  of the  Debentures  and upon exercise of the
Warrants and as payment of interest  accrued on the  Debentures for one year. If
the Company  fails to provide such list within five (5) business days of the end
of each month, the Company shall pay the Standard  Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer,  until the list is
delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
in shares of Common Stock,  such shares shall be issued at the Conversion  Price
at the time of payment.

          I.  LISTING.  The  Company  shall  promptly  secure the listing of the
Conversion Shares and Warrant Shares 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) and, so long as any Buyer owns
any of the  Securities,  shall  maintain,  so long as any other shares of Common
Stock  shall be so listed,  such  listing of all  Conversion  Shares and Warrant
Shares from time to time issuable upon  conversion of the Debentures or exercise
of the  Warrants.  The Company will obtain and, so long as any Buyer owns any of
the  Securities,  maintain  the listing  and trading of its Common  Stock on the
OTCBB  or any  equivalent  replacement  exchange,  the  Nasdaq  National  Market
("NASDAQ"),  the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"),  the New York Stock
Exchange  ("NYSE"),  or the American Stock Exchange  ("AMEX") and will comply in
all respects with the Company's  reporting,  filing and other  obligations under
the bylaws or rules of the National  Association of Securities  Dealers ("NASD")
and such exchanges,  as applicable.  The Company shall promptly  provide to each
Buyer copies of any notices it receives  from the OTCBB and any other  exchanges
or  quotation  systems on which the Common  Stock is then listed  regarding  the
continued  eligibility  of the Common  Stock for listing on such  exchanges  and
quotation systems.

                                       16
<PAGE>

          J.  CORPORATE  EXISTENCE.  So long as a Buyer  beneficially  owns  any
Debentures or Warrants,  the Company shall maintain its corporate  existence and
shall not sell all or substantially all of the Company's  assets,  except in the
event of a merger or consolidation  or sale of all or  substantially  all of the
Company's  assets,  where the surviving or successor  entity in such transaction
(i) assumes the Company's  obligations  hereunder and under the  agreements  and
instruments  entered into in connection  herewith and (ii) is a publicly  traded
corporation  whose  Common  Stock is listed for  trading  on the OTCBB,  Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.

          K. NO  INTEGRATION.  The Company shall not make any offers or sales of
any security (other than the Securities) under  circumstances that would require
registration  of the Securities  being offered or sold hereunder  under the 1933
Act or cause the  offering of the  Securities  to be  integrated  with any other
offering  of  securities  by the  Company  for the  purpose  of any  stockholder
approval provision applicable to the Company or its securities.

          L. SUBSEQUENT INVESTMENT.  The Company and the Buyers agree that, upon
filing by the Company of the Registration  Statement to be filed pursuant to the
Registration  Rights  Agreement (the "FILING  DATE"),  the Buyers shall purchase
additional debentures ("FILING DEBENTURES") in the aggregate principal amount of
Two Hundred Fifty  Thousand  Dollars  ($250,000)  and  additional  warrants (the
"FILING  WARRANTS") to purchase an aggregate of 625,000  shares of Common Stock,
for  an  aggregate   purchase  price  of  Two  Hundred  Fifty  Thousand  Dollars
($250,000),  with the closing of such purchase to occur within fifteen (15) days
of the Filing Date;  provided,  however,  that the  obligation  of each Buyer to
purchase  the  Filing  Debentures  and the  Filing  Warrants  is  subject to the
satisfaction,  at or before  the  closing  of such  purchase  and  sale,  of the
conditions  set forth in Section 7. The  Company  and the Buyers  further  agree
that, upon the declaration of effectiveness of the Registration  Statement to be
filed pursuant to the Registration  Rights Agreement (the "EFFECTIVE DATE"), the
Buyers shall purchase additional debentures (the "EFFECTIVENESS DEBENTURES" and,
collectively  with the Filing  Debentures,  the "ADDITIONAL  DEBENTURES") in the
aggregate  principal amount of Two Hundred Fifty Thousand Dollars ($250,000) and
additional  warrants (the  "EFFECTIVENESS  WARRANTS" and,  collectively with the
Filing Warrants,  the "ADDITIONAL WARRANTS") to purchase an aggregate of 625,000
shares of Common  Stock,  for an aggregate  purchase  price of Two Hundred Fifty
Thousand Dollars  ($250,000),  with the closing of such purchase to occur within
five (5)  business  days of the  Effective  Date;  provided,  however,  that the
obligation  of each  Buyer to  purchase  the  Effectiveness  Debentures  and the
Effectiveness Warrants is subject to the satisfaction,  at or before the closing
of such  purchase  and sale,  of the  conditions  set forth in  Section  7; and,
provided,  further,  that there shall not have been a Material Adverse Effect as
of  such  effective  date.  The  terms  of the  Additional  Debentures  and  the
Additional  Warrants  shall be  identical  to the  terms of the  Debentures  and
Warrants, as the case may be, to be issued on the Closing Date. The Common Stock
underlying  the  Additional  Debentures  and the  Additional  Warrants  shall be
Registrable  Securities (as defined in the  Registration  Rights  Agreement) and
shall be  included in the  Registration  Statement  to be filed  pursuant to the
Registration Rights Agreement.

          M. BREACH OF COVENANTS.  If the Company  breaches any of the covenants
set forth in this Section 4, and in addition to any other remedies  available to
the Buyers pursuant to this  Agreement,  the Company shall pay to the Buyers the
Standard  Liquidated Damages Amount, in cash or in shares of Common Stock at the
option of the Buyer,

                                       17
<PAGE>

until  such  breach  is  cured.  If the  Buyers  elect to be paid  the  Standard
Liquidated  Damages  Amount  in  shares,  such  shares  shall be  issued  at the
Conversion Price at the time of payment.

     5.  TRANSFER  AGENT  INSTRUCTIONS.  The  Company  shall  issue  irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee,  for the  Conversion  Shares and Warrant Shares in
such  amounts as  specified  from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Warrants in accordance  with the
terms  thereof  (the  "IRREVOCABLE  TRANSFER  AGENT  INSTRUCTIONS").   Prior  to
registration  of the Conversion  Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion  Shares and Warrant Shares may be sold pursuant
to Rule 144  without  any  restriction  as to the number of  Securities  as of a
particular date that can then be immediately sold, all such  certificates  shall
bear the restrictive  legend  specified in Section 2(g) of this  Agreement.  The
Company warrants that no instruction  other than the Irrevocable  Transfer Agent
Instructions  referred to in this Section 5, and stop transfer  instructions  to
give  effect to Section  2(f) hereof (in the case of the  Conversion  Shares and
Warrant  Shares,  prior to  registration  of the  Conversion  Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately  sold),  will
be given by the  Company to its  transfer  agent and that the  Securities  shall
otherwise be freely  transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration  Rights Agreement.
Nothing in this  Section  shall  affect in any way the Buyer's  obligations  and
agreement  set  forth in  Section  2(g)  hereof to  comply  with all  applicable
prospectus delivery requirements,  if any, upon re-sale of the Securities.  If a
Buyer provides the Company with (i) an opinion of counsel in form, substance and
scope  customary for opinions in comparable  transactions,  to the effect that a
public sale or  transfer of such  Securities  may be made  without  registration
under  the 1933 Act and such  sale or  transfer  is  effected  or (ii) the Buyer
provides reasonable  assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer,  and, in the case of the  Conversion
Shares and Warrant Shares,  promptly instruct its transfer agent to issue one or
more  certificates,  free  from  restrictive  legend,  in such  name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating  the  intent  and  purpose of the  transactions  contemplated  hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or  threatened  breach by the Company of the  provisions of this Section,
that the Buyers shall be entitled,  in addition to all other available remedies,
to an  injunction  restraining  any breach  and  requiring  immediate  transfer,
without the  necessity  of showing  economic  loss and without any bond or other
security being required.

     6.  CONDITIONS TO THE COMPANY'S  OBLIGATION TO SELL.  The obligation of the
Company  hereunder to issue and sell the  Debentures  and Warrants to a Buyer at
the Closing is subject to the  satisfaction,  at or before the  Closing  Date of
each of the following conditions thereto, provided that these conditions are for
the  Company's  sole benefit and may be waived by the Company at any time in its
sole discretion:

          A. The  applicable  Buyer shall have executed  this  Agreement and the
Registration Rights Agreement, and delivered the same to the Company.

                                       18
<PAGE>

          B. The  applicable  Buyer shall have  delivered the Purchase  Price in
accordance with Section 1(b) above.

          C. The representations and warranties of the applicable Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing  Date as  though  made at that  time  (except  for  representations  and
warranties  that speak as of a specific  date),  and the applicable  Buyer shall
have  performed,  satisfied  and  complied  in all  material  respects  with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied  with by the  applicable  Buyer at or prior to the Closing
Date.

          D. No litigation, statute, rule, regulation,  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by or in any court or  governmental  authority of competent  jurisdiction or any
self-regulatory  organization  having  authority  over the matters  contemplated
hereby which prohibits the consummation of any of the transactions  contemplated
by this Agreement.

     7.  CONDITIONS TO EACH BUYER'S  OBLIGATION TO PURCHASE.  The  obligation of
each Buyer  hereunder to purchase the  Debentures and Warrants at the Closing is
subject  to the  satisfaction,  at or  before  the  Closing  Date of each of the
following  conditions,  provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:

          A. The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Buyer.

          B. The  Company  shall have  delivered  to such  Buyer  duly  executed
Debentures  (in such  denominations  as the Buyer shall request) and Warrants in
accordance with Section 1(b) above.

          C. The Irrevocable Transfer Agent Instructions,  in form and substance
satisfactory to a majority-in-interest  of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.

          D. The representations and warranties of the Company shall be true and
correct in all material  respects as of the date when made and as of the Closing
Date as though made at such time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants,  agreements and conditions
required by this  Agreement to be  performed,  satisfied or complied with by the
Company  at or prior to the  Closing  Date.  The Buyer  shall  have  received  a
certificate  or  certificates,  executed by the chief  executive  officer of the
Company,  dated as of the Closing Date,  to the foregoing  effect and as to such
other matters as may be reasonably  requested by such Buyer  including,  but not
limited to certificates with respect to the Company's Articles of Incorporation,
By-laws  and  Board  of  Directors'  resolutions  relating  to the  transactions
contemplated hereby.

          E. No litigation, statute, rule, regulation,  executive order, decree,
ruling or injunction shall have been enacted,  entered,  promulgated or endorsed
by or in any court or  governmental  authority of competent  jurisdiction or any
self-regulatory organization having

                                       19
<PAGE>

authority over the matters  contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.

          F. No event shall have occurred which could  reasonably be expected to
have a Material Adverse Effect on the Company.

          G. The Conversion Shares and Warrant Shares shall have been authorized
for  quotation  on the OTCBB and trading in the Common  Stock on the OTCBB shall
not have been suspended by the SEC or the OTCBB.

          H. The Buyer shall have received an opinion of the Company's  counsel,
dated  as  of  the  Closing  Date,  in  form,  scope  and  substance  reasonably
satisfactory  to the Buyer and in  substantially  the same form as  EXHIBIT  "D"
attached hereto.

          I. The Buyer shall have received an officer's certificate described in
Section 3(c) above, dated as of the Closing Date.

     8.   GOVERNING LAW; MISCELLANEOUS.

          A. GOVERNING LAW. 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 IN 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.

          B.  COUNTERPARTS;  SIGNATURES  BY  FACSIMILE.  This  Agreement  may be
executed in one 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

                                       20
<PAGE>

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.

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

          D. SEVERABILITY.  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.

          E. ENTIRE  AGREEMENT;  AMENDMENTS.  This Agreement and the instruments
referenced  herein contain the entire  understanding of the parties with respect
to the matters covered herein and therein and, except as specifically  set forth
herein or therein,  neither the Company nor the Buyer makes any  representation,
warranty,  covenant or undertaking with respect to such matters. No provision of
this  Agreement  may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

          F.  NOTICES.  Any notices  required or permitted to be given under the
terms of this  Agreement  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:

                         Peabodys Coffee, Inc.
                         3845 Atherton Road, Suite 9
                         Rocklin, CA 95765
                         Attention:  Todd N. Tkachuk
                         Telephone: 916-632-6090
                         Facsimile:  916-632-6099

                                       21
<PAGE>

                    With a copy to:

                         Sichenzia Ross Friedman Ference LLP
                         1065 Avenue of the Americas, 21st Floor
                         New York, New York 10018
                         Attention:  Gregory Sichenzia, Esq.
                         Telephone:  212-930-9700
                         Facsimile:   212-930-9725
                         Email: GSichenzia@srfllp.net

     If to a Buyer: To the address set forth immediately below such Buyer's name
on the signature pages hereto.

                    With copy to:

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

     Each  party  shall  provide  notice  to the  other  party of any  change in
address.

          G.  SUCCESSORS AND ASSIGNS.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their  successors  and assigns.  Neither
the  Company  nor any  Buyer  shall  assign  this  Agreement  or any  rights  or
obligations   hereunder   without  the  prior  written  consent  of  the  other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights  hereunder  to  any  person  that  purchases   Securities  in  a  private
transaction from a Buyer or to any of its  "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.

          H. THIRD PARTY  BENEFICIARIES.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

          I. SURVIVAL. The representations and warranties of the Company and the
agreements  and  covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closing hereunder  notwithstanding any due diligence  investigation conducted by
or on behalf of the Buyers.  The Company  agrees to indemnify  and hold harmless
each of the Buyers and all their officers,  directors,  employees and agents for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and covenants set forth
in Sections 3 and 4 hereof or any of its covenants and obligations under this

                                       22
<PAGE>

Agreement  or  the  Registration  Rights  Agreement,  including  advancement  of
expenses as they are incurred.

          J. PUBLICITY.  The Company and each of the Buyers shall have the right
to review a  reasonable  period of time before  issuance of any press  releases,
SEC, OTCBB or NASD filings,  or any other public  statements with respect to the
transactions  contemplated hereby; provided,  however, that the Company shall be
entitled,  without the prior  approval of each of the Buyers,  to make any press
release or SEC, OTCBB (or other applicable  trading market) or NASD filings with
respect to such  transactions  as is required by applicable law and  regulations
(although  each of the Buyers shall be  consulted  by the Company in  connection
with any such press  release  prior to its release and shall be provided  with a
copy thereof and be given an opportunity to comment thereon).

          K. FURTHER ASSURANCES. 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.

          L. NO STRICT CONSTRUCTION. 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.

          M.  REMEDIES.  The  Company  acknowledges  that a breach  by it of its
obligations hereunder will cause irreparable harm to the Buyers 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 Agreement will be inadequate and agrees,  in the event of a breach or
threatened  breach by the Company of the provisions of this Agreement,  that the
Buyers 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 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.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       23
<PAGE>

     IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.


PEABODYS COFFEE, INC.

______________________________________
Todd N. Tkachuk
President


AJW PARTNERS, LLC
By:  SMS Group, LLC

______________________________________
Corey S. Ribotsky
Manager


RESIDENCE:  Delaware

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile:  (516) 739-7115
         Telephone:  (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Debentures:            $83,334
         Number of Warrants:                                  208,336
         Aggregate Purchase Price:                            $83,334

                                       24
<PAGE>


AJW OFFSHORE, LTD.
By:  First Street Manager II, LLC

______________________________________
Corey S. Ribotsky
Manager


RESIDENCE:  Cayman Islands

ADDRESS: AJW Offshore, Ltd.
         P.O. Box 32021 SMB
         Grand Cayman, Cayman Island, B.W.I.

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Debentures:            $83,333
         Number of Warrants:                                  208,332
         Aggregate Purchase Price:                            $83,333

                                       25
<PAGE>

AJW QUALIFIED PARTNERS, LLC
By:  AJW Manager, LLC

____________________________________
Corey S. Ribotsky
Manager


RESIDENCE:  New York

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile:        (516) 739-7115
         Telephone:        (516) 739-7110


AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Debentures:            $83,333
         Number of Warrants:                                  208,332
         Aggregate Purchase Price:                            $83,333

                                       26
<PAGE>