ASSET PURCHASE AGREEMENT

     PEABODYS  COFFEE,  INC.,  a Nevada  corporation  ("Peabodys"),  and ARROSTO
COFFEE  COMPANY,  LLC,  a  California  limited  liability  Company  ("Arrosto"),
effective as of June 19, 2000, agree as follows:

     1. BACKGROUND AND PURPOSE.  Peabodys desires to purchase from Arrosto,  and
Arrosto desires to sell to Peabodys,  on the terms and subject to the conditions
of this Agreement, certain assets of Arrosto described in Section 2, in exchange
for the consideration described in Section 3, all in consideration of the mutual
covenants,  agreements,  representations,  and  warranties  set  forth  in  this
Agreement.

     2. SALE AND  TRANSFER OF ASSETS.  Subject to the terms and  conditions  set
forth in this  Agreement,  Arrosto  will sell,  convey,  transfer,  assign,  and
deliver to Peabodys,  and Peabodys will  purchase  from  Arrosto,  the assets of
Arrosto  which are  described  on  Schedule 1 attached  hereto and  incorporated
herein ("Assets").

     3.  CONSIDERATION FOR THE ASSETS. As consideration for the Assets,  subject
to the terms and  conditions  set forth in Section 4,  Peabodys  shall  issue to
Arrosto Three Hundred and Twenty Thousand  (320,000)  shares of Peabodys' common
stock  ("Shares"),  which will be issued to Arrosto  by  Peabodys,  as set forth
below,  and will be "restricted  securities" as that term is defined in Rule 144
promulgated under the Securities Act of 1933, as amended ("Securities Act").

          3.1.  ALLOCATION OF PURCHASE PRICE.  The parties  acknowledge that the
valuation of the Shares, as restricted  securities  serving as consideration for
the Assets,  has been  arbitrarily  determined  by the  parties.  In valuing the
Shares the parties have considered the value of the Assets set forth on Schedule
1, less the  valuation of the assumed  obligations  set forth on Schedule 2. The
Shares  are valued by the  parties  at Fifty  Cents  ($0.50)  per share,  for an
aggregate  valuation  of One Hundred and Sixty  Thousand  Dollars  ($160,000.00)
("Purchase  Price").  The Purchase Price shall be allocated  among the Assets as
set forth on Schedule 1. Each of the parties shall report this  transaction  for
federal tax purposes in accordance with this allocation of the Purchase Price.

          3.2.  PURCHASE OF UNITS.  As further  inducement for Peabodys to enter
into this  Agreement,  Arrosto,  or other parties as designated by Arrosto,  and
Peabodys shall enter into a subscription  agreement,  substantially  in the form
attached  hereto as  Exhibit A  ("Subscription  Agreement"),  pursuant  to which
Arrosto (or its  assignees)  shall  purchase from  Peabodys,  and Peabodys shall
issue to Arrosto (or its assignees),  Two Hundred and Twenty Thousand  (220,000)
units  ("Units"),  with each Unit  consisting of: (i) one (1) share of Peabodys'
common  stock;  and (ii) one (1) warrant  for the  purchase of a share of common
stock at an exercise  price of One Dollar ($1.00) for a term of three (3) years.
The Units  shall be  purchased  for Fifty Cents  ($0.50)  per Unit,  for a total
purchase price of One Hundred and Ten Thousand Dollars ($110,000.00).

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     4. PAYMENT OF PURCHASE PRICE.  As payment of the Purchase  Price,  Peabodys
shall issue the Three Hundred and Twenty Thousand  (320,000)  Shares and deliver
to Arrosto a share certificate  representing such issuance ("Share Certificate")
under the following terms, and subject to the following conditions:

          (a) The parties  acknowledge  that,  as of the Closing date all of the
Assets are  encumbered  by a security  interest in favor of G. E. Capital  Small
Business Finance Corporation ("Security Interest"). A condition precedent to the
obligation of Peabodys to issue the Shares and deliver the Share  Certificate to
Arrosto  is  the  removal  from  the  Assets  of  the  Security  Interest.  Upon
presentation of evidence to Peabodys which establishes,  to Peabodys' reasonable
satisfaction,  that the  Security  Interest  has been  removed  from the Assets,
subject to other conditions set forth in this Section 4, Peabodys will issue the
Shares,  evidencing  such  issuance  by  delivery  of the Share  Certificate  to
Arrosto.  If the Security  Interest is not removed before October 15, 2000, then
the number of Shares serving as consideration for the Assets shall be reduced by
Five Thousand  (5,000) Shares.  Thereafter,  on the fifteenth (15th) day of each
following  calendar  month,  until and including March 15, 2001, if the Security
Interest  has not been  removed  from the  Assets,  the number of Shares will be
reduced by an additional Five Thousand  (5,000)  Shares.  Beginning on April 15,
2001,  and  continuing on the fifteenth  (15th) day of each  following  calendar
month, if the Security Interest has not been removed from the Assets, the number
of Shares will be reduced by an additional Twenty Five Thousand (25,000) Shares.

          (b) If, prior to removal of the Security  Interest  from the Assets as
described in subpart  (a),  Peabodys is required to forfeit any of the Assets to
G. E. Capital, then the number of Shares serving as consideration for the Assets
shall be reduced in a  proportionate  amount  based on the value of the Asset(s)
forfeited relative the value of all the Assets.

          (c) As a  further  condition  to  Peabodys'  obligations  to issue the
Shares and deliver the Share Certificate,  all representations and warranties by
Arrosto  contained in this Agreement,  or in any written  statement that will be
delivered  to  Peabodys  under  this  Agreement,  must be  true in all  material
respects.

     5. ASSUMPTION OF OBLIGATIONS.  Peabodys will assume only those  obligations
and liabilities  set forth in Schedule 2. It is expressly  understood and agreed
that Peabodys will not be liable for any of the  obligations  or  liabilities of
Arrosto  of any kind other than those  expressly  set forth on  Schedule  2. The
parties  understand and  acknowledge  that in no event will the "trade  payables
obligation,"  assumed by  Peabodys  as  described  in Schedule 2, exceed a total
amount of Thirty Six Thousand, Five Hundred Dollars ($37,570.00).

     6. PAYMENT OF TAXES. Peabodys will pay all sales and use taxes arising from
the transfer of the Assets.  Arrosto  will pay its  portion,  prorated as of the
Closing  date,  of state  and  local  real and  personal  property  taxes of the
business. Peabodys will not be responsible

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for any business,  occupation,  withholding, or similar tax, or any taxes of any
kind related to any period before the Closing date.

     7.  REPRESENTATIONS  AND  WARRANTIES  OF ARROSTO.  Arrosto  represents  and
warrants as follows:

          7.1.  ORGANIZATION,  EXISTENCE  AND  STANDING.  Arrosto  is a  limited
liability company, duly organized,  validly existing, and in good standing under
the laws of California and has all necessary  corporate powers to own the Assets
and to transfer good and marketable title to the Assets to Peabodys.

          7.2. TITLE TO ASSETS.  Arrosto has good and marketable title to all of
the  Assets.  All of the  Assets  are free  and  clear of  restrictions  on,  or
conditions  to,  transfer or  assignment,  and free and clear of all  mortgages,
liens, pledges, charges,  encumbrances,  equities, claims, easements,  rights of
way,  covenants,  conditions,  or  restrictions,  except for:  (i) the  Security
Interest  described in Section 4(a);  (ii) the lien of current taxes not yet due
and payable;  and (iii) possible  minor matters that, in the aggregate,  are not
substantial in amount and do not  materially  detract from or interfere with the
present or intended use of any of these  assets or  materially  impair  business
operations.  Arrosto is not in default  or in  arrears in any  material  respect
under any lease. All real property and tangible personal property of Arrosto are
in good operating condition and repair, ordinary wear and tear excepted.

          7.3. INVENTORIES.  The inventories of raw materials,  work in process,
and finished goods  (collectively  called  inventories)  described in Schedule 1
consist of items that are usable and salable in the ordinary  course of business
by Arrosto.  Except for sales made in the ordinary course of business since that
date, all such inventories are the property of Arrosto.  No items are subject to
any security interest, except the Security Interest described in Section 4(a).

          7.4.  COMPLIANCE  WITH LAWS.  Arrosto has not  received  notice of any
violation of any applicable federal, state, or local statute, law, or regulation
(including any applicable building,  zoning,  environmental protection, or other
law,  ordinance,  or regulation)  relating to the ownership or use of any of the
Assets;  and  to the  best  of the  knowledge  of  Arrosto,  there  are no  such
violations.

          7.5.  LITIGATION.  There is no pending,  or, to the best  knowledge of
Arrosto,  threatened,  suit, action, arbitration, or legal,  administrative,  or
other  proceeding,  or governmental  investigation  against or affecting Arrosto
relating to the ownership or use of any of the Assets. Arrosto is not in default
with respect to any order, writ,  injunction,  or decree of any federal,  state,
local, or foreign court, department, agency, or instrumentality.

          7.6. NO BREACH OR LITIGATION.  The  consummation  of the  transactions
contemplated  by this  Agreement  will not  result in or  constitute  any of the
following:  (1) a  breach  of any term or  provision  of this  Agreement;  (2) a
default  or an event  that,  with  notice,  lapse of time,  or both,  would be a
default, breach, or violation of the articles of incorporation

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or bylaws of Arrosto or any lease, license,  promissory note,  conditional sales
contract,  commitment,  indenture,  mortgage, deed of trust, or other agreement,
instrument,  or  arrangement to which Arrosto is a party or by which any of them
or the  property  of any of them is bound;  (3) an event that  would  permit any
party  to  terminate  any  agreement  or  to  accelerate  the  maturity  of  any
indebtedness or other  obligation of Arrosto;  or (4) the creation or imposition
of any lien, charge, or encumbrance on any of the properties of Arrosto.

          7.7.  AUTHORITY  AND  CONSENTS.  Arrosto has the right,  power,  legal
capacity,  and  authority to enter into and perform its  obligations  under this
Agreement,  and no approvals  or consents of any persons  other than Arrosto are
necessary in connection with it. The execution and delivery of this Agreement by
Arrosto has been duly authorized by all necessary  corporate  action on the part
of Arrosto.

     8.  REPRESENTATIONS  AND  WARRANTIES OF PEABODYS.  Peabodys  represents and
warrants as follows:

          8.1.  ORGANIZATION,   EXISTENCE  AND  GOOD  STANDING.  Peabodys  is  a
corporation  duly  organized,  existing,  and in good standing under the laws of
Nevada.  The execution and delivery of this  Agreement and the  consummation  of
this transaction by Peabodys have been duly authorized, and no further corporate
authorization is necessary on the part of Peabodys.

          8.2. REQUIRED APPROVALS. No consent, approval, or authorization of any
third party, or declaration,  filing, or registration with, any federal or state
governmental  or  regulatory  authority,  is  required to be made or obtained by
Peabodys in connection  with the execution,  delivery,  and  performance of this
Agreement  and  the  consummation  of  the  transactions  contemplated  by  this
Agreement.

     9. CLOSING. The execution of this Agreement and the Subscription Agreement,
and the transfer of the Assets by Arrosto to Peabodys (the  "Closing") will take
place on June 19, 2000, at a time and place agreed to by the parties.

          9.1. ARROSTO'S  OBLIGATIONS AT CLOSING. At the Closing,  Arrosto shall
deliver or cause to be delivered to Peabodys:

               (a) All  instruments  of  assignment  and  transfer  required  to
transfer all right, title and interest in all of the Assets to Peabodys;

               (b)  Instruments  of assignment of all contracts and  agreements,
properly  executed and acknowledged by Arrosto,  and accompanied by all consents
of lessors required by this Agreement and the leases being assigned; and

               (c)  Arrosto or its  assigns  shall  deliver  One Hundred and Ten
Thousand  Dollars  ($110,000.00)  as  consideration  for the Units  described in
Section 3.2, to be wire transferred into an account  designated by Peabodys,  in
accordance with instructions to be

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supplied by Peabodys, all in accordance with the Subscription Agreement.

                           At  the  Closing,  Arrosto  shall  take  all  actions
reasonably required to put Peabodys into full possession and enjoyment of all of
the Assets to be conveyed and transferred by this Agreement.  At any time before
or after the Closing date, Arrosto shall execute,  acknowledge,  and deliver any
further deeds, assignments,  conveyances,  and other assurances,  documents, and
instruments  of transfer,  reasonably  requested by Peabodys,  and will take any
other action  consistent with the terms of this Agreement that may reasonably be
requested  by Peabodys  for the purpose of  assigning,  transferring,  granting,
conveying, and confirming to Peabodys, or reducing to possession,  any or all of
the Assets.  If  requested  by  Peabodys,  Arrosto  will  prosecute or otherwise
enforce in its own name for the  benefit of  Peabodys  any  claims,  rights,  or
benefits that are  transferred to Peabodys under this Agreement and that require
prosecution or enforcement in Arrosto's  name. Any prosecution or enforcement of
claims,  rights,  or benefits  under this  section  will be solely at  Peabodys'
expense,  unless the prosecution or enforcement is made necessary by a breach of
this Agreement by any of the Arrosto.

          9.2.  PEABODYS'  OBLIGATIONS AT CLOSING.  At the Closing or as soon as
practicable thereafter, Peabodys shall deliver the following:

               (a) A share  certificate(s)  and a warrant(s),  representing  Two
Hundred  and  Twenty  Thousand  (220,000)  shares,  and Two  Hundred  and Twenty
Thousand (220,000) warrant shares, respectively, made in the name of Arrosto (or
its  assignees),  which  shall be  delivered  to Arrosto (or its  assignees)  in
connection with the Subscription Agreement(s).

     10. ARROSTO'S OBLIGATIONS AFTER CLOSING.

          10.1. ARROSTO'S INDEMNITY.  Arrosto shall indemnify,  defend, and hold
harmless  Peabodys  against  and with  respect to all claims,  demands,  losses,
costs,   expenses,   obligations,    liabilities,   damages,   recoveries,   and
deficiencies,  including interest, penalties, and reasonable attorney fees, that
Peabodys  may incur or  suffer,  that  arise  from any  breach of, or failure by
Arrosto  to  perform,  any of its  representations,  warranties,  covenants,  or
agreements in this Agreement or in any schedule, certificate,  exhibit, or other
instrument furnished or to be furnished by Arrosto under this Agreement.

               10.1.1. DEFENSE OF CLAIMS.  Peabodys will promptly notify Arrosto
of the  existence  of any  claim,  demand,  or other  matter to which  Arrosto's
indemnification   obligations  would  apply,  and  will  give  it  a  reasonable
opportunity  to defend the same at its own expense  and with  counsel of its own
selection;  provided  that  Peabodys  will at all  times  also have the right to
participate  fully in the defense at its own  expense.  If,  within a reasonable
time after this notice,  Arrosto fails to defend,  Peabodys will have the right,
but not the obligation, to undertake the defense of, and to compromise or settle
(exercising  reasonable business judgment),  the claim or other matter on behalf
and at the risk of Arrosto. If the claim is one

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that cannot by its nature be defended  solely by Arrosto  (including any federal
or state tax  proceeding),  Peabodys  will make  available all  information  and
assistance that Arrosto may reasonably request.

          10.2. CONFIDENTIALITY.  Arrosto will not divulge,  communicate, use to
the detriment of Peabodys, or for the benefit of any other person or persons, or
misuse in any way, any  confidential  information  or trade secrets  (including,
without  limitation,  secret  processes,   know-how,  customer  lists,  recipes,
formulas, or other technical data) related to the Assets.

          10.3.  NONCOMPETITION.  In consideration for a portion of the Purchase
Price as set forth on Schedule 1,  Arrosto and its  principals  will not, at any
time  within a three (3) year period  immediately  following  the Closing  date,
directly or  indirectly  engage in or have any interest in any person,  firm, or
business (whether as an employee,  officer,  director,  agent,  security holder,
creditor,  consultant, or otherwise) that engages in any activity in each county
in the State of California, or in any county in which Peabodys conducts business
outside  of the  State  of  California,  that is the  same as,  similar  to,  or
competitive with any activity now engaged in by Peabodys,  or currently  engaged
in by Arrosto  in  connection  with the  Assets,  in any of the  above-described
counties as long as Peabodys (or any successor)  engages in the activity in such
county or other area.

               The parties  intend that the covenant  contained in the preceding
portion of this section be construed as a series of separate covenants,  one for
each county. Except for geographic coverage, each such separate covenant will be
considered  identical  in  terms  to the  covenant  contained  in the  preceding
paragraph. If, in any judicial proceeding, a court refuses to enforce any of the
separate covenants included in this paragraph,  the unenforceable  covenant will
be  considered  eliminated  from  these  provisions  for the  purpose  of  those
proceedings to the extent necessary to permit the remaining  separate  covenants
to be enforced.

     11. PEABODYS' OBLIGATION AFTER CLOSING.

          11.1.  PEABODYS'  INDEMNIFICATION.  Peabodys shall  indemnify and hold
harmless  against,  and  with  respect  to,  claims,  losses,  expenses,  costs,
obligations,  and  liabilities it may incur by reason of Peabodys'  breach of or
failure to perform any of its warranties or commitments in this Agreement, or by
reason of any act or omission of Peabodys,  or any of its successors or assigns,
after the Closing date, that constitutes a breach or default under, or a failure
to perform,  any obligation or liability  which  Peabodys has expressly  assumed
under this Agreement.

               All notices to third parties and all other  publicity  concerning
the  transactions  contemplated  in this Agreement  will be jointly  planned and
coordinated by and between Peabodys and Arrosto.  No party will act unilaterally
in this regard without the prior written approval of the others;  however,  this
approval will not be unreasonably withheld.

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     12. COSTS AND EXPENSES.

          12.1.  NO BROKERS OR FINDERS.  Each party  warrants  that it has dealt
with no broker or finder in connection with any transaction contemplated by this
Agreement, and, as far as it knows, no broker or other person is entitled to any
commission or finder's fee in connection with any of these transactions.

          12.2. EXPENSES. Each party will pay all costs and expenses incurred or
to be incurred by it in negotiating  and preparing this Agreement and in closing
and carrying out the transactions contemplated in this Agreement.

     13. SECURITIES REPRESENTATIONS BY ARROSTO. Arrosto, through its principals,
acknowledges, understands, represents, warrants and covenants the following with
respect to the Shares:

          (a) No federal or state  agency has made any finding or  determination
as to the  fairness  of  the  offering  of the  Shares  for  investment,  or any
recommendation or endorsement of the Shares;

          (b) The Shares have not been  registered  under the  Securities Act of
1933, as amended (the  "Securities  Act"), but are being offered pursuant to the
exemption from registration  provided by Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder, and under the intrastate offering exemption
set forth at Section  3(a)(11) of the  Securities  Act and Rule 147  promulgated
thereunder.  The  offer  and  sale of the  Shares  has not  been  registered  or
qualified with any state regulatory agencies. Peabodys is offering the Shares in
reliance on the exemption  from state  regulation  provided by Section 18 of the
Securities  Act for  "covered  securities,"  as that term is  defined in Section
18(b)(4)(D)  of the  Securities  Act.  The Shares may not be resold or otherwise
transferred unless an exemption from registration is available.

          (c) The tax  consequences  to Arrosto of  investing  in Peabodys  will
depend on  Arrosto's  particular  circumstances  and  neither  Peabodys  nor its
officers,  directors,  agents,  employees,  affiliates  or  consultants  will be
responsible  to Arrosto for the tax  consequences  of an investment in Peabodys.
Arrosto will look solely to, and rely upon, its own advisors with respect to the
tax consequences of this investment;

          (d) At no time have any of the following been  guaranteed or warranted
to Arrosto by Peabodys, or any of its officers,  directors, agents or employees,
or any other person, expressly or by implication:

               (i) the  approximate or exact length of time that Arrosto will be
required, by market conditions or otherwise, to remain the owner of the Shares;

               (ii)  the  amount  of  profit   and/or  amount  of  any  type  of
consideration,  profit  or loss,  if any,  to be  realized  as a result  of this
investment; or

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               (iii) the future successful operation of Peabodys.

          (e) No  representations  or  warranties of any kind are intended to be
made in this  Agreement  nor should any be  inferred  from the  information  and
statements  contained  herein with  respect to the  economic  return or benefits
which may  accrue  to  investors.  No  assurance  is given  that  existing  tax,
securities, or other laws will not be changed or interpreted adversely.  Arrosto
is not to construe the contents of this  Agreement or any prior,  concurrent  or
subsequent  communication  from  Peabodys,  its officers,  directors,  agents or
employees,  or any professionals  associated with this offering as legal, tax or
investment  advice.  ARROSTO SHALL CONSULT WITH HIS OWN COUNSEL,  ACCOUNTANT AND
OTHER  ADVISORS  AS TO  THE  LEGAL,  TAX  AND  RELATED  MATTERS  CONCERNING  THE
INVESTMENT IN THE SHARES.

          (f) Arrosto is acquiring the Shares for Arrosto's own account,  solely
for investment and not with a view to resale or distribution;

          (g) Arrosto either:

          (i) has a preexisting personal or business  relationship with Peabodys
or any of its officers, directors, controlling persons or agents; or

               (ii) by reason of Arrosto's business or financial experience,  or
the business or financial  experience of Arrosto's  professional  advisor who is
not affiliated  with or  compensated  by Peabodys,  has the capacity to evaluate
adequately  the merits and risks of, and  protect  his or her own  interests  in
connection with, this investment;

          (h) Arrosto can afford to bear the economic  risks of this  investment
for an  indefinite  period  and has no need for  liquidity  in this  investment.
Arrosto  has  adequate  means of  providing  for  Arrosto's  current  needs  and
contingencies if this investment results in a total loss;

          (i) Arrosto is acquiring the Shares  without having been furnished any
offering  literature or prospectus other than Peabodys' Form 10-SB  Registration
Statement,  as amended,  and related financial  statements  ("Form 10-SB"),  and
other  documents  specifically  authorized  by  Peabodys.  Arrosto has not seen,
received or been presented with any  advertising or general  solicitation in any
form with respect to the sale of the Shares;

          (j) Arrosto  has  received  and  carefully  read the Form  10-SB,  and
Peabodys  has made  available  to the  Arrosto  all  documents  that  have  been
requested  relating to an  investment  in the Shares.  Peabodys  has provided an
opportunity  for Arrosto to ask  questions,  and has provided  answers to all of
Arrosto's  questions  concerning  the terms of the offering.  In evaluating  the
suitability of an investment in the Shares, Arrosto has not relied upon any

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representations or other information (whether oral or written) other than as set
forth  in the Form  10-SB,  or as  contained  in any  documents  or  answers  to
questions furnished by Peabodys;

          (k)  Arrosto  recognizes  that the  investment  in  Peabodys  involves
substantial  risks,  including  a risk of total  loss of  Arrosto's  investment.
Arrosto is aware of and understands all of the risk factors related to Arrosto's
purchase of the Shares, including but not limited to those contained in the Form
10-SB;

          (l) Within  five (5) days  after  receipt  of a written  request  from
Peabodys,  Arrosto shall provide such  information and shall execute and deliver
such  documents as reasonably  may be necessary to comply with any and all laws,
regulations and ordinances to which Peabodys is subject;

          (m) All of the information  provided to Peabodys or its agents and all
representations  made  herein  are  complete,  true and  correct  as of the date
hereof.  Arrosto  understands  that Arrosto's  answers will be confidential  but
authorizes  Peabodys or its agents to disclose the information  contained herein
to appropriate  regulatory agencies if called upon to establish the availability
of an exemption from  registration  under the act or  qualification  under state
securities laws or for other purposes; and

          (n) The  undersigned  who is  signing  on  behalf of  Arrosto  is duly
authorized and empowered to legally represent such entity and each of its owners
and to execute this Agreement and all other  instruments in connection  with the
purchase of the Shares on behalf of such entity and each owner thereof.

     14. MISCELLANEOUS.

          14.1.   HEADINGS.   The  subject   headings  of  the   paragraphs  and
subparagraphs  of this Agreement are included for convenience  only and will not
affect the construction or interpretation of any of its provisions.

          14.2.  ENTIRE  AGREEMENT.   This  Agreement   constitutes  the  entire
agreement  between the parties  pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous  agreements,  representations,  and
understandings of the parties. No supplement, modification, or amendment of this
Agreement  will be binding  unless  executed in writing by all the  parties.  No
waiver of any of the provisions of this  Agreement  will be considered,  or will
constitute,  a waiver of any other  provision,  and no waiver will  constitute a
continuing  waiver.  No waiver will be binding unless executed in writing by the
party making the waiver.

          14.3.  COUNTERPARTS.  This Agreement may be executed simultaneously in
one or more counterparts,  each of which will be considered an original, but all
of which together will constitute one and the same instrument.

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          14.4. PARTIES IN INTEREST. Nothing in this Agreement,  whether express
or implied,  is intended to confer any rights or remedies  under or by reason of
this Agreement on any persons other than the parties to it and their  respective
successors  and  assigns;  nothing in this  Agreement  is intended to relieve or
discharge the  obligation or liability of any third persons to any party to this
Agreement; and no provision will give any third persons any right of subrogation
or action against any party to this Agreement.

          14.5.  SUCCESSORS AND ASSIGNS.  This Agreement will be binding on, and
will inure to the  benefit  of, the  parties to it and their  respective  heirs,
legal representatives,  successors,  and assigns, provided that Peabodys may not
assign  any  of its  rights  under  this  Agreement  except  to a  wholly  owned
subsidiary  of  Peabodys.  No such  assignment  by Peabodys to its wholly  owned
subsidiary will relieve  Peabodys of any of its obligations or duties under this
Agreement.

          14.6.  SPECIFIC  PERFORMANCE.   Each  party's  obligation  under  this
Agreement is unique.  If any party should default in its obligations  under this
Agreement, the parties each acknowledge that it would be extremely impracticable
to measure  the  resulting  damages;  accordingly,  the  nondefaulting  party or
parties,  in  addition to any other  available  rights or  remedies,  may sue in
equity for  specific  performance,  and the  parties  each  expressly  waive the
defense that a remedy in damages will be adequate. Despite any breach or default
by any of the parties of any of their  respective  representations,  warranties,
covenants,  or  agreements  under  this  Agreement,  if the  purchase  and  sale
contemplated  by it will be  consummated  at the  Closing,  each of the  parties
waives  any  rights  that  they  may  have  to  rescind  this  Agreement  or the
transaction  consummated  by it  provided  that this  waiver will not affect any
other rights or remedies  available to the parties under this Agreement or under
the law.

          14.7.  ATTORNEY'S  FEES.  If any legal action,  arbitration,  or other
proceeding is brought for the  enforcement of this  Agreement,  or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement,  the successful or prevailing party or parties
will be entitled to recover reasonable attorney fees and other costs incurred in
that action or proceeding,  in addition to any other relief to which they may be
entitled.

          14.8.  SURVIVAL.  All  representations,   warranties,  covenants,  and
agreements of the parties  contained in this  Agreement,  or in any  instrument,
certificate,  opinion,  or other  writing  provided  for in it, will survive the
Closing.

          14.9.   NOTICES.   All   notices,   requests,   demands,   and   other
communications under this Agreement must be in writing and will be considered to
have been duly given on the date of service if served personally on the party to
whom notice is to be given,  or on the second day after mailing if mailed to the
party  to whom  notice  is to be  given,  by first  class  mail,  registered  or
certified, postage prepaid, and properly addressed as follows:

                                       10
<PAGE>

To Arrosto:    Mr. Joe Konis
               Arrosto Coffee Company, LLC
               15019 Califa Street
               Van Nuys, CA 91411

To Peabodys:   Mr. Todd Tkachuk
               Peabodys Coffee, Inc.
               3845 Atherton Road, Suite 9
               Rocklin, CA 95765

               Any party may change its address for  purposes of this  paragraph
by giving the other parties  written notice of the new address in the manner set
forth above.

          14.10.  GOVERNING  LAW. This Agreement will be construed in accordance
with,  and  governed  by,  the laws of the State of  California  as  applied  to
contracts that are executed and performed entirely in California.

          14.11.  SEVERABILITY.  If any  provision  of  this  Agreement  is held
invalid or unenforceable by any court of final jurisdiction, it is the intent of
the parties that all other  provisions of this  Agreement be construed to remain
fully valid, enforceable, and binding on the parties.

                          Signatures on Following Page

                                       11
<PAGE>

                                        ARROSTO COFFEE COMPANY, LLC,
                                        A California Limited Liability Company



                                        By:_____________________________________
                                                 (Joe Konis, Member/Manager)


                                        PEABODYS COFFEE, INC.
                                        a Nevada Corporation



                                        By:_____________________________________
                                                 (Todd N.Tkachuk, President)

                                       12
<PAGE>

                                   SCHEDULE 1

                              ASSETS TO BE ACQUIRED

     DESCRIPTION                                 QUANTITY              VALUE
     -----------                                 --------              -----
Fixed Assets
     Probat Roaster                                  1                $60,000
     Chaffer                                         1                  3,000
     After Burner                                    1                 14,000

Grinders and Brewers
     Ditting Grinder                                 1                  1,000
     Espresso Grinders Used                          2                    500
     Curtis Twin Air Pot Brewer                      1                  1,100
     Curtis Pour Over Air Pot Brewer                 2                    760
     America Metal Ware 6 Gallon Brewer              1                  1,100

Espresso Machines
     SoTech Two Group                                3                  6,000
     Faema (E91) Two Group                           1                  2,500
     Pavoni Two Group                                1                    500
     Pavoni Two Group                                2                    500
     Unic Two Group                                  1                  2,000

Office Equipment
     HP Fax/Printer                                  1                    600
     HP Copier 2500C                                 1                  1,500
     Brothers Fax/Printer                            1                    200
     File Cabinets/Desks                             1                  3,000

Field Assets
     American MetalWare Grinder/Brewer               8                  6,400
     Tea Urns                                        6                  6,000
     Espresso Machines                               3                  7,500

Miscellaneous
     Shelving                                        1                  3,000
     3ft Arnag Cold Case                             1                  7,500
     Arrosto Electric Neon Signs                     3                  7,500
     Bean Displays                                   13                 2,000
     Hopper Dosers                                   6                    300
     Ross Temp Ice Maker                             1                    800
     Two Compartment Prep Sink                       1                  1,000
     Three Compartment Wash Sink                     1                    250
     50 Gallon Commercial Water Heater               1                    500
     Heat Sealer                                     1                  1,500
     Compressor                                      1                    500
     Mill Work for Retail Espresso Bar               1                  3,000
     One Door Freezer                                1                    200
     Auto Sham 1000-TH-1 Double Oven                 1                  1,500
     Bev Air Under Counter Refrigerator              1                    200

                                       Subtotal                 $     147,910

INVENTORY (see attached list)                                   $      11,662

NONCOMPETITION AGREEMENT                                        $      37,995

TOTAL                                                           $  197,567.00

<PAGE>

                                ARROSTO INVENTORY


ITEM                            CONTENT            PRICE PER          VALUE
----                            -------            ---------          -----
--------------------------------------------------------------------------------
Roasted Beans                   446 Pounds         $3.00 per/lb.      $ 1,338.00

Non-Kona Beans                  14 Bags/150lbs.    $1.50 per/lb.      $ 3,150.00

Kona Beans                      2 Bags/130lbs.     $10.00 per/lb.     $ 2,600.00

Bristot `IL Caffe' Classico     72 Bags            $11.00 per/bag     $   792.00

Bristot Bar Micela Tiziano      12 Bags            $11.00 per/bag     $   132.00

Affe' Decaffeinato              246 Cans           $4.00 per/can      $   984.00

Tazo Iced Tea                   77-boxes/24 ct.    $2.25 per/box      $   173.25

Stash Iced Tea                  96/ 1oz. Packs     $0.50 per/packet   $    48.00

Syrup                           778 bottles        $2.85 per/bottle   $ 2,217.30

Designer Protein                7 Jugs             $32.50 per/jug     $   227.50

--------------------------------------------------------------------------------

                                                   TOTAL VALUE:       $11,662.05
                                                   ------------

<PAGE>

                                   SCHEDULE 2

                            OBLIGATIONS TO BE ASSUMED

1.  Dodge  Pick-up  Auto  Lease,  at  $160.00  per  month--PEABODY'S  ASSUMES NO
OBLIGATIONS  UNDER THIS LEASE OTHER THAN THE MONTHLY PAYMENT  OBLIGATION,  WHICH
PEABODY'S WILL FULFILL BY MAKING MONTHLY PAYMENTS TO ARROSTO.

2. Dell Computer Lease, at $157.33 per month, ONLY THROUGH SEPTEMBER OF 2000.

3. Month to Month  sublease  of  facility  located on Califa  Street in Van Nuys
($1,950.00 per  month)--PEABODYS  WILL SUBLEASE THIS FACILITY FROM ARROSTO,  WHO
WILL REMAIN LIABLE ON THE PRIMARY LEASE

4. Accounts Payable:

                          6/19/2000 - Accounts Payable

<TABLE>
<CAPTION>
    DATE         INVOICE #           VENDOR             AMOUNT           DESCRIPTION
------------   -----------     ------------------   --------------     ---------------
    <S>         <C>            <C>                       <C>           <C>
    06/06/00                   AICCO                         19.26     INSURANCE
    06/22/00        348782     CLASSIC PLAN                 446.26
    06/10/00       3534674     DUN & BRADSTREET              29.95
    05/22/00                   DWP                          300.85     ELECTRIC BILL
    03/15/00          3413     EXPRESSO PRIMO                86.60     PARTS
    02/21/00          3422     EXPRESSO PRIMO               194.85     PARTS
                               FARMERS INS.                 173.80     DAKOTA INS
    03/15/00                   GLOBAL COM                   139.77
    03/23/00      30048425     GRINDMASTER                   32.10
    02/23/00      30043693     GRINDMASTER                  110.78
    02/08/00      30040928     GRINDMASTER                1,348.74
    01/19/00      30037839     GRINDMASTER                  563.27
    01/18/00      30037690     GRINDMASTER                1,192.74
    10/15/99      30025260     GRINDMASTER                   29.67
    10/07/99      30023927     GRINDMASTER                1,220.37
    09/29/99      30022638     GRINDMASTER                   31.93
    09/24/99      30021966     GRINDMASTER                   63.25
    09/23/99      30021753     GRINDMASTER                  168.87
    06/30/99      30009797     GRINDMASTER                1,943.09
    05/11/00                   K-TECK                     1,530.00
    04/30/00                   LA PRINT                     896.16     CARD DRINKS
    05/22/00                   MOBIL OIL                  1,129.00
    05/11/00    9910986038     NEBS                         130.29     COMPUTER CHECK

<PAGE>

    02/22/00         55163     NEXT PROTEINS                705.32
    01/04/00         52770     NEXT PROTEINS                362.74
    02/02/00         54082     NEXT PROTEINS                453.42
    06/08/00       8590428     PACIFIC BELL                 249.87     PHONE BILL
    06/08/00          5966     PACIFIC EXPRESSO              83.70     PUROCAFFE
    04/05/00          1704     PACK PLUS                    471.00     SEAL BAGS
     Balance           n/a     ROYAL COFFEE              19,564.98
    05/31/00         84145     SUPERIOR PAPER               188.89
    05/15/00         82980     SUPERIOR PAPER               311.28
    03/17/00         78908     SUPERIOR PAPER               549.14
    03/23/00         78353     SUPERIOR PAPER                64.38
    04/21/00         81453     SUPERIOR PAPER               278.48
    04/27/00         81775     SUPERIOR PAPER               219.36
    05/02/00         82000     SUPERIOR PAPER             1,152.98
    03/31/00        420033     TECKNOWAVE                   450.00
    06/05/00                   THE GAS CO                   194.06     GAS BILL
    06/02/00         13517     TOM HULL                      25.00     PAYROLL ASST.
    04/27/00       2975657     ULINE                        133.24     PACKING BOXES
    04/20/00         98852     VIKING                       127.92     OFFICE SUPPLIES
    04/11/00         77502     VIKING                       145.26     OFFICE SUPPLIES
                      1101     WINDWARD                      55.04
                                                  ----------------

                                           TOTAL:        37,567.66
                                                  ================
</TABLE>

<PAGE>

                                    EXHIBIT A

                             SUBSCRIPTION AGREEMENT

     PEABODYS COFFEE,  INC., a Nevada  corporation (the "Company"),  and ARROSTO
COFFEE  COMPANY  LLC, a California  limited  liability  company  ("Subscriber"),
effective as of June _____, 2000, agree as follows:

1.  BACKGROUND.  The Company has entered into an Asset  Purchase  Agreement with
Subscriber of even date herewith.  Pursuant to the terms of that agreement,  the
Company is selling Two Hundred and Twenty Thousand  (220,000)  units  ("Units"),
with each  Unit  consisting  of:  (i) one (1) share of  Peabodys'  common  stock
("Share");  and (ii) one (1) warrant for the purchase of a share of common stock
at an  exercise  price of One Dollar  ($1.00) for a term of three (3) years in a
private offering  ("Warrant").  The Company has furnished Subscriber with a copy
of the Company's  Form 10-SB  Registration  Statement,  as amended,  and related
financial statements (collectively, "Form 10-SB"), which Subscriber, through its
principals,  has thoroughly  reviewed.  The Company desires to sell the Units to
Subscriber,  and  Subscriber  desires to  purchase  the Units,  on the terms and
conditions set forth below.

2. PURCHASE  AGREEMENT.  Subscriber  hereby  offers to purchase the Units,  at a
purchase  price of Fifty Cents ($0.50) per Unit,  for a total  purchase price of
One Hundred and Ten Thousand Dollars ($110,000.00) ("Purchase Price").

3. PAYMENT FOR THE UNITS.  As payment of the Purchase  Price,  Subscriber  shall
deliver,  on or before the  Closing as that term is defined in Section 11 of the
Asset  Agreement,  One Hundred and Ten Thousand  Dollars  ($110,000.00)  by wire
transfer to an account,  and in accordance  with  instructions,  supplied by the
Company. At such Closing or as soon as practicable thereafter, the Company shall
deliver to Subscriber:  (i) a share  certificate  evidencing the issuance of Two
Hundred and Twenty Thousand  (220,000) Shares,  and (ii) a warrant agreement for
the  purchase of Two Hundred and Twenty  Thousand  (220,000)  shares in the form
attached hereto.

4.  ACKNOWLEDGMENTS.   Subscriber,  through  its  principals,  acknowledges  and
understands  the following (all  references to "Shares" also include the Warrant
and the shares underlying the Warrant):

     (a) GENERAL  SECURITIES RISK. The Shares are "securities" under federal and
state securities  laws, and these  securities  involve a high degree of risk and
should not be purchased  by anyone who cannot  afford the risk of loss of his or
her entire investment.

     (b) REVIEW BY FEDERAL OR STATE AGENCY.  No federal or state agency has made
any finding or  determination  as to the  fairness of the offering of the Shares
for   investment,   or  any   recommendation   or  endorsement  of  the  Shares.
Specifically,  these  securities  have not been approved or  disapproved  by the
Securities  &  Exchange  Commission  ("SEC"),   the  California   Department  of
Corporations ("DOC"), or any other state or federal agency.

<PAGE>

     (c) NO FEDERAL REGISTRATION. The offer and sale of the Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities  Act").
The  Company  is  offering  the  Shares  in  reliance  upon the  exemption  from
registration provided by Rule 506 of Regulation D promulgated under Section 4(2)
of the Securities Act (17 CFR ss. 230.506).

     (d) NO STATE  QUALIFICATION  OR  REGISTRATION.  The  offer  and sale of the
Shares has not been qualified with the Commissioner of Corporations of the State
of  California.  The Company is offering the Shares in reliance on the exemption
from state regulation  provided by California  Corporations Code Section 25102.1
for "covered securities," as that term is defined in Section 18 of the Act.

     (e) FOREIGN  SECURITIES  LAWS.  The Company  makes no  representation  with
regard to the  securities  laws and other  laws of any  country  other  than the
United  States.  SUBSCRIBER  WILL LOOK SOLELY TO, AND RELY UPON,  HIS OR HER OWN
ADVISOR  WITH  RESPECT TO THE EFFECT OF SUCH  SECURITIES  LAWS AND OTHER LAWS ON
THIS INVESTMENT.

     (f) TAX  CONSEQUENCES.  The tax  consequences to Subscriber of investing in
the Shares  will depend on  Subscriber's  particular  circumstances  and neither
Peabodys  nor  its  officers,   directors,  agents,  employees,   affiliates  or
consultants  will be responsible to Subscriber for the tax  consequences of such
an investment.  SUBSCRIBER WILL LOOK SOLELY TO, AND RELY UPON,  SUBSCRIBER'S OWN
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THIS INVESTMENT.

     (g)  NO  WARRANTIES  REGARDING  PERFORMANCE.  At no  time  have  any of the
following been  guaranteed or warranted to Subscriber by the Company,  or any of
its officers,  directors, agents or employees, or any other person, expressly or
by implication:

          (i) the  approximate or exact length of time that  Subscriber  will be
required, by market conditions or otherwise, to remain the owner of the Shares;

          (ii) the amount of profit and/or amount of any type of  consideration,
profit or loss, if any, to be realized as a result of this investment; or

          (iii) the future successful operation of the Company.

     (h) NO WARRANTIES  REGARDING BENEFIT TO INVESTORS.  No  representations  or
warranties of any kind are intended to be made in this  Agreement nor should any
be inferred from the information and statements contained herein with respect to
the economic  return or benefits which may accrue to investors.  No assurance is
given  that  existing  tax,  securities,  or other  laws will not be  changed or
interpreted  adversely.  Subscriber  is not to  construe  the  contents  of this
Agreement or any prior, concurrent or subsequent communication from the Company,
its officers,  directors,  agents or employees,  or any professional  associated
with this offering as

<PAGE>

legal, tax or investment advice.  SUBSCRIBER SHALL CONSULT WITH HIS OWN COUNSEL,
ACCOUNTANT  AND  OTHER  ADVISORS  AS TO  THE  LEGAL,  TAX  AND  RELATED  MATTERS
CONCERNING THE INVESTMENTS DESCRIBED HEREIN.

     (j) ARBITRARY  OFFERING  PRICE.  The offering  price of the Shares has been
determined  arbitrarily  by the  Company  and  does  not  necessarily  bear  any
relationship to the assets, book value or any other recognized criteria of value
or the  prospective  value of the  Company's  assets.  No assurance is or can be
given that any Shares could be sold for the offering price or for any amount.

     (k) ADDITIONAL INFORMATION.  If Subscriber has any questions regarding this
offering,  or desires  any  additional  information  or  documents  to verify or
supplement the information contained in this Agreement or any prior,  concurrent
or subsequent communication from the Company,  Subscriber may write or call Todd
Tkachuk,   Peabodys  Coffee,   Inc.,  3845  Atherton  Road,  Suite  9,  Rocklin,
California, 95765, phone: (916) 632-6090 ext. 19.

     (l) OTHER RISK FACTORS.  Subscriber has read,  acknowledges and understands
the risk factors,  with respect to an investment in the Common Stock,  which are
set forth in the Company's Form 10-SB Registration  Statement,  as amended,  and
related  financial  statements  (collectively,  "Form  10-SB"),  in the  section
entitled "Risk Factors Affecting the Company," beginning on page 13 thereof.

5. REPRESENTATIONS WARRANTIES AND COVENANTS. Subscriber, through its principals,
represents,  warrants and covenants as follows (all  references to "Shares" also
include the Warrant and the shares underlying the Warrant):

     (a) Subscriber is acquiring the Shares for Subscriber's own account, solely
for investment and not with a view to resale or distribution;

     (b) Subscriber either:

          (i) has a  preexisting  personal  or  business  relationship  with the
Company or any of its officers, directors, controlling persons or agents; or

          (ii) by reason of Subscriber's  business or financial  experience,  or
the business or financial experience of Subscriber's professional advisor who is
not affiliated with or compensated by the Company,  has the capacity to evaluate
adequately  the merits and risks of, and  protect  his or her own  interests  in
connection with, this investment;

     (c) Subscriber can afford to bear the economic risks of this investment for
an  indefinite  period  and  has no  need  for  liquidity  in  this  investment.
Subscriber  has adequate means of providing for  Subscriber's  current needs and
contingencies if this investment results in a total loss;

<PAGE>

     (d)  Subscriber is acquiring the Shares  without  having been furnished any
offering literature or prospectus other than the Form 10-SB, and other documents
specifically  authorized by the Company.  Subscriber  has not seen,  received or
been presented with any  advertising  or general  solicitation  in any form with
respect to the sale of Shares;

     (e) Subscriber has received and has carefully read the Form 10-SB,  and the
Company  has made  available  to the  Subscriber  all  documents  that have been
requested  relating to an investment in the Shares.  The Company has provided an
opportunity for Subscriber to ask questions,  and has provided answers to all of
Subscriber's  questions concerning the terms of the offering.  In evaluating the
suitability  of an investment in the Shares,  Subscriber has not relied upon any
representations or other information (whether oral or written) other than as set
forth  in the Form  10-SB,  or as  contained  in any  documents  or  answers  to
questions furnished by the Company;

     (f)  Subscriber  recognizes  that the  investment  in the Company  involves
substantial  risks,  including a risk of total loss of Subscriber's  investment.
Subscriber  is  aware of and  understands  all of the risk  factors  related  to
Subscriber's  purchase  of the  Shares,  including  but  not  limited  to  those
contained in the Form 10-SB;

     (g)  Within  five (5) days  after  receipt  of a written  request  from the
Company, Subscriber shall provide such information and shall execute and deliver
such  documents as reasonably  may be necessary to comply with any and all laws,
regulations and ordinances to which the Company is subject;

     (h) All of the  information  provided  to the Company or its agents and all
representations  made  herein  are  complete,  true and  correct  as of the date
hereof.  Subscriber  understands that Subscriber's  answers will be confidential
but authorizes the Company or its agents to disclose the  information  contained
herein to  appropriate  regulatory  agencies  if called  upon to  establish  the
availability of an exemption from  registration  under the act or  qualification
under state securities laws or for other purposes; and

     (i)  The  undersigned  who is  signing  on  behalf  of  Subscriber  is duly
authorized and empowered to legally represent such entity and each of its owners
and to execute this Agreement and all other  instruments in connection  with the
purchase of Shares on behalf of such entity and each owner thereof.

     6. SUBSCRIBER INFORMATION.  The Company will accept subscriptions only from
persons who meet certain suitability standards.  Therefore,  certain information
is requested below:

     6.1. IDENTIFYING INFORMATION

Name of entity:
                ----------------------------------------------------------------
Address:
         -----------------------------------------------------------------------
City:                                        State:             Zip Code:
      --------------------------------------        ----------            ------
Phone:
       -----------------------------
Form of Organization (corporation, partnership, etc.):
                                                      --------------------------
State of Organization:                         Date of Formation:
                      ----------------------                      --------------

<PAGE>

     Was the partnership,  corporation or other organization formed specifically
for the purpose of participating in this placement?

                  Yes               No
                       -------         -------

     6.2 QUALIFIED INVESTOR STATUS

Is the Entity:

A self-directed  employee benefit plan, with investment decisions made solely by
persons that are accredited investors?

                  Yes               No
                       -------         -------

     If yes, please describe:

A trust, with total assets in excess of $5,000,000, whose purchase of securities
is directed by a sophisticated  person has with such knowledge and experience in
financial  and business  matters that such person is capable of  evaluating  the
merits and risks of any prospective investment?

                  Yes               No
                       -------         -------

     If yes, please describe:

An corporation,  a partnership,  a limited liability company, a Massachusetts or
similar business trust, or an organization described in Section 501(c)(3) of the
Internal Revenue Code, with total assets in excess of $5,000,000?

                  Yes               No
                       -------         -------

     If yes, please describe:

An  "insurance  company" as defined in Section  2(13) of the  Securities  Act of
1933?

                  Yes               No
                       -------         -------

     If yes, please describe:

An investment  company registered under the Investment Company Act of 1940, or a
"business development company" as defined in Section 2(a)(48) of that Act?

                  Yes               No
                       -------         -------

<PAGE>

     If yes, please describe:

A  Small  Business  Investment  Company  licensed  by the  U.S.  Small  Business
Administration  under section 301(c) or (d) of the Small Business Investment Act
of 1958?

                  Yes               No
                       -------         -------

     If yes, please describe:

A plan established and maintained by a state, its political subdivisions,  or an
agency  or  instrumentality  of a state or its  political  subdivisions  for the
benefit of its employees, if such plan has total assets in excess of $5,000,000.

                  Yes               No
                       -------         -------

     If yes, please describe:

An employee  benefit plan within the meaning of the Employee  Retirement  Income
Security Act of 1974 if the investment decision is made by a plan fiduciary,  as
defined in Section 3(21) of that Act,  which is either a bank,  savings and loan
association,  insurance company,  or registered  investment  adviser,  or if the
employee  benefit  plan has  total  assets  in  excess  of  $5,000,000  or, if a
self-directed  plan, with  investment  decisions made solely by persons that are
accredited investors?

                  Yes               No
                       -------         -------

     If yes, please describe:

7.  RELIANCE ON  INFORMATION.  Subscriber  should not construe  any  information
provided to Subscriber by Peabodys or its agents as legal, business, investment,
accounting or tax advice. Subscriber will look solely to, and rely upon, its own
advisors with respect to such advice.

8. REGISTRATION RIGHTS.

     8.1.  DEFINITIONS.  As used in this Section, the following terms shall have
the following meanings:

          (a)  "Subscriber"  means the Subscriber and any transferee or assignee
thereof to whom the  Subscriber  assigns its rights under this Agreement and who
agrees to become bound by the  provisions of this  Agreement in accordance  with
Section 8.8.

          (b) "Person"  means a corporation,  a limited  liability  company,  an
association,  a partnership,  an  organization,  a business,  an  individual,  a
governmental or political subdivision thereof or a governmental agency.

<PAGE>

          (c)  "Register,"   "registered,"   and   "registration"   refer  to  a
registration   effected  by  preparing  and  filing  one  or  more  Registration
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(s)  by  the  United  States   Securities  and  Exchange
Commission (the "SEC").

          (d)  "Registrable   Securities"  means  the  Shares,  and  the  shares
underlying the Warrants, and any shares of capital stock issued or issuable with
respect  to  such  shares  as a  result  of any  stock  split,  stock  dividend,
recapitalization, exchange or similar event.

          (e)  "Registration  Statement"  means a registration  statement of the
Company filed under the 1933 Act.

     8.2. REGISTRATION.

          8.2.1.  PIGGY-BACK  REGISTRATION  RIGHTS.  If at any time prior to the
expiration  of the  Registration  Period (as  hereinafter  defined)  the Company
proposes 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
securities  (other  than  on Form  S-4 or Form  S-8 or  their  then  equivalents
relating to 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  employee  benefit  plans) the Company  shall  promptly  send to
Subscriber  written  notice of the  Company's  intention to file a  Registration
Statement and of such  Subscriber's  rights under this  Section,  and, if within
twenty (20) days after  receipt of such notice,  Subscriber  shall so request in
writing,  the Company  shall include in such  Registration  Statement all or any
part of the Registrable Securities Subscriber requests to be registered, subject
to the priorities set forth in Section 8.2.2 below, and to applicable securities
laws.  The  obligations of the Company under this Section 8.2.1 may be waived by
Subscriber. If an offering in connection with which an Subscriber is entitled to
registration  under  this  Section  8.2.1  is  an  underwritten  offering,  then
Subscriber  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.

          8.2.2.  PRIORITY IN PIGGYBACK  REGISTRATION  RIGHTS IN CONNECTION WITH
REGISTRATIONS  OR COMPANY ACCOUNT.  If the  registration  referred to in Section
8.2.1 is to be an  underwritten  public  offering for the account of the Company
and the  managing  underwriter(s)  advise the Company in writing,  that in their
reasonable  good  faith  opinion,  marketing  or other  factors  dictate  that a
limitation  on the number of shares of Common Stock which may be included in the
Registration  Statement is necessary to facilitate and not adversely  affect the
proposed  offering,  then the Company  shall include in such  registration:  (1)
first,  all  securities  the Company  proposes to sell for its own account,  (2)
second,  up to the full number of securities  proposed to be registered  for the
account of the holders of securities  entitled to inclusion of their  securities
in the Registration Statement by reason of demand registration

<PAGE>

rights,  and (3) third, the securities  requested to be registered by Subscriber
hereunder.

          8.2.3.  NON-ELIGIBILITY  FOR FORM S-3. The Company is not eligible for
the use of  Form  S-3.  Therefore:  (i)  the  Company,  in  complying  with  its
obligations  contained in Section 8.2.1,  shall utilize other appropriate forms,
such as Form S-1 or Form SB-2, and (ii) the Company shall  undertake to register
the  Registrable  Securities on Form S-3 as soon as practicable  after such form
becomes available to the Company.

          8.2.4. RELATED OBLIGATIONS. Whenever Subscriber has requested that any
Registrable Securities be registered pursuant to Section 8.2.1, the Company will
use its reasonable  best efforts to effect the  registration  of the Registrable
Securities in accordance  with the intended  method of disposition  thereof and,
pursuant thereto, the Company shall have the following obligations:

               (a)  The  Company   shall   prepare  and  file  with  the  SEC  a
Registration  Statement with respect to the  Registrable  Securities and use its
reasonable  best  efforts to cause such  Registration  Statement(s)  relating to
Registrable  Securities  to become  effective  as soon as  possible  after  such
filing,  and shall use  reasonable  efforts keep the  Registration  Statement(s)
effective  pursuant  to Rule 415 at all times until the earlier of: (i) the date
as of which the Subscribers may sell all of the Registrable  Securities  without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto);  or (ii) the date on which  the  Subscribers  shall  have sold all the
Registrable   Securities  (the   "Registration   Period"),   which  Registration
Statement(s)  (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,  in light of the  circumstances in which they were
made, not misleading.

               (b) The Company shall use its reasonable  best efforts to prepare
and file with the SEC such amendments (including post-effective  amendments) and
supplements to the  Registration  Statement(s)  and the  prospectus(es)  used in
connection with tile Registration  Statement(s),  which prospectus(es) are to be
filed pursuant to Rule 424  promulgated  under the 1933 Act, as may be necessary
to  keep  the  Registration  Statement(s)  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  Statement(s) until such time as all of such
Registrable  Securities  shall  have been  disposed  of in  accordance  wish the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement(s). 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,   the  Company  shall  amend  the
Registration  Statement, or file a new Registration Statement (on the short form
available  therefore,  if  applicable),  or  both,  so as to  cover  all  of the
Registrable Securities, in each case, as soon as practicable.  The Company shall
use its reasonable best efforts to cause such amendment  and/or new Registration
Statement  to become  effective  as soon as  practicable  following  the  filing
thereof.

<PAGE>

               (c) The Company shall furnish to Subscriber  without charge:  (i)
promptly  after the same is prepared and filed with the SEC at least one copy of
the  Registration  Statement  and any  amendment  thereto,  including  financial
statements and schedules,  all documents  incorporated  therein by reference and
all exhibits,  the  prospectus(es)  included it such  Registration  Statement(s)
(including each  preliminary  prospectus);  (ii) upon the  effectiveness  of any
Registration  Statement,  a copy of the prospectus included in such Registration
Statement and all  amendments and  supplements  thereto (or such other number of
copies  as such  Subscriber  may  reasonably  request);  and  (iii)  such  other
documents,   including  any  preliminary  prospectus,  as  such  Subscriber  may
reasonably  request in order to facilitate the  disposition  of the  Registrable
Securities owned by Subscriber.

               (d) The Company shall use reasonable efforts: (i) to register and
qualify the  Registrable  Securities  covered by the  Registration  Statement(s)
under such other  securities  or "blue  sky" laws of such  jurisdictions  in the
United States as Subscriber  reasonably requests in writing, (ii) to 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,
(iii)  to  take  such  other  actions  as  may be  necessary  to  maintain  such
registrations and  qualifications in effect at all times during the Registration
Period, and (iv) to take any other actions reasonably  necessary or advisable to
quality 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:  (a) to qualify to do business in any jurisdiction  where it
would not otherwise be required to qualify but for this Section 8.2.4(d), (b) to
subject itself to general  taxation in any such  jurisdiction,  or (c) to file a
general  consent to service of  process in any such  jurisdiction.  The  Company
shall  promptly  notify  Subscriber  of  the  receipt  by  the  Company  of  any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.

               (e) As  promptly  as  practicable  after  becoming  aware of such
event,  the Company shall notify  Subscriber  of the happening of any event,  of
which the Company has knowledge, as a result of which the prospectus included in
a 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, in light of the circumstances under
which they were made,  not  misleading,  and promptly  prepare a  supplement  or
amendment to the  Registration  Statement  to correct  such untrue  statement or
omission,  and deliver a copy of such  supplement or amendment to Subscriber (or
such other number of copies as such  Subscriber  may  reasonably  request).  The
Company  shall also  promptly  notify  Subscriber:  (i) when a prospectus or any
prospectus  supplement or  post-effective  amendment has been filed,  and when a
Registration  Statement or any  post-effective  amendment  has become  effective
(notification  of such  effectiveness  shall be delivered to each  Subscriber by
facsimile on the same day of such  effectiveness and by overnight mail); (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related

<PAGE>

prospectus  or  related  information,  and  (iii)  of the  Company's  reasonable
determination that a post-effective  amendment to a Registration Statement would
be appropriate.

               (f) The Company shall use its reasonable  best efforts to prevent
the  issuance  of any stop  order  or other  suspension  of  effectiveness  of a
Registration  Statement,  or the suspension of the  qualification  of any of the
Registrable  Securities  for sale in any  jurisdiction  and, if such an order or
suspension  is issued,  to obtain the  withdrawal of such order or suspension at
the earliest  possible  moment and to notify  Subscriber of the issuance of such
order  and the  resolution  thereof  or its  receipt  of  actual  notice  of the
initiation or threat of any proceeding for such purpose.

               (g) At the request of the Subscriber,  the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the  Registration  Statement:  (i) if required by an
underwriter, 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, and (ii) if required by an underwriter,
an  opinion,  dated as of such date,  of 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.

               (h) The Company shall make available for inspection by Subscriber
all pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively,  the "Records"), as shall be reasonably
deemed  necessary  by  Subscriber  to  enable  Subscriber  to  exercise  its due
diligence  responsibility,  and  cause the  Company's  officers,  directors  and
employees to supply all information which Subscriber may reasonably  request for
purposes of such due diligence provided,  however, that Subscriber shall hold in
strict  confidence  and shall not make any  disclosure  or use of any  Record or
other information which the Company determines in good faith to be confidential,
and of which determination Subscriber is so notified,  unless (a) the disclosure
of such Records is necessary to avoid or correct a  misstatement  or omission in
any Registration  Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final,  non-appealable subpoena
or order from a court or government body of competent  jurisdiction,  or (c) 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. Subscriber
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.

               (i) The  Company  shall  hold in  confidence  and  not  make  any
disclosure of information  concerning  Subscriber provided to the Company unless
(i) disclosure of such  information is necessary to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such information is ordered pursuant to a

<PAGE>

subpoena or other final,  non-appealable order from a court or governmental body
of competent  jurisdiction,  or (iv) 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  Subscriber  is  sought  in or by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
written notice to Subscriber and allow Subscriber,  at Subscriber's  expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.

               (j) The Company shall use  reasonable  efforts to cooperate  with
Subscriber  and,  to  the  extent  applicable,   any  managing   underwriter  or
underwriters,  to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legend) representing the 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, if there is no managing underwriter or
underwriters,  Subscriber may reasonably request and registered in such names as
the managing underwriter or underwriters, if any, or the Subscriber may request.

               (k) The Company shall take all other reasonable actions necessary
to expedite and facilitate  disposition by Subscriber of Registrable  Securities
pursuant to a Registration Statement.

               (l) The Company shall  provide a transfer  agent and registrar of
all such  Registrable  Securities  not  later  than the  effective  date of such
Registration Statement.

               (m) The Company  shall use its  reasonable  best efforts to cause
the Registrable  Securities covered by the applicable  Registration Statement to
be  registered  with  or  approved  by  such  other  governmental   agencies  or
authorities  as  may  be  necessary  to  consummate  the   disposition  of  such
Registrable Securities.

               (n) The Company shall  otherwise use its reasonable  best efforts
to comply with all  applicable  rules and  regulations  of the SEC in connection
with any registration hereunder.

     8.3. OBLIGATIONS OF SUBSCRIBER.

          (a) At least seven (7) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify Subscriber in writing of
the  information the Company  requires from  Subscriber if Subscriber  elects to
have any of Subscriber's  Registrable  Securities  included in the  Registration
Statement.  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  Subscriber  that  Subscriber  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

<PAGE>

connection with such registration as the Company may reasonably request.

          (b)  Subscriber  by   Subscriber's   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
Statement(s) hereunder, unless Subscriber has notified the Company in writing of
Subscriber's election to exclude all of Subscriber's Registrable Securities from
the Registration Statement.

          (c) In the event  Subscriber  determines  to engage the services of an
underwriter,  Subscriber  agrees to enter  into and  perform  such  Subscriber's
obligations under an underwriting  agreement,  at Subscriber's sole expense,  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
Subscriber  notifies the Company in writing of Subscriber's  election to exclude
all of Subscriber's Registrable Securities from the Registration Statement(s).

          (d) Upon  receipt of any notice from the Company of the  happening  of
any event of the kind  described  in Section  8.2.4(f) or the first  sentence of
8.2.4(e),  Subscriber will  immediately  discontinue  disposition of Registrable
Securities pursuant to the Registration  Statement(s)  covering such Registrable
Securities  until  Subscriber's  receipt  of the copies of the  supplemented  or
amended  prospectus  contemplated  by Section  8.2.4(f) or the first sentence of
8.2.4(e)  and, if so directed by the Company,  Subscriber  shall  deliver to the
Company  (at the expense of the  Company) or destroy all copies in  Subscriber's
possession,  of the prospectus  covering such Registrable  Securities current at
the time of receipt of such notice.

          (e) Subscriber shall not participate in any underwritten  registration
hereunder  unless  Subscriber  (i)  agrees  to  sell  Subscriber's   Registrable
Securities on the basis provided in any  underwriting  arrangements  approved by
Subscriber, (ii) completes and executes all questionnaires,  powers of attorney,
indemnities,  underwriting  agreements and other documents  reasonably  required
under the terms of such underwriting  arrangements,  and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions.

     8.4.  EXPENSES  OF  REGISTRATION.   All  reasonable  expenses,  other  than
underwriting   discounts   and   commissions,   incurred  in   connection   with
registrations,  filings or qualifications  pursuant to Sections 8.2,  including,
without limitation, all registration,  listing and qualifications fees, printers
and accounting fees, and fees and disbursements of counsel for the Company shall
be borne by the Company.  All reasonable  expenses  incurred in connection  with
Subscriber's obligations set forth in Section 8.3 shall be borne by Subscriber.

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

          (a) To the fullest  extent  permitted  by law, the Company  will,  and
hereby does,  indemnify,  hold harmless and defend  Subscriber,  the  directors,
officers, partners,

<PAGE>

employees,  agents and each Person,  if any, who controls  Subscriber within the
meaning of the 1933 Act or the Securities  Exchange Act of 1934, as amended (the
"1934  Act"),  (each,  an  "Indemnified  Person"),  against any losses,  claims,
damages,  liabilities,  judgments, fines, penalties,  charges, costs, attorneys'
fees, amounts paid in settlement or expenses,  joint or several,  (collectively,
"Claims") incurred in defending any action,  claim, suit,  inquiry,  proceeding,
investigation  or appeal  taken  from the  foregoing  by or before  any court or
governmental,  administrative  or  other  regulatory  agency,  body or the  SEC,
whether pending or threatened,  whether or not an indemnified party is or may be
a party thereto "Indemnified  Damages"), to which any of them may become subject
insofar as such Claims arise out of or are based upon: (i) any untrue  statement
of a material fact in a Registration  Statement or any post-effective  amendment
thereto  or in any  filing  made in  connection  with the  qualification  of the
offering  under the securities or other "blue sky" laws of any  jurisdiction  in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein,  in light of the  circumstances  under which the statements
therein were made, not misleading;  (ii) any untrue statement of a material fact
contained in any preliminary  prospectus if lawfully 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 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  pursuant to a  Registration  Statement (the matters in the foregoing
clauses (i) through (iii) being,  collectively,  "Violations").  Notwithstanding
anything  to  the  contrary  contained  herein,  the  indemnification  agreement
contained in this Section 8.5(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 the  Registration  Statement  or any such  amendment  thereof or
supplement  thereto, if such prospectus was timely made available by the Company
pursuant to Section 8.2.4(c);  (ii) with respect to any preliminary  prospectus,
shall not inure to the benefit of any such person from whom the person asserting
any such Claim purchased the Registrable Securities that are the subject thereof
(or  to the  benefit  of any  person  controlling  such  person)  if the  untrue
statement or omission of material fact contained in the  preliminary  prospectus
was  corrected  in the  prospectus,  as then  amended or  supplemented,  if such
prospectus  was  timely  made  available  by the  Company  pursuant  to  Section
8.2.4(c),  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; (iii) shall not be
available  to the extent such Claim is based on a failure of the  Subscriber  to
deliver or to cause to be delivered the prospectus made available by the Company
(i) and (iv) 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.  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 Subscribers pursuant to Section 8.8.

<PAGE>

          (b) In connection with any Registration  Statement in which Subscriber
is participating,  Subscriber shall indemnify,  hold harmless and defend, to the
same  extent  and in the same  manner as is set  forth in  Section  8.5(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  (collectively  and  together  with an  Indemnified
Person,  an "Indemnified  Party"),  against any Claim or Indemnified  Damages to
which  any of them may  become  subject,  under  the 1933  Act,  the 1934 Act or
otherwise,  insofar as such  Claim or  Indemnified  Damages  arise out of or are
based upon any  Violation,  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  Subscriber  expressly  for  use in
connection with such  Registration  Statement;  and,  subject to Section 8.5(d),
Subscriber  will  reimburse any legal or other expenses  reasonably  incurred by
them in connection  with  investigating  or defending any such Claim;  provided,
however, that Subscriber shall be liable under this Section 8.5(b) for only that
amount of a Claim or Indemnified  Damages as does not exceed the net proceeds to
Subscriber 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  Subscriber
pursuant to Section  8.8.  Notwithstanding  anything to the  contrary  contained
herein,  the  indemnification  agreement  contained in this Section  8.5(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)  The  Company  shall  be  entitled  to  receive  indemnities  from
underwriters,  selling brokers,  dealer managers and similar securities industry
professionals participating in any distribution,  to the same extent as provided
above,  with  respect  to  information  such  persons  so  furnished  in writing
expressly for inclusion in the Registration Statement.

          (d) Promptly  after receipt by an  Indemnified  Person or  Indemnified
Party  under this  Section  8.5 of notice of the  commencement  of any action or
proceeding  (including any governmental action or proceeding)  involving a Claim
such  indemnified  Person or  Indemnified  Party  shall,  if a Claim in  respect
thereof is to be made  against any  indemnifying  party under this  Section 8.5,
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

<PAGE>

or  Indemnified  Party and any other party  represented  by such counsel in such
proceeding. The Company shall pay reasonable fees for only one legal counsel for
Subscriber.  The Indemnified  Party or Indemnified  Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such  action  or  claim by the  indemnifying  party  and  shall  furnish  to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified  Person,  which relates to such action or claim. The indemnifying
party shall keep the Indemnified  Party or Indemnified  Person fully apprised at
all times as to the status of the defense or any  settlement  negotiations  with
respect thereto. No indemnifying party shall be liable for any settlement of any
action,  claim or proceeding  effected  without its written  consent,  provided,
however, that the indemnifying party shall not unreasonably  withhold,  delay or
condition its consent.  No indemnifying party shall,  without the consent of the
Indemnified  Party or  Indemnified  Person,  consent to entry of any judgment or
enter into any  settlement  or other  compromise  which  does not  include as an
unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
Indemnified  Party or  Indemnified  Person of a release  from all  liability  in
respect to such claim or litigation.  Following  indemnification as provided for
hereunder,  the  indemnifying  party  shall be  subrogated  to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations  relating to the matter for which indemnification has been made.
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 8.5, except to the extent that the  indemnifying  party
is prejudiced in its ability to defend such action.

          (e) The indemnification  required by this Section 8.5 shall be made by
periodic  payments of the amount thereof during the course of the  investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

          (f) The indemnity  agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person  against  the  indemnifying  party or others;  (ii) any  liabilities  the
indemnifying  party may be subject to pursuant  to the law;  and (iii) any other
indemnification agreements contained in this Subscription Agreement.

     8.6.  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 8.5 to the fullest  extent  permitted  by law;  provided,
however,  that: (i) 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 8.5;  (ii) 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 fraudulent  misrepresentation;  (iii)  contribution 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;
and (iii)  contribution  by the Company  shall be limited as to the placement of
the securities.

<PAGE>

     8.7.  REPORTS  UNDER  THE 1934  ACT.  With a view to  making  available  to
Subscriber 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  Subscriber 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 and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and

          (c)  furnish to  Subscriber  so long as  Subscriber  owns  Registrable
Securities,  promptly upon reasonable  request,  (i) a written  statement by the
Company that it has complied  with the reporting  requirements  of Rule 144, the
1933 Act and the 1934 Act,  (ii) 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 (iii) such other  information  as may be  reasonably  requested to
permit the  Subscribers  to sell such  securities  pursuant  to Rule 144 without
registration.

     8.8.  ASSIGNMENT  OF  REGISTRATION  RIGHTS.  The rights to have the Company
register  Registrable  Securities pursuant to this Agreement shall be assignable
by Subscriber to any transferee of all or any portion of Registrable  Securities
if: (i)  Subscriber  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: (a)
the name and address of such transferee or assignee, and (b) the securities with
respect to which such  registration  rights are being  transferred  or assigned;
(iii) immediately  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 this  Subscription  Agreements;
(vi) such transferee  shall be an "accredited  investor" as that term is defined
in Rule 501 of  Regulation  D  promulgated  under  the 1933  Act;  and (vii) the
transferee  agrees to pay all reasonable  expenses of amending or  supplementing
such Registration Statement to reflect such assignment.

9.  INDEMNIFICATION.  Subscriber  hereby  agrees to defend,  indemnify  and hold
harmless  the Company from all damages,  losses,  costs and expenses  (including
reasonable  attorneys'  fees) which it may incur:  (i) by reason of Subscriber's
failure to fulfill any of the terms and  conditions of this  Agreement,  (ii) by
reason of  Subscriber's  breach  of any of the  representations,  warranties  or
agreements  contained  in this  Agreement,  or (iii) with respect to any and all
claims made by or involving any person, other than Subscriber personally,

<PAGE>

claiming any interest,  right, title, power or authority regarding  Subscriber's
purchase of the Shares.  Subscriber  further  agrees and  acknowledges  that the
obligation to indemnify shall survive any sale or transfer, or attempted sale or
transfer,  of any  portion of  Subscriber's  Shares,  or  Subscriber's  death or
default under this Agreement.

10. MISCELLANEOUS

     10.1.  ENTIRE  AGREEMENT.  This Agreement  constitutes the entire agreement
between  Subscriber  and  Peabodys  with  respect to the subject  matter of this
Agreement and may be amended only by a writing signed by each of the parties.

     10.2.  SURVIVAL  OF  REPRESENTATIONS.   All  representations,   warranties,
covenants,  and  agreements  of the parties  contained in this  Agreement  shall
survive the closing of the sale of the Shares.

     10.3. ATTORNEYS' FEES; PREJUDGMENT INTEREST. If the services of an attorney
are  required  by any party to  secure  the  performance  of this  Agreement  or
otherwise upon the breach or default of another party to this  Agreement,  or if
any judicial  remedy or  arbitration  is  necessary to enforce or interpret  any
provision  of this  Agreement or the rights and duties of any person in relation
thereto,  the prevailing party shall be entitled to reasonable  attorneys' fees,
costs and other  expenses,  in addition to any other  relief to which such party
may be entitled.  Any award of damages following  judicial remedy or arbitration
as a result  of the  breach of this  Agreement  or any of its  provisions  shall
include  an award of  prejudgment  interest  from the date of the  breach at the
maximum amount of interest allowed by law.

     10.4.  SEVERABILITY.  If any provision of this Agreement is held by a court
of competent  jurisdiction to be invalid or unenforceable,  the remainder of the
Agreement which can be given effect without the invalid provision shall continue
in full force and effect and shall in no way be impaired or invalidated.

     10.5.  GOVERNING  LAW.  The rights and  obligations  of the parties and the
interpretation and performance of this Agreement shall be governed by the law of
California, excluding its conflict of laws rules.

     10.6.  VENUE.  Each party consents to the  jurisdiction of, and any actions
arising under this Agreement shall be heard and resolved in, courts in the State
of California.

     10.7.  COUNTERPARTS.  This  Agreement  may be  executed  in any  number  of
counterparts  with the same  effect as if the  parties  had all  signed the same
document.  All counterparts shall be construed together and shall constitute one
agreement.

     10.8.  WAIVER.  Any of the terms or  conditions  of this  Agreement  may be
waived at any time by the party  entitled  to the benefit  thereof,  but no such
waiver  shall  affect  or  impair  the  right of the  waiving  party to  require
observance,  performance or satisfaction  either of that term or condition as it
applies on a subsequent occasion or of any other term or condition.

<PAGE>

                                   ARROSTO COFFEE COMPANY, LLC,
                                   A _________________ Limited Liability Company


                                   By:_____________________________________
                                          (Joe Konis, Member/Manager)
                                   Address:  15019 Califa Street
                                             Van Nuys, CA 91411


                                   PEABODYS COFFEE, INC.
                                   a Nevada Corporation


                                   By:_____________________________________
                                          (Todd N. Tkachuk, President)
                                   Address:  3845 Atherton Road, Suite 9
                                             Rocklin, CA 95765