EXHIBIT 4.21

THIS  SECURITY HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED (THE  "SECURITIES  ACT"),  OR THE SECURITIES  LAWS OF ANY STATE,  AND IS
BEING  OFFERED  AND  SOLD  PURSUANT  TO  AN  EXEMPTION  FROM  THE   REGISTRATION
REQUIREMENTS  OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE
SECURITIES  ACT OR  PURSUANT TO AN  AVAILABLE  EXEMPTION  FROM THE  REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.

                          7 3/4 % CONVERTIBLE DEBENTURE

Company: Peabodys Coffee, Inc.

Company Address: 3845 Atherton Road, Suite 9, Rocklin, CA 95765
Closing Date: December ___, 2003

Maturity Date: December ___, 2005

Principal Amount: $250,000
First Payment Due Date: January 15, 2004

         Peabodys  Coffee,  Inc.,  a Nevada  corporation,  and any  successor or
resulting corporation by way of merger,  consolidation,  sale or exchange of all
or  substantially  all of the assets or  otherwise  (the  "Company"),  for value
received,  hereby  promises  to pay to the Holder  (as such term is  hereinafter
defined),  or such other Person (as such term is hereinafter defined) upon order
of the Holder,  on the Maturity Date, the outstanding  Principal Amount (as such
term is hereinafter defined), as such sum may be adjusted pursuant to Article 3,
and to pay interest  thereon from the Closing Date,  monthly in arrears,  on the
15th day of each month (each an  "Interest  Payment Due Date" and  collectively,
the "Interest Payment Due Dates"),  commencing on the First Payment Due Date, at
the rate of seven and three-quarters percent (7 3/4 %) per annum (the "Debenture
Interest  Rate"),  until the Principal Amount of this Debenture has been paid in
full. All interest  payable on the Principal  Amount of this Debenture  shall be
calculated on the basis of a 360-day year for the actual number of days elapsed.
Payment of interest on this Debenture  shall be in cash.  Subject to Section 2.5
below,  this  Debenture  may not be prepaid  without the written  consent of the
Holder.

                                   ARTICLE 1
                                   DEFINITIONS

         SECTION 1.1  Definitions.  The terms  defined in this Article  whenever
used in this Debenture have the following respective meanings:

                  (i) "Affiliate" has the meaning  ascribed to such term in Rule
         12b-2 under the Securities Exchange Act of 1934, as amended.

                  (ii) "Bankruptcy Code" means the United States Bankruptcy Code
         of 1986, as amended (11 U.S.C.ss.ss.101 et. seq.).

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                  (iii)  "Business Day" means a day other than Saturday,  Sunday
         or any day on  which  banks  located  in the  State of  California  are
         authorized or obligated to close.

                  (iv)  "Capital  Shares"  means the Common  Stock and any other
         shares of any other  class or series of capital  stock,  whether now or
         hereafter  authorized and however  designated,  which have the right to
         participate   in  the   distribution   of  earnings  and  assets  (upon
         dissolution, liquidation or winding-up) of the Company.

                  (v)  "Common  Shares" or "Common  Stock"  means  shares of the
         Company's Common Stock.

                  (vi)  "Common  Stock  Issued  at  Conversion",  when used with
         reference  to  the  securities  deliverable  upon  conversion  of  this
         Debenture,  means all Common  Shares now or hereafter  Outstanding  and
         securities  of any other  class or series  into  which  this  Debenture
         hereafter  shall  have been  changed  or  substituted,  whether  now or
         hereafter created and however designated.

                  (vii)  "Conversion" or "conversion" means the repayment by the
         Company of the Principal  Amount of this Debenture  (and, to the extent
         the Holder  elects as  permitted  by Section  3.1,  accrued  and unpaid
         interest thereon) by the delivery of Common Stock on the terms provided
         in Section  3.2, and  "convert,"  "converted,"  "convertible"  and like
         words shall have a corresponding meaning.

                  (viii)  "Conversion  Date"  means  any day on which all or any
         portion of the  Principal  Amount of this  Debenture  is  converted  in
         accordance with the provisions hereof.

                  (ix) "Conversion  Notice" means a written notice of conversion
         substantially in the form annexed hereto as Exhibit A.

                  (x) "Conversion Price" on any date of determination  means the
         applicable  price for the  conversion  of this  Debenture  into  Common
         Shares on such day as set forth in Section 3.1(a).

                  (xi) "Current Market Price" on any date of determination means
         the  closing  price of a Common  Share on such day as  reported  on the
         NASDAQ OTCBB Exchange; provided that, if such security is not listed or
         admitted to trading on the NASDAQ  OTCBB,  as reported on the principal
         national  security  exchange or quotation system on which such security
         is quoted or listed or admitted to trading, or, if not quoted or listed
         or admitted to trading on any national securities exchange or quotation
         system, the closing bid price of such security on the  over-the-counter
         market on the day in question as reported by  Bloomberg LP or a similar
         generally accepted reporting service, as the case may be.

                  (xii) "Deadline" means the date that is the 120th day from the
         Closing Date.

                  (xiii)   "Debenture"  or  "Debentures"  means  this  7  3/4  %
         Convertible   Debenture  of  the  Company  or  such  other  convertible
         debenture(s) exchanged therefor as provided in Section 2.1.


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                  (xiv)  "Discount  Multiplier"  has the  meaning  set  forth in
         Section 3.1(a).

                  (xv) "Event of  Default"  has the meaning set forth in Section
         6.1.

                  (xvi)  "Holder"  means  La Jolla  Cove  Investors,  Inc.,  any
         successor thereto, or any Person to whom this Debenture is subsequently
         transferred in accordance with the provisions hereof.

                  (xvii)  "Interest  Payment Due Date" has the meaning set forth
         in the opening paragraph of this Debenture.

                  (xviii) "Market Disruption Event" means any event that results
         in a material suspension or limitation of trading of the Common Shares.

                  (xix)  "Market  Price" per Common Share means the lowest price
         of the Common  Shares  during any Trading Day as reported on the NASDAQ
         OTCBB;  provided  that,  if such  security is not listed or admitted to
         trading on the NASDAQ  OTCBB,  as  reported on the  principal  national
         security  exchange or quotation system on which such security is quoted
         or listed  or  admitted  to  trading,  or,  if not  quoted or listed or
         admitted to trading on any  national  securities  exchange or quotation
         system, the lowest price of the Common Shares during any Trading Day on
         the  over-the-counter  market as reported by  Bloomberg LP or a similar
         generally accepted reporting service, as the case may be.

                  (xx) "Maximum Rate" has the meaning set forth in Section 6.4.

                  (xxi)  "Outstanding" when used with reference to Common Shares
         or  Capital  Shares  (collectively,  "Shares")  means,  on any  date of
         determination, all issued and outstanding Shares, and includes all such
         Shares  issuable in respect of  outstanding  scrip or any  certificates
         representing  fractional interests in such Shares;  provided,  however,
         that any such Shares directly or indirectly owned or held by or for the
         account of the Company or any  Subsidiary  of the Company  shall not be
         deemed "Outstanding" for purposes hereof.

                  (xxii)  "Person"  means  an  individual,   a  corporation,   a
         partnership,   an  association,   a  limited  liability   company,   an
         unincorporated  business  organization,  a trust  or  other  entity  or
         organization, and any government or political subdivision or any agency
         or instrumentality thereof.

                  (xxiii) "Principal Amount" means, for any date of calculation,
         the  principal sum set forth in the first  paragraph of this  Debenture
         (but only such principal amount as to which the Holder has (a) actually
         advanced  pursuant  to  the  Securities   Purchase  Agreement  (b)  not
         theretofore  furnished a Conversion  Notice in compliance  with Section
         3.2).

                  (xxiv)  "Registration  Rights  Agreement"  means that  certain
         Registration  Rights Agreement of even date herewith by and between the
         Company and Holder, as the same may be amended from time to time.

                  (xxv) "SEC" means the United  States  Securities  and Exchange
         Commission.


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                  (xxvi)  "Securities  Act" means the Securities Act of 1933, as
         amended, and the rules and regulations of the SEC thereunder, all as in
         effect at the time.

                  (xxvii)  "Securities  Purchase  Agreement"  means that certain
         Securities  Purchase  Agreement of even date  herewith by and among the
         Company and Holder, as the same may be amended from time to time.

                  (xxviii)  "Subsidiary" means any entity of which securities or
         other  ownership  interests  having  ordinary  voting  power to elect a
         majority of the board of directors or other persons  performing similar
         functions are owned directly or indirectly by the Company.

                  (xxix)  "Trading Day" means any day on which (i) purchases and
         sales of  securities  on the principal  national  security  exchange or
         quotation  system on which the Common  Shares  are traded are  reported
         thereon,  or, if not  quoted or listed or  admitted  to  trading on any
         national  securities  exchange  or  quotation  system,  as  reported by
         Bloomberg LP or a similar generally accepted reporting service,  as the
         case may be, (ii) at least one bid for the trading of Common  Shares is
         reported and (iii) no Market Disruption Event occurs.

                  (xxix) "Warrant" means the Warrant to Purchase Common Stock of
         even date  herewith by and between the Company and Holder,  as the same
         may be amended from time to time.

                  All  references to "cash" or "$" herein means  currency of the
         United States of America.

                                   ARTICLE 2
                   EXCHANGES, TRANSFER AND OPTIONAL REDEMPTION

         SECTION 2.1  Registration  of Transfer of Debentures.  This  Debenture,
when  presented  for  registration  of  transfer,  shall (if so  required by the
Company) be duly endorsed, or be accompanied by a written instrument of transfer
in form reasonably satisfactory to the Company duly executed, by the Holder duly
authorized in writing.

         SECTION 2.2 Loss,  Theft,  Destruction  of  Debenture.  Upon receipt of
evidence  satisfactory  to  the  Company  of the  loss,  theft,  destruction  or
mutilation  of this  Debenture  and,  in the  case of any  such  loss,  theft or
destruction,  upon receipt of indemnity or security  reasonably  satisfactory to
the  Company,  or,  in the  case of any  such  mutilation,  upon  surrender  and
cancellation of this Debenture,  the Company shall make,  issue and deliver,  in
lieu of such lost, stolen,  destroyed or mutilated Debenture, a new Debenture of
like  tenor  and  unpaid  Principal  Amount  dated as of the date  hereof.  This
Debenture shall be held and owned upon the express condition that the provisions
of  this  Section  2.2  are  exclusive  with  respect  to the  replacement  of a
mutilated,  destroyed,  lost or stolen  Debenture and shall preclude any and all
other  rights  and  remedies  notwithstanding  any law or  statute  existing  or
hereafter  enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.

         SECTION 2.3 Who Deemed Absolute Owner.  The Company may deem the Person
in whose name this Debenture  shall be registered upon the registry books of the
Company  to be,  and may  treat it as,  the  absolute  owner  of this  Debenture


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(whether or not this  Debenture  shall be overdue)  for the purpose of receiving
payment of or on  account of the  Principal  Amount of this  Debenture,  for the
conversion of this Debenture and for all other  purposes,  and the Company shall
not be  affected  by any  notice to the  contrary.  All such  payments  and such
conversions  shall be valid and effectual to satisfy and discharge the liability
upon this  Debenture to the extent of the sum or sums so paid or the  conversion
or conversions so made.

         SECTION 2.4 Repayment at Maturity.  At the Maturity  Date,  the Company
shall repay the outstanding Principal Amount of this Debenture in whole in cash,
together with all accrued and unpaid interest thereon,  in cash, to the Maturity
Date.

         SECTION  2.5  Optional  Redemption.  During the  period  between 3 to 9
months from the date that the Registration Statement is declared effective,  the
Company may redeem this Debenture,  by notice to the Holder, for an amount equal
to 125% of the  outstanding  Principal  Amount at such time.  At anytime after 9
months from the date that the Registration Statement is declared effective,  the
Company may redeem this Debenture,  by notice to the Holder, for an amount equal
to 150% of the outstanding Principal Amount at such time.

                                   ARTICLE 3
                             CONVERSION OF DEBENTURE

         SECTION 3.1 Conversion;  Conversion Price;  Valuation Event. (a) At the
option of the Holder,  this  Debenture may be  converted,  either in whole or in
part,  up to the full  Principal  Amount  hereof  (in  increments  of  $1,000 in
Principal  Amount) into Common Shares  (calculated as to each such conversion to
the  nearest  1/100th  of a  share),  at any time  and from  time to time on any
Business  Day,  subject to  compliance  with  Section  3.2. The number of Common
Shares into which this  Debenture  may be  converted  is equal to the  principal
amount of the Debenture being converted  multiplied by eleven, minus the product
of the  Conversion  Price  multiplied  by ten  times  the  dollar  amount of the
Debenture being  converted,  and the entire foregoing result shall be divided by
the Conversion  Price.  In addition,  the Company shall pay to the Holder on the
Conversion  Date,  in cash,  any  accrued and unpaid  interest on the  principal
amount being converted.  The "Conversion  Price" shall be equal to the lesser of
(i) $0.25, or (ii) eighty percent (80%) (a "Discount Multiplier") of the average
of the 5 lowest volume  weighted  average  prices during the twenty (20) Trading
Days prior to  Holder's  election to  convert;  provided,  that in the event the
Registration  Statement  has  not  been  declared  effective  by the  SEC by the
Deadline  or,  if the  Registration  Statement  has  theretofore  been  declared
effective  but  is  not  thereafter  effective,  then  the  applicable  Discount
Multiplier  shall  decrease  by three  percentage  points (3%) for each month or
partial month  occurring after the Deadline that the  Registration  Statement is
not effective.

Beginning in the first full calendar month after the  Registration  Statement is
declared effective, Holder shall convert at least 5%, but no more than 15% (such
15% maximum amount to be cumulative from the Deadline), of the face value of the
Debenture per calendar  month into Common  Shares of the Company,  provided that
the Common Shares are available, registered and freely tradable. The 15% monthly
maximum amount shall not be applicable if the Current Market Price of the Common
Stock at anytime during the  applicable  month is higher than the Current Market


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Price of the Common Stock on the Closing Date. In the event Holder breaches this
provision, Holder shall not be entitled to collect interest on the Debenture for
that month.

         (b)  Notwithstanding the provisions of Section 3.1(a), in the event the
Company's Registration Statement has not been declared effective by the Deadline
or, if the Registration Statement has theretofore been declared effective but is
not thereafter  effective;  provided that this provision  shall not apply if the
Company has filed the Registration  Statement within 30 days of the Closing Date
and thereafter  responds to all SEC comments  within 10 business days of receipt
thereof,  the following  will also apply in addition to any damages  incurred by
the Holder as a result thereof:

                  (i)  The  Holder  may  demand  repayment  of one  hundred  and
         twenty-five  percent  (125%) of the Principal  Amount of the Debenture,
         together with all accrued and unpaid interest thereon,  in cash, at any
         time  prior to the  Company's  Registration  Statement  being  declared
         effective  by  the  SEC  or  during  the  period  that  the   Company's
         Registration  Statement  is not  effective,  such  repayment to be made
         within ten (10)  business  days of such  demand.  In the event that the
         Debenture  is so  accelerated,  in  addition  to the  repayment  of one
         hundred and twenty-five percent (125%) of the Principal Amount together
         with accrued interest as aforesaid, the Company shall immediately issue
         to the Holder  50,000  Shares of Common  Stock for each thirty (30) day
         period,  or  portion  thereof,   during  which  the  Principal  Amount,
         including interest thereon, remains unpaid, following demand therefor.

                  (ii) If the Holder does not elect to accelerate the Debenture,
         the Company shall  immediately  issue to Holder 50,000 Shares of Common
         Stock for each  thirty (30) day period,  or portion  thereof,  that the
         Registration Statement is not effective.

         SECTION 3.2 Exercise of Conversion  Privilege.  (a)  Conversion of this
Debenture may be exercised on any Business Day by the Holder by  telecopying  an
executed and completed  Conversion  Notice to the Company.  Each date on which a
Conversion Notice is telecopied to the Company in accordance with the provisions
of this  Section 3.2 shall  constitute  a  Conversion  Date.  The Company  shall
convert this  Debenture  and issue the Common Stock Issued at  Conversion in the
manner  provided  below in this  Section  3.2,  and all voting and other  rights
associated  with  the  beneficial  ownership  of  the  Common  Stock  Issued  at
Conversion  shall vest with the Holder,  effective as of the Conversion  Date at
the time specified in the Conversion  Notice.  The Conversion  Notice also shall
state the name or names  (with  addresses)  of the persons who are to become the
holders  of the  Common  Stock  Issued at  Conversion  in  connection  with such
conversion.  As promptly  as  practicable  after the  receipt of the  Conversion
Notice as  aforesaid,  but in any event not more than  three (3)  Business  Days
after the Company's  receipt of such  Conversion  Notice,  the Company shall (i)
issue the Common Stock Issued at Conversion in accordance with the provisions of
this Article 3 and (ii) cause to be mailed for delivery by overnight courier, or
if a  Registration  Statement  covering  the  Common  Stock  has  been  declared
effective  by the SEC cause to be  electronically  transferred,  to Holder (x) a
certificate or certificate(s)  representing the number of Common Shares to which
the Holder is entitled by virtue of such  conversion,  (y) cash,  as provided in
Section 3.3, in respect of any fraction of a Common Share  deliverable upon such
conversion and (z) cash or shares of Common Stock,  as applicable,  representing
the amount of accrued and unpaid interest on this Debenture as of the Conversion
Date. Such conversion shall be deemed to have been effected at the time at which


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the  Conversion  Notice  indicates  (which  shall  not be  prior  to the time of
delivery of the Conversion Notice), and at such time the rights of the Holder of
this Debenture,  as such (except if and to the extent that any Principal  Amount
thereof  remains  unconverted),  shall cease and the Person and Persons in whose
name or names the Common Stock Issued at Conversion  shall be issuable  shall be
deemed to have  become the  holder or  holders  of record of the  Common  Shares
represented  thereby,  and all  voting  and  other  rights  associated  with the
beneficial  ownership  of such Common  Shares  shall at such time vest with such
Person or Persons. The Conversion Notice shall constitute a contract between the
Holder and the Company,  whereby the Holder shall be deemed to subscribe for the
number  of  Common  Shares  which  it will be  entitled  to  receive  upon  such
conversion and, in payment and  satisfaction of such  subscription  (and for any
cash  adjustment to which it is entitled  pursuant to Section 3.4), to surrender
this Debenture and to release the Company from all liability  thereon (except if
and to the extent that any Principal  Amount thereof  remains  unconverted).  No
cash  payment  aggregating  less than $1.00 shall be required to be given unless
specifically requested by the Holder.

                  (b) If, at any time after the date of this Debenture,  (i) the
         Company challenges, disputes or denies, without cause, the right of the
         Holder hereof to effect the  conversion of this  Debenture  into Common
         Shares or otherwise dishonors or rejects any Conversion Notice properly
         delivered in accordance  with this Section 3.2 or (ii) any law,  ruling
         or  order  is  issued  or  promulgated  pursuant  to  which  Holder  is
         prohibited from  converting the Debenture into Common Shares,  then the
         Holder  shall have the  right,  by written  notice to the  Company,  to
         require the Company to promptly  redeem this  Debenture for cash at one
         hundred  and  twenty-five  (125%)  of  the  Principal  Amount  thereof,
         together  with all accrued and unpaid  interest  thereon to the date of
         redemption. Under any of the circumstances set forth above, the Company
         shall be  responsible  for the payment of all costs and expenses of the
         Holder,  including  reasonable  legal  fees and  expenses,  as and when
         incurred in defending  itself in any such action or pursuing its rights
         hereunder (in addition to any other rights of the Holder).

                  (c) The Holder  shall be entitled to exercise  its  conversion
         privilege  notwithstanding  the  commencement  of any  case  under  the
         Bankruptcy  Code.  In the  event  the  Company  is a debtor  under  the
         Bankruptcy  Code,  the  Company  hereby  waives to the  fullest  extent
         permitted  any rights to relief it may have under 11 U.S.C.  ss. 362 in
         respect of the  Holder's  conversion  privilege.  The  Company  agrees,
         without  cost or expense to the  Holder,  to take or consent to any and
         all action  necessary to  effectuate  relief  under 11 U.S.C.  ss. 362.


         SECTION 3.3  Fractional  Shares.  No fractional  Common Shares or scrip
representing fractional Common Shares shall be delivered upon conversion of this
Debenture.  Instead of any  fractional  Common Shares which  otherwise  would be
delivered  upon  conversion  of this  Debenture,  the  Company  shall pay a cash
adjustment  in respect of such  fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the  Conversion  Date. No cash payment
of less than $1.00 shall be required to be given unless  specifically  requested
by the Holder.

SECTION  3.4  Adjustments.  The  Conversion  Price  and  the  number  of  shares
deliverable  upon  conversion of this  Debenture are subject to adjustment  from
time to time as follows:


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                  (i)   Reclassification,   Etc.  In  case  the  Company   shall
         reorganize its capital,  reclassify  its capital stock,  consolidate or
         merge  with  or into  another  Person  (where  the  Company  is not the
         survivor or where there is a change in or distribution  with respect to
         the Common Stock of the Company),  sell, convey,  transfer or otherwise
         dispose of all or substantially all its property, assets or business to
         another  Person,  or  effectuate  a  transaction  or series of  related
         transactions in which more than fifty percent (50%) of the voting power
         of the Company is disposed of (each, a "Fundamental  Corporate Change")
         and, pursuant to the terms of such Fundamental Corporate Change, shares
         of common stock of the successor or acquiring corporation, or any cash,
         shares  of  stock  or  other  securities  or  property  of  any  nature
         whatsoever  (including  warrants  or  other  subscription  or  purchase
         rights) in addition to or in lieu of common  stock of the  successor or
         acquiring  corporation  ("Other  Property")  are to be  received  by or
         distributed  to the holders of Common  Stock of the  Company,  then the
         Holder of this Debenture shall have the right  thereafter,  at its sole
         option, to (x) require the Company to prepay this Debenture for cash at
         one hundred and  twenty-five  percent  (125%) of the  Principal  Amount
         thereof,  together with all accrued and unpaid interest  thereon to the
         date of prepayment,  (y) upon conversion of the Debenture,  receive the
         number  of  shares  of  common  stock  of the  successor  or  acquiring
         corporation or of the Company, if it is the surviving corporation,  and
         Other Property as is receivable upon or as a result of such Fundamental
         Corporate  Change by a holder of the  number of shares of Common  Stock
         into which the  outstanding  portion of this Debenture may be converted
         at  the  Conversion   Price  applicable   immediately   prior  to  such
         Fundamental  Corporate  Change  or (z)  require  the  Company,  or such
         successor, resulting or purchasing corporation, as the case may be, to,
         without benefit of any additional  consideration therefor,  execute and
         deliver to the Holder a debenture with  substantial  identical  rights,
         privileges,  powers,  restrictions and other terms as this Debenture in
         an  amount  equal  to  the  amount  outstanding  under  this  Debenture
         immediately prior to such Fundamental  Corporate  Change.  For purposes
         hereof,  "common stock of the successor or acquiring corporation" shall
         include stock of such  corporation  of any class which is not preferred
         as to  dividends  or  assets  over  any  other  class  of stock of such
         corporation  and which is not  subject  to  prepayment  and shall  also
         include  any  evidences  of  indebtedness,  shares  of  stock  or other
         securities  which are  convertible  into or  exchangeable  for any such
         stock,  either  immediately  or upon the arrival of a specified date or
         the happening of a specified  event and any warrants or other rights to
         subscribe  for or purchase  any such stock.  The  foregoing  provisions
         shall  similarly  apply to successive  Fundamental  Corporate  Changes.
         SECTION

         3.5 Certain Conversion Limits.

         Notwithstanding  anything herein to the contrary,  if and to the extent
that, on any date, the holding by the Holder of this  Debenture  would result in
the  Holder's  being deemed the  beneficial  owner of more than 4.9% of the then
Outstanding  shares of Common  Stock,  then the Holder shall not have the right,
and the Company  shall not have the  obligation,  to convert any portion of this
Debenture as shall cause such Holder to be deemed the  beneficial  owner of more
than  4.9% of the then  Outstanding  shares  of  Common  Stock.  If any court of
competent   jurisdiction  shall  determine  that  the  foregoing  limitation  is
ineffective to prevent a Holder from being deemed the  beneficial  owner of more
than 4.9% of the then Outstanding shares of Common Stock, then the Company shall
promptly  prepay such portion of this Debenture as shall cause such Holder to be
deemed the beneficial owner of more than 4.9% of the then Outstanding  shares of
Common Stock. Upon such determination by a court of competent jurisdiction,  the
Holder shall have no interest in or rights under such portion of the  Debenture.
Any and all interest paid on or prior to the date of such determination shall be


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<PAGE>

deemed  interest paid on the  remaining  portion of this  Debenture  held by the
Holder.  Such prepayment  shall be for cash at a prepayment price of one hundred
and twenty-five  percent (125%) of the Principal  Amount thereof,  together with
all accrued and unpaid interest thereon to the date of prepayment.

         SECTION  3.6  Surrender  of  Debentures.  Upon any  redemption  of this
Debenture  pursuant to Sections  3.2, 3.5 or 6.2, or upon  maturity  pursuant to
Section  2.4, the Holder  shall  either  deliver  this  Debenture by hand to the
Company at its principal  executive offices or surrender the same to the Company
at such  address by  nationally  recognized  overnight  courier.  Payment of the
redemption  price or the amount due on maturity  specified in Section 2.4, shall
be made by the  Company to the Holder  against  receipt  of this  Debenture  (as
provided in this Section 3.5) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify by written notice to the Company. If
payment of such redemption  price is not made in full by the redemption date, or
the amount due on maturity is not paid in full by the Maturity  Date, the Holder
shall again have the right to convert  this  Debenture  as provided in Article 3
hereof or to declare an Event of Default.

                                   ARTICLE 4
                        STATUS; RESTRICTIONS ON TRANSFER

         SECTION 4.1 Status of Debenture.  This  Debenture  constitutes a legal,
valid and binding obligation of the Company,  enforceable in accordance with its
terms  subject,  as to  enforceability,  to general  principles of equity and to
principles of bankruptcy,  insolvency,  reorganization and other similar laws of
general  applicability  relating to or affecting  creditors' rights and remedies
generally.

         SECTION 4.2  Restrictions on Transfer.  This Debenture,  and any Common
Shares  deliverable upon the conversion  hereof,  have not been registered under
the  Securities  Act. The Holder by accepting  this  Debenture  agrees that this
Debenture  and the shares of Common Stock to be acquired as interest on and upon
conversion of this Debenture may not be assigned or otherwise transferred unless
and until (i) the  Company  has  received  the opinion of counsel for the Holder
that this  Debenture or such shares may be sold  pursuant to an  exemption  from
registration under the Securities Act or (ii) a registration  statement relating
to this  Debenture  or such shares has been filed by the  Company  and  declared
effective by the SEC.

         Each certificate for shares of Common Stock deliverable hereunder shall
bear a legend  as  follows  unless  and  until  such  securities  have been sold
pursuant to an effective registration statement under the Securities Act:

             "The securities  represented by this certificate have
             not been registered under the Securities Act of 1933,
             as amended (the "Securities Act"). The securities may
             not  be   offered   for  sale,   sold  or   otherwise
             transferred  except  (i)  pursuant  to  an  effective
             registration  statement  under the  Securities Act or
             (ii) pursuant to an exemption from registration under
             the  Securities Act in respect of which the issuer of
             this  certificate  has received an opinion of counsel
             satisfactory  to the  issuer of this  certificate  to
             such effect.  Copies of the  agreement  covering both


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Initials                                9                               Initials

<PAGE>

             the purchase of the  securities and  restrictions  on
             their  transfer may be obtained at no cost by written
             request   made  by  the  holder  of  record  of  this
             certificate  to the  Secretary  of the issuer of this
             certificate at the principal executive offices of the
             issuer of this certificate."

                                   ARTICLE 5
                                    COVENANTS

         SECTION 5.1 Conversion. The Company shall cause the transfer agent, not
later than three (3) Business Days after the  Company's  receipt of a Conversion
Notice,  to issue and deliver to the Holder the requisite shares of Common Stock
Issued  at  Conversion.  Such  delivery  shall be by  electronic  transfer  if a
Registration  Statement covering the Common Stock has been declared effective by
the SEC.  SECTION 5.2 Notice of Default.  If any one or more events  occur which
constitute or which,  with notice,  lapse of time, or both,  would constitute an
Event of  Default,  the  Company  shall  forthwith  give  notice to the  Holder,
specifying the nature and status of the Event of Default or such other event(s),
as the case may be.

         SECTION 5.3 Payment of Obligations.  So long as this Debenture shall be
outstanding,  the Company shall pay, extend, or discharge at or before maturity,
all its respective  material  obligations and  liabilities,  including,  without
limitation,  tax  liabilities,  except  where the same may be  contested in good
faith by appropriate proceedings.

         SECTION 5.4 Compliance  with Laws. So long as this  Debenture  shall be
outstanding,  the Company  shall comply with all  applicable  laws,  ordinances,
rules, regulations and requirements of governmental authorities, except for such
noncompliance  which would not have a material  adverse  effect on the business,
properties,   prospects,  condition  (financial  or  otherwise)  or  results  of
operations of the Company and the Subsidiaries.

         SECTION 5.5 Inspection of Property,  Books and Records. So long as this
Debenture  shall be  outstanding,  the Company shall keep proper books of record
and  account  in which  full,  true  and  correct  entries  shall be made of all
material  dealings and  transactions  in relation to its business and activities
and shall permit  representatives of the Holder at the Holder's expense to visit
and inspect any of its respective properties, to examine and make abstracts from
any of its respective books and records,  not reasonably deemed  confidential by
the Company,  and to discuss its respective affairs,  finances and accounts with
its  respective  officers  and  independent  public  accountants,  all  at  such
reasonable times and as often as may reasonably be desired.

                                   ARTICLE 6
                                    REMEDIES

         SECTION 6.1 Events of Default.  "Event of Default" wherever used herein
means any one of the  following  events:

                  (i) the Company  shall  default in the payment of principal of
         or  interest  on this  Debenture  as and when the same shall be due and
         payable and, in the case of an interest payment  default,  such default


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Initials                               10                               Initials

<PAGE>

         shall  continue for five (5) Business Days after the date such interest
         payment was due,  or the  Company  shall fail to perform or observe any
         other material covenant,  agreement,  term,  provision,  undertaking or
         commitment under this Debenture, the Conversion Warrants (as defined in
         the Securities Purchase  Agreement),  the Securities Purchase Agreement
         or the  Registration  Rights  Agreement and such default shall continue
         for a period  of ten (10)  Business  Days  after  the  delivery  to the
         Company of written  notice that the Company is in default  hereunder or
         thereunder;

                  (ii)  any of the  representations  or  warranties  made by the
         Company herein, in the Securities Purchase Agreement,  the Registration
         Rights  Agreement or in any  certificate  or financial or other written
         statements  heretofore  or  hereafter  furnished by or on behalf of the
         Company  in  connection   with  the  execution  and  delivery  of  this
         Debenture,   the  Warrant  issued  together  with  the  Debenture,  the
         Securities  Purchase  Agreement or the  Registration  Rights  Agreement
         shall be false or misleading in a material respect on the Closing Date;

                  (iii) under the laws of any jurisdiction not otherwise covered
         by  clauses  (iv) and (v) below,  the  Company  or any  Subsidiary  (A)
         becomes insolvent or generally not able to pay its debts as they become
         due to an extent  materially  adversely  different  than as of the date
         hereof,  (B) admits in writing its inability to pay its debts generally
         or  makes a  general  assignment  for the  benefit  of  creditors,  (C)
         institutes or has instituted  against it any proceeding  seeking (x) to
         adjudicate it a bankrupt or  insolvent,  (y)  liquidation,  winding-up,
         reorganization,   arrangement,   adjustment,   protection,   relief  or
         composition  of it or its debts under any law  relating to  bankruptcy,
         insolvency,  reorganization  or relief of debtors including any plan of
         compromise or arrangement or other  corporate  proceeding  involving or
         affecting  its creditors or (z) the entry of an order for relief or the
         appointment  of a receiver,  trustee or other similar  person for it or
         for any substantial part of its properties and assets,  and in the case
         of  any  such  official  proceeding  instituted  against  it  (but  not
         instituted  by  it),  either  the  proceeding  remains  undismissed  or
         unstayed  for a  period  of sixty  (60)  calendar  days,  or any of the
         actions sought in such proceeding  (including the entry of an order for
         relief against it or the appointment of a receiver,  trustee, custodian
         or other  similar  official for it or for any  substantial  part of its
         properties  and  assets)  occurs or (D) takes any  corporate  action to
         authorize any of the above actions;

                  (iv)  the  entry  of a  decree  or  order  by a  court  having
         jurisdiction in the premises  adjudging the Company or any Subsidiary a
         bankrupt  or  insolvent,  or  approving  as  properly  filed a petition
         seeking reorganization, arrangement, adjustment or composition of or in
         respect  of  the  Company  under  the  Bankruptcy  Code  or  any  other
         applicable Federal or state law, or appointing a receiver,  liquidator,
         assignee,  trustee or sequestrator  (or other similar  official) of the
         Company or of any  substantial  part of its  property,  or ordering the
         winding-up or liquidation of its affairs,  and any such decree or order
         continues  and is  unstayed  and in effect  for a period of sixty  (60)
         calendar days;

                  (v)  the  institution  by the  Company  or any  Subsidiary  of
         proceedings to be  adjudicated a bankrupt or insolvent,  or the consent
         by it to  the  institution  of  bankruptcy  or  insolvency  proceedings
         against  it, or the  filing by it of a  petition  or answer or  consent
         seeking reorganization or relief under the Bankruptcy Code or any other
         applicable  federal or state law, or the consent by it to the filing of
         any such  petition or to the  appointment  of a  receiver,  liquidator,
         assignee, trustee


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Initials                               11                               Initials

<PAGE>

         or  sequestrator  (or other similar  official) of the Company or of any
         substantial part of its property,  or the making by it of an assignment
         for the benefit of creditors,  or the admission by it in writing of its
         inability  to pay its debts  generally  as and when they become due, or
         the taking of  corporate  action by the Company in  furtherance  of any
         such action;

                  (vi) a final  judgment or final  judgments  for the payment of
         money  shall  have been  entered  by any  court or courts of  competent
         jurisdiction  against the Company and remains undischarged for a period
         (during which  execution  shall be  effectively  stayed) of thirty (30)
         days,  provided that the aggregate  amount of all such judgments at any
         time outstanding (to the extent not paid or to be paid, as evidenced by
         a written  communication to that effect from the applicable insurer, by
         insurance) exceeds One Hundred Thousand Dollars ($100,000);

                  (vii) it becomes unlawful for the Company to perform or comply
         with its obligations under this Debenture,  the Conversion Warrant, the
         Securities  Purchase Agreement or the Registration  Rights Agreement in
         any respect;

                  (viii) the Common  Shares  shall be  delisted  from the NASDAQ
         OTCBB (the  "Trading  Market"  or, to the extent  the  Company  becomes
         eligible  to list its  Common  Stock  on any  other  national  security
         exchange or quotation  system,  upon official  notice of listing on any
         such  exchange or system,  as the case may be, it shall be the "Trading
         Market") or suspended from trading on the Trading Market, and shall not
         be reinstated,  relisted or such suspension lifted, as the case may be,
         within five (5) days or;

                  (ix)  the  Company  shall  default   (giving   effect  to  any
         applicable grace period) in the payment of principal or interest as and
         when the same shall  become due and  payable,  under any  indebtedness,
         individually  or in the  aggregate,  of more than One Hundred  Thousand
         Dollars   ($100,000)   (other  than  a  default   under  those  Secured
         Convertible Debentures with AJW Partners,  LLC, AJW Offshore,  Ltd. and
         AJW  Qualified  Partners,  LLC  due to the  failure  of La  Jolla  Cove
         Investors,  Inc. to deliver payment therefor, on behalf of the Company,
         when due);

         SECTION 6.2 Acceleration of Maturity;  Rescission and Annulment.  If an
Event of  Default  occurs  and is  continuing,  then and in every  such case the
Holder  may,  by a notice in writing to the  Company,  rescind  any  outstanding
Conversion  Notice and declare that all amounts  owing or otherwise  outstanding
under  this  Debenture  are  immediately  due and  payable  and  upon  any  such
declaration this Debenture shall become immediately due and payable in cash at a
price of one hundred and  twenty-five  percent  (125%) of the  Principal  Amount
thereof,  together with all accrued and unpaid  interest  thereon to the date of
payment;  provided,  however,  in the case of any Event of Default  described in
clauses  (iii),  (iv),  (v) or (vii) of Section 6.1,  such amount  automatically
shall become  immediately due and payable without the necessity of any notice or
declaration as aforesaid.

         SECTION 6.3 Late Payment Penalty. If any portion of the principal of or
interest on this Debenture  shall not be paid within ten (10) days of when it is
due,  the  Discount  Multiplier  under this  Debenture,  and under all  warrants
granted by the Company to the Holder,  shall  decrease  by an  aggregate  of one
percentage  point  (1%)  for all  conversions  of  this  Debenture  and  warrant
exercises thereafter.


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Initials                               12                               Initials

<PAGE>

         SECTION 6.4 Maximum Interest Rate.  Notwithstanding  anything herein to
the contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged, taken
or received by the Holder in accordance  with any  applicable  law (the "Maximum
Rate"),  the rate of interest  applicable to this Debenture  shall be limited to
the Maximum Rate. To the greatest  extent  permitted  under  applicable law, the
Company  hereby waives and agrees not to allege or claim that any  provisions of
this Note could give rise to or result in any actual or  potential  violation of
any applicable usury laws.

         SECTION  6.5  Remedies  Not  Waived.  No course of dealing  between the
Company and the Holder or any delay in  exercising  any rights  hereunder  shall
operate as a waiver by the Holder.

                                   ARTICLE 7
                                  MISCELLANEOUS

         SECTION 7.1 Notice of Certain Events.  In the case of the occurrence of
any event described in Section 3.4 of this Debenture, the Company shall cause to
be mailed to the Holder of this  Debenture  at its last address as it appears in
the  Company's  security  registry,  at  least  twenty  (20)  days  prior to the
applicable  record,  effective or expiration date hereinafter  specified (or, if
such twenty (20) days' notice is not  possible,  at the earliest  possible  date
prior to any such  record,  effective or  expiration  date),  a notice  thereof,
including, if applicable, a statement of (y) the date on which a record is to be
taken for the purpose of such  dividend,  distribution,  issuance or granting of
rights,  options or warrants,  or if a record is not to be taken, the date as of
which the holders of record of Common  Stock to be  entitled  to such  dividend,
distribution,  issuance  or granting  of rights,  options or warrants  are to be
determined  or (z)  the  date on  which  such  reclassification,  consolidation,
merger,  sale, transfer,  dissolution,  liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Common Stock will be entitled to exchange their shares for  securities,  cash
or other property deliverable upon such reclassification, consolidation, merger,
sale transfer, dissolution, liquidation or winding-up.

         SECTION 7.2 Register.  The Company shall keep at its principal office a
register  in which  the  Company  shall  provide  for the  registration  of this
Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and
4 hereof, the Company shall register such transfer on the Debenture register.

         SECTION 7.3 Withholding.  To the extent required by applicable law, the
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing  authority in the United States  having  jurisdiction
over the Company from any payments made pursuant to this Debenture.

         SECTION 7.4 Transmittal of Notices. Except as may be otherwise provided
herein,  any notice or other  communication  or delivery  required or  permitted
hereunder  shall be in writing  and shall be  delivered  personally,  or sent by
telecopier machine or by a nationally  recognized overnight courier service, and
shall be deemed given when so delivered personally,  or by telecopier machine or
overnight courier service as follows:


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Initials                               13                               Initials

<PAGE>

         (1) if to the Company, to:

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

         (2) if to the Holder, to:

             La Jolla Cove Investors, Inc.
             7817 Herschel Avenue, Suite 200
             La Jolla, California 92037
             Telephone: 858-551-8789
             Facsimile: 858-551-8779

Each of the Holder or the  Company  may change the  foregoing  address by notice
given pursuant to this Section 7.4.

         SECTION 7.5 Attorneys' Fees. Should any party hereto employ an attorney
for the purpose of enforcing or construing this Debenture, or any judgment based
on this Debenture,  in any legal proceeding  whatsoever,  including  insolvency,
bankruptcy, arbitration,  declaratory relief or other litigation, the prevailing
party  shall be  entitled  to receive  from the other  party or parties  thereto
reimbursement  for all  reasonable  attorneys'  fees and all  reasonable  costs,
including  but not limited to service of process,  filing fees,  court and court
reporter costs,  investigative  costs,  expert witness fees, and the cost of any
bonds,  whether taxable or not, and that such reimbursement shall be included in
any judgment or final order issued in that  proceeding.  The "prevailing  party"
means  the  party  determined  by the  court  to  most  nearly  prevail  and not
necessarily the one in whose favor a judgment is rendered.

         SECTION 7.6  Governing  Law. This  Debenture  shall be governed by, and
construed  in  accordance  with,  the laws of the State of  California  (without
giving effect to conflicts of laws principles). With respect to any suit, action
or proceedings  relating to this Debenture,  the Company  irrevocably submits to
the exclusive  jurisdiction of the courts of the State of California  sitting in
San Diego and the United States  District Court located in the City of San Diego
and hereby waives,  to the fullest extent permitted by applicable law, any claim
that any such suit,  action or  proceeding  has been brought in an  inconvenient
forum.  Subject to  applicable  law,  the  Company  and Holder  agree that final
judgment against it in any legal action or proceeding arising out of or relating
to  this  Debenture  shall  be  conclusive  and  may be  enforced  in any  other
jurisdiction  within or outside  the United  States by suit on the  judgment,  a
certified copy of which judgment  shall be conclusive  evidence  thereof and the
amount of its indebtedness, or by such other means provided by law.


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Initials                               14                               Initials

<PAGE>

         SECTION 7.7 Waiver of Jury Trial.  To the fullest  extent  permitted by
law, each of the parties hereto hereby knowingly,  voluntarily and intentionally
waives  its  respective  rights to a jury  trial of any claim or cause of action
based  upon or  arising  out of this  Debenture  or any  other  document  or any
dealings between them relating to the subject matter of this Debenture and other
documents.  Each party hereto (i)  certifies  that  neither of their  respective
representatives,  agents or attorneys has  represented,  expressly or otherwise,
that such  party  would not,  in the event of  litigation,  seek to enforce  the
foregoing  waivers and (ii)  acknowledges that it has been induced to enter into
this  Debenture by, among other things,  the mutual  waivers and  certifications
herein.

         SECTION 7.8 Headings. The headings of the Articles and Sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.

         SECTION 7.9 Payment Dates.  Whenever any payment hereunder shall be due
on a day other  than a  Business  Day,  such  payment  shall be made on the next
succeeding Business Day.

         SECTION 7.10 Binding  Effect.  Each Holder by accepting  this Debenture
agrees  to be  bound  by and  comply  with  the  terms  and  provisions  of this
Debenture.

         SECTION  7.11 No  Stockholder  Rights.  Except  as  otherwise  provided
herein,  this  Debenture  shall not entitle the Holder to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive  dividends and other  distributions,  or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent  converted into shares of Common Stock in accordance  with the
terms hereof.

         SECTION 7.12 Facsimile  Execution.  Facsimile execution shall be deemed
originals.

         IN WITNESS WHEREOF,  the Company has caused this Debenture to be signed
by its duly authorized officer on the date of this Debenture.

                                       Peabodys Coffee, Inc.

                                       By:
                                           -------------------------------------


                                       Title:
                                           -------------------------------------


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Initials                               15                               Initials

<PAGE>


                                    EXHIBIT A
                           DEBENTURE CONVERSION NOTICE

TO:      Peabodys Coffee, Inc.

         The  undersigned  owner of this 8 % Convertible  Debenture due December
___, 2005 (the  "Debenture")  issued by Peabodys  Coffee,  Inc. (the  "Company")
hereby irrevocably  exercises its option to convert $__________ Principal Amount
of the Debenture into shares of Common Stock in accordance with the terms of the
Debenture.  The undersigned  hereby instructs the Company to convert the portion
of the  Debenture  specified  above  into  shares  of  Common  Stock  Issued  at
Conversion in accordance with the provisions of Article 3 of the Debenture.  The
undersigned directs that the Common Stock and certificates  therefor deliverable
upon  conversion,  the  Debenture  reissued  in the  Principal  Amount not being
surrendered  for  conversion  hereby,  [the  check or shares of Common  Stock in
payment of the accrued and unpaid interest  thereon to the date of this Notice,]
together with any check in payment for fractional Common Stock, be registered in
the name of and/or delivered to the undersigned unless a different name has been
indicated  below.  All  capitalized  terms used and not defined  herein have the
respective  meanings assigned to them in the Debenture.  The conversion pursuant
hereto  shall be  deemed to have been  effected  at the date and time  specified
below,  and at such  time the  rights  of the  undersigned  as a  Holder  of the
Principal  Amount of the Debenture set forth above shall cease and the Person or
Persons in whose name or names the Common  Stock Issued at  Conversion  shall be
registered shall be deemed to have become the holder or holders of record of the
Common  Shares  represented  thereby and all voting and other rights  associated
with the beneficial ownership of such Common Shares shall at such time vest with
such Person or Persons.

Date and time:
              ------------------------------

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By:
    ----------------------------------------

Title:
       -------------------------------------

Fill  in  for   registration  of  Debenture:
Please print name and address (including ZIP
code number):

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