Document:

THIS NOTE AND THE COMMON SHARES  ISSUABLE UPON  CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE,  PLEDGED  OR  HYPOTHECATED  IN THE  ABSENCE OF AN  EFFECTIVE  REGISTRATION
STATEMENT  AS TO THIS NOTE UNDER  SAID ACT OR AN  OPINION OF COUNSEL  REASONABLY
SATISFACTORY TO LMIC, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.

                                CONVERTIBLE NOTE

         FOR VALUE RECEIVED,  LMIC,  INC., a Delaware  corporation  (hereinafter
called the "Borrower"),  hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore  Corporate Services Ltd., P.O. Box 1234 G.T.,  Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "Holder") or
its registered assigns or successors in interest,  on order, without demand, the
sum of Six  Hundred  Thousand  Dollars  ($600,000),  with any accrued and unpaid
interest on July, 17, 2005 (the "Maturity Date").

         The following terms shall apply to this Note:

                                    ARTICLE I

                                    INTEREST

         1.1 Interest Rate. There shall be no interest  payable  hereunder until
the first anniversary of the date of the issuance of the Note. Thereafter, until
the Maturity Date, interest payable on this Note shall accrue at the annual rate
of eight  percent (8%) and be payable in arrears  commencing  one month from the
date thereof and on the first  business day of each  consecutive  calendar month
thereafter,  and on the Maturity Date, accelerated or otherwise, due and payable
as described below.

         1.2 Default Rate. A default  interest rate of sixteen percent (16%) per
annum shall apply to the amounts due and unpaid.

                                   ARTICLE II

                                  AMORTIZATION

         2.1  Monthly  Payments.  Subject to the terms of this  Article  II, the
Borrower shall repay  one-twelfth  (1/12th) of the original  principal amount of
this Note (to the extent such amount has not been converted  pursuant to Article

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<PAGE>

III below),  together  with interest and fees accrued to date on such portion of
the original principal amount (collectively the "Monthly Amount"), in accordance
with Section 2.2 below, on the first business day of each  consecutive  calendar
month (each, a "Repayment  Date"),  beginning on the first such day which occurs
following  thirteen  months from the date hereof.  This Note may be prepaid,  in
whole or in part,  by the  Borrower  at any time by paying  the Holder an amount
equal to the amount of the proposed prepayment  multiplied by 103% together with
interest accrued and fees to date on such portion of the prepayment amount.

                  2.2 Cash or Common  Stock.  Subject to the terms  hereof,  the
Borrower  has the sole  option to  determine  whether to satisfy  payment of the
Monthly  Amount in full on each  Repayment  Date  either in cash or in shares of
Common Stock, or a combination of both. The Borrower shall deliver to the Holder
a written  irrevocable  notice in the form of Exhibit B attached hereto electing
to pay such  Monthly  Amount in full on such  Repayment  Date in either  cash or
Common Stock,  or a combination  of both  ("Repayment  Election  Notice").  Such
Repayment  Election Notice shall be delivered to the Holder at least thirty (30)
days  prior to the  applicable  Repayment  Date (the date of such  notice  being
hereinafter referred to as the "Notice Date"). If such Repayment Election Notice
is not  delivered  within  the  prescribed  period  set  forth in the  preceding
sentence,  then the  repayment  shall be made in either cash or shares of Common
Stock on the same terms  hereunder at the Holder's sole option.  If the Borrower
elects or is required to repay all or a portion of the Monthly Amount in cash on
a Repayment  Date,  then on such  Repayment  Date the Borrower  shall pay to the
Holder an amount  equal to 103% of the Monthly  Amount in  satisfaction  of such
obligation.  If the  Borrower  repays all or a portion of the Monthly  Amount in
shares of  Common  Stock,  the  number  of such  shares  to be  issued  for such
Repayment Date shall be the number determined by dividing (x) the portion of the
Monthly Amount to be paid in shares of Common Stock, by (y) the Conversion Price
(as defined herein) as of such date.

                  2.3 No Effective Registration. Notwithstanding anything to the
contrary  herein,  the Borrower shall be prohibited from exercising its right to
repay the Monthly  Amount in shares of Common  Stock (and must  deliver  cash in
respect thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receive such shares there fails to exist
an effective  registration  statement or an Event of Default hereunder exists or
occurs,  unless otherwise waived in writing by the Holder in whole or in part at
the Holder's option.

                  2.4 Share Price/Issuance Limitations. Notwithstanding anything
to the contrary herein,  if the closing price of the Common Stock as reported by
Bloomberg,  L.P. on the Principal  Market for the average of the 11 trading days
preceding a Repayment Date was less than 125% of the Fixed Conversion Price, and
the Borrower has elected to pay all or a portion of the Monthly Amount in shares
of Common Stock, then, in lieu of the Borrower delivering the required number of
shares of Common Stock on the Repayment  Date, the Borrower will have the option
to repay the amount in cash or to convert up to the  Monthly  Amount  during the
succeeding month that is payable in shares of Common Stock at a Conversion Price
of 80% of the average of the three (3) lowest closing prices during the ten (10)
trading immediately preceding the Repayment Date. Any part of the Monthly Amount
not  converted  by the  Borrower  into shares of Common  Stock by the  following
Repayment Date shall be paid by the Borrower in cash on such following Repayment
Date. At any time during the relevant month,  the Borrower has the option to pay
the Monthly Amount, or the unconverted part thereof,  in cash and the Conversion
Price set forth in this  Section  2.4  shall no  longer  be  applicable.  If the
closing  price of the  Common  Stock  as  reported  by  Bloomberg,  L.P.  on the
Principal  Market for the average 11 trading days preceding a Repayment Date was
greater  than 125% of the Fixed  Conversion  Price,  then the  Borrower  will be
permitted  to pay the full  amount  of the  Monthly  Amount  in shares of Common
Stock.

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<PAGE>

                  By way of example, for the Repayment Date of October 1, if the
Borrower  delivers a Repayment  Election  Notice on August 27 to pay the Monthly
Amount in shares of Common  Stock and if on  September  20 through 30, the stock
price  was less  than  125% the  Fixed  Conversion  Price,  the  Holder  will be
permitted  to convert  during the month of October  the  portion of the  Monthly
Amount that the Borrower has  determined is payable in shares of Common Stock at
the  following  Conversion  Price:  80% of the three (3) lowest  closing  prices
during the ten (10) trading days  immediately  preceding  October 1, or repay in
cash at the Borrower's  choice. Any portion of the Monthly Amount originally due
October 1 that the  Holder  has not  converted  into  shares of Common  Stock by
November 1 shall be due in cash on November 1.

                  2.5 Deemed Conversions. Any repayment of the Monthly Amount in
shares of Common  Stock  pursuant to the terms hereof  shall  constitute  and be
deemed a conversion of such portion of the applicable  principal  amount of this
Note for all purposes under this Note.

                   2.6  Deemed  Ownership.  In the case of the  exercise  of the
conversion  rights  or  payment  of the  Monthly  Amount  set forth  herein  the
conversion  privilege  shall be deemed to have been  exercised and the shares of
Common Stock issuable upon such  conversion or Repayment shall be deemed to have
been issued upon the date of receipt by the Borrower of the Notice of Conversion
or Repayment  Election Notice, as the case may be. The person or entity entitled
to receive Common Stock issuable upon such  conversion  shall,  on the date such
conversion privilege is deemed to have been exercised and thereafter, be treated
for all purposes as the record holder of such Common Stock.

                                       3
<PAGE>

                                   ARTICLE III

                                CONVERSION RIGHTS

         3.1. Conversion into the Borrower's Common Stock.

         (a) Subject to the  provisions  set forth above,  the Holder shall have
the right,  but not the obligation,  from and after the one year  anniversary of
the issuance date hereof, and then at any time until this Note is fully paid, to
convert  the  principal  portion of this Note and/or  interest  and fees due and
payable into fully paid and nonassessable shares of common stock of the Borrower
as such stock  exists on the date of  issuance  of this  Note,  or any shares of
capital stock of the Borrower  into which such stock shall  hereafter be changed
or  reclassified  (the "Common  Stock") at the conversion  price set forth below
(the "Conversion Price").

         Upon  delivery to the Borrower of a Notice of  Conversion  (the date of
giving such notice of conversion being a "Conversion  Date"), the Borrower shall
issue and deliver to the Holder within three  business days from the  Conversion
Date that number of shares of Common Stock for the portion of the Note converted
in  accordance  with the  foregoing.  The number of shares of Common Stock to be
issued upon each  conversion  of this Note shall be  determined by dividing that
portion of the principal of the Note to be converted  and  interest,  if any, by
the  Fixed  Conversion  Price as of the  Conversion  Date.  In the  event of any
conversions of outstanding  principal amount under this Note in part pursuant to
this Article III, such conversions shall be deemed to constitute  conversions of
outstanding principal amount applying to Monthly Amounts for the Repayment Dates
in chronological  order. By way of example,  if the original principal amount of
this  Note is  $600,000  and the  Holder  converted  $100,000  of such  original
principal  amount  prior to the first  Repayment  Date,  then (1) the  principal
amount of the Monthly Amount due on the first Repayment Date would equal $0, (2)
the  principal  amount of the Monthly  Amount due on the second  Repayment  Date
would equal $0 and (3) the principal amount of the Monthly Amount due on each of
the remaining Repayment Dates would be $50,000.

         (b) Subject to adjustment  as provided in Section  3.1(c)  hereof,  the
Conversion  Price per share  shall be 100% of the average  closing  price of the
Common  Stock for the twenty  (20) days prior to the first  Repayment  Date (the
"Fixed Conversion Price"). If an Event of Default has occurred and be continuing
hereunder then the Conversion Price shall be equal to the lower of (i) the Fixed
Conversion  Price;  or (ii) eighty  percent  (80%) of the average of the 11 days
closing prices for the Common Stock on NASD OTC Bulletin Board,  NASDAQ SmallCap
Market,  NASDAQ  National Market System,  American Stock  Exchange,  or New York
Stock Exchange  (whichever of the foregoing is at the time the principal trading
exchange or market for the Common  Stock,  the  "Principal  Market"),  or on any
securities exchange or other securities market on which the Common Stock is then
being  listed or  traded,  for the  twenty  (20)  trading  days prior to but not
including the Conversion Date.

         (c) The  Conversion  Price  and  number  and  kind of  shares  or other
securities to be issued upon  conversion  determined  pursuant to Section 3.1(a)
and 3.1(b),  shall be subject to adjustment from time to time upon the happening
of certain events while this conversion right remains outstanding, as follows:

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<PAGE>

              A. Merger,  Sale of Assets, etc. If the Borrower at any time shall
consolidate  with or merge into or sell or convey all or  substantially  all its
assets to any other  corporation,  this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to  purchase  such  number  and kind of  shares  or other  securities  and
property  as would  have been  issuable  or  distributable  on  account  of such
consolidation, merger, sale or conveyance, upon or with respect to the number of
shares of Common Stock the Holder could have acquired  immediately prior to such
consolidation, merger, sale or conveyance based on the Fixed Conversion Price or
the Conversion  Price,  as the case may be, as of the closing date thereof.  The
foregoing  provision  shall  similarly  apply to  successive  transactions  of a
similar  nature  by any  such  successor  or  purchaser.  Without  limiting  the
generality of the foregoing,  the provisions of this Section shall apply to such
securities of such successor or purchaser after any such consolidation,  merger,
sale or conveyance.

              B.  Reclassification,  etc. If the Borrower at any time shall,  by
reclassification  or  otherwise,  change  the  Common  Stock  into the same or a
different  number of  securities  of any class or classes,  this Note, as to the
unpaid principal portion thereof and accrued interest thereon,  shall thereafter
be  deemed  to  evidence  the  right to  purchase  an  adjusted  number  of such
securities  and kind of  securities as would have been issuable as the result of
such change with  respect to the number of shares of Common Stock into which the
Note would have been convertible  immediately prior to such  reclassification or
other change at the Fixed Conversion Price or the Conversion  Price, as the case
may be, as of the effective date for such reclassification or change.

              C. Stock  Splits,  Combinations  and  Dividends.  If the shares of
Common  Stock are  subdivided  or combined  into a greater or smaller  number of
shares of Common  Stock,  or if a dividend is paid on the Common Stock in shares
of Common Stock, the Fixed Conversion Price or the Conversion Price, as the case
may be, shall be  proportionately  reduced in case of  subdivision  of shares or
stock  dividend  or  proportionately  increased  in the case of  combination  of
shares,  in each  such case by the  ratio  which  the total  number of shares of
Common Stock outstanding  immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.

              D. Share Issuance.  Subject to the provisions of this Section,  if
the  Borrower  at any time shall  issue any shares of Common  Stock prior to the
conversion of the entire  principal  amount of the Note  (otherwise than as: (i)
provided in Sections 3.1(c)A, 3.1(c)B or 3.1(c)C or this subparagraph D; or (ii)
pursuant  to  warrants  or options  that may be granted in the future  under any
option plan of the Borrower, or any employment agreement, joint venture, credit,
leasing or other  financing  agreement or any joint  venture or other  strategic
arrangement, in each case now or hereinafter entered into by the Borrower, (iii)
pursuant to any agreement entered into by the Company or any of its subsidiaries
for the  acquisition  of all or a part of  another  business  (whether  by stock
purchase or asset purchase, merger or otherwise; ((i), (ii) and (iii) above, are
hereinafter  referred to as the "Excluded  Issuances")) for a consideration less
than the  Fixed  Conversion  Price  that  would be in effect at the time of such
issue,  then,  and  thereafter  successively  upon  each such  issue,  the Fixed
Conversion Price shall be reduced as follows: (i) the number of shares of Common
Stock  outstanding  immediately  prior to such issue shall be  multiplied by the
Fixed Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate  consideration,  if any, received by the Borrower upon
such issue of additional  shares of Common  Stock;  and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding immediately
after such issue. The resulting  quotient shall be the adjusted Fixed Conversion
Price.  Except for the Excluded  Issuances for purposes of this adjustment,  the
issuance of any  security of the  Borrower  carrying  the right to convert  such
security  into  shares of  Common  Stock or of any  warrant,  right or option to
purchase  Common Stock shall  result in an  adjustment  to the Fixed  Conversion
Price  upon the  issuance  of shares  of  Common  Stock  upon  exercise  of such
conversion or purchase rights.

                                       5
<PAGE>

              (d) During the period the  conversion  right exists,  the Borrower
will reserve from its authorized and unissued  Common Stock a sufficient  number
of shares to provide for the issuance of Common  Stock upon the full  conversion
of this Note. The Borrower  represents  that upon issuance,  such shares will be
duly and validly issued, fully paid and non-assessable. The Borrower agrees that
its  issuance of this Note shall  constitute  full  authority  to its  officers,
agents,  and  transfer  agents who are charged  with the duty of  executing  and
issuing stock  certificates to execute and issue the necessary  certificates for
shares of Common Stock upon the conversion of this Note.

              3.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part. Upon partial conversion of this Note, a new Note containing
the same date and  provisions of this Note shall,  at the request of the Holder,
be issued by the Borrower to the Holder for the  principal  balance of this Note
and interest which shall not have been converted or paid.

                                   ARTICLE IV

                                EVENT OF DEFAULT

                  The  occurrence of any of the following  events is an Event of
Default ("Event of Default"):

                  4.1 Failure to Pay  Principal,  Interest  or other  Fees.  The
Borrower  fails to pay any  installment  of  principal,  interest  or other fees
hereon when due and such  failure  continues  for a period in excess of five (5)
business days opportunity to cure.

                  4.2 Breach of  Covenant.  The  Borrower  breaches any material
covenant or other term or  condition  of this Note in any  material  respect and
such  breach,  if subject to cure,  continues  for a period of five (5) business
days after written notice to the Borrower from the Holder.

                  4.3 Breach of  Representations  and  Warranties.  Any material
representation  or warranty of the Borrower  made herein,  or in any  agreement,
statement  or  certificate  given in writing  pursuant  hereto or in  connection
herewith shall be materially false or misleading.

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

                                       6
<PAGE>

                  4.5  Judgments.  Any money  judgment,  writ or  similar  final
process shall be entered or filed against the Borrower or any of its property or
other assets for more than  $250,000,  and shall remain  unvacated,  unbonded or
unstayed for a period of ninety (90) days.

                  4.6  Bankruptcy.  Bankruptcy,  insolvency,  reorganization  or
liquidation  proceedings or other proceedings or relief under any bankruptcy law
or any law for the  relief of debtors  shall be  instituted  by or  against  the
Borrower,  and in the  case  of any  such  action  against  the  Borrower,  such
proceeding shall remain undismissed,  unvacated,  or unstayed for a period of 90
days.

                  4.7 Stop Trade.  An SEC stop trade order or  Principal  Market
trading suspension of the Common Stock for 5 consecutive days or 5 days during a
period  of 10  consecutive  days,  excluding  in all cases a  suspension  of all
trading on a Principal Market.

                                    ARTICLE V

                                 DEFAULT PAYMENT

              5.1 Default Payment. If an Event of Default occurs, the Holder, at
its  option,  may  elect to  require  the  Borrower  to make a  Default  Payment
("Default  Payment").  The  Default  Payment  shall  be 130% of the  outstanding
principal amount of the Note, plus accrued but unpaid  interest,  all other fees
then remaining unpaid, and all other amounts payable hereunder.

              5.2 Default  Payment Date and Default Notice  Period.  The Default
Payment shall be due and payable on the 20th business day after the date written
notice is sent from the Holder to the Borrower of an Event of Default as defined
in Article IV  ("Default  Payment  Date").  The period  between  the date of the
written  notice  from the Holder to the  Borrower of an Event of Default and the
Default Payment Date shall be the "Default Notice Period." If during the Default
Notice  Period,  the Borrower  cures the Event of Default,  the Event of Default
will no longer  exist and any rights the Holder had  pertaining  to the Event of
Default  will no longer  exist.  If the Event of Default is not cured during the
Default Notice Period, all amounts payable hereunder shall be due and payable on
the Default Payment Date, all without further demand,  presentment or notice, or
grace period, all of which hereby are expressly waived.

              5.3  Cumulative  Remedies.  The remedies  under this Note shall be
cumulative.

                                   ARTICLE VI

                                  MISCELLANEOUS

              6.1 Failure or Indulgence  Not Waiver.  No failure or delay on the
part of the  Holder  hereof in the  exercise  of any power,  right or  privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  such  power,  right or  privilege  preclude  other or  further
exercise  thereof  or of any other  right,  power or  privilege.  All rights and
remedies existing  hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

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<PAGE>

              6.2 Notices.  Any notice herein  required or permitted to be given
shall be in writing and shall be deemed  effectively  given:  (a) upon  personal
delivery to the party notified, (b) when sent by confirmed telex or facsimile if
sent during normal  business  hours of the  recipient,  if not, then on the next
business  day, (c) five days after having been sent by  registered  or certified
mail, return receipt  requested,  postage prepaid,  or (d) one day after deposit
with a nationally  recognized  overnight courier,  specifying next day delivery,
with written  verification of receipt.  All communications  shall be sent to the
Borrower  at the  address as set forth on the  signature  page here,  and to the
Holder at the address set forth on the  signature  page for such Holder,  with a
copy to John Tucker,  Esq., 152 West 57th Street,  4th Floor, New York, New York
10019, facsimile number (212) 541-4434, or at such other address as the Borrower
or the Holder may  designate  by ten days  advance  written  notice to the other
parties  hereto.  A Notice of Conversion  shall be deemed given when made to the
Borrower.

              6.3  Amendment  Provision.  The  term  "Note"  and  all  reference
thereto,  as used  throughout  this  instrument,  shall mean this  instrument as
originally executed, or if later amended or supplemented,  then as so amended or
supplemented.

              6.4  Assignability.  This Note shall be binding  upon the Borrower
and its successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder.

              6.5 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York,  without regard to principles
of  conflicts  of laws.  Any action  brought by either  party  against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York.  Both  parties and the  individual  signing this Note on behalf of the
Borrower  agree to submit to the  jurisdiction  of such courts.  The  prevailing
party  shall  be  entitled  to  recover  from the  other  party  its  reasonable
attorney's  fees and  costs.  In the event  that any  provision  of this Note is
invalid or unenforceable  under any applicable statute or rule of law, then such
provision  shall  be  deemed  inoperative  to the  extent  that it may  conflict
therewith  and shall be deemed  modified to conform with such statute or rule of
law. Any such provision which may prove invalid or  unenforceable  under any law
shall not affect the validity or unenforceability of any other provision of this
Note.

              6.6 Maximum Payments.  Nothing contained herein shall be deemed to
establish  or require  the  payment of a rate of  interest  or other  charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest  required  to be paid or other  charges  hereunder  exceed the  maximum
permitted by such law, any payments in excess of such maximum  shall be credited
against  amounts  owed by the  Borrower  to the Holder and thus  refunded to the
Borrower.

              6.7 Construction.  Each party  acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction  that  ambiguities are to be resolved  against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.

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<PAGE>

         IN WITNESS  WHEREOF,  the Borrower has caused this Note to be signed in
its name effective as of this 17th day of July __, 2003.

                                   LMIC, INC.

                                   By:________________________________

WITNESS:

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

                                       9
<PAGE>

                              NOTICE OF CONVERSION

(To be executed by the Holder in order to convert the Note)

         The  undersigned  hereby elects to convert  $_________ of the principal
and $_________ of the interest due on the Note issued by LMIC,  INC. on ________
___, 2003 into Shares of Common Stock of LMIC, INC. (the "Company") according to
the conditions set forth in such Note, as of the date written below.

Date of Conversion:____________________________________________________________

Conversion Price:______________________________________________________________

Shares To Be Delivered:_________________________________________________________

Signature:_____________________________________________________________________

Print Name:____________________________________________________________________

Address:_______________________________________________________________________

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

<PAGE>

                                    EXHIBIT B

                        FORM OF REPAYMENT ELECTION NOTICE

To:      [HOLDER AT HOLDER'S ADDRESS]

         Pursuant  to Section 2.2 of the Note of LMIC,  Inc.  issued on ________
__, 2003,  we hereby  notify you that we are  irrevocably  electing to repay the
outstanding  Monthly  Amount (as defined in the Note) due on the Repayment  Date
(as defined in the Note) which occurs on ______, 20__ (CHECK ONE):

         _____ In full in cash on such Repayment Date.

         _____ In full in shares of the Company's  Common Stock within three (3)
trading days following such Repayment Date.

         _____ In part in cash in the amount of $______ on such Repayment  Date,
and in part in shares of the  Company's  Common  Stock (in the  amount of ______
shares) within three (3) trading days following such Repayment Date.

         ________ In shares,  but the Holder will be  permitted to convert up to
the Monthly  Amount that is payable in shares of Common  Stock during the period
until the next Repayment Date.

                                   LMIC, Inc.

                                   By:
                                       --------------------------------------
                                       Name:
                                       Title:EXHIBIT 4.20

                          SECURITIES PURCHASE AGREEMENT

         Securities  Purchase  Agreement  dated as of December  ___,  2003 (this
"Agreement") by and between Peabodys Coffee,  Inc., a Nevada  corporation,  with
principal  executive offices located at 3845 Atherton Road, Suite 9, Rocklin, CA
95765 (the "Company"), and La Jolla Cove Investors, Inc. ("Buyer").

         WHEREAS,  Buyer desires to purchase  from the Company,  and the Company
desires to issue and sell to Buyer, upon the terms and subject to the conditions
of this  Agreement,  the 7 3/4 %  Convertible  Debenture  of the  Company in the
aggregate principal amount of $250,000 (the "Debenture"); and

         WHEREAS,  in conjunction  with the Debenture,  the Company has issued a
Warrant to  Purchase  Common  Stock to the Buyer  (the  "Warrant  or  Conversion
Warrant"); and

         WHEREAS,  upon the terms and subject to the conditions set forth in the
Debenture  and the  Warrant,  the  Debenture  and  Warrant are  convertible  and
exercisable,  respectively,  into  shares of the  Company's  Common  Stock  (the
"Common Stock");

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained herein, the parties hereto,  intending to be legally bound,
hereby agree as follows:

         I. PURCHASE AND SALE OF DEBENTURE

         A. Transaction.  Buyer hereby agrees to purchase from the Company,  and
the  Company  has  offered  and  hereby  agrees  to issue and sell to Buyer in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act"), the Debenture. B.
Purchase  Price;  Form of Payment.  The purchase  price for the  Debenture to be
purchased  by  Buyer  hereunder  shall  be  $250,000  (the  "Purchase   Price").
Simultaneously  with  the  execution  of this  Agreement,  Buyer  shall  pay the
Purchase Price by wire transfer of immediately  available  funds to the Company.
Simultaneously  with the execution of this Agreement,  the Company shall deliver
the  Convertible  Debenture and the Conversion  Warrants  (which shall have been
duly  authorized,  issued and executed I/N/O Buyer or, if the Company  otherwise
has been notified, I/N/O Buyer's nominee).

         II. BUYER'S REPRESENTATIONS AND WARRANTIES

         Buyer  represents  and  warrants to and  covenants  and agrees with the
Company as follows:  A. Buyer is  purchasing  the  Debenture,  the Warrant,  the
Common Stock  issuable upon  conversion  or  redemption  of the  Debenture  (the
"Conversion Shares") and the Common Stock issiuable upon exercise of the Warrant
(the "Warrant Shares" and, collectively with the Debenture,  the Warrant and the
Conversion  Shares,  the  "Securities")  for its  own  account,  for  investment
purposes only and not with a view towards or in connection  with the public sale
or distribution thereof in violation of the Securities Act.

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<PAGE>

         B. Buyer is (i) an "accredited investor" within the meaning of Rule 501
of Regulation D under the Securities Act, (ii) experienced in making investments
of the kind  contemplated  by this  Agreement,  (iii) capable,  by reason of its
business and financial  experience,  of evaluating the relative merits and risks
of an  investment  in the  Securities,  and (iv) able to afford  the loss of its
investment in the Securities.

         C. Buyer  understands that the Securities are being offered and sold by
the Company in reliance on an exemption from the  registration  requirements  of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the  Company is relying  upon the  accuracy  of, and  Buyer's  compliance  with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the  availability  of such  exemption and the  eligibility of Buyer to
purchase the Securities;

         D. Buyer  understands  that the  Securities  have not been  approved or
disapproved by the Securities and Exchange  Commission (the "Commission") or any
state or provincial securities commission.

         E. This  Agreement has been duly and validly  authorized,  executed and
delivered  by Buyer and is a valid and binding  agreement  of Buyer  enforceable
against it in  accordance  with its terms,  subject  to  applicable  bankruptcy,
insolvency, fraudulent conveyance,  reorganization,  moratorium and similar laws
affecting  creditors'  rights  and  remedies  generally  and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.

         F. Buyer has had an  opportunity  to discuss the Company's  current and
planned business,  management,  and financial affairs with the Company,  and has
had access to all of the Buyer's public  information  including its filings with
the  Commission.  Buyer has also has an opportunity to ask questions of officers
of  the  Company,  which  questions  were  answered  to  its  satisfaction.   It
understands that such discussions,  as well as any written information issued by
the Company, were intended to describe certain aspects of the Company's business
but were not a thorough or exhaustive description.

         G. Buyer has not,  and will not,  incur,  directly or  indirectly,  any
liability for brokerage or finders' fees or agents'  commissions  or any similar
charges in connection with this Agreement.

         III. THE COMPANY'S REPRESENTATIONS

The Company  represents  and  warrants to Buyer,  as of the date  hereof,  that,
except  as set  forth  on a  schedule  of  exceptions  hereto  (the  "Disclosure
Schedule"):

         A. Capitalization.

         1. The authorized  capital stock of the Company  consists of 50,000,000
shares of Common Stock of which __________  shares are issued and outstanding as
of the date hereof and are fully paid and nonassessable.  The amount,  exercise,
conversion or subscription price and expiration date for each outstanding option

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<PAGE>

and other security or agreement to purchase shares of Common Stock is accurately
set forth on Schedule III.A.1.

         2. The  Conversion  Shares and the  Warrant  Shares  have been duly and
validly authorized and reserved for issuance by the Company, and, when issued by
the Company upon  conversion of the Debenture,  will be duly and validly issued,
fully paid and nonassessable and will not subject the holder thereof to personal
liability by reason of being such holder.

         3. Except as disclosed on Schedule  III.A.3.,  there are no preemptive,
subscription,  "call," right of first refusal or other similar rights to acquire
any capital stock of the Company or other voting  securities of the Company that
have been  issued or  granted  to any  person  and no other  obligations  of the
Company s to issue, grant, extend or enter into any security,  option,  warrant,
"call," right, commitment, agreement, arrangement or undertaking with respect to
any of their respective capital stock.

         B. Organization; Reporting Company Status.

         1. The Company is a corporation duly organized, validly existing and in
good  standing  under  the  laws of the  state  or  jurisdiction  in which it is
incorporated and is duly qualified as a foreign corporation in all jurisdictions
in which the  failure so to  qualify  would  reasonably  be  expected  to have a
material  adverse  effect on the business,  properties,  financial  condition or
results  of  operations  of the  Company  or on the  consummation  of any of the
transactions contemplated by this Agreement (a "Material Adverse Effect").

         2.  The  Company  is  subject  to  the  reporting  requirements  of the
Securities  Exchange Act of 1934, as amended (the  "Exchange  Act").  The Common
Stock is traded on the OTC Bulletin Board service of the National Association of
Securities  Dealers,  Inc. ("OTCBB") and the Company has not received any notice
regarding,  and to its  knowledge  there is no threat  of,  the  termination  or
discontinuance of the eligibility of the Common Stock for such trading.

         C.  Authorization.  The Company (i) has duly and validly authorized and
reserved for issuance shares of Common Stock,  which is a number  sufficient for
the conversion of the Debenture and the exercise of the  Conversion  Warrant and
(ii) at all times from and after the date hereof shall have a sufficient  number
of shares of Common Stock duly and validly  authorized and reserved for issuance
to satisfy  the  conversion  of the  Debenture  in full and the  exercise of the
Conversion  Warrant.  The Company  understands and  acknowledges the potentially
dilutive effect on the Common Stock of the issuance of the Conversion Shares and
the Warrant  Shares.  The Company  further  acknowledges  that its obligation to
issue Conversion Shares upon conversion of the Debenture and the exercise of the
Conversion  Warrant and the Initial Warrant in accordance with this Agreement is
absolute and unconditional  regardless of the dilutive effect that such issuance
may have on the  ownership  interests of other  stockholders  of the Company and
notwithstanding  the  commencement  of any case under 11 U.S.C.  ss. 101 et seq.
(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
conversion  of the  Debenture.  The Company  agrees,  without cost or expense to
Buyer, to take or consent to any and all action  necessary to effectuate  relief
under 11 U.S.C. ss. 362.

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<PAGE>

         D.  Authority;  Validity  and  Enforceability.   The  Company  has  the
requisite  corporate  power and  authority to enter into the  Documents (as such
term is hereinafter defined) and to perform all of its obligations hereunder and
thereunder  (including  the  issuance,   sale  and  delivery  to  Buyer  of  the
Securities).  The  execution,  delivery  and  performance  by the Company of the
Documents and the consummation by the Company of the  transactions  contemplated
hereby and thereby (including, without limitation, the issuance of the Debenture
and the issuance and reservation  for issuance of the Conversion  Shares and the
Warrant Shares) have been duly and validly authorized by all necessary corporate
action  on the part of the  Company.  Each of the  Documents  has been  duly and
validly  executed and delivered by the Company and each  Document  constitutes a
valid and binding obligation of the Company enforceable against it in accordance
with  its  terms,  subject  to  applicable  bankruptcy,  insolvency,  fraudulent
conveyance,  reorganization,  moratorium and similar laws  affecting  creditors'
rights and remedies generally and except as rights to indemnity and contribution
may be  limited  by  federal  or  state  securities  laws or the  public  policy
underlying  such laws.  The  Debenture  and  Warrant  have been duly and validly
authorized  for issuance by the Company and,  when executed and delivered by the
Company,  will be valid  and  binding  obligations  of the  Company  enforceable
against it in  accordance  with their  respective  terms,  subject to applicable
bankruptcy,  insolvency, fraudulent conveyance,  reorganization,  moratorium and
similar laws affecting creditors' rights and remedies generally. For purposes of
this  Agreement,  the  term  "Documents"  means  (i)  this  Agreement;  (ii) the
Registration Rights Agreement dated as of even date herewith between the Company
and Buyer, (iii) the Debenture; and (iv) the Conversion Warrant.

         E.  Validity  of  Issuance  of  the  Securities.   The  Debenture,  the
Conversion Shares upon their issuance in accordance with the Debenture,  and the
Warrant  Shares upon their  issuance  in  accordance  with the  Warrant  will be
validly issued and outstanding, fully paid and nonassessable, and not subject to
any preemptive  rights,  rights of first refusal,  tag-along rights,  drag-along
rights or other similar rights.

         F.  Non-contravention.  Except as set forth on the Disclosure Schedule,
the execution and delivery by the Company of the Documents,  the issuance of the
Securities,  and the  consummation  by the  Company  of the  other  transactions
contemplated  hereby and thereby do not, and  compliance  with the provisions of
this  Agreement and other  Documents  will not,  conflict with, or result in any
violation  of, or  default  (with or without  notice or lapse of time,  or both)
under, or give rise to a right of  termination,  cancellation or acceleration of
any obligation or loss of a material benefit under, or result in the creation of
any Lien (as such term is  hereinafter  defined)  upon any of the  properties or
assets  of the  Company  or any of its  Subsidiaries  under,  or  result  in the
termination  of, or require  that any consent be obtained or any notice be given
with respect to (i) the Articles or Certificate of  Incorporation  or By-Laws of
the Company or the comparable charter or organizational  documents of any of its
Subsidiaries,  in each case as amended to the date of this  Agreement,  (ii) any
loan or credit agreement,  Debenture, bond, mortgage, indenture, lease, contract
or other agreement, instrument or permit applicable to the Company or any of its
Subsidiaries or their respective  properties or assets or (iii) any Law (as such
term is hereinafter defined) applicable to, or any judgment,  decree or order of
any court or government body having jurisdiction over, the Company or any of its
Subsidiaries or any of their respective properties or assets.

         G.  Approvals.  No  authorization,  approval or consent of any court or
public or  governmental  authority is required to be obtained by the Company for
the  issuance  and  sale of the  Securities  to Buyer  as  contemplated  by this

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Initials                                4                               Initials

<PAGE>

Agreement,  except  such  authorizations,  approvals  and  consents as have been
obtained by the Company prior to the date hereof and any filings  required under
the federal or state  securities  laws.

         H. Commission  Filings.  The Company has properly and timely filed with
the Commission all reports, proxy statements, forms and other documents required
to be filed with the  Commission  under the  Securities Act and the Exchange Act
since  becoming  subject to such Acts (the  "Commission  Filings").  As of their
respective  dates, (i) the Commission  Filings complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be,  and the rules and  regulations  of the  Commission  promulgated  thereunder
applicable to such  Commission  Filings and (ii) none of the Commission  Filings
contained at the time of its filing any untrue  statement of a material  fact or
omitted to state a material fact  required to be stated  therein or necessary in
order to make the statements  therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the  Commission  Filings,  as of the dates of such  documents,  were true and
complete in all  material  respects  and  complied  with  applicable  accounting
requirements  and the published  rules and  regulations of the  Commission  with
respect thereto,  were prepared in accordance with generally accepted accounting
principles  in the  United  States  ("GAAP")  (except  in the case of  unaudited
statements  permitted  by  Form  10-Q  under  the  Exchange  Act)  applied  on a
consistent  basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented the consolidated  financial  position of the
Company  and its  Subsidiaries  as of the  dates  thereof  and the  consolidated
results of their  operations and cash flows for the periods then ended (subject,
in the case of unaudited  statements,  to normal year-end audit adjustments that
in  the  aggregate  are  not  material  and to any  other  adjustment  described
therein).

         I.  Full  Disclosure.  There is no fact  known to the  officers  of the
Company (other than general economic or industry  conditions known to the public
generally) that has not been fully disclosed in the Commission  Filings that (i)
reasonably  could  be  expected  to  have a  Material  Adverse  Effect  or  (ii)
reasonably  could be expected to materially and adversely  affect the ability of
the Company to performing its obligations pursuant to the Documents,  other than
the obligations of the Company  pursuant to the Secured  Convertible  Debentures
with AJW Partners,  LLC, AJW Offshore, Ltd. and AJW Qualified Partners, LLC (the
"AJW Debentures").

         J.  Absence of Events of Default.  No "Event of Default" (as defined in
any agreement or instrument to which the Company is a party) and no event which,
with notice,  lapse of time or both, would constitute an Event of Default (as so
defined),  has  occurred  and is  continuing,  other  than  pursuant  to the AJW
Debentures.

         K. Securities Law Matters. Assuming the accuracy of the representations
and  warranties  of Buyer set  forth in  Article  II,  the offer and sale by the
Company of the  Securities is exempt from (i) the  registration  and  prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification  provisions
of all  applicable  state and  provincial  securities  and "blue sky" laws.  The
Company shall not directly or indirectly  take,  and shall not permit any of its
directors,  officers or Affiliates  directly or  indirectly to take,  any action
(including,  without limitation, any offering or sale to any person or entity of
any security similar to the Debenture) which will make unavailable the exemption
from Securities Act registration  being relied upon by the Company for the offer

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Initials                                5                               Initials

<PAGE>

and sale to Buyer of the Debenture, the Conversion Shares and the Warrant Shares
as  contemplated  by  this  Agreement.   No  form  of  general  solicitation  or
advertising  has been used or  authorized by the Company or any of its officers,
directors or, to the knowledge of the Company, Affiliates in connection with the
offer or sale of the Debenture (and the Conversion  Shares) as  contemplated  by
this Agreement or any other agreement to which the Company is a party.

         L.  Registration  Rights.  Except as set forth on Schedule  III.L.,  no
Person  has,  and as of the Closing (as such term is  hereinafter  defined),  no
Person shall have, any demand, "piggy-back" or other rights to cause the Company
to file any  registration  statement under the Securities Act relating to any of
its securities or to participate in any such registration statement.

         M.  Interest.  The timely  payment of interest on the  Debenture is not
prohibited by the Articles or  Certificate  of  Incorporation  or By-Laws of the
Company,  in each  case  as  amended  to the  date  of  this  Agreement,  or any
agreement,  contract,  document or other  undertaking  to which the Company is a
party, other than the AJW Debentures.

         N. No  Misrepresentation.  No representation or warranty of the Company
contained in this Agreement or any of the other Documents,  any schedule,  annex
or  exhibit  hereto or  thereto  or any  agreement,  instrument  or  certificate
furnished by the Company to Buyer pursuant to this Agreement contains any untrue
statement of a material  fact or omits to state a material  fact  required to be
stated therein or necessary to make the statements therein not misleading.

         O. Finder's Fee. Except as set forth on the Disclosure Schedule,  there
is no finder's fee, brokerage  commission or like payment in connection with the
transactions  contemplated  by this  Agreement  for  which  Buyer is  liable  or
responsible.

         IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS

         A. Filings. The Company shall make all necessary Commission Filings and
"blue sky"  filings  required to be made by the Company in  connection  with the
sale of the  Securities to Buyer as required by all  applicable  Laws, and shall
provide a copy thereof to Buyer promptly after such filing.

         B.  Reporting  Status.  So long as Buyer  beneficially  owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.

         C. Listing.  Except to the extent the Company lists its Common Stock on
The New York Stock  Exchange,  The American  Stock  Exchange or The Nasdaq Stock
Market,  the Company  shall use its best  efforts to maintain its listing of the
Common Stock on OTCBB.  If the Common Stock is delisted from OTCBB,  the Company
will use its best efforts to list the Common  Stock on the most liquid  national
securities exchange or quotation system that the Common Stock is qualified to be
listed on.

         D. Reserved  Conversion Common Stock. The Company at all times from and
after the date hereof  shall have such number of shares of Common Stock duly and
validly  authorized  and reserved for  issuance as shall be  sufficient  for the
conversion in full of the Debenture and the exercise of the Conversion  Warrant.
E.  Information.  Each of the parties hereto  acknowledges and agrees that Buyer
shall not be provided  with,  nor be given  access to, any  material  non-public
information  relating  to  the  Company,   other  than  the  Documents  and  the
transactions contemplated hereby and thereby.

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Initials                                6                               Initials

<PAGE>

         F.  Accounting and Reserves.  The Company shall maintain a standard and
uniform  system of  accounting  and shall  keep  proper  books and  records  and
accounts  in  which  full,  true,  and  correct  entries  shall  be  made of its
transactions,  all in accordance  with GAAP applied on consistent  basis through
all  periods,  and shall set aside on such books for each  fiscal  year all such
reserves  for  depreciation,  obsolescence,  amortization,  bad  debts and other
purposes in connection with its operations as are required by such principles so
applied.

         G.  Transactions   with  Affiliates.   So  long  as  the  Debenture  is
outstanding,  neither the Company nor any of its Subsidiaries shall, directly or
indirectly,   enter  into  any  material   transaction  or  agreement  with  any
stockholder,  officer,  director or Affiliate of the Company or family member of
any officer,  director or Affiliate of the Company,  unless the  transaction  or
agreement is (i) reviewed and approved by a majority of Disinterested  Directors
(as such term is hereinafter defined) and (ii) on terms no less favorable to the
Company or the applicable  Subsidiary than those obtainable from a nonaffiliated
person., except for matters related to the employment, including the issuance of
Company  Common Stock and options  therefor,  of  employees  of the  Company.  A
"Disinterested Director" shall mean a director of the Company who is not and has
not been an officer or  employee  of the  Company and who is not a member of the
family of,  controlled  by or under  common  control  with,  any such officer or
employee.

         H. Certain  Restrictions.  So long as the Debenture is outstanding,  no
dividends shall be declared or paid or set apart for payment nor shall any other
distribution  be  declared or made upon any capital  stock of the  Company,  nor
shall any  capital  stock of the Company be  redeemed,  purchased  or  otherwise
acquired  (other than a redemption,  purchase or other  acquisition of shares of
Common  Stock  made for  purposes  of an  employee  incentive  or  benefit  plan
(including  a stock  option  plan)  of the  Company  or  pursuant  to any of the
security  agreements  listed on Schedule  III.A,  for any  consideration  by the
Company,  directly  or  indirectly,  nor  shall  any  moneys  be paid to or made
available for a sinking fund for the  redemption of any Common Stock of any such
stock, other than the redemption of the AJW Debentures.

         I. Short Selling. So long as the Debenture is outstanding, Buyer agrees
and covenants on its behalf and on behalf of its  affiliates  that neither Buyer
nor its  affiliates  shall at any time,  directly or  indirectly,  engage in any
short sales with respect to the Company's  Common Stock,  or sell put options or
similar instruments with respect to the Company's Common Stock.

         V. ISSUANCE OF COMMON STOCK

         A. The Company  undertakes and agrees that,  except as required by law,
no  instruction  other than the  instructions  referred to in this Article V and
customary stop transfer  instructions  prior to the registration and sale of the
Common Stock  pursuant to an effective  Securities  Act  registration  statement
shall be given to its transfer agent for the  Conversion  Shares and the Warrant
Shares and that the Conversion  Shares and the Warrant Shares shall otherwise be

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<PAGE>

freely transferable on the books and records of the Company as and to the extent
provided in this Agreement,  the  Registration  Rights  Agreement and applicable
law.  Nothing  contained in this  Section  V.A.  shall affect in any way Buyer's
obligations  and agreement to comply with all  applicable  securities  laws upon
resale of such Common Stock.

         B. Buyer shall have the right to convert the Debenture and exercise the
Warrant by telecopying an executed and completed Conversion Notice (as such term
is defined in the  Debenture)  or Warrant  Notice of  Exercise  (as such term is
defined in the Warrant) to the Company,  together  with payment  therefor.  Each
date on which a Conversion Notice or Warrant Notice of Exercise is telecopied to
and received by the Company in accordance  with the  provisions  hereof shall be
deemed a Conversion Date (as such term is defined in the Debenture). The Company
shall cause the  transfer  agent to transmit  the  certificates  evidencing  the
Common Stock  issuable upon  conversion of the  Debenture  (together  with a new
debenture,  if any, representing the principal amount of the Debenture not being
so converted) or exercise of the Warrant  (together with a new Warrant,  if any,
representing  the amount of the  Warrant  not being so  exercised)  to Buyer via
express courier,  or if a Registration  Statement  covering the Common Stock has
been  declared  effective by the SEC by  electronic  transfer,  within three (3)
business days after receipt by the Company of the  Conversion  Notice or Warrant
Notice of Exercise, together with payment therefor(the "Delivery Date").

         C. Subject to the  applicable  provisions  of the  Documents,  upon the
conversion  of the  Debenture  or exercise of the Warrant or part  thereof,  the
Company shall, at its own cost and expense, take all necessary action (including
the  issuance of an opinion of counsel)  to assure that the  Company's  transfer
agent shall issue stock  certificates  in the name of Buyer (or its  nominee) or
such  other  persons  as  designated  by Buyer and in such  denominations  to be
specified at conversion  representing the number of Common Stock of common stock
issuable  upon such  conversion  or  exercise.  The  Company  warrants  that the
Conversion  Shares and Warrant  Shares  will be  unlegended,  free-trading,  and
freely  transferable,  and will not contain a legend  restricting  the resale or
transferability  of the Company Common Stock provided the Conversion  Shares and
Warrant  Shares are being sold pursuant to an effective  registration  statement
covering the Common Stock to be sold or is  otherwise  exempt from  registration
when  sold,  provided  that the Buyer  shall not be subject to Section 16 of the
Exchange Act or otherwise  subject to restrictions on transfer of Company Common
Stock.

         D. The Company  understands  that a delay in the delivery of the Common
Stock in the form required pursuant to this section, beyond the Delivery Date or
could result in economic  loss to the Buyer.  As  compensation  to the Buyer for
such  loss,  the  Company  agrees  to pay late  payments  to the  Buyer for late
issuance of Common Stock in the form required  pursuant to Section C hereof upon
Conversion  of the  Debenture,  in the amount of $100 per business day after the
Delivery Date, for each $10,000 of Debenture  principal  amount being converted,
up to a maximum penalty, in the aggregate, of $10,000. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
Furthermore,  in addition to any other  remedies  which may be  available to the
Buyer,  in the event that the Company fails for any reason to effect delivery of
the  Common  Stock  by the  Delivery  Date  or  make  payment  by the  Mandatory
Redemption Payment Date, the Buyer will be entitled to revoke all or part of the
relevant  Notice of Conversion or rescind all or part of the notice of Mandatory
Redemption  by delivery of a notice to such effect to the Company  whereupon the
Company  and the Buyer  shall each be  restored  to their  respective  positions
immediately  prior to the  delivery of such  notice,  except  that late  payment

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<PAGE>

charges  described  above shall be payable through the date notice of revocation
or rescission is given to the Company.

         E. Mandatory  Redemption.  In the event the Company is prohibited  from
issuing  Common  Stock,  or fails to timely  deliver  Common Stock on a Delivery
Date,  or upon  the  occurrence  of an  Event  of  Default  (as  defined  in the
Debenture)  or upon the  occurrence  of an Event of  Default  as  defined in the
Debenture,  then at the Buyer's election,  the Company must pay to the Buyer ten
(10)  business  days  after  request  by the Buyer or on the  Delivery  Date (if
requested  by the  Buyer) a sum of money  determined  by  multiplying  up to the
outstanding  principal  amount  of  the  Debenture  subject  to  the  notice  of
conversion,  designated  by the Buyer by 130%,  together with accrued but unpaid
interest thereon  ("Mandatory  Redemption  Payment").  The Mandatory  Redemption
Payment  must be received  by the Buyer on the same date as the  Company  Common
Stock  otherwise  deliverable  or within ten (10) business  days after  request,
whichever is sooner ("Mandatory  Redemption Payment Date").  Upon receipt of the
Mandatory Redemption Payment, the corresponding Debenture principal and interest
will be deemed paid and no longer outstanding.

         F. Buy-In.  In addition to any other rights  available to the Buyer, if
the  Company  fails to deliver  to the Buyer such  Common  Stock  issuable  upon
conversion  of a Debenture or exercise of a Warrant by the Delivery  Date and if
ten (10) days after the  Delivery  Date the Buyer  purchases  (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Buyer of the Common Stock which the Buyer anticipated receiving upon
such  conversion (a  "Buy-In"),  then the Company shall pay in cash to the Buyer
(in addition to any remedies available to or elected by the Buyer) the amount by
which (A) the Buyer's total purchase price (including brokerage commissions,  if
any) for the  shares of Common  Stock so  purchased  exceeds  (B) the  aggregate
principal  and/or  interest  amount of the  Debenture  or Warrant for which such
conversion or exercise was not timely honored, together with interest thereon at
a rate of 15% per annum,  accruing  until such amount and any  accrued  interest
thereon is paid in full (which  amount shall be paid as  liquidated  damages and
not as a penalty).  For example,  if the Buyer purchases  shares of Common Stock
having a total  purchase  price of $11,000 to cover a Buy-In with  respect to an
attempted  conversion  of  $10,000 of  Debenture  or  Warrant  principal  and/or
interest,  the Company shall be required to pay the Buyer $1,000, plus interest.
The Buyer shall  provide  the  Company  written  notice  indicating  the amounts
payable to the Buyer in respect of the Buy-In.

         G. The  Debenture  and Warrant shall be delivered by the Company to the
Buyer pursuant to Section I.B. hereof on a  "delivery-against-payment  basis" at
the Closing.

         VI. CLOSING DATE

         The  Closing  shall  occur  by the  delivery  (i)t o the  Buyer  of the
certificate  evidencing  the Debenture and all other  Agreements and (ii) to the
Company the Purchase Price.

         VII. CONDITIONS TO THE COMPANY'S OBLIGATIONS

         Buyer  understands that the Company's  obligation to sell the Debenture
and  Warrant  on the  Closing  Date  to  Buyer  pursuant  to this  Agreement  is
conditioned upon:

         A. Delivery by Buyer to the Company of the Purchase Price;

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Initials                                9                               Initials

<PAGE>

         B.  The  accuracy  on  the  Closing  Date  of the  representations  and
warranties of Buyer  contained in this  Agreement as if made on the Closing Date
(except for  representations and warranties which, by their express terms, speak
as of and  relate to a  specified  date,  in which case such  accuracy  shall be
measured as of such specified date) and the performance by Buyer in all material
respects on or before the Closing Date of all covenants and  agreements of Buyer
required  to be  performed  by it pursuant  to this  Agreement  on or before the
Closing Date; and

         C. There shall not be in effect any Law or order,  ruling,  judgment or
writ of any court or public or governmental authority restraining,  enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.

         VIII. CONDITIONS TO BUYER'S OBLIGATIONS

         The  Company  understands  that  Buyer's  obligation  to  purchase  the
Securities on the Closing Date pursuant to this Agreement is  conditioned  upon:

         A. Delivery by the Company of the Debenture, the Conversion Warrant and
the other Agreements (I/N/O Buyer or I/N/O Buyer's nominee);

         B. The accuracy on the Closing Date, in all material  respects.  of the
representations  and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for  representations  and warranties  which, by
their express terms,  speak as of and relate to a specified  date, in which case
such accuracy shall be measured as of such specified  date) and the  performance
by the Company in all  material  respects  on or before the Closing  Date of all
covenants and agreements of the Company  required to be performed by it pursuant
to this Agreement on or before the Closing Date, all of which shall be confirmed
to Buyer by delivery of the  certificate of the chief  executive  officer of the
Company to that effect;

         C. There not having occurred (i) any general  suspension of trading in,
or limitation on prices  listed for, the Common Stock on the  OTCBB/Pink  Sheet,
(ii) the  declaration  of a banking  moratorium or any suspension of payments in
respect of banks in the United States,  (iii) the  commencement  of a war, armed
hostilities or other  international or national  calamity directly or indirectly
involving  the  United  States  or  any  of its  territories,  protectorates  or
possessions   materially  affecting  the  regular  operations  of  the  national
securities  exchanges or (iv) in the case of the foregoing  existing at the date
of this Agreement, a material acceleration or worsening thereof,

         D. There not having occurred any event or development,  and there being
in existence no condition, having or which reasonably and foreseeably could have
a Material Adverse Effect;

         E. There  shall not be in effect any Law,  order,  ruling,  judgment or
writ of any court or public or governmental authority restraining,  enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;

         F. The Company shall have  obtained all consents,  approvals or waivers
from  governmental  authorities  and third persons  necessary for the execution,
delivery and  performance  of the  Documents and the  transactions  contemplated
thereby, all without material cost to the Company;

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<PAGE>

         G. Buyer shall have received such additional  documents,  certificates,
payment,  assignments,  transfers and other  delivers as it or its legal counsel
may  reasonably  request and as are customary to effect a closing of the matters
herein contemplated.

         H.  Reimbursement  of Buyer's  legal fees in the amount of $5,000.  IX.
SURVIVAL; INDEMNIFICATION

         A. The  representations,  warranties  and covenants made by each of the
Company and Buyer in this Agreement, the annexes,  schedules and exhibits hereto
and in each instrument,  agreement and certificate entered into and delivered by
them pursuant to this Agreement  shall survive the Closing and the  consummation
of the transactions  contemplated  hereby for a period of one year. In the event
of a  breach  or  violation  of  any  of  such  representations,  warranties  or
covenants, the party to whom such representations,  warranties or covenants have
been made  shall  have all  rights and  remedies  for such  breach or  violation
available to it under the provisions of this Agreement or otherwise,  whether at
law or in equity, irrespective of any investigation made by or on behalf of such
party on or prior to the Closing Date.

         B. The Company hereby agrees to indemnify and hold harmless Buyer,  its
affiliates  and their  respective  officers,  directors,  partners  and  members
(collectively,  the "Buyer  Indemnitees")  from and  against any and all losses,
claims,   damages,   judgments,   penalties,    liabilities   and   deficiencies
(collectively,  "Losses")  incurred  by them,  and  agrees  to  reimburse  Buyer
Indemnitees for all out-of-pocket  expenses  (including the fees and expenses of
legal  counsel),  in each case promptly as incurred by Buyer  Indemnitees and to
the extent arising out of or in connection with:

                  1. any misrepresentation, omission of fact or breach of any of
         the Company's representations or warranties contained in this Agreement
         or the other Documents, or the annexes, schedules or exhibits hereto or
         thereto or any  instrument,  agreement or  certificate  entered into or
         delivered  by the  Company  pursuant  to this  Agreement  or the  other
         Documents;

                  2. any failure by the Company to perform any of its covenants,
         agreements,  undertakings or obligations set forth in this Agreement or
         the other Documents or any instrument, certificate or agreement entered
         into or  delivered  by the Company  pursuant to this  Agreement  or the
         other Documents;

                  3.  the  purchase  of the  Debenture,  the  conversion  of the
         Debenture,  the payment of interest on the  Debenture,  the issuance of
         the Warrant Shares,  the consummation of the transactions  contemplated
         by this  Agreement and the other  Documents,  , the  performance by the
         parties hereto of their respective  obligations hereunder and under the
         Documents  or any  claim,  litigation,  investigation,  proceedings  or
         governmental  action  relating to any of the foregoing,  whether or not
         Buyer is a party thereto; or

         C. Buyer hereby agrees to indemnify and hold harmless the Company,  its
Affiliates  and their  respective  officers,  directors,  partners  and  members
(collectively,  the "Company  Indemnitees") from and against any and all Losses,
and agrees to reimburse the Company  Indemnitees for all out-of-pocket  expenses

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<PAGE>

(including  the fees and expenses of legal  counsel),  in each case  promptly as
incurred  by the  Company  Indemnitees  and to the extent  arising  out of or in
connection with:

                  1. any misrepresentation, omission of fact or breach of any of
         Buyer's  representations  or warranties  contained in this Agreement or
         the other  Documents,  or the annexes,  schedules or exhibits hereto or
         thereto or any  instrument,  agreement or  certificate  entered into or
         delivered by Buyer pursuant to this  Agreement or the other  Documents;
         or

                  2. any failure by Buyer to perform in any material respect any
         of its covenants, agreements,  undertakings or obligations set forth in
         this Agreement or the other Documents or any instrument, certificate or
         agreement entered into or delivered by Buyer pursuant to this Agreement
         or the other Documents.

         D.   Promptly   after   receipt   by  either   party   hereto   seeking
indemnification  pursuant to this Article IX (an "Indemnified Party") of written
notice of any  investigation,  claim,  proceeding  or other action in respect of
which  indemnification is being sought (each, a "Claim"),  the Indemnified Party
promptly  shall notify the party against whom  indemnification  pursuant to this
Article  IX is being  sought  (the  "Indemnifying  Party")  of the  commencement
thereof,  but the omission so to notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially  prejudiced and forfeits
substantive rights or defenses by reason of such failure. In connection with any
Claim as to which  both the  Indemnifying  Party and the  Indemnified  Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding  the assumption of the defense of any Claim by the  Indemnifying
Party,  the  Indemnified  Party  shall have the right to employ  separate  legal
counsel and to  participate in the defense of such Claim,  and the  Indemnifying
Party shall bear the reasonable fees,  out-of-pocket  costs and expenses of such
separate  legal  counsel  to the  Indemnified  Party if (and only  if):  (x) the
Indemnifying Party shall have agreed to pay such fees,  out-of-pocket  costs and
expenses,  (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal  counsel would not be  appropriate  due to actual or, as
reasonably  determined by legal counsel to the  Indemnified  Party,  potentially
differing  interests  between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the  Indemnifying  Party
or (z) the  Indemnifying  Party  shall  have  failed  to  employ  legal  counsel
reasonably  satisfactory to the Indemnified  Party within a reasonable period of
time after notice of the  commencement of such Claim.  If the Indemnified  Party
employs  separate  legal  counsel in  circumstances  other than as  described in
clauses  (x),  (y) or (z)  above,  the fees,  costs and  expenses  of such legal
counsel shall be borne exclusively by the Indemnified Party.  Except as provided
above,  the  Indemnifying  Party shall not, in connection  with any Claim in the
same jurisdiction,  be liable for the fees and expenses of more than one firm of
legal  counsel  for the  Indemnified  Party  (together  with  appropriate  local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or  compromise  any Claim or consent to the entry of any judgment  that does not
include an unconditional  release of the Indemnified  Party from all liabilities
with respect to such Claim or judgment.

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<PAGE>

         E.  In  the  event  one  party  hereunder   should  have  a  claim  for
indemnification  that does not  involve a claim or demand  being  asserted  by a
third party,  the Indemnified  Party promptly shall deliver notice of such claim
to the  Indemnifying  Party. If the Indemnified  Party disputes the claim,  such
dispute shall be resolved by mutual  agreement of the Indemnified  Party and the
Indemnifying  Party or by binding  arbitration  conducted in accordance with the
procedures and rules of the American Arbitration Association.  Judgment upon any
award rendered by any arbitrators  may be entered in any court having  competent
jurisdiction thereof.

         X. GOVERNING LAW

         This Agreement  shall be governed by and interpreted in accordance with
the laws of the State of  California,  without  regard to the  conflicts  of law
principles of such state.

         XI. SUBMISSION TO JURISDICTION

         Each of the parties hereto  consents to the exclusive  jurisdiction  of
the federal courts whose  districts  encompass any part of the City of San Diego
or the state courts of the State of California  sitting in the City of San Diego
in  connection  with any  dispute  arising  under this  Agreement  and the other
Documents.  Each party hereto hereby irrevocably and unconditionally  waives, to
the fullest  extent it may  effectively  do so, any  defense of an  inconvenient
forum or improper  venue to the  maintenance of such action or proceeding in any
such court and any night of jurisdiction on account of its place of residence or
domicile.  Each party hereto  irrevocably  and  unconditionally  consents to the
service of any and all process in any such action or  proceeding  in such courts
by the mailing of copies of such process by registered or certified mail (return
receipt  requested),  postage prepaid, at its address specified in Article XVII.
Each party hereto agrees that a final  judgment in any such action or proceeding
shall be conclusive  and may be enforced in other  jurisdictions  by suit on the
judgment or in any other manner provided by law.

         XII. 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
AGREEMENT  OR ANY OTHER  DOCUMENT OR ANY DEALINGS  BETWEEN THEM  RELATING TO THE
SUBJECT  MATTER OF THIS  AGREEMENT  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  AGREEMENT  BY, AMONG OTHER  THINGS,  THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.

         XIII. COUNTERPARTS; EXECUTION

         This Agreement may be executed in  counterparts,  each of which when so
executed  and  delivered  shall be an original,  but both of which  counterparts
shall together constitute one and the same instrument.  A facsimile transmission
of this signed Agreement shall be legal and binding on both parties hereto.

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Initials                               13                               Initials

<PAGE>

         XIV. HEADINGS

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

         XV. SEVERABILITY

         In the  event  any  one or  more of the  provisions  contained  in this
Agreement  or in  the  other  Documents  should  be  held  invalid,  illegal  or
unenforceable in any respect,  the validity,  legality and enforceability of the
remaining  provisions  contained  herein  or  therein  shall  not in any  way be
affected  or  impaired  thereby.   The  parties  shall  endeavor  in  good-faith
negotiations to replace the invalid,  illegal or  unenforceable  provisions with
valid  provisions,  the  economic  effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.

         XVI. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS

         This  Agreement  and the  Documents  constitute  the  entire  agreement
between the parties hereto pertaining to the subject matter hereof and supersede
all prior agreements, understandings, negotiations and discussions, whether oral
or written,  of such  parties.  No  supplement,  modification  or waiver of this
Agreement shall be binding unless executed in writing by both parties. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision  hereof  (whether or not similar),  nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.

         XVII. 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:

         A. if to the Company, to:

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

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<PAGE>

         B. if to Buyer, to:

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

The Company or Buyer may change the foregoing  address by notice given  pursuant
to this Article XVII.

         XVIII. CONFIDENTIALITY

         Each of the Company and Buyer  agrees to keep  confidential  and not to
disclose  to or use for  the  benefit  of any  third  party  the  terms  of this
Agreement  or any other  information  which at any time is  communicated  by the
other  party as being  confidential  without the prior  written  approval of the
other  party;  provide,   however,  that  this  provision  shall  not  apply  to
information  which,  at the time of  disclosure,  is already  part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation,  pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).

         XIX. ASSIGNMENT

         This Agreement  shall not be assignable by either of the parties hereto
prior to the Closing without the prior written  consent of the other party,  and
any attempted  assignment  contrary to the  provisions  hereby shall be null and
void;  provide,  however,  that Buyer may  assign  its  rights  and  obligations
hereunder,  in whole or in part,  to any  affiliate of Buyer  provided that such
affiliate agrees to be bound by the terms hereof applicable to Buyer.

         IN WITNESS WHEREOF,  the parties hereto have duly caused this Agreement
to be executed and delivered on the date first above written.

Peabodys Coffee, Inc.                           La Jolla Cove Investors, Inc.

By:                                             By:
    ----------------------------                    ----------------------------
Title:                                          Title:
       -------------------------                       -------------------------

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Initials                               15                               Initials

<PAGE>

                                 SCHEDULE III.L.

                               REGISTRATION RIGHTS

         Name

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