Document:

THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
     NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS
     OTHERWISE SET FORTH HEREIN OR IN A SECURITIES  PURCHASE  AGREEMENT DATED AS
     OF DECEMBER  20,  2002,  NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE
     SOLD,  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION
     STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL,  IN
     FORM, SUBSTANCE AND SCOPE,  CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
     TRANSACTIONS,  THAT  REGISTRATION  IS NOT REQUIRED UNDER SUCH ACT OR UNLESS
     SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SUCH ACT.

                                                                    Right to
                                                                    Purchase
                                                                    208,332
                                                                    Shares of
                                                                    Common
                                                                    Stock, $.001
                                                                    par value
                                                                    per share

                             STOCK PURCHASE WARRANT

     THIS CERTIFIES THAT, for value received, AJW QUALIFIED PARTNERS, LLC or its
registered assigns, is entitled to purchase from Peabodys Coffee, Inc., a Nevada
corporation (d/b/a Black Rhino Coffee) (the "Company"), at any time or from time
to time during the period  specified  in Paragraph 2 hereof,  Two Hundred  Eight
Thousand, Three Hundred Thirty-Two (208,332) fully paid and nonassessable shares
of the Company's  Common Stock,  $.001 par value per share (the "Common Stock"),
at an exercise price per share equal to $0.25 (the "Exercise  Price").  The term
"Warrant  Shares,"  as  used  herein,  refers  to the  shares  of  Common  Stock
purchasable hereunder.  The Warrant Shares and the Exercise Price are subject to
adjustment  as provided in Paragraph 4 hereof.  The term  "Warrants"  means this
Warrant  and the other  warrants  issued  pursuant  to that  certain  Securities
Purchase  Agreement,  dated  December 20, 2002, by and among the Company and the
Buyers  listed  on  the  execution  page  thereof  (the   "Securities   Purchase
Agreement"), including any additional warrants issuable pursuant to Section 4(l)
thereof.

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

     1.   MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
          -----------------------------------------------------------------

          (a)  EXERCISE  OF  WARRANT.  Subject to the  provisions  hereof,  this
Warrant  may be  exercised  by the holder  hereof,  in whole or in part,  by the
surrender of this Warrant,  together with a completed  exercise agreement in the
form attached hereto (the "Exercise Agreement"), to

<PAGE>

the Company  during normal  business  hours on any business day at the Company's
principal executive offices (or such other office or agency of the Company as it
may  designate  by notice to the  holder  hereof),  and upon (i)  payment to the
Company in cash, by certified or official bank check or by wire transfer for the
account of the Company of the Exercise Price for the Warrant Shares specified in
the Exercise Agreement or (ii) if the resale of the Warrant Shares by the holder
is not then registered pursuant to an effective registration statement under the
Securities  Act of 1933,  as amended  (the  "Securities  Act"),  delivery to the
Company of a written  notice of an election to effect a "Cashless  Exercise" (as
defined in Section 11(c) below) for the Warrant Shares specified in the Exercise
Agreement.  The Warrant Shares so purchased  shall be deemed to be issued to the
holder hereof or such holder's designee,  as the record owner of such shares, as
of the close of  business  on the date on which  this  Warrant  shall  have been
surrendered,  the completed  Exercise  Agreement shall have been delivered,  and
payment  shall have been made for such shares as set forth  above.  Certificates
for the Warrant Shares so purchased, representing the aggregate number of shares
specified in the  Exercise  Agreement,  shall be delivered to the holder  hereof
within a reasonable  time,  not exceeding  three (3) business  days,  after this
Warrant shall have been so exercised.  The certificates so delivered shall be in
such  denominations  as may be  requested  by the  holder  hereof  and  shall be
registered  in the name of such holder or such other name as shall be designated
by such holder.  If this Warrant shall have been exercised  only in part,  then,
unless this Warrant has expired,  the Company shall, at its expense, at the time
of  delivery  of  such  certificates,  deliver  to  the  holder  a  new  Warrant
representing  the number of shares with respect to which this Warrant  shall not
then have been exercised.  In addition to all other available remedies at law or
in equity,  if the Company fails to deliver  certificates for the Warrant Shares
within three (3) business days after this Warrant is exercised, then the Company
shall pay to the  holder in cash a penalty  (the  "Penalty")  equal to 2% of the
number of Warrant Shares that the holder is entitled to multiplied by the Market
Price (as  hereinafter  defined) for each day that the Company  fails to deliver
certificates for the Warrant Shares.  For example,  if the holder is entitled to
100,000 Warrant Shares and the Market Price is $2.00, then the Company shall pay
to the holder $4,000 for each day that the Company fails to deliver certificates
for the Warrant Shares. The Penalty shall be paid to the holder by the fifth day
of the month following the month in which it has accrued.

          Notwithstanding  anything in this Warrant to the contrary, in no event
shall the holder of this  Warrant be  entitled  to exercise a number of Warrants
(or portions  thereof) in excess of the number of Warrants (or portions thereof)
upon  exercise  of which the sum of (i) the  number  of  shares of Common  Stock
beneficially owned by the holder and its affiliates (other than shares of Common
Stock  which may be deemed  beneficially  owned  through  the  ownership  of the
unexercised  Warrants and the  unexercised or  unconverted  portion of any other
securities  of  the  Company  (including  the  Debentures  (as  defined  in  the
Securities  Purchase  Agreement))  subject  to a  limitation  on  conversion  or
exercise  analogous to the limitation  contained  herein) and (ii) the number of
shares of Common  Stock  issuable  upon  exercise of the  Warrants  (or portions
thereof) with respect to which the determination described herein is being made,
would result in  beneficial  ownership by the holder and its  affiliates of more
than 4.9% of the  outstanding  shares  of  Common  Stock.  For  purposes  of the
immediately  preceding  sentence,  beneficial  ownership  shall be determined in
accordance  with  Section  13(d) of the  Securities  Exchange  Act of  1934,  as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(i) of the  preceding  sentence.  The  holder  of this  Warrant  may  waive  the
limitations  set forth  herein by  sixty-one  (61)  days  written  notice to the
Company.

                                      -2-
<PAGE>

Notwithstanding  anything to the contrary  contained  herein,  the limitation on
exercise  of this  Warrant set forth  herein may not be amended  without (i) the
written  consent of the holder hereof and the Company and (ii) the approval of a
majority of shareholders of the Company.

          (b)  MANDATORY  EXERCISE RIGHT. The Company shall be entitled,  on any
day (the  "Calculation  Date") on which the Closing Price (as defined  below) of
the Common Stock for thirty (30) consecutive  Trading Days (as defined below) is
equal to or greater  than $3.00,  to deliver a written  notice  (the  "Mandatory
Exercise  Notice") to the Holder  requiring such Holder to exercise this Warrant
in accordance with Section 1 hereof at any time during a thirty (30) Trading Day
period  following  the date of such  Mandatory  Exercise  Notice (the  "Exercise
Date"); provided, however, that the Company shall have such right if and only if
(x)  for a  period  of  thirty  (30)  consecutive  Trading  Days  prior  to  the
Calculation  Date and (y) at all  times  during  such  thirty  (30)  consecutive
Trading Day period and continuing  through the Exercise Date, the Warrant Shares
issuable  upon  exercise of the  Warrants  are (i)  authorized  and reserved for
issuance,  (ii)  registered  for resale  under the  Securities  Act of 1933,  as
amended,  by the holder of this  Warrant (or may  otherwise  be resold  publicly
without  restriction)  and sales of the Warrant Shares may be made  continuously
thereunder  during  such time  periods,  and (iii)  listed  for  trading on each
principal  exchange or market on which the shares of Common Stock of the Company
were then traded;  and provided,  further,  that the Holder shall be required to
exercise only that portion of this Warrant that is equal to ten percent (10%) of
the average trading volume of the Common Stock over the thirty (30)  consecutive
Trading Days  immediately  preceding the  Calculation  Date. The Company may not
deliver more than one Mandatory  Exercise  Notice during any thirty (30) Trading
Day period.  Nothing in this Section 2(b) shall prohibit exercise of the Warrant
otherwise permitted pursuant to the terms of this Warrant during the pendency of
any  Mandatory  Exercise  Notice.  "Trading Day" shall mean any day on which the
Common  Stock is traded for any period on the  Over-the-Counter  Bulletin  Board
(the  "OTCBB"),  or on the  principal  securities  exchange or other  securities
market on which the Common Stock is then being  traded.  "Closing  Price," as of
any date,  (i) means the last reported sale price for the shares of Common Stock
on the  OTCBB as  reported  by  Bloomberg  Financial  Markets  or other  similar
reliable reporting service as designated by the Holder ("Bloomberg"), or (ii) if
the OTCBB is not the  principal  trading  market for the shares of Common Stock,
the last  reported  sale price on the  principal  trading  market for the Common
Stock as reported by Bloomberg,  or (iii) if the last reported sale price cannot
be determined as of such date on any of the foregoing  bases,  the Closing Price
shall be the fair market  value as  reasonably  determined  in good faith by the
Board of Directors of the Company or, at the option of a majority-in-interest of
the holders of the outstanding  Warrants,  by an independent  investment bank of
nationally  recognized  standing in the valuation of  businesses  similar to the
business of the corporation.

     2.   PERIOD OF EXERCISE.  This Warrant is  exercisable  at any time or from
time to time on or after the date on which this Warrant is issued and  delivered
pursuant to the terms of the Securities Purchase Agreement and before 6:00 p.m.,
New York,  New York time on the fifth (5th)  anniversary of the date of issuance
(the "Exercise Period").

     3.   CERTAIN  AGREEMENTS OF THE COMPANY.  The Company hereby  covenants and
agrees as follows:

                                      -3-
<PAGE>

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

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

          (c)  LISTING.  The Company  shall  promptly  secure the listing of the
shares of Common Stock  issuable upon exercise of the Warrant upon each national
securities  exchange or automated quotation system, if any, upon which shares of
Common  Stock are then  listed  (subject to  official  notice of  issuance  upon
exercise of this  Warrant)  and shall  maintain,  so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable  upon the exercise of this Warrant;  and the Company shall
so list on each national  securities  exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company  issuable  upon the exercise of this Warrant if and so long
as any  shares of the same  class  shall be listed on such  national  securities
exchange or automated quotation system.

          (d)  CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of
its charter or through any  reorganization,  transfer of assets,  consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the  observance or  performance of any of the terms to be
observed  or  performed  by it  hereunder,  but will at all times in good  faith
assist in the  carrying  out of all the  provisions  of this  Warrant and in the
taking of all such action as may  reasonably  be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other  impairment,  consistent with the tenor and purpose of
this Warrant.  Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common  Stock  receivable  upon
the exercise of this Warrant above the Exercise  Price then in effect,  and (ii)
will take all such actions as may be necessary or  appropriate in order that the
Company may validly and  legally  issue fully paid and  nonassessable  shares of
Common Stock upon the exercise of this Warrant.

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

     4.   ANTIDILUTION PROVISIONS. During the Exercise Period, so long as any of
the  Debentures  (as  defined  in  the   Securities   Purchase   Agreement)  are
outstanding,  the  Exercise  Price and the  number of  Warrant  Shares  shall be
subject to adjustment from time to time as provided in this Paragraph 4.

     In the event that any adjustment of the Exercise  Price as required  herein
results in a fraction of a cent,  such Exercise Price shall be rounded up to the
nearest cent.

          (a)  ADJUSTMENT  OF EXERCISE  PRICE AND NUMBER OF SHARES UPON ISSUANCE
OF COMMON  STOCK.  Except as  otherwise  provided  in  Paragraphs  4(c) and 4(e)
hereof,  if and whenever on or after the date of issuance of this  Warrant,  the
Company issues or sells,  or in accordance  with Paragraph 4(b) hereof is deemed
to have issued or sold, any shares of Common

                                      -4-
<PAGE>

Stock for no consideration or for a consideration per share (before deduction of
reasonable  expenses or commissions or  underwriting  discounts or allowances in
connection  therewith)  less than the Market  Price on the date of  issuance  (a
"Dilutive Issuance"),  then immediately upon the Dilutive Issuance, the Exercise
Price will be reduced to a price determined by multiplying the Exercise Price in
effect  immediately  prior  to the  Dilutive  Issuance  by a  fraction,  (i) the
numerator  of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually  outstanding  immediately prior to the Dilutive  Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Paragraph  4(b)  hereof,  received by the Company  upon such  Dilutive  Issuance
divided  by the  Market  Price  in  effect  immediately  prior  to the  Dilutive
Issuance,  and (ii) the  denominator  of which is the total  number of shares of
Common  Stock  Deemed  Outstanding  (as  defined  below)  immediately  after the
Dilutive Issuance.

          (b)  EFFECT ON  EXERCISE  PRICE OF CERTAIN  EVENTS.  For  purposes  of
determining  the  adjusted  Exercise  Price under  Paragraph  4(a)  hereof,  the
following will be applicable:

               (i)  ISSUANCE OF RIGHTS OR OPTIONS.  If the Company in any manner
issues or grants any  warrants,  rights or options,  whether or not  immediately
exercisable,  to subscribe for or to purchase  Common Stock or other  securities
convertible  into or exchangeable  for Common Stock  ("Convertible  Securities")
(such  warrants,  rights and options to  purchase  Common  Stock or  Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which  Common  Stock is issuable  upon the exercise of such Options is less than
the Market  Price on the date of  issuance  or grant of such  Options,  then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will,  as of the date of the issuance or grant of such Options,  be
deemed to be  outstanding  and to have been  issued and sold by the  Company for
such price per share.  For purposes of the  preceding  sentence,  the "price per
share for which Common Stock is issuable  upon the exercise of such  Options" is
determined by dividing (i) the total amount,  if any,  received or receivable by
the Company as  consideration  for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional  consideration,  if any, payable
to the Company  upon the  exercise  of all such  Options,  plus,  in the case of
Convertible  Securities issuable upon the exercise of such Options,  the minimum
aggregate  amount of  additional  consideration  payable upon the  conversion or
exchange  thereof  at  the  time  such   Convertible   Securities  first  become
convertible  or  exchangeable,  by (ii) the  maximum  total  number of shares of
Common  Stock  issuable  upon the exercise of all such  Options  (assuming  full
conversion of Convertible Securities,  if applicable).  No further adjustment to
the  Exercise  Price will be made upon the actual  issuance of such Common Stock
upon  the  exercise  of such  Options  or upon the  conversion  or  exchange  of
Convertible Securities issuable upon exercise of such Options.

               (ii) ISSUANCE OF  CONVERTIBLE  SECURITIES.  If the Company in any
manner issues or sells any  Convertible  Securities,  whether or not immediately
convertible  (other  than  where  the same are  issuable  upon the  exercise  of
Options) and the price per share for which  Common  Stock is issuable  upon such
conversion  or exchange is less than the Market  Price on the date of  issuance,
then the  maximum  total  number of shares of  Common  Stock  issuable  upon the
conversion or exchange of all such  Convertible  Securities will, as of the date
of the issuance of such Convertible Securities,  be deemed to be outstanding and
to have been issued and sold by the  Company  for such price per share.  For the
purposes of the preceding sentence, the "price per

                                      -5-
<PAGE>

share for which Common Stock is issuable  upon such  conversion  or exchange" is
determined by dividing (i) the total amount,  if any,  received or receivable by
the Company as  consideration  for the issuance or sale of all such  Convertible
Securities,  plus the minimum aggregate amount of additional  consideration,  if
any,  payable to the Company upon the conversion or exchange thereof at the time
such Convertible  Securities first become  convertible or exchangeable,  by (ii)
the maximum total number of shares of Common Stock  issuable upon the conversion
or exchange of all such  Convertible  Securities.  No further  adjustment to the
Exercise  Price will be made upon the actual  issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.

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

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

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

                                      -6-
<PAGE>

               (vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment to
the Exercise  Price will be made (i) upon the exercise of any warrants,  options
or  convertible  securities  granted,  issued  and  outstanding  on the  date of
issuance  of this  Warrant;  (ii)  upon the  grant or  exercise  of any stock or
options which may hereafter be granted or exercised  under any employee  benefit
plan,  stock option plan or restricted stock plan of the Company now existing or
to be  implemented  in the  future,  so long as the  issuance  of such  stock or
options is  approved by a majority  of the  independent  members of the Board of
Directors  of the  Company  or a  majority  of the  members  of a  committee  of
independent  directors  established for such purpose; or (iii) upon the exercise
of the Warrants.

          (c)  SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any
time  subdivides  (by  any  stock  split,   stock  dividend,   recapitalization,
reorganization,  reclassification  or  otherwise)  the  shares of  Common  Stock
acquirable  hereunder into a greater number of shares,  then,  after the date of
record for effecting such subdivision,  the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time  combines  (by  reverse  stock  split,  recapitalization,   reorganization,
reclassification  or otherwise) the shares of Common Stock acquirable  hereunder
into a smaller  number of shares,  then,  after the date of record for effecting
such  combination,  the  Exercise  Price  in  effect  immediately  prior to such
combination will be proportionately increased.

          (d)  ADJUSTMENT  IN NUMBER OF  SHARES.  Upon  each  adjustment  of the
Exercise  Price  pursuant to the  provisions of this  Paragraph 4, the number of
shares of Common Stock  issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect  immediately prior
to such  adjustment  by the  number  of shares of  Common  Stock  issuable  upon
exercise of this Warrant  immediately  prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.

          (e)  CONSOLIDATION,  MERGER OR SALE. In case of any  consolidation  of
the Company  with,  or merger of the Company into any other  corporation,  or in
case of any sale or conveyance of all or substantially  all of the assets of the
Company  other than in  connection  with a plan of complete  liquidation  of the
Company,  then  as  a  condition  of  such  consolidation,  merger  or  sale  or
conveyance,  adequate  provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the  shares of  Common  Stock  immediately  theretofore  acquirable  upon the
exercise of this Warrant,  such shares of stock,  securities or assets as may be
issued or payable  with  respect to or in  exchange  for the number of shares of
Common Stock immediately  theretofore acquirable and receivable upon exercise of
this  Warrant had such  consolidation,  merger or sale or  conveyance  not taken
place. In any such case, the Company will make  appropriate  provision to insure
that the provisions of this Paragraph 4 hereof will  thereafter be applicable as
nearly as may be in  relation  to any shares of stock or  securities  thereafter
deliverable  upon the exercise of this Warrant.  The Company will not effect any
consolidation,  merger or sale or  conveyance  unless prior to the  consummation
thereof,  the  successor  corporation  (if other  than the  Company)  assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing  provisions,  the holder may be entitled to
acquire.

          (f)  DISTRIBUTION OF ASSETS. In case the Company shall declare or make
any distribution of its assets  (including cash) to holders of Common Stock as a
partial liquidating

                                      -7-
<PAGE>

dividend,  by way of return of capital  or  otherwise,  then,  after the date of
record for determining shareholders entitled to such distribution,  but prior to
the date of  distribution,  the holder of this  Warrant  shall be entitled  upon
exercise of this  Warrant for the purchase of any or all of the shares of Common
Stock subject hereto, to receive the amount of such assets which would have been
payable to the holder had such  holder  been the holder of such shares of Common
Stock on the record date for the determination of shareholders  entitled to such
distribution.

          (g)  NOTICE OF  ADJUSTMENT.  Upon the  occurrence  of any event  which
requires any adjustment of the Exercise Price,  then, and in each such case, the
Company shall give notice  thereof to the holder of this  Warrant,  which notice
shall state the Exercise Price  resulting from such  adjustment and the increase
or  decrease  in the number of  Warrant  Shares  purchasable  at such price upon
exercise,  setting forth in reasonable  detail the method of calculation and the
facts upon which such calculation is based.  Such calculation shall be certified
by the Chief Financial Officer of the Company.

          (h)  MINIMUM  ADJUSTMENT  OF  EXERCISE  PRICE.  No  adjustment  of the
Exercise  Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise  required to be made, but any
such lesser  adjustment  shall be carried  forward and shall be made at the time
and  together  with the next  subsequent  adjustment  which,  together  with any
adjustments  so  carried  forward,  shall  amount  to not  less  than 1% of such
Exercise Price.

          (i)  NO FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon the exercise of this  Warrant,  but the Company  shall pay a cash
adjustment in respect of any fractional  share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.

          (j)  OTHER NOTICES. In case at any time:
               -------------

               (i)  the Company shall declare any dividend upon the Common Stock
payable  in  shares  of  stock  of any  class  or make  any  other  distribution
(including dividends or distributions  payable in cash out of retained earnings)
to the holders of the Common Stock;

               (ii) the  Company  shall offer for  subscription  pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

               (iii)there shall be any capital  reorganization  of the  Company,
or  reclassification  of the Common  Stock,  or  consolidation  or merger of the
Company with or into, or sale of all or substantially all its assets to, another
corporation or entity; or

               (iv) there  shall  be a  voluntary  or  involuntary  dissolution,
liquidation or winding up of the Company;

then,  in each such case,  the Company  shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for  determining  the holders of Common Stock entitled to receive
any such dividend,  distribution,  or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such  reorganization,
reclassification,  consolidation,  merger,  sale,  dissolution,  liquidation  or
winding-

                                      -8-
<PAGE>

up  and  (b)  in  the  case  of  any  such   reorganization,   reclassification,
consolidation,  merger, sale, dissolution,  liquidation or winding-up, notice of
the date (or,  if not then  known,  a  reasonable  approximation  thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or  other  securities  or  property   deliverable   upon  such   reorganization,
reclassification,  consolidation,  merger, sale,  dissolution,  liquidation,  or
winding-up,  as the case  may be.  Such  notice  shall be given at least 30 days
prior to the record date or the date on which the Company's  books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings  referred to in clauses (i), (ii),  (iii)
and (iv) above.

          (k)  CERTAIN EVENTS.  If any event occurs of the type  contemplated by
the adjustment  provisions of this Paragraph 4 but not expressly provided for by
such  provisions,  the  Company  will give  notice of such event as  provided in
Paragraph  4(g)  hereof,  and the  Company's  Board of  Directors  will  make an
appropriate  adjustment in the Exercise Price and the number of shares of Common
Stock  acquirable upon exercise of this Warrant so that the rights of the holder
shall be neither enhanced nor diminished by such event.

          (l)  CERTAIN DEFINITIONS.
               -------------------

               (i)  "COMMON STOCK DEEMED  OUTSTANDING"  shall mean the number of
shares of Common Stock  actually  outstanding  (not  including  shares of Common
Stock held in the  treasury of the  Company),  plus (x)  pursuant  to  Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the  exercise  of  Options,  as of the  date of such  issuance  or grant of such
Options,  if any,  and (y) pursuant to Paragraph  4(b)(ii)  hereof,  the maximum
total number of shares of Common Stock  issuable upon  conversion or exchange of
Convertible  Securities,  as  of  the  date  of  issuance  of  such  Convertible
Securities, if any.

               (ii) "MARKET PRICE," as of any date, (i) means the average of the
last  reported  sale prices for the shares of Common  Stock on the OTCBB for the
five (5) Trading Days immediately  preceding such date as reported by Bloomberg,
or (ii) if the  OTCBB is not the  principal  trading  market  for the  shares of
Common  Stock,  the average of the last  reported  sale prices on the  principal
trading  market  for the Common  Stock  during the same  period as  reported  by
Bloomberg,  or (iii) if market value cannot be calculated as of such date on any
of the  foregoing  bases,  the Market  Price shall be the fair  market  value as
reasonably determined in good faith by (a) the Board of Directors of the Company
or, at the option of a  majority-in-interest  of the holders of the  outstanding
Warrants by (b) an independent investment bank of nationally recognized standing
in the valuation of businesses  similar to the business of the corporation.  The
manner of  determining  the Market  Price of the  Common  Stock set forth in the
foregoing  definition  shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.

               (iii)"COMMON  STOCK," for purposes of this  Paragraph 4, includes
the Common Stock,  par value $.001 per share,  and any additional class of stock
of the  Company  having  no  preference  as to  dividends  or  distributions  on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common  Stock,  par value $.001 per share,  in respect of
which this Warrant is exercisable,  or shares  resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,

                                      -9-
<PAGE>

reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.

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

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

     7.   TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
          -----------------------------------------------

          (a)  RESTRICTION  ON TRANSFER.  This Warrant and the rights granted to
the holder hereof are transferable,  in whole or in part, upon surrender of this
Warrant,  together  with a properly  executed  assignment  in the form  attached
hereto,  at the office or agency of the Company  referred to in  Paragraph  7(e)
below,  provided,  however,  that any transfer or assignment shall be subject to
the  conditions  set  forth  in  Paragraph  7(f)  hereof  and to the  applicable
provisions of the  Securities  Purchase  Agreement.  Until due  presentment  for
registration of transfer on the books of the Company,  the Company may treat the
registered  holder hereof as the owner and holder  hereof for all purposes,  and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration  rights described in
Paragraph  8 are  assignable  only in  accordance  with the  provisions  of that
certain  Registration Rights Agreement dated December 20, 2002, by and among the
Company and the other signatories thereto (the "Registration Rights Agreement").

          (b)  WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant is
exchangeable,  upon the  surrender  hereof by the holder hereof at the office or
agency of the Company  referred to in Paragraph 7(e) below,  for new Warrants of
like tenor  representing  in the  aggregate  the right to purchase the number of
shares  of  Common  Stock  which may be  purchased  hereunder,  each of such new
Warrants to  represent  the right to purchase  such number of shares as shall be
designated by the holder hereof at the time of such surrender.

          (c)  REPLACEMENT  OF  WARRANT.  Upon  receipt of  evidence  reasonably
satisfactory to the Company of the loss,  theft,  destruction,  or mutilation of
this  Warrant and, in the case of any such loss,  theft,  or  destruction,  upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the  Company,  or,  in the  case of any  such  mutilation,  upon  surrender  and
cancellation  of this  Warrant,  the Company,  at its expense,  will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

          (d)  CANCELLATION;  PAYMENT OF  EXPENSES.  Upon the  surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this  Paragraph 7, this Warrant shall be promptly  canceled by the Company.  The
Company shall pay all taxes (other

                                      -10-
<PAGE>

than  securities  transfer  taxes)  and all other  expenses  (other  than  legal
expenses,  if any, incurred by the holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Paragraph 7.

          (e)  REGISTER.  The Company shall maintain, at its principal executive
offices (or such other  office or agency of the Company as it may  designate  by
notice to the holder hereof), a register for this Warrant,  in which the Company
shall  record the name and address of the person in whose name this  Warrant has
been issued,  as well as the name and address of each  transferee and each prior
owner of this Warrant.

          (f)  EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this  Warrant,  this  Warrant (or, in the case of any  exercise,  the Warrant
Shares issuable hereunder),  shall not be registered under the Securities Act of
1933, as amended (the "Securities Act") and under applicable state securities or
blue sky laws,  the  Company  may  require,  as a  condition  of  allowing  such
exercise,  transfer,  or  exchange,  (i) that the holder or  transferee  of this
Warrant,  as the case may be,  furnish  to the  Company  a  written  opinion  of
counsel,  which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under  applicable  state securities or blue sky laws, (ii) that the
holder or transferee  execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection  with a transfer  pursuant to Rule 144 under the
Securities  Act.  The first  holder of this  Warrant,  by taking and holding the
same,  represents to the Company that such holder is acquiring  this Warrant for
investment and not with a view to the distribution thereof.

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

     9.   NOTICES. All notices,  requests, and other communications  required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered,  or shall be sent by certified
or registered mail or by recognized overnight mail courier,  postage prepaid and
addressed,  to such holder at the address  shown for such holder on the books of
the  Company,  or at such  other  address as shall  have been  furnished  to the
Company  by  notice  from  such  holder.  All  notices,   requests,   and  other
communications  required or permitted to be given or delivered  hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 3845 Atherton Road, Suite
9, Rocklin, CA 95765,  Attention:  President,  or at such other address as shall
have been  furnished  to the holder of this  Warrant by notice from the Company.
Any such notice,  request, or other communication may be sent by facsimile,  but
shall in such case be subsequently  confirmed by a writing personally  delivered
or sent by certified or registered mail or by recognized  overnight mail courier
as provided above.  All notices,  requests,  and other  communications  shall be
deemed  to have been  given  either at the time of the  receipt  thereof  by the
person  entitled  to  receive  such  notice at the  address  of such  person for
purposes of this  Paragraph 9, or, if mailed by registered or certified  mail or
with a recognized overnight mail

                                      -11-
<PAGE>

courier upon deposit with the United States Post Office or such  overnight  mail
courier,  if postage is prepaid and the mailing is  properly  addressed,  as the
case may be.

     10.  GOVERNING  LAW.  THIS  WARRANT  SHALL  BE  ENFORCED,  GOVERNED  BY AND
CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  APPLICABLE  TO
AGREEMENTS MADE AND TO BE PERFORMED  ENTIRELY WITHIN SUCH STATE,  WITHOUT REGARD
TO THE  PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE  JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT,  THE AGREEMENTS
ENTERED INTO IN CONNECTION  HEREWITH OR THE TRANSACTIONS  CONTEMPLATED HEREBY OR
THEREBY.  BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE  MAINTENANCE  OF SUCH SUIT OR  PROCEEDING.  BOTH PARTIES  FURTHER AGREE THAT
SERVICE OF PROCESS  UPON A PARTY  MAILED BY FIRST  CLASS MAIL SHALL BE DEEMED IN
EVERY  RESPECT  EFFECTIVE  SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY  OTHER  MANNER   PERMITTED  BY  LAW.   BOTH  PARTIES   AGREE  THAT  A  FINAL
NON-APPEALABLE  JUDGMENT IN ANY SUCH SUIT OR PROCEEDING  SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER  JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL  MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING  UNDER
THIS  WARRANT  SHALL  BE  RESPONSIBLE  FOR  ALL  FEES  AND  EXPENSES,  INCLUDING
ATTORNEYS'  FEES,  INCURRED  BY THE  PREVAILING  PARTY IN  CONNECTION  WITH SUCH
DISPUTE.

     11.  MISCELLANEOUS.
          --------------

          (a)  AMENDMENTS.  This  Warrant and any  provision  hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.

          (b)  DESCRIPTIVE  HEADINGS.  The  descriptive  headings of the several
paragraphs  of this Warrant are inserted  for  purposes of reference  only,  and
shall not affect the meaning or construction of any of the provisions hereof.

          (c)  CASHLESS  EXERCISE.  Notwithstanding  anything  to  the  contrary
contained in this Warrant,  if the resale of the Warrant Shares by the holder is
not then registered  pursuant to an effective  registration  statement under the
Securities  Act and upon the  expiration of one hundred five (105) days from the
date of  issuance  (unless the  Company  fails to timely  file the  Registration
Statement  (as  defined in the  Registration  Rights  Agreement  (as  defined in
Section 7(a) hereof)) in accordance with Section 2(a) of the Registration Rights
Agreement),  this Warrant may be exercised by presentation and surrender of this
Warrant to the Company at its principal  executive offices with a written notice
of the holder's intention to effect a cashless exercise, including a calculation
of the  number  of shares of Common  Stock to be issued  upon such  exercise  in
accordance  with the terms  hereof (a  "Cashless  Exercise").  In the event of a
Cashless  Exercise,  in lieu of paying the  Exercise  Price in cash,  the holder
shall  surrender  this  Warrant  for that  number  of  shares  of  Common  Stock
determined  by  multiplying  the  number  of  Warrant  Shares  to which it would
otherwise be entitled by a fraction, the numerator of which

                                      -12-
<PAGE>

shall be the  difference  between the then current Market Price per share of the
Common Stock and the Exercise  Price,  and the denominator of which shall be the
then current Market Price per share of Common Stock. For example,  if the holder
is exercising  100,000  Warrants with a per Warrant  exercise price of $0.75 per
share through a cashless  exercise when the Common Stock's  current Market Price
per share is $2.00 per share,  then upon such Cashless  Exercise the holder will
receive 62,500 shares of Common Stock.

          (d)  REMEDIES.  The  Company  acknowledges  that a breach by it of its
obligations  hereunder will cause  irreparable harm to the holder,  by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Company  acknowledges  that the  remedy at law for a breach  of its  obligations
under this Warrant will be  inadequate  and agrees,  in the event of a breach or
threatened  breach by the Company of the  provisions of this  Warrant,  that the
holder shall be entitled,  in addition to all other available remedies at law or
in equity, and in addition to the penalties  assessable herein, to an injunction
or injunctions restraining,  preventing or curing any breach of this Warrant and
to enforce specifically the terms and provisions thereof,  without the necessity
of showing economic loss and without any bond or other security being required.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -13-
<PAGE>

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

                                        PEABODYS COFFEE, INC.

                                        By: _______________________________
                                            Todd N. Tkachuk
                                            President

Dated as of January 23, 2003

<PAGE>

                           FORM OF EXERCISE AGREEMENT

                                                        Dated: ________ __, 200_

To:  Peabodys Coffee, Inc.

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

                                        Name: _______________________________

                                        Signature:
                                        Address: ____________________________
                                                 ____________________________

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

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

<PAGE>

                               FORM OF ASSIGNMENT

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

Name of Assignee                    Address                         No of Shares
----------------                    -------                         ------------

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

Dated:   ________ __, 200_

In the presence of:                          ______________________________

                                        Name:______________________________

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

                                        Address: ______________________________
                                                 ______________________________
                                                 ______________________________

                                        Note:     The above signature should
                                                  correspond exactly with the
                                                  name on the face of the within
                                                  Warrant, if applicable.THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN  REGISTERED
     UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED (THE "ACT").  THE SECURITIES
     MAY NOT BE SOLD,  TRANSFERRED  OR ASSIGNED  IN THE ABSENCE OF AN  EFFECTIVE
     REGISTRATION  STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF
     COUNSEL IN FORM,  SUBSTANCE AND SCOPE  CUSTOMARY FOR OPINIONS OF COUNSEL IN
     COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
     UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT.

                          SECURED CONVERTIBLE DEBENTURE

Rocklin, California
January 23, 2003                                                         $83,333

          FOR VALUE RECEIVED, PEABODYS COFFEE, INC., a Nevada corporation (d/b/a
Black Rhino Coffee) (hereinafter called the "BORROWER"),  hereby promises to pay
to the order of AJW Offshore,  Ltd. or registered assigns (the "HOLDER") the sum
of  Eighty-Three  Thousand  Three Hundred  Thirty-Three  Dollars  ($83,333),  on
January  23,  2004 (the  "MATURITY  DATE"),  and to pay  interest  on the unpaid
principal balance hereof at the rate of ten percent (10%) per annum from January
23, 2003 (the "ISSUE  DATE") until the same becomes due and payable,  whether at
maturity or upon  acceleration  or by  prepayment  or  otherwise.  Any amount of
principal  or interest on this  Debenture  which is not paid when due shall bear
interest  at the rate of  fifteen  percent  (15%)  per  annum  from the due date
thereof until the same is paid  ("DEFAULT  INTEREST").  Interest  shall commence
accruing on the issue date, shall be computed on the basis of a 365-day year and
the actual  number of days  elapsed and shall be  payable,  at the option of the
Holder,  either  quarterly on March 31, June 30, September 30 and December 31 of
each year  beginning  on March 31,  2003,  or at the time of  conversion  of the
principal to which such interest relates in accordance with Article I below. All
payments due hereunder (to the extent not converted into common stock, $.001 par
value per share,  of the Borrower (the "COMMON  STOCK") in  accordance  with the
terms  hereof) shall be made in lawful money of the United States of America or,
at the option of the Borrower, in whole or in part, in shares of Common Stock of
the Borrower valued at the then applicable Conversion Price (as defined herein).
All payments shall be made at such address as the Holder shall hereafter give to
the Borrower by written  notice made in accordance  with the  provisions of this
Debenture.  Whenever  any  amount  expressed  to be  due by the  terms  of  this
Debenture is due on any day which is not a business  day, the same shall instead
be due on the next  succeeding  day which is a business  day and, in the case of
any interest  payment date which is not the date on which this Debenture is paid
in full,  the  extension of the due date thereof shall not be taken into account
for purposes of determining  the amount of interest due on such date. As used in
this Debenture, the

<PAGE>

term "business day" shall mean any day other than a Saturday, Sunday or a day on
which  commercial  banks in the city of New  York,  New York are  authorized  or
required by law or executive order to remain closed.  Each capitalized term used
herein,  and not otherwise  defined,  shall have the meaning ascribed thereto in
that certain Securities Purchase Agreement, dated December 20, 2002, pursuant to
which this Debenture was originally issued (the "PURCHASE AGREEMENT").

     This Debenture is free from all taxes,  liens, claims and encumbrances with
respect to the issue  thereof and shall not be subject to  preemptive  rights or
other  similar  rights  of  shareholders  of the  Borrower  and will not  impose
personal  liability  upon the holder  thereof.  The  obligations of the Borrower
under this Debenture shall be secured by that certain  Security  Agreement dated
by and between the Borrower and the Holder of even date herewith.

     The following terms shall apply to this Debenture:

                          ARTICLE I. CONVERSION RIGHTS

          1.1  CONVERSION  RIGHT.  The Holder  shall have the right from time to
time,  and at any time on or prior to the earlier of (i) the  Maturity  Date and
(ii) the date of  payment of the  Default  Amount  (as  defined in Article  III)
pursuant to Section  1.6(a) or Article III, the Optional  Prepayment  Amount (as
defined in Section 5.1 or any payments  pursuant to Section 1.7, each in respect
of the remaining  outstanding  principal amount of this Debenture to convert all
or any part of the  outstanding  and unpaid  principal  amount of this Debenture
into fully paid and non-assessable  shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other  securities of
the  Borrower  into  which  such  Common  Stock  shall  hereafter  be changed or
reclassified  at the conversion  price (the  "CONVERSION  PRICE")  determined as
provided herein (a "CONVERSION");  PROVIDED, HOWEVER, that in no event shall the
Holder be entitled to convert  any portion of this  Debenture  in excess of that
portion of this Debenture upon  conversion of which the sum of (1) the number of
shares of Common  Stock  beneficially  owned by the  Holder  and its  affiliates
(other  than  shares of Common  Stock  which  may be deemed  beneficially  owned
through  the  ownership  of the  unconverted  portion of the  Debentures  or the
unexercised  or  unconverted  portion  of any  other  security  of the  Borrower
(including,  without limitation, the warrants issued by the Borrower pursuant to
the  Purchase  Agreement)  subject to a  limitation  on  conversion  or exercise
analogous to the limitations  contained  herein) and (2) the number of shares of
Common Stock  issuable upon the conversion of the portion of this Debenture with
respect to which the  determination  of this proviso is being made, would result
in  beneficial  ownership by the Holder and its  affiliates of more than 4.9% of
the  outstanding  shares of Common  Stock.  For  purposes  of the proviso to the
immediately  preceding  sentence,  beneficial  ownership  shall be determined in
accordance  with  Section  13(d) of the  Securities  Exchange  Act of  1934,  as
amended,  and  Regulations  13D-G  thereunder,  except as otherwise  provided in
clause  (1) of  such  proviso.  The  Holder  of this  Debenture  may  waive  the
limitations  set forth  herein by  sixty-one  (61)  days  written  notice to the
Company.  The number of shares of Common Stock to be issued upon each conversion
of this  Debenture  shall be  determined by dividing the  Conversion  Amount (as
defined  below) by the  applicable  Conversion  Price then in effect on the date
specified in the notice of conversion,  in the form attached hereto as Exhibit A
(the "NOTICE OF CONVERSION"), delivered to the Borrower by the Holder in

                                       2
<PAGE>

accordance  with Section 1.4 below;  provided  that the Notice of  Conversion is
submitted by facsimile (or by other means  resulting in, or reasonably  expected
to result in, notice) to the Borrower  before 6:00 p.m., New York, New York time
on such conversion date (the "CONVERSION  DATE").  The term "CONVERSION  AMOUNT"
means,  with respect to any  conversion  of this  Debenture,  the sum of (1) the
principal  amount of this Debenture to be converted in such  conversion PLUS (2)
accrued and unpaid  interest,  if any, on such principal  amount at the interest
rates  provided  in this  Debenture  to the  Conversion  Date  PLUS (3)  Default
Interest,  if any,  on the  amounts  referred  to in the  immediately  preceding
clauses (1) and/or (2) PLUS (4) at the Holder's option,  any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
that  certain  Registration  Rights  Agreement,  dated as of December  20, 2002,
executed in connection with the initial issuance of this Debenture and the other
Debentures issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT").

          1.2  CONVERSION PRICE.
               -----------------

               (a)  CALCULATION OF CONVERSION  PRICE. The Conversion Price shall
be the lesser of (i) the Variable  Conversion Price (as defined herein) and (ii)
the Fixed  Conversion  Price (as  defined  herein)  (subject,  in each case,  to
equitable  adjustments for stock splits,  stock dividends or rights offerings by
the Borrower  relating to the  Borrower's  securities  or the  securities of any
subsidiary of the Borrower, combinations,  recapitalization,  reclassifications,
extraordinary distributions and similar events). The "VARIABLE CONVERSION PRICE"
shall mean the  Applicable  Percentage  (as defined  herein)  multiplied  by the
Market Price (as defined herein). "MARKET PRICE" means the average of the lowest
three (3) Trading  Prices (as  defined  below) for the Common  Stock  during the
twenty  (20)  Trading  Day period  ending one  Trading Day prior to the date the
Conversion  Notice is sent by the  Holder to the  Borrower  via  facsimile  (the
"CONVERSION DATE").  "TRADING PRICE" means, for any security as of any date, the
intraday trading price on the  Over-the-Counter  Bulletin Board (the "OTCBB") as
reported by a reliable  reporting  service mutually  acceptable to and hereafter
designated  by Holders of a  majority  in  interest  of the  Debentures  and the
Borrower or, if the OTCBB is not the principal trading market for such security,
the intraday trading price of such security on the principal securities exchange
or trading  market  where such  security  is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing manners, the
average of the intraday  trading  prices of any market  makers for such security
that are listed in the "pink sheets" by the National  Quotation Bureau,  Inc. If
the Trading  Price cannot be  calculated  for such  security on such date in the
manner  provided  above,  the Trading  Price  shall be the fair market  value as
mutually determined by the Borrower and the holders of a majority in interest of
the Debentures being converted for which the calculation of the Trading Price is
required in order to determine the Conversion Price of such Debentures. "TRADING
DAY" shall  mean any day on which the  Common  Stock is traded for any period on
the OTCBB, or on the principal securities exchange or other securities market on
which the Common Stock is then being traded.  "APPLICABLE PERCENTAGE" shall mean
50.0%. The "FIXED CONVERSION PRICE" shall mean $.30.

               (b)  CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding
anything contained in Section 1.2(a) to the contrary,  in the event the Borrower
(i) makes a public announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which the Borrower is the surviving or
continuing  corporation  and its capital stock is unchanged) or sell or transfer
all or substantially all of the

                                       3
<PAGE>

assets  of the  Borrower  or (ii) any  person,  group or entity  (including  the
Borrower)  publicly  announces  a tender  offer to  purchase  50% or more of the
Borrower's  Common  Stock  (or  any  other  takeover  scheme)  (the  date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as the
"ANNOUNCEMENT  DATE"),  then the  Conversion  Price  shall,  effective  upon the
Announcement  Date  and  continuing   through  the  Adjusted   Conversion  Price
Termination Date (as defined below), be equal to the lower of (x) the Conversion
Price  which  would  have been  applicable  for a  Conversion  occurring  on the
Announcement  Date and (y) the  Conversion  Price  that  would  otherwise  be in
effect.  From and after the Adjusted  Conversion  Price  Termination  Date,  the
Conversion  Price shall be determined as set forth in this Section  1.2(a).  For
purposes hereof,  "ADJUSTED  CONVERSION PRICE TERMINATION DATE" shall mean, with
respect to any proposed  transaction  or tender  offer (or takeover  scheme) for
which a public  announcement  as  contemplated  by this Section  1.2(b) has been
made,  the date upon which the Borrower (in the case of clause (i) above) or the
person,  group or  entity  (in the case of clause  (ii)  above)  consummates  or
publicly announces the termination or abandonment of the proposed transaction or
tender offer (or  takeover  scheme)  which caused this Section  1.2(b) to become
operative.

          1.3 AUTHORIZED  SHARES.  The Borrower covenants that during the period
the conversion  right exists,  the Borrower will reserve from its authorized and
unissued  Common  Stock a  sufficient  number of  shares,  free from  preemptive
rights,  to provide for the issuance of Common Stock upon the full conversion of
this  Debenture  and  the  other  Debentures  issued  pursuant  to the  Purchase
Agreement. The Borrower is required at all times to have authorized and reserved
two times the number of shares that is actually issuable upon full conversion of
the Debentures  (based on the Conversion Price of the Debentures or the Exercise
Price of the Warrants in effect from time to time) (the "RESERVED AMOUNT").  The
Reserved  Amount shall be  increased  from time to time in  accordance  with the
Borrower's  obligations pursuant to Section 4(h) of the Purchase Agreement.  The
Borrower  represents  that upon  issuance,  such shares will be duly and validly
issued, fully paid and non-assessable.  In addition, if the Borrower shall issue
any  securities or make any change to its capital  structure  which would change
the  number of  shares  of Common  Stock  into  which  the  Debentures  shall be
convertible at the then current Conversion Price, the Borrower shall at the same
time make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved,  free from preemptive rights,
for conversion of the outstanding Debentures. The Borrower (i) acknowledges that
it has irrevocably  instructed its transfer agent to issue  certificates for the
Common Stock issuable upon  conversion of this  Debenture,  and (ii) agrees that
its issuance of this Debenture  shall  constitute full authority to its officers
and agents who are charged  with the duty of  executing  stock  certificates  to
execute  and issue the  necessary  certificates  for  shares of Common  Stock in
accordance with the terms and conditions of this Debenture.

          If,  at any time a  Holder  of this  Debenture  submits  a  Notice  of
Conversion,  and the Borrower does not have  sufficient  authorized but unissued
shares of Common Stock  available to effect such  conversion in accordance  with
the  provisions of this Article I (a "CONVERSION  DEFAULT"),  subject to Section
4.8,  the  Borrower  shall issue to the Holder all of the shares of Common Stock
which  are then  available  to  effect  such  conversion.  The  portion  of this
Debenture which the Holder  included in its Conversion  Notice and which exceeds
the amount which is then  convertible into available shares of Common Stock (the
"EXCESS  AMOUNT")  shall,  notwithstanding  anything to the  contrary  contained
herein, not be convertible into Common

                                       4
<PAGE>

Stock in accordance  with the terms hereof until (and at the Holder's  option at
any time after) the date additional shares of Common Stock are authorized by the
Borrower  to permit  such  conversion,  at which  time the  Conversion  Price in
respect  thereof  shall  be  the  lesser  of (i)  the  Conversion  Price  on the
Conversion  Default Date (as defined below) and (ii) the Conversion Price on the
Conversion  Date  thereafter  elected  by the  Holder  in  respect  thereof.  In
addition,  the Borrower shall pay to the Holder  payments  ("CONVERSION  DEFAULT
PAYMENTS") for a Conversion Default in the amount of (x) the SUM OF (1) the then
outstanding  principal  amount of this  Debenture  PLUS (2)  accrued  and unpaid
interest  on  the  unpaid  principal  amount  of  this  Debenture   through  the
Authorization Date (as defined below) PLUS (3) Default Interest,  if any, on the
amounts referred to in clauses (1) and/or (2), MULTIPLIED BY (y) .24, MULTIPLIED
BY (z) (N/365),  where N = the number of days from the day the holder  submits a
Notice of  Conversion  giving  rise to a  Conversion  Default  (the  "CONVERSION
DEFAULT  DATE")  to the  date  (the  "AUTHORIZATION  DATE")  that  the  Borrower
authorizes a sufficient number of shares of Common Stock to effect conversion of
the full outstanding principal balance of this Debenture. The Borrower shall use
its best efforts to  authorize a sufficient  number of shares of Common Stock as
soon as  practicable  following  the  earlier  of (i) such time that the  Holder
notifies the Borrower or that the Borrower  otherwise  becomes  aware that there
are or likely will be insufficient  authorized and unissued shares to allow full
conversion thereof and (ii) a Conversion Default. The Borrower shall send notice
to the Holder of the  authorization  of additional  shares of Common Stock,  the
Authorization  Date  and the  amount  of  Holder's  accrued  Conversion  Default
Payments.  The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient  authorized shares of Common Stock) at the applicable  Conversion
Price, at the Holder's option, as follows:

               (a)  In the event  Holder  elects to take such  payment  in cash,
cash  payment  shall be made to  Holder  by the  fifth  (5th)  day of the  month
following the month in which it has accrued; and

               (b)  In the event  Holder  elects to take such  payment in Common
Stock,  the Holder may convert  such  payment  amount  into Common  Stock at the
Conversion  Price (as in effect at the time of conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article I (so long as there is then a  sufficient  number
of authorized shares of Common Stock).

          The Holder's  election shall be made in writing to the Borrower at any
time prior to 6:00 p.m.,  New York, New York time, on the third day of the month
following the month in which  Conversion  Default  payments have accrued.  If no
election is made,  the Holder shall be deemed to have  elected to receive  cash.
Nothing  herein shall limit the Holder's  right to pursue actual damages (to the
extent in excess of the Conversion  Default Payments) for the Borrower's failure
to maintain a sufficient  number of authorized  shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

          1.4  METHOD OF CONVERSION.

               (a)  MECHANICS  OF  CONVERSION.  Subject  to  Section  1.1,  this
Debenture  may be  converted  by the Holder in whole or in part at any time from
time to time after the Issue

                                       5
<PAGE>

Date, by (A)  submitting to the Borrower a Notice of Conversion (by facsimile or
other reasonable means of communication  dispatched on the Conversion Date prior
to 6:00  p.m.,  New York,  New York time) and (B)  subject  to  Section  1.4(b),
surrendering this Debenture at the principal office of the Borrower.

               (b)  SURRENDER  OF  DEBENTURE  UPON  CONVERSION.  Notwithstanding
anything to the contrary set forth herein,  upon conversion of this Debenture in
accordance with the terms hereof, the Holder shall not be required to physically
surrender  this  Debenture to the Borrower  unless the entire  unpaid  principal
amount of this  Debenture is so  converted.  The Holder and the  Borrower  shall
maintain records showing the principal amount so converted and the dates of such
conversions  or shall use such  other  method,  reasonably  satisfactory  to the
Holder  and  the  Borrower,  so as not to  require  physical  surrender  of this
Debenture upon each such conversion. In the event of any dispute or discrepancy,
such records of the  Borrower  shall be  controlling  and  determinative  in the
absence of manifest error. Notwithstanding the foregoing, if any portion of this
Debenture is converted as aforesaid,  the Holder may not transfer this Debenture
unless the Holder first  physically  surrenders  this Debenture to the Borrower,
whereupon  the Borrower will  forthwith  issue and deliver upon the order of the
Holder a new Debenture of like tenor,  registered as the Holder (upon payment by
the Holder of any applicable  transfer  taxes) may request,  representing in the
aggregate the remaining unpaid  principal  amount of this Debenture.  The Holder
and any assignee,  by acceptance of this Debenture,  acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of a portion
of this Debenture, the unpaid and unconverted principal amount of this Debenture
represented  by this  Debenture  may be less than the amount  stated on the face
hereof.

               (c)  PAYMENT OF TAXES.  The Borrower shall not be required to pay
any tax which may be payable in respect of any  transfer  involved  in the issue
and  delivery  of shares of Common  Stock or other  securities  or  property  on
conversion  of this  Debenture  in a name  other  than that of the Holder (or in
street  name),  and the  Borrower  shall not be required to issue or deliver any
such  shares or other  securities  or  property  unless  and until the person or
persons (other than the Holder or the custodian in whose street name such shares
are to be held for the Holder's  account)  requesting the issuance thereof shall
have paid to the Borrower  the amount of any such tax or shall have  established
to the satisfaction of the Borrower that such tax has been paid.

               (d)  DELIVERY OF COMMON  STOCK UPON  CONVERSION.  Upon receipt by
the Borrower from the Holder of a facsimile  transmission  (or other  reasonable
means of communication)  of a Notice of Conversion  meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or  cause  to be  issued  and  delivered  to or upon  the  order  of the  Holder
certificates  for the Common Stock issuable upon such conversion  within two (2)
business days after such receipt  (and,  solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Debenture) (such second
business day being hereinafter referred to as the "DEADLINE") in accordance with
the terms hereof and the Purchase Agreement (including,  without limitation,  in
accordance with the requirements of Section 2(g) of the Purchase  Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the Registration  Statement upon conversion of this Debenture shall not bear any
restrictive legend).

                                       6
<PAGE>

               (e)  OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt
by the Borrower of a Notice of Conversion,  the Holder shall be deemed to be the
holder  of  record of the  Common  Stock  issuable  upon  such  conversion,  the
outstanding  principal  amount and the amount of accrued and unpaid  interest on
this  Debenture  shall be reduced to reflect such  conversion,  and,  unless the
Borrower  defaults  on its  obligations  under this  Article I, all rights  with
respect to the portion of this  Debenture  being so  converted  shall  forthwith
terminate except the right to receive the Common Stock or other securities, cash
or other assets,  as herein provided,  on such  conversion.  If the Holder shall
have given a Notice of Conversion as provided herein, the Borrower's  obligation
to issue and deliver the  certificates  for Common  Stock shall be absolute  and
unconditional,  irrespective  of the  absence  of any  action  by the  Holder to
enforce the same,  any waiver or consent with respect to any provision  thereof,
the  recovery  of any  judgment  against any person or any action to enforce the
same,  any failure or delay in the  enforcement  of any other  obligation of the
Borrower  to the  holder of record,  or any  setoff,  counterclaim,  recoupment,
limitation or termination,  or any breach or alleged breach by the Holder of any
obligation to the Borrower,  and  irrespective of any other  circumstance  which
might  otherwise  limit  such  obligation  of  the  Borrower  to the  Holder  in
connection with such conversion.  The Conversion Date specified in the Notice of
Conversion  shall be the Conversion  Date so long as the Notice of Conversion is
received by the  Borrower  before 6:00 p.m.,  New York,  New York time,  on such
date.

               (f)  DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER.  In lieu of
delivering  physical  certificates  representing  the Common Stock issuable upon
conversion,  provided the  Borrower's  transfer  agent is  participating  in the
Depository  Trust Company ("DTC") Fast Automated  Securities  Transfer  ("FAST")
program,  upon  request  of the Holder and its  compliance  with the  provisions
contained in Section 1.1 and in this  Section  1.4,  the Borrower  shall use its
best efforts to cause its transfer agent to  electronically  transmit the Common
Stock  issuable  upon  conversion  to the  Holder by  crediting  the  account of
Holder's Prime Broker with DTC through its Deposit  Withdrawal  Agent Commission
("DWAC") system.

               (g)  FAILURE TO DELIVER  COMMON STOCK PRIOR TO DEADLINE.  Without
in any way  limiting  the Holder's  right to pursue  other  remedies,  including
actual damages and/or  equitable  relief,  the parties agree that if delivery of
the Common Stock issuable upon conversion of this Debenture is more than two (2)
days after the Deadline (other than a failure due to the circumstances described
in Section 1.3 above,  which  failure  shall be governed  by such  Section)  the
Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the
Deadline that the Borrower fails to deliver such Common Stock.  Such cash amount
shall be paid to Holder by the  fifth  day of the month  following  the month in
which it has accrued  or, at the option of the Holder (by written  notice to the
Borrower  by the  first  day of the  month  following  the month in which it has
accrued),  shall be added to the principal  amount of this  Debenture,  in which
event  interest  shall  accrue  thereon  in  accordance  with the  terms of this
Debenture and such additional  principal amount shall be convertible into Common
Stock in accordance with the terms of this Debenture.

          1.5  CONCERNING  THE SHARES.  The shares of Common Stock issuable upon
conversion  of this  Debenture  may not be sold or  transferred  unless (i) such
shares are sold pursuant to an effective registration statement under the Act or
(ii) the  Borrower  or its  transfer  agent  shall have been  furnished  with an
opinion of counsel (which opinion shall be in form,

                                       7
<PAGE>

substance   and  scope   customary   for  opinions  of  counsel  in   comparable
transactions)  to the effect  that the shares to be sold or  transferred  may be
sold or  transferred  pursuant to an exemption from such  registration  or (iii)
such  shares are sold or  transferred  pursuant  to Rule 144 under the Act (or a
successor  rule)  ("RULE  144")  or  (iv)  such  shares  are  transferred  to an
"affiliate"  (as  defined  in Rule 144) of the  Borrower  who  agrees to sell or
otherwise  transfer the shares only in accordance  with this Section 1.5 and who
is an  Accredited  Investor  (as defined in the Purchase  Agreement).  Except as
otherwise  provided  in the  Purchase  Agreement  (and  subject  to the  removal
provisions  set forth  below),  until  such time as the  shares of Common  Stock
issuable upon conversion of this Debenture have been registered under the Act as
contemplated  by the  Registration  Rights  Agreement or  otherwise  may be sold
pursuant to Rule 144 without any  restriction  as to the number of securities as
of a particular  date that can then be immediately  sold,  each  certificate for
shares of Common Stock  issuable upon  conversion of this Debenture that has not
been so included in an  effective  registration  statement  or that has not been
sold  pursuant to an  effective  registration  statement  or an  exemption  that
permits  removal  of the  legend,  shall  bear  a  legend  substantially  in the
following form, as appropriate:

     "THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN REGISTERED
     UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED.  THE  SECURITIES MAY NOT BE
     SOLD,  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION
     STATEMENT  FOR THE  SECURITIES  UNDER SAID ACT, OR AN OPINION OF COUNSEL IN
     FORM,  SUBSTANCE AND SCOPE  CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
     TRANSACTIONS,  THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD
     PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT."

          The legend set forth  above shall be removed  and the  Borrower  shall
issue to the Holder a new  certificate  therefor free of any transfer  legend if
(i) the  Borrower  or its  transfer  agent  shall  have  received  an opinion of
counsel,  in form,  substance  and scope  customary  for  opinions of counsel in
comparable  transactions,  to the effect  that a public sale or transfer of such
Common Stock may be made without  registration  under the Act and the shares are
so sold or  transferred,  (ii) such Holder provides the Borrower or its transfer
agent with reasonable  assurances that the Common Stock issuable upon conversion
of this  Debenture  (to the  extent  such  securities  are  deemed  to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case
of the Common Stock issuable upon conversion of this Debenture, such security is
registered  for sale by the Holder  under an  effective  registration  statement
filed under the Act or  otherwise  may be sold  pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately  sold.  Nothing in this Debenture  shall (i) limit the Borrower's
obligation under the Registration Rights Agreement or (ii) affect in any way the
Holder's obligations to comply with applicable  prospectus delivery requirements
upon the resale of the securities referred to herein.

          1.6  EFFECT OF CERTAIN EVENTS.

               (a)  EFFECT OF MERGER,  CONSOLIDATION,  ETC. At the option of the
Holder,  the sale,  conveyance or disposition of all or substantially all of the
assets of the Borrower,  the  effectuation  by the Borrower of a transaction  or
series of related transactions in

                                       8
<PAGE>

which more than 50% of the voting  power of the  Borrower is disposed of, or the
consolidation, merger or other business combination of the Borrower with or into
any other  Person (as  defined  below) or Persons  when the  Borrower is not the
survivor  shall  either:  (i) be deemed to be an Event of Default (as defined in
Article  III)  pursuant  to which the  Borrower  shall be required to pay to the
Holder upon the consummation of and as a condition to such transaction an amount
equal to the  Default  Amount (as  defined  in  Article  III) or (ii) be treated
pursuant  to  Section  1.6(b)  hereof.   "PERSON"  shall  mean  any  individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization.

               (b)  ADJUSTMENT  DUE TO MERGER,  CONSOLIDATION,  ETC.  If, at any
time when this  Debenture is issued and  outstanding  and prior to conversion of
all of the  Debentures,  there shall be any merger,  consolidation,  exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another  entity,  or in case of any sale or conveyance of all or
substantially  all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower,  then the Holder of this Debenture
shall  thereafter  have the right to receive upon  conversion of this Debenture,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock  immediately  theretofore  issuable upon  conversion,
such stock,  securities  or assets which the Holder would have been  entitled to
receive  in  such   transaction  had  this  Debenture  been  converted  in  full
immediately  prior to such  transaction  (without  regard to any  limitations on
conversion set forth herein), and in any such case appropriate  provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter  deliverable upon
the conversion hereof.  The Borrower shall not effect any transaction  described
in this Section  1.6(b)  unless (a) it first gives,  to the extent  practicable,
thirty (30) days prior  written  notice (but in any event at least  fifteen (15)
days  prior  written  notice)  of the  record  date of the  special  meeting  of
shareholders  to approve,  or if there is no such record date, the  consummation
of,  such   merger,   consolidation,   exchange  of  shares,   recapitalization,
reorganization  or other similar event or sale of assets  (during which time the
Holder  shall be  entitled  to convert  this  Debenture)  and (b) the  resulting
successor  or  acquiring  entity  (if  not  the  Borrower)  assumes  by  written
instrument the obligations of this Section 1.6(b).  The above  provisions  shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.

               (c)  ADJUSTMENT  DUE  TO  DISTRIBUTION.  If  the  Borrower  shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase,  by way of return of
capital or otherwise  (including any dividend or  distribution to the Borrower's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary  (i.e.,  a spin-off)) (a  "DISTRIBUTION"),  then the Holder of this
Debenture  shall be entitled,  upon any conversion of this  Debenture  after the
date of record for determining  shareholders  entitled to such Distribution,  to
receive  the amount of such assets  which would have been  payable to the Holder
with respect to the shares of Common Stock  issuable  upon such  conversion  had
such Holder  been the holder of such  shares of Common  Stock on the record date
for the determination of shareholders entitled to such Distribution.

                                       9
<PAGE>

               (d)  ADJUSTMENT  DUE TO DILUTIVE  ISSUANCE.  If, at any time when
any Debentures are issued and  outstanding,  the Borrower issues or sells, or in
accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any
shares of Common Stock for no  consideration  or for a  consideration  per share
(before  deduction  of  reasonable   expenses  or  commissions  or  underwriting
discounts or allowances in connection  therewith) less than the Fixed Conversion
Price in effect on the date of such issuance (or deemed issuance) of such shares
of Common  Stock (a "DILUTIVE  ISSUANCE"),  then  immediately  upon the Dilutive
Issuance,  the Fixed  Conversion  Price  will be  reduced  to the  amount of the
consideration  per share  received by the  Borrower in such  Dilutive  Issuance;
provided that only one adjustment will be made for each Dilutive Issuance.

          The  Borrower  shall be deemed to have issued or sold shares of Common
Stock if the  Borrower in any manner  issues or grants any  warrants,  rights or
options, whether or not immediately exercisable, to subscribe for or to purchase
Common Stock or other  securities  convertible  into or exchangeable  for Common
Stock ("CONVERTIBLE  SECURITIES") (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred to as "OPTIONS")
and the price per share for which Common Stock is issuable  upon the exercise of
such Options is less than the Fixed  Conversion  Price then in effect,  then the
Fixed  Conversion  Price shall be equal to such price per share. For purposes of
the preceding sentence,  the "price per share for which Common Stock is issuable
upon the  exercise of such  Options"  is  determined  by dividing  (i) the total
amount,  if any, received or receivable by the Borrower as consideration for the
issuance or granting of all such Options,  plus the minimum  aggregate amount of
additional  consideration,  if any, payable to the Borrower upon the exercise of
all such Options,  plus, in the case of Convertible Securities issuable upon the
exercise  of  such  Options,   the  minimum   aggregate   amount  of  additional
consideration  payable upon the conversion or exchange  thereof at the time such
Convertible  Securities first become  convertible or  exchangeable,  by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise of all
such  Options   (assuming  full   conversion  of  Convertible   Securities,   if
applicable). No further adjustment to the Conversion Price will be made upon the
actual  issuance of such Common  Stock upon the exercise of such Options or upon
the conversion or exchange of Convertible  Securities  issuable upon exercise of
such Options.

          Additionally,  the  Borrower  shall be deemed  to have  issued or sold
shares  of  Common  Stock if the  Borrower  in any  manner  issues  or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options), and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Fixed Conversion Price then in effect,  then the Fixed Conversion Price shall be
equal to such price per share. For the purposes of the preceding  sentence,  the
"price per share for which  Common  Stock is issuable  upon such  conversion  or
exchange" is determined by dividing (i) the total  amount,  if any,  received or
receivable by the Borrower as consideration for the issuance or sale of all such
Convertible  Securities,   plus  the  minimum  aggregate  amount  of  additional
consideration,  if any,  payable to the Borrower upon the conversion or exchange
thereof at the time such  Convertible  Securities  first become  convertible  or
exchangeable,  by (ii) the  maximum  total  number of  shares  of  Common  Stock
issuable upon the conversion or exchange of all such Convertible Securities.  No
further  adjustment to the Fixed  Conversion  Price will be made upon the actual
issuance of such Common Stock upon  conversion  or exchange of such  Convertible
Securities.

                                       10
<PAGE>

          No  adjustment  to the  Conversion  Price  will be made  (i)  upon the
exercise of any warrants,  options or convertible securities granted, issued and
outstanding  on the date of issuance of this  Debenture;  (ii) upon the grant or
exercise of any stock or options  which may  hereafter  be granted or  exercised
under any employee  benefit plan,  stock option plan or restricted stock plan of
the  Borrower now existing or to be  implemented  in the future,  so long as the
issuance of such stock or options is  approved by a majority of the  independent
members of the Board of  Directors  of the Borrower or a majority of the members
of a committee of independent  directors  established for such purpose; or (iii)
upon Conversion of the Debentures.

               (e)  PURCHASE  RIGHTS.  If, at any time when any  Debentures  are
issued and outstanding, the Borrower issues any convertible securities or rights
to  purchase  stock,  warrants,  securities  or other  property  (the  "PURCHASE
RIGHTS") pro rata to the record  holders of any class of Common Stock,  then the
Holder of this Debenture will be entitled to acquire,  upon the terms applicable
to such Purchase Rights,  the aggregate  Purchase Rights which such Holder could
have  acquired  if such  Holder  had held the  number of shares of Common  Stock
acquirable  upon complete  conversion of this Debenture  (without  regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

               (f)  NOTICE  OF   ADJUSTMENTS.   Upon  the   occurrence  of  each
adjustment or  readjustment  of the  Conversion  Price as a result of the events
described  in this Section 1.6, the  Borrower,  at its expense,  shall  promptly
compute such adjustment or readjustment and prepare and furnish to the Holder of
a certificate  setting  forth such  adjustment  or  readjustment  and showing in
detail the facts  upon  which such  adjustment  or  readjustment  is based.  The
Borrower shall,  upon the written request at any time of the Holder,  furnish to
such  Holder  a  like   certificate   setting  forth  (i)  such   adjustment  or
readjustment,  (ii) the  Conversion  Price at the time in  effect  and (iii) the
number of shares of Common Stock and the amount,  if any, of other securities or
property which at the time would be received upon conversion of the Debenture.

          1.7  TRADING MARKET  LIMITATIONS.  Unless  permitted by the applicable
rules and  regulations  of the principal  securities  market on which the Common
Stock is then  listed or  traded,  in no event  shall the  Borrower  issue  upon
conversion of or otherwise  pursuant to this Debenture and the other  Debentures
issued pursuant to the Purchase Agreement more than the maximum number of shares
of  Common  Stock  that  the  Borrower  can  issue  pursuant  to any rule of the
principal  United  States  securities  market on which the Common  Stock is then
traded  (the  "MAXIMUM  SHARE  AMOUNT"),  which,  as of the Issue  Date shall be
4,311,267 shares (19.99% of the total shares outstanding on the Closing Date (as
defined in the Purchase  Agreement)),  subject to equitable adjustment from time
to time for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the date hereof.
Once the Maximum Share Amount has been issued (the date of which is  hereinafter
referred  to as the  "MAXIMUM  CONVERSION  DATE"),  if  the  Borrower  fails  to
eliminate any  prohibitions  under applicable law or the rules or regulations of
any  stock  exchange,  interdealer  quotation  system  or other  self-regulatory
organization with jurisdiction over the Borrower or any of its securities on the
Borrower's  ability  to issue  shares of Common  Stock in excess of the  Maximum
Share Amount (a "TRADING MARKET PREPAYMENT Event"), in lieu of any further right
to convert this

                                       11
<PAGE>

Debenture,  and in full  satisfaction of the Borrower's  obligations  under this
Debenture,  the Borrower  shall pay to the Holder,  within fifteen (15) business
days of the Maximum  Conversion Date (the "TRADING MARKET PREPAYMENT  DATE"), an
amount equal to 130% TIMES the SUM of (a) the then outstanding  principal amount
of this Debenture  immediately  following the Maximum  Conversion Date, PLUS (b)
accrued and unpaid interest on the unpaid  principal amount of this Debenture to
the Trading Market  Prepayment Date, PLUS (c) Default  Interest,  if any, on the
amounts  referred  to in clause  (a) and/or  (b)  above,  PLUS (d) any  optional
amounts that may be added thereto at the Maximum  Conversion  Date by the Holder
in accordance with the terms hereof (the then  outstanding  principal  amount of
this  Debenture  immediately  following the Maximum  Conversion  Date,  PLUS the
amounts  referred to in clauses  (b),  (c) and (d) above shall  collectively  be
referred to as the "REMAINING CONVERTIBLE AMOUNT").  With respect to each Holder
of  Debentures,  the Maximum  Share Amount shall refer to such Holder's PRO RATA
share thereof determined in accordance with Section 4.8 below. In the event that
the sum of (x) the  aggregate  number  of shares of  Common  Stock  issued  upon
conversion of this  Debenture and the other  Debentures  issued  pursuant to the
Purchase  Agreement PLUS (y) the aggregate number of shares of Common Stock that
remain  issuable  upon  conversion of this  Debenture  and the other  Debentures
issued  pursuant  to the  Purchase  Agreement,  represents  at least one hundred
percent  (100%) of the  Maximum  Share  Amount  (the  "TRIGGERING  EVENT"),  the
Borrower will use its best efforts to seek and obtain  Shareholder  Approval (or
obtain such other  relief as will allow  conversions  hereunder in excess of the
Maximum Share Amount) as soon as practicable  following the Triggering Event and
before the Maximum Conversion Date. As used herein, "SHAREHOLDER APPROVAL" means
approval by the  shareholders  of the Borrower to authorize  the issuance of the
full  number of  shares  of  Common  Stock  which  would be  issuable  upon full
conversion of the then outstanding Debentures but for the Maximum Share Amount.

          1.8  STATUS AS SHAREHOLDER.  Upon submission of a Notice of Conversion
by a Holder,  (i) the shares  covered  thereby  (other than the shares,  if any,
which  cannot be issued  because  their  issuance  would  exceed  such  Holder's
allocated  portion of the  Reserved  Amount or Maximum  Share  Amount)  shall be
deemed  converted into shares of Common Stock and (ii) the Holder's  rights as a
Holder of such converted  portion of this  Debenture  shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies  provided herein or otherwise  available at law or in equity
to such Holder  because of a failure by the Borrower to comply with the terms of
this  Debenture.  Notwithstanding  the  foregoing,  if a Holder has not received
certificates  for all shares of Common Stock prior to the tenth (10th)  business
day after the  expiration  of the Deadline  with respect to a conversion  of any
portion of this  Debenture  for any reason,  then  (unless the Holder  otherwise
elects to retain  its  status as a holder of Common  Stock by so  notifying  the
Borrower) the Holder shall regain the rights of a Holder of this  Debenture with
respect to such  unconverted  portions of this Debenture and the Borrower shall,
as soon as practicable,  return such unconverted  Debenture to the Holder or, if
the Debenture has not been surrendered,  adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies  (including,  without limitation,  (i) the
right to receive  Conversion  Default  Payments  pursuant  to Section 1.3 to the
extent  required  thereby  for  such  Conversion   Default  and  any  subsequent
Conversion  Default and (ii) the right to have the Conversion Price with respect
to subsequent  conversions  determined  in accordance  with Section 1.3) for the
Borrower's failure to convert this Debenture.

                                       12
<PAGE>

                         ARTICLE II. CERTAIN COVENANTS

          2.1  DISTRIBUTIONS  ON CAPITAL  STOCK.  So long as the Borrower  shall
have any  obligation  under this  Debenture,  the Borrower shall not without the
Holder's  written  consent (a) pay,  declare or set apart for such payment,  any
dividend or other distribution  (whether in cash,  property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in the form of  additional  shares of Common Stock or (b) directly or indirectly
or through any subsidiary  make any other payment or  distribution in respect of
its capital stock except for distributions  pursuant to any shareholders' rights
plan which is approved by a majority of the Borrower's disinterested directors.

          2.2  RESTRICTION ON STOCK  REPURCHASES.  So long as the Borrower shall
have any  obligation  under this  Debenture,  the Borrower shall not without the
Holder's  written consent redeem,  repurchase or otherwise  acquire (whether for
cash or in exchange for property or other  securities  or  otherwise) in any one
transaction or series of related transactions any shares of capital stock of the
Borrower  or any  warrants,  rights or options to  purchase  or acquire any such
shares.

          2.3  BORROWINGS.  So long as the  Borrower  shall have any  obligation
under this  Debenture,  the Borrower  shall not,  without the  Holder's  written
consent,  create,  incur,  assume or suffer to exist any  liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Borrower has informed Holder in writing prior to the date hereof,  (b)
indebtedness  to trade  creditors  or  financial  institutions  incurred  in the
ordinary  course of business or (c)  borrowings,  the proceeds of which shall be
used to repay this Debenture.

          2.4  SALE OF ASSETS. So long as the Borrower shall have any obligation
under this  Debenture,  the Borrower  shall not,  without the  Holder's  written
consent,  sell,  lease or otherwise  dispose of any  significant  portion of its
assets outside the ordinary  course of business.  Any consent to the disposition
of any  assets  may be  conditioned  on a  specified  use  of  the  proceeds  of
disposition.

          2.5  ADVANCES  AND  LOANS.  So long as the  Borrower  shall  have  any
obligation  under this Debenture,  the Borrower shall not,  without the Holder's
written consent,  lend money, give credit or make advances to any person,  firm,
joint  venture  or  corporation,   including,   without  limitation,   officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits or advances  (a) in  existence or committed on the date hereof and which
the Borrower has informed  Holder in writing prior to the date hereof,  (b) made
in the ordinary course of business or (c) not in excess of $50,000.

          2.6  CONTINGENT  LIABILITIES.  So long as the Borrower  shall have any
obligation  under this Debenture,  the Borrower shall not,  without the Holder's
written consent, assume, guarantee,  endorse,  contingently agree to purchase or
otherwise  become liable upon the obligation of any person,  firm,  partnership,
joint  venture  or   corporation,   except  by  the  endorsement  of  negotiable
instruments  for  deposit  or  collection  and except  assumptions,  guarantees,
endorsements and  contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed  Holder in writing prior to the date hereof,
and (b) similar transactions in the ordinary course of business.

                                       13
<PAGE>

                         ARTICLE III. EVENTS OF DEFAULT

          If any of  the  following  events  of  default  (each,  an  "EVENT  OF
DEFAULT") shall occur:

          3.1  FAILURE TO PAY PRINCIPAL OR INTEREST.  The Borrower  fails to pay
the principal hereof or interest thereon when due on this Debenture,  whether at
maturity,  upon a Trading Market  Prepayment Event pursuant to Section 1.7, upon
acceleration or otherwise;

          3.2  CONVERSION AND THE SHARES.  The Borrower fails to issue shares of
Common Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance  with the terms of this Debenture (for a period of at least
sixty (60)  days,  if such  failure  is solely as a result of the  circumstances
governed by Section 1.3 and the  Borrower is using its best efforts to authorize
a sufficient number of shares of Common Stock as soon as practicable),  fails to
transfer  or  cause  its  transfer  agent  to  transfer  (electronically  or  in
certificated  form) any  certificate  for shares of Common  Stock  issued to the
Holder upon  conversion of or otherwise  pursuant to this  Debenture as and when
required by this Debenture or the  Registration  Rights  Agreement,  or fails to
remove any restrictive legend (or to withdraw any stop transfer  instructions in
respect thereof) on any certificate for any shares of Common Stock issued to the
Holder upon  conversion of or otherwise  pursuant to this  Debenture as and when
required by this Debenture or the  Registration  Rights  Agreement (or makes any
announcement,  statement  or  threat  that it  does  not  intend  to  honor  the
obligations  described in this  paragraph)  and any such failure shall  continue
uncured (or any  announcement,  statement or threat not to honor its obligations
shall not be rescinded  in writing)  for ten (10) days after the Borrower  shall
have been notified thereof in writing by the Holder;

          3.3  FAILURE  TO EFFECT  REGISTRATION.  The  Borrower  fails to obtain
effectiveness  with the Securities and Exchange  Commission of the  Registration
Statement (as defined in the Registration  Rights  Agreement) within one hundred
thirty-five (135) days following the Filing Date (as defined in the Registration
Rights  Agreement)  or such  Registration  Statement  lapses in effect (or sales
cannot  otherwise  be  made  thereunder  effective,  whether  by  reason  of the
Borrower's  failure to amend or supplement  the prospectus  included  therein in
accordance with the  Registration  Rights  Agreement or otherwise) for more than
twenty (20) consecutive days or forty (40) days in any twelve month period after
the Registration Statement becomes effective;

          3.4  BREACH OF COVENANTS.  The Borrower breaches any material covenant
or other  material  term or condition  contained in Sections  1.3, 1.6 or 1.7 of
this Debenture,  or Sections 4(c),  4(e),  4(h), 4(i), 4(j) or 5 of the Purchase
Agreement and such breach  continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder;

          3.5  BREACH OF REPRESENTATIONS  AND WARRANTIES.  Any representation or
warranty  of  the  Borrower  made  herein  or in  any  agreement,  statement  or
certificate  given  in  writing  pursuant  hereto  or  in  connection   herewith
(including,  without  limitation,  the Purchase  Agreement and the  Registration
Rights  Agreement)),  shall be false or misleading in any material  respect when
made and the  breach of which  has (or with the  passage  of time  will  have) a
material

                                       14
<PAGE>

adverse effect on the rights of the Holder with respect to this  Debenture,  the
Purchase Agreement or the Registration Rights Agreement;

          3.6  RECEIVER  OR  TRUSTEE.  The  Borrower  or any  subsidiary  of 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;

          3.7  JUDGMENTS.  Any money judgment,  writ or similar process shall be
entered or filed  against the Borrower or any  subsidiary of the Borrower or any
of its  property  or other  assets  for more  than  $50,000,  and  shall  remain
unvacated,  unbonded  or  unstayed  for a period  of  twenty  (20)  days  unless
otherwise  consented to by the Holder,  which  consent will not be  unreasonably
withheld;

          3.8  BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other  proceedings for relief under any bankruptcy law or any law
for the relief of debtors  shall be instituted by or against the Borrower or any
subsidiary of the Borrower;

          3.9  DELISTING OF COMMON  STOCK.  The Borrower  shall fail to maintain
the  listing of the Common  Stock on at least one of the OTCBB or an  equivalent
replacement  exchange,  the Nasdaq National Market,  the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange; or

          3.10 DEFAULT UNDER OTHER DEBENTURES.  An Event of Default has occurred
and is  continuing  under any of the other  Debentures  issued  pursuant  to the
Purchase Agreement,

then,  upon the occurrence and during the  continuation  of any Event of Default
specified in Section 3.1,  3.2,  3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of  the  Holders  of a  majority  of  the  aggregate  principal  amount  of  the
outstanding  Debentures  issued pursuant to the Purchase  Agreement  exercisable
through the  delivery of written  notice to the  Borrower by such  Holders  (the
"DEFAULT  NOTICE"),  and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become  immediately due and payable and
the Borrower shall pay to the Holder,  in full  satisfaction  of its obligations
hereunder,  an amount  equal to the greater of (i) 130% TIMES the SUM of (w) the
then outstanding  principal amount of this Debenture PLUS (x) accrued and unpaid
interest on the unpaid principal amount of this Debenture to the date of payment
(the  "MANDATORY  PREPAYMENT  DATE") PLUS (y) Default  Interest,  if any, on the
amounts  referred to in clauses (w) and/or (x) PLUS (z) any amounts  owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal amount of this
Debenture  to the date of payment  PLUS the amounts  referred to in clauses (x),
(y) and (z)  shall  collectively  be  known  as the  "DEFAULT  SUM") or (ii) the
"parity  value" of the Default Sum to be prepaid,  where  parity value means (a)
the highest  number of shares of Common Stock  issuable  upon  conversion  of or
otherwise  pursuant to such Default Sum in  accordance  with Article I, treating
the Trading Day  immediately  preceding  the  Mandatory  Prepayment  Date as the
"Conversion Date" for purposes of determining the lowest  applicable  Conversion
Price,  unless the Default  Event arises as a result of a breach in respect of a
specific  Conversion  Date in  which  case  such  Conversion  Date  shall be the
Conversion  Date),  MULTIPLIED  BY (b) the highest  Closing Price for the Common
Stock during the period  beginning on the date of first  occurrence of the Event
of Default and ending one day prior to the Mandatory

                                       15
<PAGE>

Prepayment Date (the "DEFAULT  Amount") and all other amounts payable  hereunder
shall  immediately  become due and payable,  all without demand,  presentment or
notice,  all of which  hereby are  expressly  waived,  together  with all costs,
including,  without limitation,  legal fees and expenses, of collection, and the
Holder shall be entitled to exercise all other rights and remedies  available at
law or in equity.  If the Borrower  fails to pay the Default  Amount within five
(5) business  days of written  notice that such amount is due and payable,  then
the Holder shall have the right at any time, so long as the Borrower  remains in
default  (and so long and to the  extent  that there are  sufficient  authorized
shares), to require the Borrower,  upon written notice, to immediately issue, in
lieu of the Default Amount, the number of shares of Common Stock of the Borrower
equal to the Default Amount divided by the Conversion Price then in effect.

                           ARTICLE IV. MISCELLANEOUS

          4.1  FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of the Holder 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 privileges. All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.

          4.2  NOTICES.  Any notice  herein  required or  permitted  to be given
shall be in writing and may be personally served or delivered by courier or sent
by United  States  mail and shall be deemed to have been given  upon  receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after  being  deposited  in the United  States
mail, certified,  with postage pre-paid and properly addressed, if sent by mail.
For the  purposes  hereof,  the  address of the Holder  shall be as shown on the
records of the Borrower;  and the address of the Borrower shall be 3845 Atherton
Road,  Suite 9, Rocklin,  CA 95765,  facsimile  number:  916-632-6099.  Both the
Holder and the Borrower may change the address for service by service of written
notice to the other as herein provided.

          4.3  AMENDMENTS.  This Debenture and any provision  hereof may only be
amended by an instrument in writing  signed by the Borrower and the Holder.  The
term "Debenture" and all reference thereto,  as used throughout this instrument,
shall mean this  instrument  (and the other  Debentures  issued  pursuant to the
Purchase Agreement) as originally executed, or if later amended or supplemented,
then as so amended or supplemented.

          4.4  ASSIGNABILITY.  This Debenture shall be binding upon the Borrower
and its successors and assigns,  and shall inure to be the benefit of the Holder
and its  successors  and assigns.  Each  transferee of this Debenture must be an
"accredited   investor"   (as   defined  in  Rule   501(a)  of  the  1933  Act).
Notwithstanding  anything in this Debenture to the contrary,  this Debenture may
be pledged as collateral in connection  with a bona fide margin account or other
lending arrangement.

          4.5  COST OF  COLLECTION.  If default  is made in the  payment of this
Debenture,  the  Borrower  shall  pay the  Holder  hereof  costs of  collection,
including reasonable attorneys' fees.

                                       16
<PAGE>

          4.6  GOVERNING LAW. THIS DEBENTURE SHALL BE ENFORCED,  GOVERNED BY AND
CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  APPLICABLE  TO
AGREEMENTS MADE AND TO BE PERFORMED  ENTIRELY WITHIN SUCH STATE,  WITHOUT REGARD
TO THE  PRINCIPLES  OF  CONFLICT OF LAWS.  THE  BORROWER  HEREBY  SUBMITS TO THE
EXCLUSIVE  JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW  YORK  WITH  RESPECT  TO ANY  DISPUTE  ARISING  UNDER  THIS  DEBENTURE,  THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS  CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
THAT  SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY  OTHER  MANNER   PERMITTED  BY  LAW.   BOTH  PARTIES   AGREE  THAT  A  FINAL
NON-APPEALABLE  JUDGMENT IN ANY SUCH SUIT OR PROCEEDING  SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER  JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL  MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING  UNDER
THIS  DEBENTURE  SHALL  BE  RESPONSIBLE  FOR ALL FEES  AND  EXPENSES,  INCLUDING
ATTORNEYS'  FEES,  INCURRED  BY THE  PREVAILING  PARTY IN  CONNECTION  WITH SUCH
DISPUTE.

          4.7  CERTAIN AMOUNTS. Whenever pursuant to this Debenture the Borrower
is required to pay an amount in excess of the outstanding  principal  amount (or
the portion  thereof  required to be paid at that time) plus  accrued and unpaid
interest  plus Default  Interest on such  interest,  the Borrower and the Holder
agree that the actual  damages to the Holder from the receipt of cash payment on
this Debenture may be difficult to determine and the amount to be so paid by the
Borrower  represents  stipulated  damages  and not a penalty  and is intended to
compensate  the  Holder  in part for loss of the  opportunity  to  convert  this
Debenture and to earn a return from the sale of shares of Common Stock  acquired
upon  conversion  of this  Debenture  at a price in excess of the price paid for
such shares pursuant to this Debenture. The Borrower and the Holder hereby agree
that such amount of stipulated  damages is not plainly  disproportionate  to the
possible  loss to the Holder  from the  receipt of a cash  payment  without  the
opportunity to convert this Debenture into shares of Common Stock.

          4.8  ALLOCATIONS  OF MAXIMUM  SHARE  AMOUNT AND RESERVED  AMOUNT.  The
Maximum  Share Amount and Reserved  Amount shall be allocated pro rata among the
Holders of Debentures based on the principal amount of such Debentures issued to
each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
be allocated  pro rata among the Holders of  Debentures  based on the  principal
amount of such Debentures held by each Holder at the time of the increase in the
Maximum  Share  Amount or Reserved  Amount.  In the event a Holder shall sell or
otherwise  transfer any of such Holder's  Debentures,  each transferee  shall be
allocated  a pro rata  portion of such  transferor's  Maximum  Share  Amount and
Reserved  Amount.  Any portion of the Maximum  Share  Amount or Reserved  Amount
which  remains  allocated  to any  person  or  entity  which  does  not hold any
Debentures shall be allocated to the

                                       17
<PAGE>

remaining Holders of Debentures,  pro rata based on the principal amount of such
Debentures then held by such Holders.

          4.9  DAMAGES  SHARES.  The shares of Common Stock that may be issuable
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section
2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as
Common Stock issuable upon  conversion of this Debenture for all purposes hereof
and shall be subject to all of the limitations and afforded all of the rights of
the  other  shares  of  Common  Stock  issuable  hereunder,   including  without
limitation,  the  right  to be  included  in the  Registration  Statement  filed
pursuant to the  Registration  Rights  Agreement.  For  purposes of  calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein,  amounts  convertible  into Damages Shares ("DAMAGES  AMOUNTS")
shall not bear  interest but must be converted  prior to the  conversion  of any
outstanding  principal amount hereof,  until the outstanding  Damages Amounts is
zero.

          4.10 DENOMINATIONS.  At the request of the Holder,  upon  surrender of
this  Debenture,  the  Borrower  shall  promptly  issue  new  Debentures  in the
aggregate  outstanding  principal  amount  hereof,  in the form hereof,  in such
denominations of at least $50,000 as the Holder shall request.

          4.11 PURCHASE  AGREEMENT.  By its acceptance of this  Debenture,  each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.

          4.12 NOTICE OF CORPORATE EVENTS.  Except as otherwise  provided below,
the Holder of this  Debenture  shall have no rights as a Holder of Common  Stock
unless and only to the extent that it converts this Debenture into Common Stock.
The Borrower shall provide the Holder with prior  notification of any meeting of
the Borrower's shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire  (including by way of merger,  consolidation,
reclassification  or  recapitalization)  any  share of any  class  or any  other
securities  or property,  or to receive any other  right,  or for the purpose of
determining  shareholders  who  are  entitled  to vote in  connection  with  any
proposed sale, lease or conveyance of all or substantially  all of the assets of
the  Borrower  or any  proposed  liquidation,  dissolution  or winding up of the
Borrower,  the Borrower shall mail a notice to the Holder,  at least twenty (20)
days prior to the record  date  specified  therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  right or other event, and a brief statement  regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public  announcement  of any event
requiring notification to the Holder hereunder substantially simultaneously with
the  notification  to the Holder in  accordance  with the terms of this  Section
4.12.

          4.13 REMEDIES.  The Borrower  acknowledges  that a breach by it of its
obligations  hereunder will cause  irreparable harm to the Holder,  by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Borrower acknowledges that

                                       18
<PAGE>

the remedy at law for a breach of its  obligations  under this Debenture will be
inadequate  and  agrees,  in the event of a breach or  threatened  breach by the
Borrower of the provisions of this Debenture, that the Holder shall be entitled,
in addition to all other available remedies at law or in equity, and in addition
to the penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this  Debenture  and to enforce  specifically
the terms and provisions thereof, without the necessity of showing economic loss
and without any bond or other security being required.

                         ARTICLE V. OPTIONAL PREPAYMENT

          5.1  OPTIONAL  PREPAYMENT.  Notwithstanding  anything to the  contrary
contained  in this  Article  V, so long as (i) no Event of  Default  or  Trading
Market Prepayment Event shall have occurred and be continuing, (ii) the Borrower
has a  sufficient  number of  authorized  shares of Common  Stock  reserved  for
issuance  upon full  conversion  of the  Debentures,  then at any time after the
Issue  Date,  and (iii) the common  stock is trading  below  $1.00 per share the
Borrower  shall have the right,  exercisable  on not less than ten (10)  Trading
Days prior written notice to the Holders of the Debentures (which notice may not
be sent to the Holders of the  Debentures  until the  Borrower is  permitted  to
prepay  the  Debentures  pursuant  to this  Section  5.1),  to prepay all of the
outstanding  Debentures  in  accordance  with this  Section  5.1.  Any notice of
prepayment  hereunder  (an  "OPTIONAL  PREPAYMENT")  shall be  delivered  to the
Holders of the Debentures at their registered  addresses  appearing on the books
and records of the Borrower and shall state (1) that the Borrower is  exercising
its right to prepay all of the  Debentures  issued on the Issue Date and (2) the
date of prepayment  (the "OPTIONAL  PREPAYMENT  NOTICE").  On the date fixed for
prepayment (the "OPTIONAL  PREPAYMENT DATE"), the Borrower shall make payment of
the Optional  Prepayment  Amount (as defined  below) to or upon the order of the
Holders as  specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional  Prepayment  Date. If the Borrower  exercises
its right to prepay the  Debentures,  the  Borrower  shall  make  payment to the
holders of an amount in cash (the "OPTIONAL  PREPAYMENT AMOUNT") equal to either
(i) 130% (for prepayments  occurring within thirty (30) days of the Issue Date),
(ii) 140% (for  prepayments  occurring  between  thirty-one (31) and ninety (90)
days of the Issue  Date) or (iii)  150%  (for  prepayments  occurring  after the
ninetieth (90th) day following the Issue Date), multiplied by the sum of (w) the
then outstanding  principal amount of this Debenture PLUS (x) accrued and unpaid
interest  on the  unpaid  principal  amount of this  Debenture  to the  Optional
Prepayment Date PLUS (y) Default Interest, if any, on the amounts referred to in
clauses (w) and (x) PLUS (z) any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g)  hereof or pursuant to Section  2(c) of the  Registration  Rights
Agreement (the then  outstanding  principal amount of this Debenture to the date
of  payment  PLUS the  amounts  referred  to in clauses  (x),  (y) and (z) shall
collectively be known as the "OPTIONAL PREPAYMENT SUM").  Notwithstanding notice
of an Optional Prepayment,  the Holders shall at all times prior to the Optional
Prepayment  Date  maintain  the  right  to  convert  all or any  portion  of the
Debentures  in  accordance  with  Article I and any  portion  of  Debentures  so
converted  after  receipt  of an  Optional  Prepayment  Notice  and prior to the
Optional  Prepayment  Date set forth in such notice and payment of the aggregate
Optional  Prepayment  Amount  shall be  deducted  from the  principal  amount of
Debentures which are otherwise subject to prepayment pursuant to such notice. If
the  Borrower  delivers  an  Optional  Prepayment  Notice  and  fails to pay the
Optional  Prepayment  Amount due to the Holders of the Debentures within two (2)
business days

                                       19
<PAGE>

following the Optional  Prepayment  Date, the Borrower shall forever forfeit its
right to redeem the Debentures pursuant to this Section 5.1.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       20
<PAGE>

          IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in
its name by its duly authorized officer this 23rd day of January, 2003.

                                        PEABODYS COFFEE, INC.

                                        By: ______________________________
                                            Todd N. Tkachuk
                                            President

                                       21
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION
                    (To be Executed by the Registered Holder
                       in order to Convert the Debentures)

          The  undersigned  hereby  irrevocably  elects to  convert  $__________
principal  amount of the Debenture  (defined below) into shares of common stock,
par value $.001 per share ("COMMON STOCK"),  of Peabodys Coffee,  Inc., a Nevada
corporation  (the  "BORROWER")  according to the  conditions of the  convertible
debentures of the Borrower dated as of January 23, 2003 (the  "Debentures"),  as
of the date  written  below.  If  securities  are to be  issued in the name of a
person other than the  undersigned,  the undersigned will pay all transfer taxes
payable with respect thereto and is delivering  herewith such  certificates.  No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Debenture is attached hereto (or evidence of loss,  theft
or destruction thereof).

          The Borrower shall  electronically  transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the  undersigned  or its
nominee with DTC through its Deposit  Withdrawal Agent Commission  system ("DWAC
TRANSFER").

     Name of DTC Prime Broker:
                              --------------------------------------------------
     Account Number:
                    ------------------------------------------------------------

          In lieu of receiving shares of Common Stock issuable  pursuant to this
Notice of Conversion by way of a DWAC Transfer,  the undersigned hereby requests
that the Borrower issue a certificate or  certificates  for the number of shares
of  Common  Stock set  forth  below  (which  numbers  are based on the  Holder's
calculation  attached hereto) in the name(s) specified  immediately below or, if
additional space is necessary, on an attachment hereto:

     Name:
          ----------------------------------------------------------------------
     Address:
             -------------------------------------------------------------------

          The  undersigned  represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Debentures  shall be made pursuant to registration  of the securities  under
the Securities Act of 1933, as amended (the "ACT"),  or pursuant to an exemption
from registration under the Act.

          Date of Conversion:________________________
          Applicable Conversion Price:_______________
          Number of Shares of Common Stock to be Issued Pursuant to
          Conversion of the Debentures:______________
          Signature:_________________________________
          Name:______________________________________
          Address:___________________________________

                                       22
<PAGE>

The  Borrower  shall issue and deliver  shares of Common  Stock to an  overnight
courier not later than three  business  days  following  receipt of the original
Debenture(s) to be converted, and shall make payments pursuant to the Debentures
for the number of business days such issuance and delivery is late.

                                       23

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