PROMISSORY NOTE


U.S. $4,000,000


                   FOR VALUE RECEIVED,  the undersigned promises to pay to or to
the  order of THE  SECOND  CUP LTD.  ("TSCL")  at its head  office  in  Toronto,
Ontario,  or at such other  place  designated  by TSCL,  in lawful  money of the
United  States,  the principal  amount  indicated  from time to time on the grid
schedule  attached  hereto  (the  "Principal   Amount")  evidencing  the  amount
outstanding from time to time under that certain letter loan agreement dated the
day of May 19, 1998,  between the undersigned  and TSCL (the "Loan  Agreement").
All  capitalized  terms used herein and not otherwise  defined herein shall have
the meanings ascribed to them in the Loan Agreement.

                  The  Principal  Amount  shall  bear  interest  in  the  manner
specified  in  the  Loan  Agreement,  which  interest  shall  be  calculated  in
accordance with the terms and conditions of the Loan Agreement.

                  All payments of the  Principal  Amount and  interest  shall be
made in  accordance  with  the  terms  and  conditions  set  forth  in the  Loan
Agreement.

                  This  promissory note is issued pursuant to the Loan Agreement
and is subject to all of the provisions thereof.

                  The undersigned hereby waives presentment for payment, demand,
notice of non-payment,  notice of protest of this promissory note, and all other
notices in connection with the delivery, acceptance, performance, or enforcement
of, or default under,  this promissory  note, and waives diligence in collection
or bringing suit with respect to this promissory note.

                  This  promissory  note and every part hereof  shall be binding
upon the  undersigned  and its successors and shall enure to the benefit of, and
be enforceable by, TSCL and any of its successors and permitted assigns.

                  This  promissory note shall be governed by, and interpreted in
accordance  with,  the Laws of the  Province  of Ontario  and the Laws of Canada
applicable  therein.  The undersigned hereby irrevocably  attorns and submits to
the  non-exclusive  jurisdiction  of the courts of Ontario  with  respect to any
matter arising under or related to this promissory note.

                  This promissory note may be signed by facsimile signature.

                  The  undersigned  hereby  agrees  that any and all  costs  and
expenses  incurred by TSCL in  connection  with the  enforcement  of, or default
under, this promissory note shall be for the account of the undersigned.



                  DATED the 19th day of May, 1998.


                                   COFFEE PEOPLE, INC.


                                   Per:/s/ Kenneth B. Ross
                                       ----------------------------
                                       (Authorized Signing Officer)













                                                                GRID SCHEDULE

                                                                                       

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            Date                Amount of Advance/(Repayment)      Outstanding Principal        Accrued and Unpaid
                                  under the Loan Agreement             Amount Owing                  Interest
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