AGREEMENT
                                     AND
                               PLAN OF MERGER




                                 - between -





                              THE SECOND CUP INC.



                                    - and -



                               COFFEE PEOPLE, INC.

















                                February 19, 1998


<PAGE>








                           AGREEMENT AND PLAN OF MERGER

                                 Table of Contents

ARTICLE I - INTREPRETATION.....................................................2
         1.1  Definitions......................................................2
         1.2  Construction.....................................................7
         1.3  Accounting Principles............................................7
         1.4  Schedules........................................................8
         1.5  Acquisition Agreement Superseded.................................9
ARTICLE II - THE MERGER, EFFECT OF MERGER, MERGER CONSIDERATION................9
         2.1  The Merger.......................................................9
         2.2  Effective Time...................................................9
         2.3  Certificate of Incorporation; Bylaws; Directors..................9
         2.4  Merger Consideration............................................10
         2.5  Purchase Price Adjustment.......................................10
ARTICLE III - CLOSING ARRANGEMENTS............................................11
         3.1  Place of Closing................................................11
         3.2  Delivery of Certificates........................................11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE VENDOR.....................11
         4.1  Organization, Etc...............................................11
         4.2  Subsidiaries....................................................12
         4.3 Capitalization...................................................12
         4.4  Authorization...................................................12
         4.5  No Violation....................................................13
         4.6  Approvals.......................................................13
         4.7  Financial Statements and Other Information......................13
         4.8  No Undisclosed Liabilities......................................14
         4.9  Events Subsequent to June 28, 1997..............................14
         4.10  Taxes..........................................................15
         4.11  Litigation.....................................................16
         4.12  Compliance with Laws...........................................16
         4.13  Franchise Law Compliance.......................................17
         4.14  Customers, Suppliers, Franchisees, and Brokers.................17
         4.15  Title to and Condition of Property.............................17
         4.16  Environmental Matters..........................................17
         4.17  Material Contracts.............................................18
         4.18  Employment Contracts...........................................18
         4.19  Employee Plans.................................................18
         4.20  Brokerage Fees.................................................19
         4.21  Intellectual Property..........................................19
         4.22  Licenses.......................................................20
         4.23  Competition....................................................20
         4.24  Contracts with Non-Arm's Length Persons........................20
                                        
<PAGE>

ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................20
         5.1  Organization, Etc...............................................20
         5.2  Subsidiaries....................................................21
         5.3  Capitalization..................................................21
         5.4  Authorization...................................................21
         5.5  No Violation....................................................21
         5.6  Approvals.......................................................22
         5.7  Financial Statements and Other Information......................22
         5.8  Compliance with Laws............................................23
         5.9  No Undisclosed Liabilities......................................23
         5.10  Events Subsequent to December 31, 1996.........................23
         5.11  Taxes..........................................................24
         5.12  Litigation.....................................................25
         5.13  Title to and Condition of Property.............................25
         5.14  Environmental Matters..........................................25
         5.15  CPI Material Contracts.........................................26
         5.16  Employment Contracts...........................................26
         5.17  Employee Plans.................................................27
         5.18  Intellectual Property..........................................27
         5.19  Licenses.......................................................28
         5.20  Competition....................................................28
         5.21  Brokerage Fees.................................................28
         5.22  Outstanding Options............................................28
         5.23  Contracts with Non-Arm's Length Persons........................28
         5.24  Provision for Store Closures...................................28
         5.25  Coffee Plantation Acquisition..................................28
ARTICLE VI - COVENANTS OF THE VENDOR..........................................29
         6.1  Conduct of the Corporation and its Subsidiaries.................29
         6.2  Shareholder Meeting.............................................30
         6.3  Compliance with Obligations.....................................30
         6.4  Maintenance of Cash in Account..................................30
         6.5  Loan to purchaser...............................................30
         6.6  Exclusivity Obligations.........................................31
         6.7  Maintenance of Nasdaq Listing...................................31
ARTICLE VII - COVENANTS OF THE PURCHASER......................................31
         7.1  Conduct of the Purchaser........................................31
         7.2  Compliance with Obligations.....................................32
         7.3  Orders and Rulings..............................................33
         7.4  Shareholder Meeting.............................................33
         7.5  Proxy Statement; Registration Statement.........................33
         7.6  Store Closings..................................................33
         7.7  Delivery of Audited Financial Statements........................33
         7.8  Exclusivity Obligations.........................................33
         7.9  Coffee Bean International, Inc..................................34
         7.10  Nasdaq Listing.................................................34
<PAGE>

ARTICLE VIII - COVENANTS OF THE PURCHASER AND THE VENDOR......................34
         8.1  Access to Information; Confidentiality..........................34
         8.2  Notification of Certain Matters.................................35
         8.3  Regulatory Approvals............................................35
         8.4  Actions Contrary to Stated Intent...............................35
         8.5  Certain Filings.................................................35
         8.6  Public Announcements............................................36
         8.7  Satisfaction of Conditions Precedent............................36
         8.8  Brothers Escrow Agreement.......................................36
         8.9  Number of Directors.............................................36
         8.10  Tax Cooperation................................................36
         8.11  Cash/Working Capital Adjustment................................37
         8.12  Lease Consents.................................................37
         8.13  Coffee Supply..................................................37
ARTICLE IX - CONDITIONS OF CLOSING............................................38
         9.1  Conditions to All Parties' Obligations..........................38
         9.2  Conditions to the Obligations of the Purchaser to Effect the 
              Merger..........................................................38
         9.3  Conditions to the Obligations of the Vendor to Effect the Merger40
ARTICLE X - TERMINATION, AMENDMENTS, AND WAIVERS..............................42
         10.1  Termination....................................................42
         10.2  Effect of Termination..........................................42
         10.3  Expenses.......................................................42
         10.4  Termination Fee................................................43
         10.5  Alternate Transaction Fee......................................43
         10.6  Maximum Payment by Purchaser...................................44
ARTICEL XI - PROJECTIONS......................................................44
         11.1  Vendor's Acknowledgment........................................44
         11.2  Representation and Warranty of Purchaser.......................44
ARTICLE XII - GENERAL PROVISIONS..............................................44
         12.1  Taking of Necessary Action.....................................44
         12.2  Employment Terms...............................................44
         12.3  Effect of Due Diligence........................................44
         12.4  Successors and Assigns.........................................45
         12.5  Non-Survival of Representations and Warranties.................45
         12.6  Entire Agreement...............................................45
         12.7  Notices........................................................45
         12.8  Applicable Law.................................................46
         12.9  Consent to Jurisdiction; Receipt of Process....................46
         12.10  Counterparts..................................................46
         12.11  Headings......................................................46
         12.12  Amendment.....................................................46
         12.13  Waiver........................................................46



<PAGE>





                                AGREEMENT AND
                                PLAN OF MERGER


         AGREEMENT AND PLAN OF MERGER is made this 19th day of February, 1998,


B E T W E E N:


              THE SECOND CUP INC.,
              a corporation incorporated under the laws of the State of Delaware

              (the "Vendor")

              - and -

              COFFEE PEOPLE, INC.,
              a corporation incorporated under the laws of the State of Oregon

              (the "Purchaser")


         WHEREAS  the Vendor  owns all of the issued and  outstanding  shares of
Gloria Jean's Inc., a Delaware corporation (the "Corporation");

         AND WHEREAS the Vendor and the  Purchaser  previously  entered  into an
Acquisition  Agreement,  dated November 13, 1997 (the "Acquisition  Agreement"),
pursuant to which the  Purchaser  agreed to purchase,  and the Vendor  agreed to
sell to Purchaser,  all of the issued and  outstanding  shares in the capital of
Gloria Jean's Inc., a Delaware corporation (the "Corporation");

         AND  WHEREAS  the  Acquisition  Agreement  contemplated  in Section 2.3
thereof  that the  transactions  contemplated  thereby  might to  effected  as a
statutory  merger  qualifying as a  reorganisation  under Section  368(a) of the
Internal Revenue Code of 1986, as amended;

         AND WHEREAS the  parties by this  Agreement  agree to amend and restate
the   Acquisition   Agreement  for  purposes  of  effecting   the   transactions
contemplated  therein  as a  statutory  merger,  and to set  forth the terms and
conditions of such merger;

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency  of which  are  hereby  acknowledged,  and in  consideration  of the
foregoing  and  the  respective  representations,   warranties,   covenants  and
agreements set forth herein, the parties hereto agree as follows:



<PAGE>

                                  ARTICLE I
                               INTERPRETATION

1.1      Definitions.  In this Agreement and in all amendments and Schedules 
hereto, the following words and phrases shall have the meanings hereinafter 
set forth:

         "Affiliate" or "affiliate" shall mean, with respect to any Person,  any
other Person that,  directly or  indirectly,  controls or is controlled by or is
under  common  control  with  such  Person.   As  used  in  this  definition  of
"Affiliate," the term "control" and any derivatives thereof mean the possession,
directly or  indirectly,  of the power to direct or cause the  direction  of the
management  and  policies  of a  Person,  whether  through  ownership  of voting
securities, by contract, or otherwise.

         "Agreement"  shall  mean  this  agreement,   as  amended,   revised  or
supplemented from time to time, and includes all Schedules;

         "Alternate  Transaction"  shall  have the  meaning  given  such term in
Section 10.5 hereof.

         "Audited  Financial  Statements" shall have the meaning given such term
in Section 4.7 hereof.

         "Brothers  Escrow  Agreement"  means the escrow  agreement  dated as of
November 9, 1995 by and among Brothers Retail Corp., the Corporation and Norwest
Bank Colorado, N.A.

         "Brothers Stock Purchase  Agreement" means the stock purchase agreement
between  Brothers  Retail Corp.  and The Second Cup Ltd. dated as of October 16,
1995,  which agreement was assigned by The Second Cup Ltd. to the Corporation on
November 8, 1995.

         "Business  Day" shall mean any day,  other than a  Saturday,  Sunday or
legal holiday under the Federal laws of the United States.

         "CBI  Agreement"  shall have the meaning given such term in Section 7.9
hereof.

         "Closing" shall mean the completion of the transactions contemplated by
this  Agreement,  subject only to the filing of a certificate of merger with the
Delaware Secretary of State in accordance with the DGCL.

         "Closing  Date" shall mean the date that is seven  Business  Days after
the CPI Meeting, or such other date as may be agreed to by the parties, provided
that in no event shall the Closing  Date be later than April 15,  1998,  or such
later date as may be agreed to by the parties.

         "Code" shall mean the Internal Revenue Code of 1986, as amended.

         "Confidentiality  Agreement" shall mean the agreement dated October 17,
1997 between the Vendor and the Purchaser.

         "Contaminated  Site  List"  shall  mean  any  list,  registry  or other
compilation  established  by any  Governmental  Entity of sites where there is a
suspected  or  confirmed  Release of a  Hazardous  Material  or that  require or
potentially  require  investigation,  removal  actions,  remedial actions or any
other response under any  Environmental  Laws or treaty  covering  environmental
matters,  as the result of a Release  or  threatened  Release  of any  Hazardous
Materials.
<PAGE>

         "Corporate  Reorganization" means any internal corporate reorganization
undertaken by the Vendor or the Corporation  that does not adversely  impact the
Purchaser among any of the Vendor,  CP Old, Inc., a Subsidiary of the Vendor, or
a  Subsidiary  of the  Vendor  created  for the  purposes  of  facilitating  the
Corporate Reorganization.

         "Corporation  Certificates"  shall have the meaning  given such term in
Section 3.2 hereof.

         "Corporation  Shares" shall mean all the issued and outstanding  shares
in the common stock of the Corporation.

         "CPI Common Stock" shall mean shares in the common stock of the 
Purchaser.

         "CPI Employee  Plans" shall have the meaning given such term in Section
5.17 hereof.

         "CPI  Intellectual  Property" shall have the meaning given such term in
Section 5.18 hereof.

         "CPI  Leases"  shall have the meaning  given such term in Section  5.13
hereof.

         "CPI  Licences"  shall have the meaning given such term in Section 5.19
hereof.

         "CPI  Material  Contracts"  shall have the  meaning  given such term in
Section 5.15 hereof.

         "CPI Meeting" shall mean the special meeting of the shareholders of the
Purchaser  to be held  to  consider  and,  if  deemed  advisable,  approve  this
Agreement and the transactions contemplated hereby.

         "CPI  10-KSB"  shall have the  meaning  given such term in Section  5.7
hereof.

         "CPI  10-QSB"  shall have the  meaning  given such term in Section  5.7
hereof.

         "DGCL"  shall mean the  Delaware  General  Corporation  Law,  as it now
exists and is hereafter amended.

         "Disclosure  Letter" means the letter dated  November 11, 1997 from the
Purchaser to the Vendor.

         "EBITDA" shall mean earnings before interest income or expense,  income
taxes,  depreciation and  amortization,  calculated in accordance with generally
accepted accounting principles and before giving effect to any expenses incurred
in  connection  with the  transactions  contemplated  by this  Agreement,  which
expenses shall be no greater than $1,250,000.

         "Effective  Time" shall have the meaning given such term in Section 2.2
hereof.

         "Employee  Plan" shall have the meaning given such term in Section 4.19
hereof.

         "Environmental  Conditions"  shall mean any  pollution,  contamination,
degradation,  damage  or  injury  caused  by,  related  to,  arising  from or in
connection   with   the   generation,   handling,   use,   treatment,   storage,
transportation or Release of any Hazardous Materials.

         "Environmental  Laws" shall mean all  applicable  Federal,  provincial,
state,  local and foreign  environmental  laws,  rules,  statutes,  regulations,
ordinances, decrees or orders of Canada or

<PAGE>


the United States or of any federal,  provincial,  state,  municipality or other
subdivision  of any  thereof  that  imposes  Environmental  Liabilities  for the
Release of Hazardous Materials to the environment,  including but not limited to
the Resource  Conservation  and Recovery  Act, 42 U.S.C.  ss.6901 et. seq.;  the
Superfund Amendments and Reauthorization  Act, 42 U.S.C.  ss.11011 et. seq.; the
Clean Air Act, 42 U.S.C.  ss.7401 et. seq.; the Federal Water Pollution  Control
Act, 33 U.S.C.  ss.1251 et. seq.;  the Toxic  Substances  Control Act, 15 U.S.C.
ss.2601 et. seq.; the Comprehensive  Environmental Response,  Compensation,  and
Liability Act, 42 U.S.C.  ss.9601 et. seq.; and all applicable  published rules,
regulations,  directives,  guidances  and policies of the EPA and of all similar
state and local agency requirements.

         "Environmental   Liabilities"  shall  mean  any  and  all  liabilities,
responsibilities,  claims, suits, losses, costs (including remediation, removal,
response,  abatement,  cleanup,  investigative  and/or  monitoring costs and any
other related costs and expenses,  including  without  limitation  Environmental
Remediation  Costs),  other causes of action,  damages,  settlements,  expenses,
charges,  assessments,  liens, penalties,  fines, pre-judgment and post-judgment
interest,  attorney  fees and other legal fees (a)  pursuant  to any  agreement,
order, notice,  directive (including directives embodied in Environmental Laws),
injunction,  judgment  or  similar  documents  (including  settlements),  or (b)
pursuant  to any claim by a  governmental  entity or other  person for  personal
injury,  property damage,  damage to natural  resources,  remediation or similar
costs or expenses  incurred or  asserted by such  governmental  entity or person
pursuant to common law or statute.

         "Environmental  Remediation Costs" shall mean all costs and expenses of
actions or activities  to (a) clean-up or remove  Hazardous  Materials  from the
environment,  (b) prevent or minimize  the  movement,  leaching or  migration of
Hazardous  Materials into the environment (c) prevent,  minimize or mitigate the
Release or threatened  Release of Hazardous  Materials into the environment,  or
injury or damage from such Release,  and (d) comply with the requirements of any
Environmental Laws. Environmental Remediation Costs include, without limitation,
costs  and  expenses  payable  in  connection  with  the  foregoing  for  legal,
engineering or other consultant services, for investigation,  testing,  sampling
and  monitoring,   for  boring,   excavation  and  construction,   for  removal,
modification or replacement of equipment or facilities, for labour and material,
and for proper storage, treatment and disposal of Hazardous Materials.

         "EPA" shall mean the United States Environmental Protection Agency.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
it now exists and is hereafter amended.

         "Exchange Act" shall mean the United States Securities  Exchange Act of
1934, as amended, and the rules and regulations thereunder.

         "Filings with the U.S.  Commission"  shall mean the filings made by the
Purchaser with the U.S. Commission listed on Schedule 1.1.

         "Financial  Statements"  shall  have the  meaning  given  such  term in
Section 4.7 hereof.

         "Generally  accepted   accounting   principles"  shall  mean  generally
accepted accounting principles in the United States.

         "Governmental Entity" shall mean any United States, Canadian or foreign
court,  administrative agency or commission or other federal,  state, provincial
or local government or governmental authority or instrumentality.
<PAGE>

         "Hazardous  Materials" shall mean oil,  petroleum,  other hydrocarbons,
asbestos,   other  hazardous,   toxic,   contaminated  or  polluting  materials,
substances,  chemicals,  or wastes,  including  without  limitation,  "hazardous
substances,"  "hazardous pollutants," "hazardous wastes," "toxic substances," or
similar materials under any Environmental Laws.

         "Intellectual  Property"  shall  have the  meaning  given  such term in
Section 4.21 hereof.

         "Interim  Financial  Statements" shall have the meaning given such term
in Section 4.7 hereof.

         "IRS" shall mean the United States Internal Revenue Service.

         "Leases" shall have the meaning given such term in Section 4.15 hereof.

         "License"  shall  have the  meaning  given  such term in  Section  4.22
hereof.

         "Liens" shall mean all liens,  charges,  security  interests,  pledges,
rights or claims of others, restraints on transfer or other encumbrances.

         "Material  Adverse  Change" shall mean,  with respect to any Person,  a
change or a development  involving a prospective change which, alone or together
with any other such change or development,  has, or would reasonably be expected
to have a material  adverse  effect on the value of the assets or the  financial
condition,  which  includes the earnings  and cash flow  streams,  of the Person
taken as a whole with its Subsidiaries.

         "Material  Contracts" shall have the meaning given such term in Section
4.17 hereof.

         "Merger" shall have the meaning given such term in Section 2.1 hereof.

         "Merger  Corp." shall mean Gloria Jean's Merger Corp., a corporation to
be formed by  Purchaser  as its wholly  owned  subsidiary  under the laws of the
state  of  Delaware,   solely  for  purposes  of  effecting   the   transactions
contemplated by this Agreement.

         "Nasdaq National Market" shall mean the Nasdaq National Market System.

         "Nasdaq Stock Market" shall mean either the Nasdaq  National  Market or
the Nasdaq SmallCap Market.

         "Person"  shall mean an  individual,  corporation,  partnership,  joint
venture, trust or unincorporated organization,  or a government or any agency or
political subdivision thereof.

         "Plan"  shall  mean the  plan of  merger  substantially  in the form of
Exhibit 2.1 hereto, which pursuant to the terms and conditions of this Agreement
shall be adopted by the  Corporation  and Merger Corp.,  in accordance  with the
DGCL.

         "Proxy  Statement"  means the proxy  statement and all  amendments  and
supplements  thereto to be  prepared  in  connection  with the  solicitation  of
proxies by the management of the Purchaser for the CPI Meeting.
<PAGE>

         "Purchase  Price" shall have the meaning given such term in Section 2.4
hereof, subject to the adjustments provided for in Section 2.5 hereof.

         "Purchaser's  Adjustment  Factor" shall mean the percentage  adjustment
factor to be applied in accordance with Section 2.5 hereof.

         "Purchaser's  Counsel" shall mean the law firm Tonkon Torp LLP, located
at 1600 Pioneer Tower, 888 S.W. Fifth Avenue, Portland, Oregon, 97212.

         "Purchaser's EBITDA" shall mean actual EBITDA for the Purchaser for the
period  between July 1, 1997 and December  31,  1997,  accounted  for on a basis
consistent with past practice.

         "Purchaser's Financial Period End" shall mean any month period end.

         "Purchaser's  Nominees"  shall  have the  meaning  given  such  term in
Section 8.9 hereof.

         "Registration  Statement"  shall  have the  meaning  given such term in
Section 7.5 hereof.

         "Regulatory  Authority"  shall mean the  Nasdaq  National  Market,  the
United  States  Department  of Justice and  Federal  Trade  Commission,  and any
foreign,  Canadian or United States federal or state  government or governmental
authority  the  approval  of which,  or filing  with,  is  legally  required  or
permitted for consummation of the transactions contemplated by this Agreement.

         "Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging,  injecting, escaping, leaching, dumping or disposing into
the environment.

         "Requisite Regulatory Approvals" shall have the meaning given such term
in Section 9.1(c) hereof.

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

         "Tax" and "Taxes"  shall have the  meaning  given such terms in Section
4.10 hereof.

         "Tax Return(s)"  shall have the meaning given such term in Section 4.10
hereof.

         "Time of Closing" shall mean 10:00 a.m.  (Portland time) on the Closing
Date or such other time as the Purchaser and Vendor shall agree.

         "U.S.  Commission" shall mean the Securities and Exchange Commission of
the United States.

         "U.S.  Securities  Act" shall mean the United States  Securities Act of
1933, as amended, and the rules and regulations thereunder.

         "Vendor's  Adjustment  Factor"  shall  mean the  percentage  adjustment
factor to be applied in accordance with Section 2.5 hereof.
<PAGE>

         "Vendor's  Counsel"  shall mean either the law firm Goodman  Phillips &
Vineberg,  located at 250 Yonge Street, Suite 2400, Toronto, Ontario, M5B 2M6 or
Heller Ehrman White & McAuliffe  located at 525  University  Avenue,  Palo Alto,
California 94301-1900.

         "Vendor's  EBITDA"  shall mean the actual EBITDA for the Vendor for the
period  between June 29, 1997 and December  13, 1997,  accounted  for on a basis
consistent with past practice.

         "Vendor's  Financial  Period End" shall mean a four week period end for
which the Vendor prepares financial information relating to its business.

         "Vendor's  Nominees"  shall have the meaning given such term in Section
8.9 hereof.

1.2      Construction.  In this Agreement:

         (a)      words denoting the singular  include the plural and vice versa
and words denoting any gender include all genders;

         (b)      the   word   "including"   shall   mean   "including   without
limitation";

         (c)      any  reference to a statute shall mean the statute in force as
at the date hereof and any  regulation  in force  thereunder,  unless  otherwise
expressly provided;

         (d)      the use of headings is for  convenience  of reference only and
shall not affect the construction or interpretation of this Agreement;

         (e)      when  calculating the period of time within which or following
which any act is to be done or step taken,  the date which is the  reference day
in calculating such period shall be excluded.  If the last day of such period is
not a Business Day, the period shall end on the next Business Day;

         (f)      all dollar  amounts are  expressed  in United  States  dollars
unless otherwise stipulated; and

         (g)      facts or information  within the  "knowledge" of the Vendor or
Purchaser  or "to the best  knowledge"  of the Vendor or the  Purchaser,  or any
equivalent  phrase as used in this  Agreement,  shall mean facts known, or which
should have been known after due inquiry,  in the case of the Purchaser,  by any
of the directors, officers, or senior operations personnel of the Purchaser and,
in  the  case  of the  Vendor,  by any of  the  directors,  officers  or  senior
operations personnel of the Vendor, the Corporation,  any of the Subsidiaries of
the Corporation or The Second Cup Ltd.

         (h)      notwithstanding  any  indication  to  the  contrary  contained
elsewhere  herein,  all  representations,  warranties and covenants made in this
Agreement shall be deemed to have been made as of November 13, 1997, the date of
the Acquisition  Agreement,  and not as of the date hereof, and no breach of any
representation,  warranty,  or covenant  contained in the Acquisition  Agreement
shall be deemed to be waived by the  non-breaching  party by  execution  of this
Agreement.

1.3  Accounting  Principles.  Wherever in this  Agreement  reference  is made to
generally accepted accounting  principles,  such reference shall be deemed to be
the United States  generally  accepted  accounting  principles from time to time
approved  by  the  Financial   Accounting  Standards  Board,  or  any  successor
institute,  applicable  as at the  date on  which  such  calculation  is made or
required to be made in accordance with generally accepted accounting principles.


<PAGE>


1.4      Schedules. The following are the Schedules and Exhibits incorporated by
reference herein and deemed to be an integral part of this Agreement:

         Schedules relating to the Vendor:

                  Schedule 4.2              -     Subsidiaries, etc.
                  Schedule 4.3              -     Capitalization
                  Schedule 4.6              -     Required Consents
                  Schedule 4.8              -     Liabilities
                  Schedule 4.9              -     Undisclosed Liabilities
                  Schedule 4.10             -     Taxes
                  Schedule 4.11             -     Litigation
                  Schedule 4.12             -     Compliance with Laws
                  Schedule 4.13             -     Franchise Law Compliance
                  Schedule 4.14             -     Customers, Suppliers, 
                                                    Franchisees and Brokers
                  Schedule 4.15             -     Real Property and Leases
                  Schedule 4.16             -     Environmental Matters
                  Schedule 4.17             -     Contracts
                  Schedule 4.18             -     Employment Contracts
                  Schedule 4.19             -     Employee Plans
                  Schedule 4.21             -     Intellectual Property
                  Schedule 4.23             -     Competition
                  Schedule 4.24             -     Contracts with Non-Arm's 
                                                    Length Persons

         Schedules relating to the Purchaser:

                  Schedule 1.1              -     Filings with U.S. Commission
                  Schedule 2.5              -     Adjustments to Purchase Price
                  Schedule 5.2              -     Subsidiaries, etc.
                  Schedule 5.3              -     Capitalization
                  Schedule 5.6              -     Required Consents
                  Schedule 5.9              -     Liabilities
                  Schedule 5.10             -     Undisclosed Liabilities
                  Schedule 5.11             -     Taxes
                  Schedule 5.12             -     Litigation
                  Schedule 5.13             -     Real Property and Leases
                  Schedule 5.14             -     Environmental Matters
                  Schedule 5.15             -     CPI Contracts
                  Schedule 5.16             -     Employment Contracts
                  Schedule 5.17             -     CPI Employee Plans
                  Schedule 5.18             -     Intellectual Property
                  Schedule 5.20             -     Competition
                  Schedule 5.22             -     Outstanding Options
                  Schedule 5.23             -     Contracts with Non-Arm's 
                                                    Length Persons
                  Schedule 7.6              -     Store Closings
                  Schedule 9.3(h)           -     Lease Consents



<PAGE>


         Exhibits

                  Exhibit 2.1               -     Plan of Merger
                  Exhibit 9.2(d)            -     Form of Opinion of Vendor's 
                                                    Counsel
                  Exhibit 9.3(d)            -     Form of Opinion of Purchaser's
                                                    Counsel
                  Exhibit 9.3(i)            -     Voting Agreement
                  Exhibit 12.2              -     Terms of Employment for Taylor
                                                    H. Devine
                                            -     Terms of Employment for 
                                                    Kenneth B. Ross

1.5      Acquisition Agreement Superseded. This Agreement amends and restates in
its entirety  the  Acquisition  Agreement  for the purpose of  consummating  the
transactions  contemplated  therein  as  a  statutory  merger  qualifying  as  a
reorganization under Section 368(a)(1)(A) of the Code.


                                  ARTICLE II
                         THE MERGER, EFFECT OF MERGER,
                              MERGER CONSIDERATION

2.1      The Merger.  Upon the terms and subject to the  conditions set forth in
this  Agreement,  Purchaser  and  Vendor  shall on the  Closing  Date  cause the
Corporation  and Merger Corp.  to adopt the Plan.  Pursuant to the Plan,  at the
Effective Time (as defined in Section 2.2 below),  Merger Corp.  shall be merged
with and into the Corporation (the "Merger").  The Corporation  shall be (and is
hereinafter sometimes referred to as) the "Surviving Corporation." The corporate
existence  of the  Corporation  with  all its  rights,  privileges,  powers  and
franchises  shall continue  unaffected and unimpaired by the Merger,  and as the
Surviving  Corporation it shall be governed by the laws of the State of Delaware
and succeed to all rights, privileges,  powers, franchises,  assets, liabilities
and  obligations  of Merger  Corp.  in  accordance  with the DGCL.  The separate
existence  and  corporate  organization  of  Merger  Corp.  shall  cease  at the
Effective Time and thereupon the Corporation and Merger Corp.  shall be a single
corporation.  Pursuant to the Plan, the Merger shall have the effects  specified
in the DGCL.

2.2      Effective Time. Pursuant to the Plan, the Merger shall become effective
at the time (the "Effective  Time") of filing with the Secretary of State of the
State of Delaware a properly executed  certificate of merger,  together with any
other documents  required by law to effectuate the Merger, or at such later time
as may be specified in the  certificate  of merger.  The parties shall cause the
certificate  of merger to be filed with the  Secretary  of State of the state of
Delaware as soon as practicable after the Closing.

2.3      Certificate Of Incorporation;  Bylaws; Directors. Pursuant to the Plan,
the Certificate of Incorporation  and Bylaws of the Corporation as they exist as
of the date of this Agreement  shall remain in place  immediately  following the
Effective Time and shall be the Certificate of  Incorporation  and Bylaws of the
Surviving  Corporation.  The Board of Directors of the  Corporation  immediately
following the Merger shall consist of Alton McEwen, Kathy A. Welsh and Taylor H.
Devine until their respective successors are duly elected or appointed, or until
their earlier death,  resignation or removal in accordance  with the Certificate
of Incorporation and Bylaws of the Corporation.
<PAGE>

2.4      Merger  Consideration.  Subject  to  the  adjustments  provided  for in
Section 2.5 of this  Agreement,  at the Effective  Time, by virtue of the Merger
and without any action by the Vendor,  the Purchaser,  the  Corporation,  or the
respective stockholders thereof:

         (a)  All  the  Corporation  Shares  held  in the  aggregate  by  Vendor
immediately  prior to the Effective  Time shall be converted into that number of
shares  of CPI  Common  Stock  which  will  represent  69.5% of the  issued  and
outstanding shares of CPI Common Stock at the Effective Time after giving effect
to the transactions contemplated by this Agreement,  rounded down to the nearest
whole share (the "Purchase  Price").  Shares of the Corporation's  capital stock
held by any person other than the Vendor,  if any,  shall be  cancelled  without
conversion and without entitlement to any consideration. By way of illustration,
if the number of issued and outstanding  shares of CPI Common Stock  immediately
prior to the  Effective  Time is equal to  3,261,085  shares,  then the Purchase
Price shall be equal to 7,430,996 shares of CPI Common Stock.

         (b) Each share of Merger Corp.  capital  stock  issued and  outstanding
immediately  prior to the  Effective  Time shall be converted  into one share of
common  stock of the  Surviving  Corporation,  with the effect that  immediately
after the Effective  Time, the Surviving  Corporation  shall be the wholly owned
subsidiary of the Purchaser.

2.5      Purchase Price  Adjustment.  The parties  acknowledge that the Purchase
Price set out in Section 2.4 is based on relative projected EBITDA contributions
which includes the  Purchaser's  EBITDA and Vendor's  EBITDA as projected at the
time of negotiations between the parties.  Accordingly,  in order to accommodate
certain negative variances to the Purchaser's EBITDA or the Vendor's EBITDA, the
Purchase Price shall be adjusted according to the following formula  immediately
prior to the Effective Time:
<TABLE>
<CAPTION>
<S>                                                    <C> 

                     Y                                  x     (0.695 + Adjustment Factor)  = Adjusted Purchase Price
---------------------------------------------
 (0.305 - Adjustment Factor)
</TABLE>

         For the  purposes of this Section 2.5, (i) "Y" shall mean the number of
shares of CPI Common  Stock  issued  and  outstanding  immediately  prior to the
Effective Time,  before giving effect to the  transactions  contemplated by this
Agreement,   and  (ii)  the  "Adjustment  Factor"  shall  mean  the  Purchaser's
Adjustment  Factor less the Vendor's  Adjustment  Factor.  The Adjustment Factor
will be a negative number in circumstances  where the Vendor's Adjustment Factor
is greater than the Purchaser's  Adjustment Factor.  The Purchaser's  Adjustment
Factor shall be calculated as follows:

         If the  Purchaser's  EBITDA is greater than $650,000,  the  Purchaser's
         Adjustment Factor shall be equal to zero.

         If the  Purchaser's  EBITDA is greater  than  $600,000 and less than or
         equal to $650,000,  the Purchaser's Adjustment Factor shall be equal to
         0.01.

         If the  Purchaser's  EBITDA is greater  than  $550,000 and less than or
         equal to $600,000,  the Purchaser's Adjustment Factor shall be equal to
         0.02.

         If the  Purchaser's  EBITDA is greater  than  $500,000 and less than or
         equal to $550,000,  the Purchaser's Adjustment Factor shall be equal to
         0.03.
<PAGE>

         The Vendor's Adjustment Factor shall be calculated as follows:

         If the  Vendor's  EBITDA  is  greater  than  $2,325,000,  the  Vendor's
Adjustment Factor shall be equal to zero.

         If the  Vendor's  EBITDA is greater  than  $2,150,000  and less than or
         equal to $2,325,000,  the Vendor's  Adjustment Factor shall be equal to
         0.01.

         If the  Vendor's  EBITDA is greater  than  $1,975,000  and less than or
         equal to $2,150,000,  the Vendor's  Adjustment Factor shall be equal to
         0.02.

         If the  Vendor's  EBITDA is greater  than  $1,800,000  and less than or
         equal to $1,975,000,  the Vendor's  Adjustment Factor shall be equal to
         0.03.

         Schedule 2.5  provides  illustrative  examples of the  operation of the
Purchase Price adjustment hereunder.


                                 ARTICLE III
                            CLOSING ARRANGEMENTS

3.1      Place of Closing.  The Closing  shall take place at the Time of Closing
at the offices of the Purchaser's Counsel in Portland,  Oregon, or at such other
location as may be agreed upon by the Purchaser and the Vendor.

3.2      Delivery of Certificates.

         (a) At the Effective Time, all the Corporation Shares shall cease to be
outstanding, shall be cancelled and retired and shall cease to exist. The Vendor
shall  surrender to the Purchaser at the Closing one or more  certificates  that
represent  immediately  prior to the Effective Time all the  Corporation  Shares
("Corporation Certificates").

         (b) The CPI Common Stock into which the  Corporation  Shares shall have
been  converted,  pursuant to Section  2.4 hereof,  shall be deemed to have been
issued and  outstanding  immediately  after the Effective  Time. At the Closing,
upon delivery of all Corporation Certificates,  the Purchaser shall issue to the
Vendor  certificates  representing  the CPI  Common  Stock to be held by  Vendor
immediately after the Effective Time, under Section 2.4 hereof.

         (c) At the Closing, the Surviving  Corporation shall issue certificates
to the Purchaser  representing the common stock of the Surviving  Corporation to
be held by the Purchaser immediately after the Effective Time, under Section 2.4
hereof,  which  shares  shall be  deemed  to have been  issued  and  outstanding
immediately after the Effective Time.


                                ARTICLE IV
                REPRESENTATIONS AND WARRANTIES OF THE VENDOR

         The Vendor  represents and warrants to the Purchaser (and  acknowledges
that  the  Purchaser  is  relying  on  the  representations  and  warranties  in
completing the transactions herein) as follows:

4.1      Organization,  Etc. The Corporation is a corporation duly organized and
validly  existing and in good  standing  under the laws of the State of Delaware
<PAGE>

and has all  necessary  corporate  power,  authority and capacity to conduct its
business  as it is now  being  conducted  and  to  own,  operate  or  lease  the
properties  and assets it currently  owns,  operates or holds under  lease.  The
Corporation is duly qualified or licensed to do business and is in good standing
as a  foreign  corporation  in each  jurisdiction  where  the  character  of its
business or the nature of its properties  makes such  qualification or licensing
necessary,  except  where the  failure to so qualify  or be  licensed  would not
result in a Material Adverse Change.

4.2      Subsidiaries.  Schedule  4.2  contains  a  list  of  all  Subsidiaries,
partnerships,  joint ventures and other entities in which the  Corporation  has,
directly or indirectly, any legal or beneficial interest or any right to acquire
a  legal  or  beneficial  interest  and  indicates  for  each  such  Subsidiary,
partnership,  joint  venture or other  entity:  (i) the  percentage  and type of
equity  securities of or other interest owned or controlled by the  Corporation;
(ii) the jurisdiction of incorporation or organization;  (iii) each jurisdiction
in which it is  qualified or licensed to conduct its  business;  and (iv) in the
case of any joint venture, the identity of each other joint venture partner. The
Corporation is the direct owner,  beneficially and of record, of all such equity
securities or other interests listed as being owned by it, free and clear of all
Liens.

4.3      Capitalization. The authorized, issued and outstanding capital stock of
the Corporation is as set forth on Schedule 4.3. The  Corporation  does not hold
any shares in its own capital. The designations,  powers,  preferences,  rights,
qualifications, limitations and restrictions in respect of each class and series
of  authorized  capital  stock  of  the  Corporation  are as  set  forth  in the
Corporation's  articles of  incorporation,  and all such  designations,  powers,
preferences,  rights,  qualifications,  limitations and  restrictions are valid,
binding  and  enforceable  and in  accordance  with  all  applicable  laws.  All
outstanding shares of capital stock of the Corporation have been duly authorized
and  validly  issued as fully  paid and  non-assessable.  Except as set forth in
Schedule  4.3,  there  are  no  outstanding   options,   warrants,   convertible
securities,  calls,  rights,  commitments,  pre-emptive  rights or agreements or
instruments or  understandings  of any character to which the Corporation or any
of its  Subsidiaries  is a  party  or by  which  the  Corporation  or any of its
Subsidiaries is bound,  obligating the Corporation or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued,  delivered or sold,  contingently
or otherwise, additional shares of its capital stock or the capital stock of any
of its or their  Subsidiaries or any securities or obligations  convertible into
or  exchangeable  for such  shares  or to grant,  extend or enter  into any such
option,  warrant,  convertible security,  call, right,  commitment,  pre-emptive
right or agreement.  There are no outstanding obligations,  contingent or other,
of the Corporation or any of its  Subsidiaries to purchase,  redeem or otherwise
acquire any shares of its capital  stock.  Except as set forth in Schedule  4.3,
there  are  no  voting  trust   agreements  or  other   contracts,   agreements,
arrangements,  commitments,  plans or  understandings  restricting  or otherwise
relating to voting,  dividend or other rights with respect to any of the capital
stock of the  Corporation or any of its  Subsidiaries.  The  Corporation  Shares
constitute  all of the  issued  and  outstanding  shares in the  capital  of the
Corporation.

4.4      Authorization.  The Vendor has all necessary corporate power, authority
and  capacity  to enter  into this  Agreement  and each of the other  agreements
contemplated  hereby, to carry out its obligations under this Agreement and each
of the other agreements  contemplated  hereby and to consummate the transactions
contemplated  hereby.  The  execution  and  delivery  of  this  Agreement,   the
consummation of the transactions  contemplated hereby and the performance by the
Vendor of its  obligations  hereunder have been duly authorized by all necessary
corporate  action on the part of the  Vendor,  subject  to  required  regulatory
approvals,  to the  extent  any shall be  required  to effect  the  transactions
contemplated  by this  Agreement.  This  Agreement  has been duly  executed  and
delivered by the Vendor and constitutes a legal, valid and binding obligation of
the Vendor  enforceable  against the Vendor in accordance with its terms (except
as the  enforceability  thereof  may be  limited by any  applicable  bankruptcy,
insolvency or other laws  affecting  creditors'  rights  generally or by general
principles  of equity,  regardless  of whether  enforceability  is considered in
equity or at law).
<PAGE>

4.5      Violation.  The execution and delivery of this  Agreement by the Vendor
does not, and the  consummation by the Vendor of the  transactions  contemplated
hereby and  compliance  with the terms hereof will not, (a)  conflict  with,  or
result in any  breach of any  provision  of the  articles  of  incorporation  or
by-laws  of the  Vendor  or the  Corporation  or  any of its  Subsidiaries;  (b)
conflict with, or result in any material  violation of or default or loss of any
benefit under,  any License,  grant,  statute,  law, rule or regulation,  or any
judgment,  decree  or  order  of any  court  or  other  governmental  agency  or
instrumentality  to which the Vendor, the Corporation or any of its Subsidiaries
is a party or to which any of their respective property is subject; (c) conflict
with,  or result in a breach or material  violation of or default or loss of any
benefit  under,  or  accelerate  the  performance  required by, the terms of any
material  agreement,  contract,  indenture or other instrument (other than, with
respect to the Leases,  where such  breaches,  violations or defaults  would not
result in a Material Adverse Change) which the Vendor, the Corporation or any of
its  Subsidiaries  is a party or to which any of their  respective  property  is
subject, or constitute a default or loss of any right thereunder which, with the
lapse of time or notice or both,  might  result in a default  or loss of a right
thereunder  or the creation of any Lien upon any of the assets or  properties of
the Vendor,  the  Corporation or any of its  Subsidiaries;  or (d) result in any
suspension, revocation, impairment, forfeiture or non-renewal of any License.

4.6      Approvals.  The execution and delivery of this  Agreement by the Vendor
and the  consummation of the transactions  contemplated  hereby will not require
the consent,  approval,  order or authorization  of any  Governmental  Entity or
Regulatory  Authority  or  any  other  Person  under  any  statute,  law,  rule,
regulation,  permit, license, agreement,  indenture or other instrument to which
the Vendor or the Corporation or any of its  Subsidiaries is a party or to which
any of their  respective  properties are subject and no  declaration,  filing or
registration with any Governmental Entity or Regulatory Authority is required by
the Vendor,  the  Corporation or any of its  Subsidiaries in connection with the
execution and delivery of this Agreement,  the  consummation of the transactions
contemplated  hereby,  or the  performance  by  the  Vendor  of its  obligations
hereunder,  other than (a) as set out on Schedule 4.6. or (b) in connection with
the Leases.

         The Vendor  further  represents  and  warrants  to the  Purchaser  (and
acknowledges that the Purchaser is relying on the representations and warranties
in completing the transactions herein) that, to the best of its knowledge:

4.7      Financial Statements and Other Information.

         (a) The Vendor has  delivered to the  Purchaser  (i) true,  correct and
complete copies of the Corporation's  audited  consolidated balance sheets as of
June 28, 1997 and June 29, 1996 and the related audited consolidated  statements
of income and retained  earnings  and cash flows  (together  with the  auditors'
reports  thereon)  for each of the year ended  June 28,  1997 and the nine month
period from  September  30, 1995 to June 29, 1996,  together  with notes to such
financial  statements  (the  "Audited  Financial  Statements"),  and (ii)  true,
correct and complete copies of the  Corporation's  unaudited  balance sheets for
the months of July 1997,  August  1997 and  September  20,  1997 and the related
unaudited consolidated statements of income and retained earnings and cash flows
for the months of July 1997,  August 1997 and  September  20, 1997 (the "Interim
Financial  Statements").  The Audited Financial Statements and Interim Financial
Statements are herein collectively referred to as the "Financial Statements".

         (b) The Financial  Statements  have been  prepared in  accordance  with
generally accepted  accounting  principles  consistently  applied throughout the
periods covered thereby and the balance sheets included  therein present fairly,
<PAGE>

in all material respects,  as of their respective dates the financial  condition
of the Corporation  (subject,  in the case of Interim Financial  Statements,  to
year-end adjustments that may be required upon audit, which adjustments will not
result in a Material Adverse Change on such financial statements).  All material
liabilities and obligations, whether absolute, accrued, contingent or otherwise,
whether  direct or indirect,  and whether due or to become due, which existed at
the date of such Financial  Statements have been disclosed in the balance sheets
included in the Financial  Statements or in notes to the Financial Statements to
the extent such liabilities were required,  under generally accepted  accounting
principles, to be so disclosed.

4.8      No Undisclosed Liabilities.

         (a)  Except  as set  forth on  Schedule  4.8,  the  Corporation  has no
liability or  obligations of any nature  (contingent  or otherwise),  other than
those  disclosed  or reflected in the  Financial  Statements  or incurred in the
ordinary course of business  consistent with past practice since the date of the
last Interim Financial Statements.

         (b) Since June 28, 1997, no Material  Adverse Change in the Corporation
and its  Subsidiaries  taken as a whole has  occurred,  except as  disclosed  in
Schedule 4.8 or as set forth in the Interim Financial Statements.

4.9      Events Subsequent to June 28, 1997.  Since June 28, 1997, neither the 
Corporation nor any of its Subsidiaries has:

         (a)      except as disclosed in Schedule  4.9,  transferred,  assigned,
                  sold or  otherwise  disposed of any of the assets shown in the
                  Audited Financial  Statements or cancelled any debts or claims
                  except  in each  case in the  ordinary  and  normal  course of
                  business,  consistent  with past practice  (which ordinary and
                  normal  course of business  includes  the  operation of stores
                  owned by the Corporation or any of its Subsidiaries);

         (b)      incurred or assumed any  obligation  or  liability  (direct or
                  indirect,  absolute or  contingent),  except  those  listed in
                  Schedule 4.8 hereto and except unsecured  current  obligations
                  and liabilities  incurred in the ordinary and normal course of
                  business consistent with past practice;

         (c)      except as disclosed in Schedule 4.9, or in  connection  with a
                  Corporate  Reorganization,  issued  or sold any  shares in its
                  capital or any warrants,  bonds, debentures or other corporate
                  securities or issued,  granted or delivered any right,  option
                  or  other  commitment  for  the  issuance  of any  such  other
                  securities;

         (d)      except as disclosed in Schedule 4.9, or in  connection  with a
                  Corporate Reorganization,  declared or made any payment of any
                  dividend or other distribution in respect of any shares in its
                  capital or purchased  or redeemed  any such shares  thereof or
                  effected any subdivision, consolidation or reclassification of
                  any such  shares or repaid in full or in part any  shareholder
                  loans;

         (e)      suffered  any  extraordinary  loss,  or waived  any  rights of
                  substantial   value,   or  entered  into  any   commitment  or
                  transaction  not in the ordinary and normal course of business
                  where such loss, rights, commitment or transaction is or would
                  be  material  in   relation   to  the   Corporation   and  its
                  Subsidiaries, taken as whole;
<PAGE>

         (f)      except as disclosed in Schedule 4.9, amended or changed or 
                  taken any action to amend or change its constating documents 
                  or by-laws;

         (g)      except as disclosed in Schedule  4.9, made any general wage or
                  salary, or fee increases in respect of personnel it employs or
                  consultants   it  retains  other  than   regularly   scheduled
                  increases in the ordinary course of business,  consistent with
                  past practice;

         (h)      except  as  disclosed  in  Schedule  4.9  hereto,   mortgaged,
                  pledged,  subjected to lien, granted a security interest in or
                  otherwise  encumbered  any of its assets or property,  whether
                  tangible or intangible;

         (i)      except as disclosed in Schedule 4.9, loaned or agreed to lend
                  money to any Person including a shareholder;

         (j)      except for  inventory,  equipment  or assets  acquired  in the
                  ordinary  course of business  consistent  with past  practice,
                  made  any  acquisition  of  all  or any  part  of the  assets,
                  properties, capital stock or business of any other Person; and

         (k)      authorized or agreed or otherwise become committed to any of 
                  the foregoing.

4.10     Taxes.   Except for matters that would not result in a Material Adverse
                  Change:

         (a) all tax returns  (including,  without limitation,  income,  profit,
franchise,  sales  and  use,  excise,  severance,  occupation,  property,  gross
receipts, payroll and withholding tax returns and information returns), deposits
and  reports  (all  such  returns,  deposits  and  reports  herein  referred  to
collectively as "Tax Returns" or singularly as a "Tax Return") of or relating to
any Canadian or United States federal,  state,  provincial,  local or foreign or
other  governmental  tax (all,  together with any  penalties,  additions to tax,
fines and interest thereon or related  thereto,  herein referred to collectively
as "Taxes" or  singularly as a "Tax") that are required to be filed or deposited
for, by, on behalf of or with respect to the  Corporation  or its  Subsidiaries,
including,  but  not  limited  to,  those  relating  to  the  income,  business,
operations or property of the Corporation and its  Subsidiaries  and those which
include or should include the Corporation and its Subsidiaries,  have been filed
or  deposited  duly and on a timely basis and all Taxes and filing fees shown to
be due  and  payable  on such  Tax  Returns  have  been  paid  in  full  and all
instalments,   assessments   and  charges  of  which  the   Corporation  or  its
Subsidiaries  is aware or has  received  notice and which are due and payable by
the Corporation or its Subsidiaries  have been paid in full.  Schedule 4.10 sets
forth all the jurisdictions in which Tax Returns have been filed;

         (b) all such Tax Returns and the information and data contained therein
have been properly and  accurately  compiled and  completed,  fairly present the
information  purported to be shown therein and reflect all liabilities for Taxes
for the periods covered by such Tax Returns;

         (c)  no such Tax Return or designation contains any misstatement or 
omits any statement that should have been included therein;

         (d) except as disclosed on Schedule 4.10,  none of such Tax Returns are
now under audit or examination by any Canadian or United States federal,  state,
provincial,  local or  foreign  or other  Governmental  Entity  and there are no
agreements,  waivers or other  arrangements  providing  for an extension of time
with respect to the  assessment  or  collection  of any Tax or deficiency of any
nature against the  Corporation of its  Subsidiaries or with respect to any such
Tax  Return  or  any  suits  or  other  judicial  or   administrative   actions,
proceedings,  investigations  or claims now  pending or  threatened  against the
<PAGE>

Corporation  or any of its  Subsidiaries  with respect to any Tax,  governmental
charge or assessment;

         (e) all Taxes imposed on the  Corporation or its  Subsidiaries  (or for
which the Corporation or any of its Subsidiaries is or could be liable,  whether
to any  Governmental  Entity or to other  Persons (as,  for  example,  under tax
allocation  agreements)),  which are due and  payable on or before  the  Closing
Date,  have been or will be paid when due and the latest  balance sheet included
in the Financial  Statements  reflects and includes adequate  provisions for the
payment  in full of any and all Taxes for  which the  Corporation  or any of its
Subsidiaries  is or could be liable,  whether to any  Governmental  Entity or to
other Persons (as, for example,  under tax allocation  agreements),  not yet due
for any and all periods up to and including the date of such balance sheet;

         (f) all Taxes for which the  Corporation or any of its  Subsidiaries is
or could be liable,  whether to any Governmental Entity or to other Persons (as,
for example,  under tax  allocation  agreements),  for periods  beginning  after
September 30, 1995 through the Closing Date have been, or will be, paid when due
or adequately  reserved  against on the books of the  Corporation  or any of its
Subsidiaries  on or prior to the Closing Date and an amount of cash equal to the
amount of such reserve will have been set aside for payment of such Taxes;

         (g) the Corporation and its Subsidiaries have withheld and remitted all
amounts  required  to be  withheld  and  have  paid  such  amounts  due  to  the
appropriate  authority  on a timely  basis  and in the form  required  under the
appropriate legislation; and

         (h) there is no tax Lien,  whether  imposed by any  Canadian  or United
States federal,  state,  provincial,  county, local or foreign taxing authority,
outstanding  and  filed  against  the  assets,  properties  or  business  of the
Corporation  or any of its  Subsidiaries.  Except as disclosed in Schedule 4.10,
neither the  Corporation nor any of its  Subsidiaries  has agreed to make nor is
required to make any adjustment under Section 481(a) of the Code, by reason of a
change in accounting method or otherwise. Neither the Corporation nor any of its
Subsidiaries is a party to any agreement, contract, arrangement or plan that has
resulted,  or as a  consequence  of the  transactions  contemplated  hereby will
result,  separately or in the aggregate,  in the payment of any excess parachute
payments within the meaning of Section 28OG of the Code.

4.11     Litigation.  Except as set forth in Schedule 4.11,  there is no action,
suit,  investigation,   arbitration  or  proceeding  in  progress,   pending  or
threatened  against or affecting the  Corporation or any of its  Subsidiaries or
any of their  respective  properties  or rights  (including no charge of patent,
copyright and/or  trademark  infringement)  and, no circumstances  have occurred
which would give rise to any such action,  suit,  investigation,  arbitration or
proceeding.  Except  as set  forth in  Schedule  4.11,  there  is not  presently
outstanding  against the  Corporation or any of its  Subsidiaries  any judgment,
decree,  injunction,  award  or  order  of  any  court,  commission,  agency  or
arbitrator.

4.12     Compliance  with  Laws.  Except as  disclosed  in  Schedule  4.12,  the
Corporation and its Subsidiaries have complied in all material respects with all
applicable  laws  (including  rules,  regulations,  codes,  plans,  injunctions,
judgments,  orders, decrees, rulings and charges thereunder) of any Governmental
Entity  relating to or affecting  the  operation,  conduct or ownership of their
respective   properties  or  business.   No   investigation  or  review  by  any
Governmental Entity (including without limitation any audit or similar review by
any federal,  foreign, state, provincial or local taxing authority) with respect
to the Corporation or a Subsidiary thereto is pending or threatened. Neither the
Corporation nor any of its Subsidiaries is in default with respect to any order,
writ, injunction or decree known to or served upon the Corporation or any of its
Subsidiaries  of any  Governmental  Entity,  which  default  would  result  in a
Material Adverse Change.
<PAGE>

4.13     Franchise Law  Compliance.  Except as disclosed in Schedule  4.13,  the
Corporation or its Subsidiaries  have made all filings under all federal,  state
and foreign franchise laws and regulations as required by reason of the business
conducted by the Corporation and its  Subsidiaries,  in order to offer, sell and
maintain  franchises  and  have  all  licenses,   authorizations  and  approvals
necessary to offer,  sell and maintain  franchises in the jurisdictions in which
they have offered or sold  franchises.  The offering  circulars  and  disclosure
statements  filed and  distributed by the Corporation or its  Subsidiaries  (the
most recent of which has been supplied to the Purchaser)  comply in all material
respects with  applicable  federal,  state and foreign laws and  regulations and
neither the Corporation  nor any of its  Subsidiaries or Affiliates has received
any notice that such  offering  circulars or  disclosure  statements  are not in
compliance with any such applicable laws and regulations.

4.14     Customers,  Suppliers,  Franchisees and Brokers. Except as set forth in
Schedule 4.14, (i) the  relationships  of the Corporation  and its  Subsidiaries
with their respective  customers,  suppliers,  franchisees and brokers have been
entered into and are conducted at arms length in the ordinary course of business
and (ii)  since June 30,  1997,  no  material  customer,  franchisee,  broker or
material supplier of the Corporation or any of its Subsidiaries has cancelled or
otherwise terminated, or threatened in writing to cancel or otherwise terminate,
its relationships  with the Corporation or such Subsidiary.  Except as set forth
in Schedule 4.14, none of the franchisees of the Corporation or its Subsidiaries
have  formed  or  organized  any  association   relating  to  the   franchisees'
relationship with the Corporation or its  Subsidiaries.  No association or group
listed on Schedule  4.14 has  commenced,  or has  threatened  to  commence,  any
action,  suit,   proceeding,   claims  or  legal,   administrative  or  arbitral
proceedings or investigations against the Corporation or any of its Subsidiaries
or  Affiliates,  or alleged that any offering  circular or disclosure  statement
issued by the Corporation or such Subsidiaries is false or misleading.

4.15     Title to and Condition of Property.  Neither the Corporation nor any of
its Subsidiaries  owns any real property.  Except as set forth on Schedule 4.15,
all leases, subleases,  licences and other agreements (both verbal and written),
under which the Corporation,  any Subsidiary thereof or any franchisee  occupies
real property (collectively,  the "Leases") are valid, binding and in full force
and effect,  no written  notice of default or  termination  thereunder  has been
received by the Vendor, Corporation, any Subsidiary or any franchisee, all rents
and other sums and other charges  payable by the lessee  thereunder  are current
(or no more than 60 days past due) and no termination  event either  conditional
or  uncured  default on the part of the  Corporation  or any  Subsidiary  or any
franchisee exists thereunder.

4.16     Environmental Matters.  Except as disclosed on Schedule 4.16:

         (a) the Corporation and each of its Subsidiaries  have been in the past
and  are  now in  compliance  with  all  Environmental  Laws  and  all  material
requirements of applicable permits, licenses, approvals and other authorizations
under applicable Environmental Laws;

         (b)  neither the  Corporation  nor any of its  Subsidiaries  is, or has
received any notification that it may be subject to any material claim,  action,
obligation,  proceeding,  investigation  or  evaluation  directly or  indirectly
relating  to  any  of  their  current  or  past  operations,  or  those  of  any
predecessor,  or any  by-product  thereof,  of any of their  current or formerly
owned,  leased or operated  properties,  or those of any predecessor  that could
directly or indirectly  result in the  incurrence of any material  Environmental
Liabilities and Costs by the Corporation or any of its Subsidiaries;

         (c) neither the  Corporation  nor any of its  Subsidiaries  has entered
into any  agreement  with any  Governmental  Entity  or  other  Person  by which
responsibility  was assumed for, either  directly or indirectly,  the conduct of
<PAGE>

any Remedial  Action or the incurrence of any other  Environmental  Liabilities;
provided,  however,  that the representation and warranty in this subsection (c)
does not limit or otherwise modify any other  representations  and warranties in
this Agreement, including without limitation, the representation and warranty in
Section 4.16(b)  concerning the existence of any claims,  actions,  obligations,
proceedings, investigations or evaluations in connection with any such leases;

         (d) the Corporation and its  Subsidiaries  have all permits,  orders or
approvals  as  required by the  Environmental  Laws that are  necessary  for the
conduct of its  business as now  conducted,  all of which are listed on Schedule
4.16 ("Environmental Permits"). All Environmental Permits are listed on Schedule
4.16 and are in full force and effect;

         (e) no portion of the real property leased by the Corporation or any of
its Subsidiaries with respect to its business is listed or proposed for listing
on any Contaminated Site List;

         (f) there has been no Release of any Hazardous Materials on or  
underlying any real property owned or leased by the Corporation or any of its 
Subsidiaries;

         (g) no asbestos-containing materials or polychlorinated biphenyls 
("PCBs") are present on or underlying a real property owned or leased by the 
Corporation or any of its Subsidiaries;

         (h) there are no underground storage tanks for Hazardous Materials, 
active or abandoned, at any property now owned or leased by the Corporation and
its Subsidiaries; and

         (i) neither the Corporation nor any of its Subsidiaries is aware of any
Environmental  Remediation  Costs  which are  required  in  connection  with the
operation of their respective businesses.

4.17     Material  Contracts.  Except as set out in Schedule  4.17 and any other
Schedules to this  Agreement and except as otherwise  disclosed in the Financial
Statements, neither the Corporation nor any of its Subsidiaries is a party to or
bound by any contract or commitment either now or in the future, whether oral or
written  (other than  contracts  for  insurance or Leases) which are material to
their respective businesses (the "Material Contracts"). For the purposes of this
Agreement, any contract or commitment,  (i) the performance of which will extend
over a period of one year or more or (ii)  involving  the payment to or from the
Corporation or any of its  Subsidiaries of more than $100,000 shall be deemed to
be a Material Contract.  All such Material Contracts are in good standing and in
full  force and  effect  without  amendment  thereto  and the  Corporation  or a
Subsidiary thereto is entitled to all benefits thereunder. Neither the execution
nor delivery of, nor  consummation of the transactions  contemplated  under this
Agreement shall constitute a breach or default under, or give rise to a right of
cancellation by any party to any of the Material Contracts.

4.18     Employment Contracts.  Except as set out in Schedule 4.18, there are no
contracts  of  employment  entered  into  with  any  employee  employed  by  the
Corporation or any of its  Subsidiaries.  Neither the Corporation nor any of its
Subsidiaries  has entered into any agreements with its employees with respect to
the payment of any amounts  resulting  from a  termination  of  employment.  The
transactions  contemplated by this Agreement will not give rise to any severance
or other payments to any employee, consultant, director, officer or agent of the
Corporation  or any of its  Subsidiaries.  Except as set out in  Schedule  4.18,
neither the Corporation nor any of its Subsidiaries is subject to any collective
bargaining agreement and there are no efforts to unionize any employees employed
by the Corporation or its Subsidiaries.

4.19     Employee Plans.  Schedule 4.19 sets out all the employee benefit plans,
<PAGE>

programs and  arrangements  maintained or contributed to by The Second Cup Ltd.,
the Vendor,  the Corporation or any of its  Subsidiaries  for the benefit of any
current or former employee, officer or director of the Corporation or any of its
Subsidiaries  (the "Employee  Plans").  Except as set forth in Schedule 4.19 and
except as would not,  individually or in the aggregate,  have a Material Adverse
Effect:

                   (i)     none of the Employee Plans is a  multi-employer  plan
                           within the meaning of ERISA;

                   (ii)    none  of the  Employee  Plans  promises  or  provides
                           retiree  medical or life  insurance  benefits  to any
                           person;

                  (iii)    each  Employee  Plan  intended to be qualified  under
                           Section 401(a) of the United States Internal  Revenue
                           Code of 1986,  as amended (the "Code") has received a
                           favourable  determination letter from the IRS that it
                           is so qualified  and nothing has  occurred  since the
                           date of such letter that could reasonably be expected
                           to affect the qualified status of such Employee Plan;

                   (iv)    each  Employee Plan has been operated in all material
                           respects  in  accordance   with  its  terms  and  the
                           requirements of applicable law;

                   (v)     neither  the   Corporation  nor  any  Subsidiary  has
                           incurred any direct or indirect liability arising out
                           of, by operation  of Title IV of ERISA in  connection
                           with  the  termination  of,  or  withdrawal  from any
                           Employee   Plan,   or   other   retirement   plan  or
                           arrangement,  and no fact or event  exist  that could
                           reasonably  be  expected  to give  rise  to any  such
                           liability; and

                  (vi)     the  Corporation  and  the   Subsidiaries   have  not
                           incurred any  liability  under,  and have complied in
                           all respects with, the Worker  Adjustment  Retraining
                           Notification  Act  ("WARN")  and no fact  exist  that
                           could give rise to liability  under such Act.  Except
                           as  set  forth  in  Schedule   4.19,   the  aggregate
                           accumulated benefit obligations of each Employee Plan
                           subject  to Title IV of ERISA  (as at the date of the
                           most recent  actuarial  valuation  prepared  for such
                           Employee Plan) do not exceed the fair market value of
                           the assets of such  Employee  Plan (as at the date of
                           such valuation).

4.20     Brokerage  Fees.  No broker,  finder or  investment  banker (other than
First Marathon Securities Limited whose fees are paid by the Vendor) is entitled
to any  brokerage,  finder's or other fee or commission  in connection  with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Vendor.

4.21     Intellectual Property.  Schedule 4.21 contains an accurate and complete
list of all material domestic and foreign patents,  patent  applications,  trade
names,  trademarks,   trade  secrets,   copyrights,   service  marks,  trademark
registrations and applications, service mark registrations and applications, and
copyright  registrations and applications owned (in whole or in part),  licensed
to any  extent  or used or  anticipated  to be used by the  Corporation  and its
Subsidiaries in the conduct of their business, other than "shrink wrap" licenses
to commonly available software (collectively,  the "Intellectual Property"). The
Corporation and its Subsidiaries either own all right, title and interest in and
to, or possess the exclusive right to use, the Intellectual Property used in the
conduct of their business (including, without limitation, the exclusive right to
use and license the same (in the jurisdiction(s) where registered in the case of
trademarks,  service marks and copyrights)) and each item  constituting  part of
the  Intellectual  Property in which the Corporation and its Subsidiaries has an
<PAGE>

ownership  or license  interest  has been,  to the extent  indicated on Schedule
4.21,  duly  registered  with,  filed in or issued  by, as the case may be,  the
United States Patent and Trademark Office or such other Governmental Entities as
are  indicated on Schedule  4.21 and such  registrations,  filings and issuances
remain in full force and effect. No claim of infringement or misappropriation of
patents,  trademarks, trade names, service marks, copyrights or trade secrets of
any other Person has been made nor  threatened  against the  Corporation  or its
Subsidiaries  and  neither  the  Corporation  nor  any  of its  Subsidiaries  is
infringing or misappropriating  any patents,  trademarks,  trade names,  service
marks, copyrights or trade secrets of any other Person.

4.22     Licenses.  The  Corporation  and its  Subsidiaries  have all  licenses,
permits,  consents  and  other  governmental  certificates,  authorizations  and
approvals  required  by every  federal,  state,  provincial,  local and  foreign
Governmental  Entity  for  the  conduct  of  its  business  and  the  use of its
properties as presently  conducted or used including,  without  limitation,  all
licenses  required under  Environmental  Laws and any federal,  state,  local or
foreign law relating to public health and safety,  or employee health and safety
(collectively, "Licenses"). All of the Licenses are in full force and effect and
no action or claim is  pending  nor is  threatened  to revoke or  terminate  any
License or declare any License invalid in any material respect.  The Corporation
and its Subsidiaries have taken all necessary action to maintain such Licenses.

4.23     Competition.  Except  as set  out in  Schedule  4.23,  and  other  than
restrictions  which may exist under any of the Leases,  neither the  Corporation
nor any of its  Subsidiaries  is a party to any  agreement  which  restricts the
freedom  of the  Corporation  or such  Subsidiary  to carry on its  business  as
currently  being  carried on,  including,  without  limitation,  any contract or
agreement which contains a covenant by the Corporation or any Subsidiary thereto
not to compete in any line of business with any other Person.

4.24     Contracts  with  Non-Arm's  Length  Persons.  Except  as set  forth  in
Schedule  4.24,  there are no existing  contracts or  arrangements  to which the
Corporation  or any of its  Subsidiaries  is a party in which  the  Vendor,  any
Affiliate of the Vendor,  any director or officer of the Vendor, the Corporation
or any of its Subsidiaries,  or any other Person not dealing at arm's length (as
that term is defined in the Code) with the Vendor,  the Corporation,  any of its
Subsidiaries,  or any  director  or  officer  of the  Corporation  or any of its
Subsidiaries,  or any of them, has an interest,  whether directly or indirectly,
other than such contracts or arrangements  with terms based on fair market value
in the ordinary course of business which are not material to the business of the
Corporation or its Subsidiaries.


                                 ARTICLE V
                 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

         The Purchaser  represents and warrants to the Vendor (and  acknowledges
that the Vendor is relying on the  representations  and warranties in completing
the transactions herein) as follows:

5.1      Organization,  Etc. The Purchaser is a corporation  duly  organized and
validly  existing  under the laws of the State of Oregon  and has all  necessary
corporate  power,  authority  and  capacity to conduct its business as it is now
being  conducted  and to own,  operate  or lease the  properties  and  assets it
currently owns,  operates or holds under lease.  The Purchaser is duly qualified
or licensed to do business and is in good standing as a foreign  corporation  in
each  jurisdiction  where the  character  of its  business  or the nature of its
properties  makes such  qualification or licensing  necessary,  except where the
failure  to so  qualify or be  licensed  would not result in a Material  Adverse
Change

5.2      Subsidiaries.  Schedule  5.2  contains  a  list  of  all  Subsidiaries,
partnerships,  joint  ventures and other  entities in which the  Purchaser  has,
directly or indirectly, any legal or beneficial interest or any right to acquire
a  legal  or  beneficial  interest  and  indicates  for  each  such  Subsidiary,
partnership,  joint  venture or other  entity:  (i) the  percentage  and type of
equity  securities of or other  interest  owned or controlled by the  Purchaser;
(ii) the jurisdiction of incorporation or organization;  (iii) each jurisdiction
in which it is  qualified or licensed to conduct its  business;  and (iv) in the
case of any joint venture, the identity of each other joint venture partner. The
Purchaser is the direct owner,  beneficially  and of record,  of all such equity
securities or other interests listed as being owned by it, free and clear of all
Liens.

5.3      Capitalization. The authorized, issued and outstanding capital stock of
the Corporation is as set forth on Schedule 5.3. The  Corporation  does not hold
any shares in its own capital. The designations,  powers,  preferences,  rights,
qualifications, limitations and restrictions in respect of each class and series
of  authorized  capital  stock  of  the  Corporation  are as  set  forth  in the
Corporation's  articles of  incorporation,  and all such  designations,  powers,
preferences,  rights,  qualifications,  limitations and  restrictions are valid,
binding  and  enforceable  and in  accordance  with  all  applicable  laws.  All
outstanding shares of capital stock of the Corporation have been duly authorized
and  validly  issued as fully  paid and  non-assessable.  Except as set forth in
Schedule  5.3,  there  are  no  outstanding   options,   warrants,   convertible
securities,  calls,  rights,  commitments,  pre-emptive  rights or agreements or
instruments  or  understandings  of any character to which the  Corporation is a
party or by which the Corporation is bound, obligating the Corporation to issue,
deliver  or sell,  or cause to be issued,  delivered  or sold,  contingently  or
otherwise,  additional  shares  of  its  capital  stock  or  any  securities  or
obligations convertible into or exchangeable for such shares or to grant, extend
or enter into any such  option,  warrant,  convertible  security,  call,  right,
commitment,   pre-emptive   right  or  agreement.   There  are  no   outstanding
obligations,  contingent or other,  of the  Corporation  to purchase,  redeem or
otherwise  acquire  any  shares  of its  capital  stock.  Except as set forth in
Schedule  5.3,  there  are  no  voting  trust  agreements  or  other  contracts,
agreements,  arrangements,  commitments,  plans or understandings restricting or
otherwise  relating to voting,  dividend or other  rights with respect to any of
the  capital  stock of the  Corporation.  The shares of CPI  Common  Stock to be
issued  pursuant to Section 2.4 of this  Agreement at the Effective Time will be
duly authorized,  and when issued pursuant to the Merger, will be validly issued
as fully paid and  nonassessable  and will not have been issued in  violation of
any pre-emptive rights or of any federal or state law.

5.4      Authorization.   The  Purchaser  has  all  necessary  corporate  power,
authority  and  capacity  to enter  into  this  Agreement  and each of the other
agreements  contemplated  hereby,  and to carry out its  obligations  under this
Agreement and each of the other agreements  contemplated  hereby.  The execution
and  delivery  by the  Purchaser  of this  Agreement,  the  consummation  of the
transactions  contemplated  hereby and the  performance  by the Purchaser of its
obligations  hereunder  have been duly  authorized  by all  necessary  corporate
action on the part of the Purchaser,  subject to required regulatory  approvals,
to the extent any shall be required to effect the  transactions  contemplated by
this  Agreement,  and the approval of the  shareholders  of the Purchaser.  This
Agreement has been duly executed and delivered by the Purchaser and  constitutes
a legal, valid and binding obligation of the Purchaser,  enforceable against the
Purchaser in accordance with its terms (except as the enforceability thereof may
be limited by any  applicable  bankruptcy,  insolvency  or other laws  affecting
creditors'  rights generally or by general  principles of equity,  regardless of
whether such  enforceability  is considered in equity or at law). This Agreement
and the transactions  contemplated hereby have been unanimously  approved by the
board of directors of the Purchaser.

5.5      No  Violation.  The  execution  and  delivery of this  Agreement by the
Purchaser does not, and the  consummation  by the Purchaser of the  transactions
contemplated  hereby and compliance with the terms hereof will not, (a) conflict
with,  or result in any breach of any provision of the  Purchaser's  articles of
<PAGE>

incorporation or by-laws; (b) conflict with, or result in any material violation
of or default or loss of any benefit  under,  any CPI License,  grant,  statute,
law, rule or regulation,  or any judgment, decree or order of any court or other
governmental  agency or  instrumentality  to which the  Purchaser  is a party or
which any of their respective property is subject;  (c) conflict with, or result
in a breach or material violation of or default or loss of any benefit under, or
accelerate  the  performance  required by, the terms of any material  agreement,
contract,  indenture or other  instrument  (other than,  with respect to the CPI
Leases,  where  such  breaches,  violations  or  defaults  would not result in a
Material  Adverse  Change) to which the  Purchaser is a party or to which any of
their  respective  property is subject,  or  constitute a default or loss of any
right thereunder  which,  with the lapse of time or notice or both, might result
in a default or loss of a right  thereunder or the creation of any Lien upon any
of the assets or properties of the Purchaser;  or (d) result in any  suspension,
revocation, impairment, forfeiture or non-renewal of any CPI License.

5.6 Approvals. The execution and delivery of this Agreement by the Purchaser and
the  consummation of the transactions  contemplated  hereby will not require the
consent,  approval,  order  or  authorization  of  any  Governmental  Entity  or
Regulatory  Authority  or  any  other  Person  under  any  statute,  law,  rule,
regulation,  permit, license, agreement,  indenture or other instrument to which
the  Purchaser  is a party or to which any of its  property is  subject,  and no
declaration,  filing or registration with any Governmental  Entity or Regulatory
Authority is required by the  Purchaser in  connection  with the  execution  and
delivery of this Agreement,  the consummation of the  transactions  contemplated
hereby, or the performance by the Purchaser of its obligations hereunder,  other
than (a) the filing of the Nasdaq National Market System  Notification  Form for
Listing of Additional  Shares,  (b) compliance with any applicable  requirements
under the Exchange Act, the U.S. Securities Act and foreign and state securities
and "blue sky" laws, and the securities  laws,  regulations  and policies of the
provinces of Canada, as applicable, and (c) as set out on Schedule 5.6.

         The  Purchaser  further  represents  and  warrants  to the Vendor  (and
acknowledges that the Vendor is relying on the representations and warranties in
completing the transactions herein) that, to the best of its knowledge:

5.7      Financial Statements and Other Information.

         (a) The  audited  balance  sheet and any  related  notes and  schedules
included in the  Purchaser's  Annual  Report on Form 10-KSB for the fiscal years
ended  December  31,  1996 and  December  31, 1995 (the "CPI  10-KSBs")  and the
unaudited  balance  sheet and any related  notes and  schedules  included in the
Purchaser's  Quarterly  Report on Form 10-QSB for the  quarters  ended March 31,
1997 and June 30, 1997 (the "CPI 10-QSBs") each presents fairly the consolidated
financial  position of the  Purchaser  as of its  respective  date and the other
financial  statements  included in the CPI  10-KSBs and the CPI 10-QSBs  present
fairly the results of operations or other  information  included  therein of the
Purchaser for the respective  periods or as of the respective  dates therein set
forth, subject, where appropriate,  to normal year end adjustments which are not
material in amount or effect, in each case in accordance with generally accepted
accounting  principles consisting applied during the periods involved (except as
otherwise stated therein).

         (b) Except as disclosed in Schedule  5.9,  since  December 31, 1996 (i)
there has been no Material  Adverse Change of or to the Purchaser,  whether as a
result of any  legislative  or regulatory  change,  revocation of any license or
right to do business,  fire,  explosion,  accident,  casualty,  labour  trouble,
flood, drought, riot, storm,  condemnation or act of God or otherwise,  and (ii)
no fact or condition  exists or is threatened in writing which could  reasonably
be anticipated to cause a Material Adverse Change in the future.
<PAGE>

5.8      Compliance  with Laws.  The  Purchaser  has  complied  in all  material
respects with all applicable laws (including rules,  regulations,  codes, plans,
injunctions,  judgments, orders, decrees, rulings and charges thereunder) of any
Governmental Entity relating to or affecting the operation, conduct or ownership
of its properties or business.  No  investigation  or review by any Governmental
Entity (including without limitation any audit or similar review by any federal,
foreign,  state,  provincial  or local  taxing  authority)  with  respect to the
Corporation  or a  Subsidiary  is  pending  or,  to the  best  knowledge  of the
Purchaser,  threatened.  The  Purchaser  is not in default  with  respect to any
order,  writ,  injunction or decree known to or served upon the Purchaser of any
Governmental Entity, which default would result in a Material Adverse Change.

5.9      No Undisclosed Liabilities.

         (a) Except as set forth on Schedule 5.9, the Purchaser has no liability
or  obligations  of any  nature  (contingent  or  otherwise),  other  than those
disclosed or reflected in the financial  statements  included in the CPI 10-QSBs
or incurred in the ordinary  course of business  consistent  with past  practice
since the date of the most recent 10-KSB filed with the U.S. Commission.

         (b)  Since  December  31,  1996,  no  Material  Adverse  Change  of the
Purchaser has occurred, other than those disclosed or reflected in the financial
statements included in the CPI 10-QSBs or as disclosed in Schedule 5.9.

5.10     Events Subsequent to December 31, 1996.  Since December 31, 1996, the 
Purchaser has not:

         (a)      except as disclosed in Schedule 5.10,  transferred,  assigned,
                  sold or  otherwise  disposed of any of the assets shown in the
                  Audited  Financial  Statement or cancelled any debts or claims
                  except  in each  case in the  ordinary  and  normal  course of
                  business consistent with past practice;

         (b)      incurred or assumed any  obligation  or  liability  (direct or
                  contingent),  except  those  listed in Schedule 5.9 hereto and
                  except unsecured current obligations and liabilities  incurred
                  in the ordinary and normal course of business  consistent with
                  past practice;

         (c)      except  as  disclosed  in  Schedule  5.10,  issued or sold any
                  shares in its capital or any  warrants,  bonds,  debentures or
                  other corporate securities or issued, granted or delivered any
                  right, option or other commitment for the issuance of any such
                  other securities;

         (d)      except as  disclosed  in Schedule  5.10,  declared or made any
                  payment of any  dividend or other  distribution  in respect of
                  any shares in its capital or  purchased  or redeemed  any such
                  shares thereof or effected any  subdivision,  consolidation or
                  reclassification  of any such  shares  or repaid in full or in
                  part any shareholder loans;

         (e)      suffered  any  extraordinary  loss,  or waived  any  rights of
                  substantial   value,   or  entered  into  any   commitment  or
                  transaction  not in the ordinary and normal course of business
                  where such loss, rights, commitment or transaction is or would
                  be material in relation to the Purchaser, taken as whole;

         (f)      except as disclosed in Schedule 5.10, amended or changed or 
                  taken any action to amend or change its constating documents
                  or by-laws;
<PAGE>

         (g)      except as disclosed in Schedule 5.10, made any general wage or
                  salary or fee  increases  in  respect  of  personnel  which it
                  employs  or   consultants  it  retains  other  than  regularly
                  scheduled  increases  in  the  ordinary  course  of  business,
                  consistent with past practice;

         (h)      except  as  disclosed  in  Schedule  5.10  hereto,  mortgaged,
                  pledged,  subjected to lien, granted a security interest in or
                  otherwise  encumbered  any of its assets or property,  whether
                  tangible or intangible;

         (i)      except as disclosed in Schedule 5.10, loaned or agreed to lend
                  money to any Person including a shareholder;

         (j)      except for  inventory,  equipment  or assets  acquired  in the
                  ordinary course of business  consistent with past practice and
                  except as disclosed in Schedule 5.10,  made any acquisition of
                  all or any part of the assets,  properties,  capital  stock or
                  business of any other Person; and

         (k)      authorized or agreed or otherwise become committed to any of
                  the foregoing.

5.11     Taxes.  Except for matters that would not result in a Material Adverse
                 Change:

         (a) all tax returns  (including,  without limitation,  income,  profit,
franchise,  sales  and  use,  excise,  severance,  occupation,  property,  gross
receipts, payroll and withholding tax returns and information returns), deposits
and  reports  (all  such  returns,  deposits  and  reports  herein  referred  to
collectively as "Tax Returns" or singularly as a "Tax Return") of or relating to
any Canadian or United States federal,  state,  provincial,  local or foreign or
other  governmental  tax (all,  together with any  penalties,  additions to tax,
fines and interest thereon or related  thereto,  herein referred to collectively
as "Taxes" or  singularly as a "Tax") that are required to be filed or deposited
for,  by, on behalf  of or with  respect  to the  Purchaser  including,  but not
limited to, those  relating to the income,  business,  operations or property of
the Purchaser and those which include or should include the Purchaser, have been
filed or  deposited  duly and on a timely  basis and all Taxes and  filing  fees
shown to be due and payable on such Tax  Returns  have been paid in full and all
instalments,  assessments  and  charges of which the  Purchaser  is aware or has
received notice and which are due and payable by the Purchaser have been paid in
full.  Schedule 5.11 sets forth all the  jurisdictions in which Tax Returns have
been filed;

         (b) all such Tax Returns and the information and data contained therein
have been properly and  accurately  compiled and  completed,  fairly present the
information  purported to be shown therein and reflect all liabilities for Taxes
for the periods covered by such Tax Returns;

         (c) no such Tax Return or designation contains any misstatement or 
omits any statement that should have been included therein;

         (d) except as disclosed on Schedule 5.11,  none of such Tax Returns are
now under audit or examination by any Canadian or United States federal,  state,
provincial,  local or  foreign  or other  Governmental  Entity  and there are no
agreements,  waivers or other  arrangements  providing  for an extension of time
with respect to the  assessment  or  collection  of any Tax or deficiency of any
nature against the Purchaser or with respect to any such Tax Return or any suits
or other judicial or  administrative  actions,  proceedings,  investigations  or
claims now pending or threatened  against the Purchaser with respect to any Tax,
governmental charge or assessment;
<PAGE>

         (e) all Taxes  imposed on the  Purchaser (or for which the Purchaser is
or could be liable,  whether to any Governmental Entity or to other Persons (as,
for example, under tax allocation agreements)),  which are due and payable on or
before  the  Closing  Date,  have been or will be paid  when due and the  latest
balance  sheet  included  in the  Financial  Statements  reflects  and  includes
adequate  provisions  for the payment in full of any and all Taxes for which the
Purchaser is or could be liable,  whether to any Governmental Entity or to other
Persons (as, for example, under tax allocation agreements),  not yet due for any
and all periods up to and including the date of such balance sheet;

         (f) all Taxes for which the Purchaser is or could be liable, whether to
any  Governmental  Entity  or to other  Persons  (as,  for  example,  under  tax
allocation  agreements),  for periods  beginning after December 31, 1995 through
the Closing  Date have been,  or will be, paid when due or  adequately  reserved
against on the books of the  Purchaser  on or prior to the  Closing  Date and an
amount of cash equal to the amount of such  reserve will have been set aside for
payment of such Taxes;

         (g) the Purchaser has withheld and remitted all amounts  required to be
withheld and have paid such amounts due to the appropriate authority on a timely
basis and in the form required under the appropriate legislation; and

         (h) there is no tax Lien,  whether  imposed by any  Canadian  or United
States federal,  state,  provincial,  county, local or foreign taxing authority,
outstanding  and  filed  against  the  assets,  properties  or  business  of the
Purchaser. Except as disclosed in Schedule 5.11, the Purchaser has not agreed to
make nor is required to make any adjustment under Section 481(a) of the Code, by
reason of a change in  accounting  method or  otherwise.  The Purchaser is not a
party to any agreement, contract, arrangement or plan that has resulted, or as a
consequence of the transactions  contemplated hereby will result,  separately or
in the aggregate,  in the payment of any excess  parachute  payments  within the
meaning of Section 28OG of the Code.

5.12     Litigation.  Except as set forth in Schedule 5.12,  there is no action,
suit,  investigation,   arbitration  or  proceeding  in  progress,   pending  or
threatened against or affecting the Purchaser or any of its properties or rights
(including no charge of patent,  copyright and/or trademark infringement) and no
circumstances  have  occurred  which would give rise to any such  action,  suit,
investigation,  arbitration or proceeding. Except as set forth in Schedule 5.12,
there is not presently  outstanding against the Purchaser any judgment,  decree,
injunction, award or order of any court, commission, agency or arbitrator.

5.13     Title to and Condition of Property. Except as set out in Schedule 5.13,
the  Purchaser  does  not own any  real  property.  The  Purchaser  has good and
marketable  title to such owned real  property.  Except as set forth on Schedule
5.13,  all leases,  subleases,  licences and other  agreements  (both verbal and
written)  under which the Purchaser  occupies real property  (collectively,  the
"CPI Leases") are valid, binding and in full force and effect, no written notice
of default or termination  thereunder  has been received by the  Purchaser,  all
rents and other sums and other  charges  payable by the  lessee  thereunder  are
current  (or no more  than 60 days  past due) and no  termination  event  either
conditional or uncured default on the part of the Purchaser, exists thereunder.

5.14     Environmental Matters.  Except as disclosed on Schedule 5.14:

         (a) the Purchaser  has been in the past and is now in  compliance  with
all  Environmental  Laws and all material  requirements  of applicable  permits,
licenses,  approvals and other  authorizations  under  applicable  Environmental
Laws;
<PAGE>


         (b) the Purchaser is not, and has not received any notification that it
may  be  subject  to  any  material  claim,  action,   obligation,   proceeding,
investigation  or  evaluation  directly or  indirectly  relating to any of their
current  or past  operations,  or those of any  predecessor,  or any  by-product
thereof,  of  any of  their  current  or  formerly  owned,  leased  or  operated
properties, or those of any predecessor that could directly or indirectly result
in the  incurrence of any material  Environmental  Liabilities  and Costs by the
Purchaser;

         (c)  the  Purchaser  has  not  entered  into  any  agreement  with  any
Governmental  Entity or other  Person by which  responsibility  was assumed for,
either  directly  or  indirectly,  the  conduct  of any  Remedial  Action or the
incurrence of any other Environmental Liabilities;  provided,  however, that the
representation  and warranty in this  subsection (c) does not limit or otherwise
modify any other  representations  and warranties in this  Agreement,  including
without   limitation,   the  representation  and  warranty  in  Section  5.14(b)
concerning  the  existence  of any claims,  actions,  obligations,  proceedings,
investigations or evaluations in connection with any such leases;

         (d)  the  Purchaser  has  all  Environmental  Permits  required  by the
Environmental  Laws that are  necessary  for the conduct of its  business as now
conducted,  all of which are listed on Schedule 5.14. All Environmental  Permits
are listed on Schedule 5.14 and are in full force and effect;

         (e)  no portion of the real  property  owned or leased by the Purchaser
with  respect  to  its  business  is  listed  or  proposed  for  listing  on any
Contaminated Site List;

         (f)  there  has  been  no  Release  of any  Hazardous  Materials  on or
underlying any real property owned or leased by the Purchaser;

         (g) no  asbestos-containing  materials  or  PCBs  are  present  on  or
underlying a real property owned or leased by the Purchaser;

         (h)  there are no  underground  storage tanks for Hazardous  Materials,
active or abandoned, at any property now owned or leased by the Purchaser; and

         (i)  the Purchaser is not aware of any Environmental  Remediation Costs
which  are  required  in  connection  with the  operation  of  their  respective
businesses.

5.15     CPI  Material  Contracts.  Except as set out in  Schedule  5.15 and any
other Schedules to this  Agreement,  the Purchaser is not a party to or bound by
any contract or commitment either now or in the future,  whether oral or written
(other than  contracts  for  insurance or CPI Leases)  which are material to its
business (the "CPI Material Contracts"). For the purposes of this Agreement, any
contract or commitment,  (i) the  performance of which will extend over a period
of one year or more or (ii)  involving  the payment to or from the  Purchaser of
more than $50,000,  shall be deemed to be a CPI Material Contract.  All such CPI
Material  Contracts  are in good  standing and in full force and effect  without
amendment  thereto and the  Purchaser  is entitled to all  benefits  thereunder.
Neither the  execution  nor delivery of, nor  consummation  of the  transactions
contemplated  under this Agreement shall  constitute a breach or default or give
rise  to a  right  of  cancellation  by any  party  to any of the  CPI  Material
Contracts.

5.16     Employment Contracts.  Except as set out in Schedule 5.16, there are no
contracts  of  employment  entered  into  with  any  employee  employed  by  the
Purchaser.  The Purchaser has not entered into any agreements with its employees
with  respect to the  payment of any amounts  resulting  from a  termination  of
employment.  The transactions  contemplated by this Agreement will not give rise
<PAGE>

to any  severance  or other  payments  to any  employee,  consultant,  director,
officer or agent of the  Corporation or any of its  Subsidiaries.  Except as set
out in Schedule 5.16, the Purchaser is not subject to any collective  bargaining
agreement  and there are no efforts to unionize  any  employees  employed by the
Purchaser.

5.17  Employee  Plans.  Schedule 5.17 sets out all the employee  benefit  plans,
programs and arrangements  maintained or contributed to by the Purchaser for the
benefit of any current or former employee,  officer or director of the Purchaser
(the "CPI Employee  Plans").  Except as set forth in Schedule 5.17 and except as
would  not,  individually  or in the  aggregate,  result in a  Material  Adverse
Change:

                   (i)     none of the CPI  Employee  Plans is a  multi-employer
                           plan within the meaning of ERISA;

                  (ii)     none of the CPI Employee  Plans  promises or provides
                           retiree  medical or life  insurance  benefits  to any
                           person;

                  (iii)    each CPI Employee Plan intended to be qualified under
                           Section 401(a) of the United States Internal  Revenue
                           Code of 1986,  as amended (the "Code") has received a
                           favourable  determination letter from the IRS that it
                           is so qualified  and nothing has  occurred  since the
                           date of such letter that could reasonably be expected
                           to affect the qualified status of such Employee Plan;

                  (iv)     each  CPI  Employee  Plan has  been  operated  in all
                           material  respects in  accordance  with its terms and
                           the requirements of applicable law;

                   (v)     the Purchaser has not incurred any direct or indirect
                           liability arising out of, by operation of Title IV of
                           ERISA in  connection  with  the  termination  of,  or
                           withdrawal  from  any CPI  Employee  Plan,  or  other
                           retirement plan or arrangement,  and no fact or event
                           exist that could  reasonably be expected to give rise
                           to any such liability; and

                  (vi)     the Purchaser  has not incurred any liability  under,
                           and has  complied in all  respects  with,  the Worker
                           Adjustment  Retraining  Notification Act ("WARN") and
                           no fact exist that could give rise to liability under
                           such Act.  Except as set forth in Schedule  5.17, the
                           aggregate accumulated benefit obligations of each CPI
                           Employee Plan subject to Title IV of ERISA (as at the
                           date of the most recent actuarial  valuation prepared
                           for such CPI  Employee  Plan) do not  exceed the fair
                           market value of the assets of such CPI Employee  Plan
                           (as at the date of such valuation).

5.18     Intellectual Property.  Schedule 5.18 contains an accurate and complete
list of all material domestic and foreign patents,  patent  applications,  trade
names,  trademarks,   trade  secrets,   copyrights,   service  marks,  trademark
registrations and applications, service mark registrations and applications, and
copyright  registrations and applications owned (in whole or in part),  licensed
to any extent or used or  anticipated to be used by the Purchaser in the conduct
of his business except for "shrink wrap" licenses of commonly available software
(collectively,  the "CPI Intellectual Property").  The Purchaser owns all right,
title and interest in and to, or possesses the  exclusive  right to use, the CPI
Intellectual  Property used in the conduct of its business  (including,  without
limitation,   the  exclusive   right  to  use  and  license  the  same  (in  the
jurisdiction(s)  where  registered in the case of trademarks,  service marks and
copyrights)) and each item constituting part of the CPI Intellectual Property in
<PAGE>

which the Purchaser has an ownership or license interest has been, to the extent
indicated on Schedule 5.18, duly registered  with, filed in or issued by, as the
case may be,  the  United  States  Patent  and  Trademark  Office or such  other
Governmental  Entities as are indicated on Schedule 5.18 and such registrations,
filings and issuances remain in full force and effect.  No claim of infringement
or  misappropriation  of  patents,   trademarks,  trade  names,  service  marks,
copyrights  or trade  secrets of any other  Person has been made nor  threatened
against the Purchaser and the  Purchaser is not  infringing or  misappropriating
any patents, trademarks, trade names, service marks, copyrights or trade secrets
of any other Person.

5.19  Licenses.  The  Purchaser has all  licenses,  permits,  consents and other
governmental  certificates,  authorizations  and  approvals  required  by  every
federal,  state,  provincial,  local and  foreign  Governmental  Entity  for the
conduct of its business and the use of its properties as presently  conducted or
used including,  without  limitation,  all licenses required under Environmental
Laws and any federal,  state, local or foreign law relating to public health and
safety, or employee health and safety (collectively, "CPI Licenses"). All of the
CPI  Licenses are in full force and effect and no action or claim is pending nor
threatened  to revoke or  terminate  any CPI  License or declare any CPI License
invalid in any material respect. The Purchaser has taken all necessary action to
maintain such CPI Licenses.

5.20  Competition.   Except  as  set  out  in  Schedule  5.20,  and  other  than
restrictions which may exist under any of the CPI Leases, the Purchaser is not a
party to any agreement  which restricts the freedom of the Purchaser to carry on
its business as currently being carried on, including,  without limitation,  any
contract or agreement which contains a covenant by the Purchaser  thereto not to
compete in any line of business with any other Person.

5.21 Brokerage Fees .21 Brokerage Fees .21 Brokerage Fees. No broker,  finder or
investment  banker  (other  than  Black &  Company  whose  fees  are paid by the
Purchaser) is entitled to any brokerage,  finder's or other fee or commission in
connection with the  transactions  contemplated  herein based upon  arrangements
made by or on behalf of the Purchaser.

5.22 Outstanding  Options.  Schedule 5.22 contains an accurate and complete list
of all  outstanding  options to acquire  shares in the capital of the  Purchaser
held by individuals who are, as at the date hereof, or previously were employees
of the Purchaser.  Schedule 5.22 sets out the date of grant, the exercise price,
the expiry  date,  the vesting  date and the number of options held by each such
employee.

5.23 Contracts with Non-Arm's  Length  Persons.  Except as set forth in Schedule
5.23, there are no existing  contracts or arrangements to which the Purchaser is
a party in which any director or officer of the  Purchaser,  or any other Person
not  dealing  at arm's  length  (as that term is  defined  in the Code) with the
Purchaser  has an  interest,  whether  directly or  indirectly,  other than such
contracts or arrangements  with terms based on fair market value in the ordinary
course of business which are not material to the business of the Purchaser.

5.24 Provision for Store  Closures.  The provision made by the Purchaser for the
closure of the stores set out on Schedule  7.6 is  adequate  and  sufficient  to
provide for all lease  termination  costs,  operating losses and any other costs
associated with the closure of such stores.

5.25 Coffee  Plantation  Acquisition.  The parties  acknowledge  that all of the
retail  coffee  stores  operated  by the  Purchaser  in  the  state  of  Arizona
(collectively,  the "Coffee  Plantation  Business")  were acquired from a wholly
owned  Subsidiary of Vendor,  pursuant to an Assets  Purchase  Agreement,  dated
April 21,  1997.  With  respect to all of the  representations,  warranties  and
covenants made by the Purchaser in this Agreement, neither the existence of, nor
<PAGE>

the failure to disclose the  existence  of, any fact,  condition,  circumstance,
liability,  default,  obligation  or  loss  arising  out of or  relating  to the
operation  of the  Coffee  Plantation  Business  prior  to May  21,  1997  shall
constitute a breach by the Purchaser of this Agreement.


                                   ARTICLE VI
                              COVENANTS OF THE VENDOR

6.1  Conduct  of the  Corporation  and its  Subsidiaries.  From  the date of the
Acquisition  Agreement  until the Closing Date,  the Vendor has caused and shall
cause the businesses of the Corporation and its Subsidiaries to be conducted, in
all material  respects,  in the usual and ordinary course.  Without limiting the
generality of the foregoing,  from the date of the  Acquisition  Agreement until
the Closing Date, except as contemplated hereby,  without the written consent of
the Purchaser,  the Vendor shall not permit either the Corporation or any of its
Subsidiaries to:


         (a)      amend its articles of incorporation or by-laws,  other than in
connection with a Corporate Reorganization;

         (b) (i) enter into any written contract, agreement, plan or arrangement
concerning any director, officer, employee or consultant of the Corporation or a
Subsidiary   thereto  that  provides  for  the  making  of  any  payments,   the
acceleration  of  vesting  of any  benefit  or  right or any  other  entitlement
contingent  upon  (A)  the  closing  of the  transactions  contemplated  by this
Agreement  or (B)  the  termination  of  employment  after  the  closing  of the
transactions  contemplated by this  Agreement;  or (vii) enter into or amend any
employment  agreements (oral or written) to increase the compensation payable or
to become  payable by it to any of its  employees  or  consultants  or otherwise
materially  alter  its  employment  relationship  with  any  officer,  director,
employee or consultant over the amount payable as of the date of the Acquisition
Agreement;

         (c) other  than in  connection  with a  Corporate  Reorganization,  (i)
purchase,  acquire, issue, deliver, sell or authorize the issuance,  delivery or
sale  of any  shares  of  its  capital  stock  of any  class  or any  securities
convertible into or exchangeable for, or rights, warrants or options to acquire,
any such shares of its capital stock or convertible or exchangeable  securities;
(ii) make any changes in its capital  structure;  (iii) amend any stock  option,
warrant,  retirement,  deferred compensation,  employment,  termination or other
agreement,  trust fund or arrangement for the benefit of any director,  officer,
consultant or employee of the  Corporation or any of its  Subsidiaries;  or (iv)
enter into any agreement or  understanding  or take any preliminary  action with
respect  to the  matters  referred  to in  clause  (i),  (ii) or  (iii)  of this
paragraph (c);

         (d) permit any  individual  employed by the  Corporation  or any of its
Subsidiaries  as of the date of this Agreement to be granted  options to acquire
shares in the capital of The Second Cup Ltd., the Vendor, the Corporation or any
of its Subsidiaries;

         (e) incur any additional  interest  bearing  indebtedness  for borrowed
money (including by way of guarantee or the issuance and sale of debt securities
or rights to acquire debt securities),  or incur any additional  indebtedness to
an  Affiliate,  or incur any account  payable  except in the ordinary  course of
business,  or enter  into or  modify  any  contract,  agreement,  commitment  or
arrangement with respect to the foregoing;

         (f) other than sales in the ordinary  course of business and consistent
with present practice (i) sell, lease or otherwise  dispose of any of its assets
(a) material,  individually  or in the  aggregate,  to the business,  results of
<PAGE>

operations or financial condition of the Corporation or any of its Subsidiaries,
or (b) to its  Affiliates  (other  than  dividends  or  pursuant  to a Corporate
Reorganization);  or (ii) enter into,  or consent to the  entering  into of, any
agreement  granting a preferential  right to sell, lease or otherwise dispose of
any of such assets;

         (g) (i) enter into any new line of business;  (ii) merge or consolidate
with  another  entity,  or acquire or agree to merge or acquire by  purchasing a
substantial  portion of the assets of, or in any other  manner,  any business or
Person,  other than  pursuant to a Corporate  Reorganization;  or (iii) make any
investment in any Person;

         (h) take any action,  other than  reasonable  and usual  actions in the
ordinary course of business and consistent  with past practice,  with respect to
its accounting policies or procedures;

         (i)      agree or commit to do any of the foregoing; and

         (j) enter into any  agreement or perform any act which might  interfere
with or be  inconsistent  with the  successful  completion  of the  transactions
contemplated by this Agreement.

6.2 Shareholder  Meeting.  The Vendor will cooperate in a reasonable manner with
the  Purchaser in the  preparation  of any filings  which the  Purchaser  may be
required  to make under the  Exchange  Act and in the  preparation  of the Proxy
Statement and Registration  Statement with respect to any information  about The
Second Cup Ltd., the Vendor,  the  Corporation  and its  Subsidiaries  which the
Purchaser reasonably requests in connection with the preparation of such filings
and statements.

6.3  Compliance  with  Obligations.  Prior to the Closing Date, the Vendor shall
cause the  Corporation  and its  Subsidiaries  to comply with (a) all applicable
federal,  state,  provincial,  local and foreign laws,  rules and regulations of
Canada and the United States, (b) all agreements and obligations,  including its
articles of incorporation and by-laws, respectively, by which it, its properties
or its  assets  may be  bound,  (c) all  decrees,  orders,  writs,  injunctions,
judgments,  statutes,  rules and regulations applicable to it, its properties or
its assets,  and (d) all of their  obligations  and covenants  contained in this
Agreement.

6.4 Maintenance of Cash in Account. Unless otherwise adjusted in accordance with
Section 8.11 of this Agreement, the Vendor shall ensure that the Corporation and
its  Subsidiaries  have not less than  $2,500,000  consolidated in cash in their
bank  accounts on the Closing Date,  after  payment of all of their  expenses in
connection with this Agreement and the transactions contemplated hereby and that
neither the  Corporation  nor any of its  Subsidiaries  shall have any  interest
bearing indebtedness for borrowed money (short or long term) or any indebtedness
to an Affiliate on the Closing Date.

6.5 Loan to Purchaser. Unless otherwise adjusted in accordance with Section 8.11
of this Agreement,  the Vendor shall, or shall cause one of its Subsidiaries to,
make  available to the  Purchaser as at the Closing  Date a loan  facility  (the
"Loan") in the maximum principal amount of four million dollars which shall bear
the following terms: (i) the maximum term of the Loan shall be five years;  (ii)
the Loan  shall  be  subordinate  to  existing  bank  credit  facilities  of the
Purchaser  (which  facilities are disclosed on Schedule 5.15 to this Agreement);
(iii) the Loan  shall be  subordinate  to future  bank  credit  facilities  made
available  to the  Purchaser if such  subordination  is approved by the board of
directors of the Purchaser; (iv) the Loan shall bear interest at such rate as is
commercially  available for loans of a similar nature; and (v) there shall be no
prepayment penalty.  The Vendor, or one of its Subsidiaries,  shall enter into a
definitive loan agreement with the Purchaser which includes the terms set out in
this  Section  6.5 and  such  other  terms as are  customary  for  similar  loan
agreements.
<PAGE>

6.6 Exclusivity  Obligations.  The Vendor agrees that during the period from the
date of the Acquisition  Agreement until the earlier of the Closing Date and the
termination of this Agreement  pursuant to its terms, the Vendor,  its corporate
Affiliates,  the  directors,  officers  and  employees  of the  Vendor  and  its
Affiliates and their  respective  legal,  financial and other advisors shall not
enter into any letter of intent or other  acquisition  agreement with any Person
concerning a transaction related to the acquisition  (whether by stock purchase,
merger,  assets acquisition or otherwise,  directly or indirectly) of any United
States  retail  coffee  business  without the  agreement  of the  Purchaser.  In
clarification  of the  foregoing,  during this  period,  the Vendor shall not be
precluded from soliciting and engaging in discussions with any person concerning
possible  transactions  related  to the United  States  retail  coffee  business
provided   that  the   Purchaser   is  advised  of  the  name  of  such   person
contemporaneously  with any substantive  discussions (unless the Vendor is bound
by confidentiality obligations from releasing such name to the Purchaser).

6.7  Maintenance  of Nasdaq  Listing.  For at least 18 months from and after the
Closing  Date,  the Vendor  shall use its best efforts not to, and shall use its
best efforts to cause the Purchaser not to, take any action to delist the shares
of CPI Common Stock from the Nasdaq Stock Market;  provided,  however,  that the
foregoing  shall not preclude the  Purchaser  from  entering  into a transaction
pursuant to which the holders of CPI Common Stock receive cash and/or securities
listed on the New York Stock  Exchange,  the Nasdaq  Stock Market or The Toronto
Stock  Exchange;  and  provided  further that "best  efforts"  shall not, in any
event, include an obligation to invest any capital in the Purchaser.


                               ARTICLE VII
                        COVENANTS OF THE PURCHASER

7.1 Conduct of the Purchaser.  From the date of the Acquisition  Agreement until
the Closing Date, the Purchaser has conducted and shall conduct its business, in
all material  respects,  in the usual and ordinary course.  Without limiting the
generality of the foregoing,  from the date of the  Acquisition  Agreement until
the Closing Date, except as contemplated hereby,  without the written consent of
the Vendor, the Purchaser shall not:

         (a)  amend its  articles of  incorporation  or  by-laws,  except as
required to consummate the transactions contemplated hereby;

         (b) (i) enter into any written contract, agreement, plan or arrangement
concerning any director,  officer,  employee or consultant of the Purchaser that
provides  for the making of any  payments,  the  acceleration  of vesting of any
benefit or right or any other entitlement contingent upon (A) the closing of the
transactions contemplated by this Agreement or (B) the termination of employment
after the closing of the  transactions  contemplated by this Agreement;  or (ii)
enter into or amend any employment  agreements (oral or written) to increase the
compensation  payable  or to become  payable  by it to any of its  employees  or
consultants or otherwise  materially alter its employment  relationship with any
officer, director, employee or consultant over the amount payable as of the date
of the Acquisition Agreement.

         (c) (i)  purchase,  acquire,  issue,  deliver,  sell or  authorize  the
issuance,  delivery  or sale of any  shares  of its  capital  stock of any class
(except for the issuance of common stock upon exercise of currently  outstanding
options or  warrants  or  pursuant  to the  currently  existing  Employee  Stock
Purchase  Plan) or any  securities  convertible  into or  exchangeable  for,  or
rights,  warrants or options to acquire, any such shares of its capital stock or
convertible  or  exchangeable  securities;  (ii) make any changes in its capital
structure;  (iii)  amend  any  stock  option,  warrant,   retirement,   deferred
<PAGE>

compensation,  employment,  termination,  or other  agreement,  trust  fund,  or
arrangement for the benefit of any director,  officer, consultant or employee of
the  Purchaser;  or (iv) enter into any agreement or  understanding  or take any
preliminary action with respect to the matters referred to in clause (i) or (ii)
of this paragraph (c);

         (d)  (i)  declare,  set  aside,  make  or pay  any  dividend  or  other
distribution  payable in cash,  stock,  property or  otherwise to holders of its
capital  stock;  (ii) split,  combine or reclassify  any of its capital stock or
propose or authorize  the issuance of any other  securities  in respect of or in
lieu of or in substitution  for any shares of its or their capital stock;  (iii)
repurchase,  redeem or otherwise  acquire any shares of its capital stock of any
class  or any  securities  convertible  into or  exchangeable  for,  or  rights,
warrants  or  options  to  acquire,  any such  shares  of its  capital  stock or
convertible or exchangeable securities; or (iv) take any preliminary action with
respect thereto;

         (e) incur any additional  interest  bearing  indebtedness  for borrowed
money,  except to the extent  permitted  under its existing line of credit up to
$400,000  (including  by way of  guarantee  or the  issuance  and  sale  of debt
securities or rights to acquire debt  securities),  or incur any indebtedness to
an  Affiliate,  or incur any account  payable  except in the ordinary  course of
business,  or enter  into or  modify  any  contract,  agreement,  commitment  or
arrangement with respect to the foregoing;

         (f) other than sales in the ordinary  course of business and consistent
with past practice or the  divestiture of the assets related to those stores set
out in Schedule 7.6, (i) sell,  lease or otherwise  dispose of any of its assets
having a book or market value in excess of $50,000  individually  or $100,000 in
the aggregate or that are otherwise material,  individually or in the aggregate,
to the business,  results of operations or financial condition of the Purchaser;
or (ii) enter into, or consent to the entering into of, any agreement granting a
preferential right to sell, lease or otherwise dispose of any of such assets;

         (g) (i) enter  into any new line of  business;  (ii) incur or commit to
any capital  expenditures,  obligations or  liabilities in connection  therewith
other than capital expenditures, obligations or liabilities that in the ordinary
course of business or individually do not exceed $75,000 and in the aggregate do
not exceed $200,000 other than capital  expenditures  disclosed on Schedule 7.1;
(iii) merge or consolidate with another entity,  or acquire or agree to merge or
acquire by  purchasing a  substantial  portion of the assets of, or in any other
manner,  any business or Person;  (iv) make any  investment  in any Person;  (v)
increase the retail  prices of any coffee  beverages or whole bean goods that it
sells,  other than in the normal  course of business.  The parties  agree to act
reasonably and in good faith in connection with this Section 7.1(g)(v);

         (h) take any action,  other than  reasonable  and usual  actions in the
ordinary course of business and consistent  with past practice,  with respect to
its accounting policies or procedures;

         (i)      agree or commit to do any of the foregoing; and

         (j) enter into any  agreement or perform any act which might  interfere
with or be  inconsistent  with the  successful  completion  of the  transactions
contemplated by this Agreement.

7.2 Compliance with Obligations.  Prior to the Closing Date, the Purchaser shall
comply with (a) all applicable  federal,  state,  provincial,  local and foreign
laws, rules and regulations of Canada and the United States,  (b) all agreements
and  obligations,   including  its  articles  of   incorporation   and  by-laws,
respectively,  by which it, its  properties or its assets may be bound,  (c) all
decrees, orders, writs, injunctions,  judgments, statutes, rules and regulations
applicable to it, its properties or its assets,  and (d) all of its  obligations
and covenants contained in this Agreement.
<PAGE>

7.3 Orders and Rulings.  The Purchaser shall use its best efforts to obtain from
applicable securities  regulatory  authorities such orders and rulings as may be
required  so that the shares of the CPI Common  Stock to be issued to the Vendor
pursuant  to this  Agreement  will be freely  tradeable  in the  United  States,
subject only to the restrictions  imposed by Rule 145 under the U.S.  Securities
Act and the anti-fraud provisions under applicable laws.

7.4 Shareholder Meeting. The Purchaser shall cause a meeting of its shareholders
to be duly  called  and held as  promptly  as  practicable  for the  purpose  of
obtaining  shareholder  approval,  as and to the extent  required by  applicable
federal or state laws, regulations, or rules of the transactions contemplated by
this Agreement and, if requested by the Vendor,  for a new stock option plan. In
connection  with such meeting,  the Purchaser  will use its best efforts to, and
will direct its financial  advisor to, solicit from its shareholders  proxies in
favor of any required shareholder approval in connection with this Agreement and
the transactions  contemplated  hereby and shall take all other action necessary
or advisable to secure the vote or consent of its  shareholders  required by the
law of Oregon to obtain such approvals and will otherwise  comply with all legal
requirements applicable to such meeting.

7.5 Proxy Statement;  Registration  Statement.  As promptly as practicable after
the execution of this  Agreement,  the Purchaser shall (i) prepare and file with
the U.S. Commission and with any other appropriate  regulatory  authority in all
jurisdictions where the same is required and will mail to its shareholders,  and
other  appropriate  Persons as  required  by  applicable  law,  as  promptly  as
practicable,  the Proxy Statement and all other materials for the CPI Meeting in
such form and content as is reasonably  acceptable to the Vendor and its counsel
and (ii)  prepare and file with the U.S.  Commission  a  registration  statement
(together with all amendments  thereto,  the "Registration  Statement") in which
the Proxy Statement shall be included, in connection with the registration under
the U.S.  Securities  Act of the shares of the CPI Common  Stock to be issued at
the Closing Date to the Vendor and any shares of CPI Common Stock  issuable upon
the exercise of options,  (unless an exemption from registration  under the U.S.
Securities Act is available),  and all such shares shall be freely  tradeable in
the  United  States,  subject  only to the  restrictions  imposed  by  Rule  145
promulgated  under the U.S.  Securities Act and the anti-fraud  provisions under
applicable  laws and (iii) if  required by the  Vendor,  prepare a  registration
statement in  connection  with the issuance of options to acquire  shares of CPI
Common  Stock to employees of the  Purchaser  following  the Closing to be filed
with the U.S.  Commission on the Closing Date. The Proxy Statement shall include
the  recommendation of the board of directors of the Purchaser in favour of this
Agreement and the transactions contemplated hereby.

7.6      Store  Closings.  Forthwith  following the execution of this Agreement,
the Purchaser  shall use all  commercially  reasonable  efforts to negotiate the
closure or sale of its stores set out in Schedule 7.6.

7.7 Delivery of Audited Financial Statements. The Purchaser shall deliver to the
Vendor audited financial statements for its fiscal year ending December 31, 1997
on the earlier of two  Business  Days prior to the Closing Date and February 27,
1998.

7.8 Exclusivity  Obligations.  The Purchaser  agrees that during the period from
the date of the Acquisition  Agreement until the earlier of the Closing Date and
the  termination of this  Agreement  pursuant to its terms,  the Purchaser,  the
directors,  officers and employees of the Purchaser, and their respective legal,
financial  and other  advisors  shall not solicit or negotiate  (or continue any
such  negotiations) with any Person (other than the Vendor) for the sale of more
than 10% of the CPI Common  Stock  (other  than (i)  shares of CPI Common  Stock
traded on the Nasdaq Stock Market or (ii) shares of CPI Common Stock issued upon
<PAGE>

the  exercise of stock  options) or the sale of assets of the  Purchaser  (other
than  non-intellectual  property  assets located  outside of Oregon and Arizona)
outside of the ordinary course of business or the merger,  amalgamation or other
form of business combination involving the Purchaser or any of its shares of CPI
Common  Stock or assets or provide any  confidential  information  to any Person
other  than the  Vendor or its  representatives  in  connection  with any of the
foregoing.

7.9 Coffee Bean  International,  Inc. The Purchaser may seek to extend the terms
of its supply agreement with Coffee Bean International,  Inc. dated February 17,
1997  which  expires  on  November  30,  1997 (the "CBI  Agreement"),  provided,
however, that the terms of any such extension shall be substantially the same as
those  contained in the CBI  Agreement  and shall provide for the full and final
termination  thereof  on or  before  the  later  of May  31,  1998  and 60  days
immediately following the Closing Date.

7.10 Nasdaq Listing.  The Purchaser  shall use its best efforts,  subject to the
constraints imposed by Sections 5.10 and 7.1 of this Agreement,  to maintain the
listing of the CPI Common Stock on the Nasdaq National Market.


                                ARTICLE VIII
                  COVENANTS OF THE PURCHASER AND THE VENDOR

8.1      Access to Information; Confidentiality.

         (a) From the date of the Acquisition  Agreement to the Closing Date, to
the extent it is  required  for the  purposes  of the  preparation  of the Proxy
Statement and the Registration  Statement,  the Purchaser shall (and shall cause
its officers, directors, employees, auditors and agents to) afford the officers,
employees and agents of the Vendor (the "Vendor's  Representatives")  reasonable
access at all reasonable times to its officers,  employees,  agents, properties,
offices,  plants and other  facilities,  books and records and shall furnish the
Vendor's  Representatives  with all  financial,  operating  and  other  data and
information as may be reasonably requested.

         (b) From the date of the Acquisition  Agreement to the Closing Date, to
the extent it is  required  for the  purposes  of the  preparation  of the Proxy
Statement and the Registration Statement,  the Vendor shall (and shall cause the
Corporation  and its  Subsidiaries  and their  officers,  directors,  employees,
auditors  and  agents  to)  afford  the  officers,  employees  and agents of the
Purchaser  (the   "Purchaser's   Representatives")   reasonable  access  at  all
reasonable times to its officers, employees, agents, properties, offices, plants
and other facilities,  books and records of the Corporation and its Subsidiaries
and shall furnish the Purchaser's Representatives with all financial,  operating
and other data and information  relating to the Corporation and its Subsidiaries
as may be reasonably requested.

         (c)  The  Purchaser   shall  furnish  to  the  Vendor  as  promptly  as
practicable at each of the Purchaser's  Financial Period Ends occurring from the
date of the  Acquisition  Agreement to the Closing Date, a complete,  internally
prepared financial  statements package (which shall include an income statement,
balance  sheet and  statement  of cash  flows) for that  particular  Purchaser's
Financial Period End as well as the standard weekly management  reports prepared
by the Purchaser (substantially in the form presented to the Vendor prior to the
execution  of this  Agreement).  The Vendor  shall  furnish to the  Purchaser as
promptly as practicable at each of the Vendor's  Financial Period Ends occurring
from the date of the  Acquisition  Agreement  to the Closing  Date,  a complete,
internally prepared financial  statements package (which shall include an income
statement,  balance  sheet and  statement  of cash  flows)  for that  particular
Vendor's Financial Period End.
<PAGE>

         (d) All information obtained by the Purchaser or the Vendor pursuant to
this  Section  8.1  shall  be  kept   confidential   in   accordance   with  the
Confidentiality Agreement.

8.2 Notification of Certain  Matters.  The Purchaser shall give prompt notice to
the Vendor, and the Vendor shall give prompt notice to the Purchaser, of (i) the
occurrence or  non-occurrence,  of any event the occurrence or non-occurrence of
which would be likely to cause (a) any  representation or warranty  contained in
this  Agreement to be untrue or  inaccurate;  or (b) any covenant,  condition or
agreement  not to be  complied  with  or  satisfied;  (ii)  any  failure  of the
Purchaser  or the  Vendor,  as the case may be, to comply  with or  satisfy  any
covenant,  condition  or  agreement  to be  complied  with  or  satisfied  by it
hereunder; (iii) subject to Section 6.1 and 7.1, any lease, sublease, licence or
other  agreement  entered into by the  Purchaser,  the  Corporation,  any of the
Corporation's Subsidiaries or franchisees to occupy real property after the date
of the  Acquisition  Agreement and any amendment to any of the Leases or the CPI
Leases;  provided,  however,  that the  delivery of any notice  pursuant to this
Section 8.2 shall not limit or otherwise affect the remedies available hereunder
to the parties receiving such notice.  The Purchaser shall give prompt notice to
the Vendor of any price increases it makes.

         The Purchaser  and the Vendor will promptly  supplement or amend all of
the Schedules and Exhibits hereto with respect to any matter  hereafter  arising
which, if existing or occurring at the date of this  Agreement,  would have been
required to be set forth or  described in such  Schedule and Exhibit  hereto (or
provide a certificate of an officer  certifying to which  Schedules and Exhibits
do not  need  to be  supplemented  or  amended  pursuant  to the  terms  of this
Agreement) at the following times: (i) November 26, 1997; (ii) ten Business Days
prior to the day of the CPI Meeting;  and (iii) at the Closing. No supplement or
amendment of a Schedule or Exhibit made pursuant to this Section shall be deemed
to cure any  breach of,  affect or  otherwise  diminish  any  representation  or
warranty  made in this  Agreement  unless the other  party  hereto  specifically
agrees thereto in writing.

8.3 Regulatory  Approvals.  Prior to the Closing Date,  each party shall execute
and file,  or join in the  execution  and filing of,  any  application  or other
document that may be necessary in order to obtain the authorization, approval or
consent  of  any  Governmental  Entity  or  Regulatory  Authority  which  may be
reasonably  required,  or that  the  other  party  may  reasonably  request,  in
connection  with the  consummation  of the  Merger.  Each  party  shall  use its
commercially reasonable efforts to obtain all such authorizations, approvals and
consents.

8.4 Actions Contrary to Stated Intent.  Neither party shall, or shall permit any
of its  Subsidiaries  to,  take any action that would,  or  reasonably  might be
expected  to,  result in any of its  representations  and  warranties  set forth
herein  being or  becoming  untrue  in any  material  respect,  or in any of the
conditions set forth in Article IX not being satisfied.

8.5 Certain Filings.  The Purchaser and the Vendor shall cooperate with one
another:

         (a) in  determining  whether  any action by or in respect of, or filing
with,  any  Governmental  Entity or  Regulatory  Authority is  required,  or any
actions, consents, approvals or waivers are required to be obtained from parties
to  any  material  contracts,   in  connection  with  the  consummation  of  the
transactions contemplated by this Agreement; and

         (b) in seeking  any such  actions,  consents,  approvals  or waivers or
making any such filings, furnishing information required in connection therewith
and seeking to obtain in a timely manner any such actions,  consents,  approvals
or waivers.
<PAGE>

8.6 Public  Announcements.  The  Purchaser and the Vendor will consult with each
other  before  issuing  any press  release or making any public  statement  with
respect to this Agreement and the transactions  contemplated hereby and will not
issue any such press release or make any such public statement without the prior
consent of the other party, which shall not be unreasonably withheld;  provided,
however,  that a party may,  without the consent of the other party,  issue such
press release or make such public  statement as may be required by law or by the
Nasdaq Stock Market or The Toronto Stock  Exchange if it has used all reasonable
efforts to consult with the other party and to obtain such  party's  consent but
has been unable to do so in a timely manner.

8.7 Satisfaction of Conditions Precedent.  The Purchaser and the Vendor will use
their  best  efforts  to satisfy  or cause to be  satisfied  all the  conditions
precedent  that are set forth in Article IX, as applicable to each of them,  and
to cause the transactions contemplated by this Agreement to be consummated, and,
without  limiting the  generality of the  foregoing,  to obtain all consents and
authorizations  of third  parties  and to make all  filings  with,  and give all
notices to, third  parties that may be necessary or  reasonably  required on its
part in  order to  effect  the  transactions  contemplated  hereby.  Each of the
Purchaser  and the Vendor  agrees to negotiate in good faith with respect to any
additional  agreement  reasonably  requested by another  party hereto which such
requesting   party   determines  in  good  faith  is  necessary  to  effect  the
transactions contemplated hereby.

8.8 Brothers Escrow  Agreement.  The rights of the Corporation to be indemnified
by Brothers  Retail Corp. in connection  with the settlement of various  matters
pursuant  to the  Brothers  Stock  Purchase  Agreement  and  any  rights  of the
Corporation  to  monies  being  held  under the  Brothers  Escrow  Agreement  in
connection  with  such  settlements  shall  be held by the  Corporation  for the
account  of The  Second  Cup  Ltd.;  provided,  however,  that if the  rights to
indemnification  relate to a settlement wherein costs or losses were incurred by
the Corporation after the Closing Date, such rights to indemnification  (and the
monies to be recovered by the Corporation in connection therewith less any costs
incurred in the collection of such monies) shall, to the extent of such costs or
losses only,  remain with the Corporation.  The Purchaser  acknowledges that the
monies being held under the Brothers Escrow Agreement are not part of the assets
of the Corporation  being acquired by the Purchaser  pursuant to this Agreement.
Following  the execution of this  Agreement,  the  Corporation  shall execute an
irrevocable  direction to Brothers Retail Corp. and Norwest Bank Colorado,  N.A.
directing  Norwest  Bank  Colorado,  N.A.  to deliver  any  monies  owing to the
Corporation  under the  Brothers  Escrow  Agreement  to The Second  Cup Ltd.  in
accordance with the terms of this Section 8.8.

8.9 Number of Directors. The Vendor shall take all actions necessary to cause to
be elected to the board of directors of the  Purchaser  for a period of one year
from the Closing Date, three persons designated prior to the Closing Date by the
Purchaser  (the  "Purchaser's  Nominees").  The  Vendor  agrees to  execute  all
documents and instruments reasonably requested by Purchaser with respect to this
covenant.  The Vendor shall be entitled to nominate to the board of directors of
the Purchaser up to six directors (the "Vendor's Nominees"). The Proxy Statement
shall  provide that the board of  directors  of the  Purchaser be fixed at up to
nine and shall ask  shareholders  to  nominate  the  Vendor's  Nominees  and the
Purchaser's  Nominees to the board of directors of the Purchaser  effective upon
the Closing of the  transactions  contemplated  hereby.  The  Purchaser  and the
Vendor  agree  that it is  desirable  to have a  representation  of  independent
directors on the board of directors of the Purchaser.

8.10     Tax Cooperation.

         (a) The Purchaser and the Vendor shall  cooperate  fully, as and to the
extent  reasonably  requested  by  the  other  party,  in  connection  with  the
preparation and filing of Tax returns (including any report required pursuant to
Section 368 of the Code and all treasury  regulations  promulgated  thereunder),
any  audit,   litigation  or  other  proceeding  with  respect  to  Taxes.  Such
cooperation shall include the retention and (upon the other party's request) the
<PAGE>

provision of records and information  which are reasonably  relevant to any such
audit,  litigation  or other  proceeding  and making  employees  available  on a
mutually  convenient basis to provide additional  information and explanation of
any  material  provided  hereunder.  The  Purchaser  and the Vendor agree (i) to
retain all books and  records  with  respect  to Tax  matters  pertinent  to the
Purchaser,  the  Corporation  and its  Subsidiaries  relating  to any Tax period
before the Closing Date and to abide by all record retention  agreements entered
into with any  taxing  authority,  and (ii) to give the other  party  reasonable
written notice prior to destroying or discarding any such books and records.

         (b) The Purchaser and the Vendor  further agree,  upon request,  to use
all  reasonable  efforts to obtain any  certificate  or other  document from any
governmental  authority or customer of the Purchaser,  the Corporation or any of
the  Corporation's  Subsidiaries  or any  other  person as may be  necessary  to
mitigate,  reduce or eliminate any Tax that could be imposed  (including but not
limited to with respect to the transactions contemplated hereby).

 8.11 Cash/Working  Capital  Adjustment.  The parties acknowledge that the basis
for the cash contribution to be made by the Corporation  pursuant to Section 6.4
of this Agreement was predicated on an assessment as at the time of negotiations
between the parties of the net  indebtedness and the working capital position of
the  Purchaser  (the "Cash  Adjustment  Base," which means  current  assets less
current  liabilities  less  long  term  debt and  capital  leases).  In order to
accommodate  certain negative  variances in the Cash Adjustment Base between the
date of the  Acquisition  Agreement  and the  Closing  Date,  excluding  changes
resulting from the  negotiations  and  consummation of this  transaction,  which
shall be no greater than $1,250,000, the Vendor's obligations under Sections 6.4
and 6.5 of this Agreement  shall be adjusted in the following  circumstances  as
follows:

         If  the  Purchaser's  Cash  Adjustment  Base  as at  the  most  current
Purchaser's Financial Period End prior to the Closing Date is less than negative
$5,300,000,  the Vendor  shall (i) decrease the amount of cash to be kept in the
Corporation's bank account on the Closing Date in accordance with Section 6.4 on
a dollar  for  dollar  basis  with the  amount  by which  the  Purchaser's  Cash
Adjustment  Base (after  adding back amounts paid or accrued by the Purchaser in
connection  with  the   negotiations   and   consummation  of  the  transactions
contemplated  by  this  Agreement,  which  amounts  shall  be  no  greater  than
$1,250,000)  is less than  negative  $5,300,000  and (ii)  increase  the maximum
principal  amount of the Loan to be made to the  Purchaser  at the Closing  Date
pursuant to Section 6.5 on a dollar for dollar basis (after  adding back amounts
paid or  accrued  by the  Purchaser  in  connection  with the  negotiations  and
consummation of the transactions  contemplated by this Agreement,  which amounts
shall be no greater than  $1,250,000)  with the amount by which the  Purchaser's
Cash Adjustment Base is less than negative  $5,300,000.  The parties acknowledge
that the exclusion of transaction  costs from the Working Capital  Adjustment is
to give effect to the Vendor's  agreement to reimburse the Purchaser's  expenses
from the transactions contemplated by this Agreement, which expenses shall be no
greater than $1,250,000.

8.12 Lease  Consents.  The  Purchaser has been informed that the Vendor will not
obtain  consents or approval with respect to the Leases because there will be no
effective change of control of the Corporation. A failure to obtain any required
consents  with  respect  to the  Leases  shall not  constitute  a breach of this
Agreement, unless such failure results in a Material Adverse Change.

8.13  Coffee  Supply.  Subject  to the full  and  final  termination  of the CBI
Agreement  pursuant to Section 7.9, the  Purchaser and the Vendor agree that the
production of coffee for the Purchaser shall be transferred to the Corporation's
roasting  facility at  Castroville,  California  as soon as  possible  after the
Closing Date,  that such  transfer  shall be undertaken so as to ensure a smooth
transition  of  production  of  Purchaser's  coffee and that coffee of a quality
equal or superior to that currently purchased by the Purchaser shall be produced
at such  facility  on  terms to be  agreed  upon by the  parties  at or prior to
Closing.
<PAGE>


                               ARTICLE IX
                          CONDITIONS OF CLOSING

9.1 Conditions to All Parties'  Obligations.  The obligations of all the parties
to this  Agreement  to effect  the  transactions  contemplated  hereby  shall be
subject to the fulfilment or  satisfaction,  at or prior to the Closing Date (or
such other date as provided  in Section  10.1(f)  and  10.1(g)  hereof),  of the
following conditions or the mutual waiver by the parties:

         (a) Shareholder Approval.  The Shareholders of Purchaser shall have at
the CPI Meeting approved the transactions contemplated by this Agreement to the
extent required by applicable federal or state laws, regulations, or rules.

         (b) Illegality or Legal  Constraint.  No temporary  restraining  order,
preliminary  or permanent  injunction or other order or restraint  issued by any
court of  competent  jurisdiction  in the United  States or Canada,  no statute,
rule, regulation,  order, decree, restraint or pronouncement by any Governmental
Entity,  and no other legal restraint or prohibition which would prevent or have
the effect of preventing the  consummation  of the Merger shall have been issued
or adopted or be in effect; provided,  however, that the parties shall use their
best efforts to cause any such injunction,  restraint,  decree, pronouncement or
other order to be vacated or lifted.

         (c) Governmental  Authorizations.  All permits, approvals,  filings and
consents  required or  advisable  to be obtained or made prior to the closing of
the transactions  contemplated by this Agreement under applicable  Canadian law,
federal  laws of the United  States or  applicable  laws of any state or foreign
country having jurisdiction over the transactions contemplated herein shall have
been obtained or made, as the case may be, on terms and conditions  satisfactory
to the Purchaser and the Vendor, acting reasonably, including without limitation
approvals  by the U.S.  Commission  and the  Nasdaq  Stock  Market and all other
applicable  securities  regulatory  authorities  having  jurisdiction  over  the
issuance  of  CPI  Common  Stock  pursuant  to the  Merger  (all  such  permits,
approvals, filings, and consents and the lapse of all such waiting periods being
referred to as the  "Requisite  Regulatory  Approvals"),  and all such Requisite
Regulatory Approvals shall be in full force and effect.

         (d) Registration Statement.  The Registration Statement shall have been
declared effective by the U.S. Commission under the U.S. Securities Act.  No 
stop order suspending the effectiveness of the registration statement shall have
been issued by the U.S. Commission and no proceedings for that purpose shall 
have been initiated or, to the knowledge of the Purchaser or the Vendor, 
threatened by the U.S. Commission.

9.2  Conditions to the  Obligations  of the Purchaser to Effect the Merger.  The
obligations  of the Purchaser  under this  Agreement to effect the  transactions
contemplated  hereby are subject to the fulfilment or satisfaction,  at or prior
to the Closing Date, of the following conditions, unless waived by the Purchaser
in its sole discretion:

         (a) Accuracy of Representations and Warranties. The representations and
warranties  of the  Vendor set forth in  Article  III  hereof  shall be true and
correct in all  material  respects as of the date when made and at and as of the
Closing  Date,  except for such changes as are  permitted by this  Agreement and
except to the extent a  representation  or warranty speaks only as of an earlier
date; provided,  however, that any inaccuracy of a representation or warranty in
<PAGE>

existence on the Closing  Date,  and which arose  subsequent  to the date of the
Acquisition Agreement,  shall not result in the non-satisfaction of this Section
9.2(a) unless any such inaccuracy or inaccuracies, either (i) individually or in
the aggregate,  results in a Material  Adverse Change to the Corporation and its
Subsidiaries,   taken  as  a  whole  or  (ii)  are   willful   and   intentional
misrepresentations that constitute common law fraud.

         (b) Covenants and Agreements.  The Vendor shall have duly performed and
complied in all material respects with the covenants and agreements  required by
this Agreement to be performed by or complied with by it or the Corporation or a
Subsidiary thereof prior to or at the Closing Date.

         (c)  Consents.  Any  consent  required  for  the  consummation  of  the
transactions  contemplated  by this  Agreement  under any Contract or License to
which  the  Corporation  or a  Subsidiary  thereof  is a party  shall  have been
obtained.

         (d) Opinion of Counsel.  The Purchaser  shall have received the opinion
of Vendor's  Counsel  dated the Closing Date in the form attached as Exhibit 9.2
on or before the Closing Date.

         (e)  Certificates  of the Vendor.  The  Purchaser  shall have  received
certificates of the Vendor, satisfactory in form and substance to the Purchaser,
executed on behalf of the Vendor by its Chief Executive Officer or President, as
to compliance  with the matters set forth in  paragraphs  (a), (b), (c), (f) and
(h) of this Section 9.2.

         (f) No  Adverse  Decision.  There  shall  not be any  action  taken  or
threatened,  or  any  statute,  rule,  regulation  or  order  enacted,  entered,
threatened, or deemed applicable to the transactions contemplated hereby, by any
foreign,  Canadian  or  United  States  federal,   provincial,  state  or  local
government or Governmental Entity or Regulatory Authority or court that, whether
in connection with the grant of a Requisite Regulatory  Approval,  any agreement
proposed by any foreign,  Canadian or United  States  federal,  state,  local or
provincial  government  or  Governmental  Entity  or  Regulatory  Authority,  or
otherwise,  which (i)  requires or could  reasonably  be expected to require any
divestiture by the Purchaser,  the  Corporation or any of its  Subsidiaries of a
portion of its business that the Purchaser in its reasonable  judgment  believes
will result in a Material  Adverse Change to the Purchaser or the Corporation or
(ii) imposes any condition upon the Corporation or any of its Subsidiaries  that
in the Purchaser's reasonable judgment (x) would be materially burdensome to the
Corporation  and its  Subsidiaries  taken  as a whole  or (y)  would  materially
increase  the costs  incurred or that could be incurred  by the  Purchaser  as a
result of consummating the transactions contemplated hereby.

         (g)  Proceedings;   Receipt  of  Documents.  All  corporate  and  other
proceedings  taken or required to be taken in connection  with the  transactions
contemplated  hereby and all  documents  incident  thereto  shall be  reasonably
satisfactory in form and substance to the Purchaser and the Purchaser's counsel,
and Purchaser and Purchaser's  counsel shall have received all such  information
and such counterpart originals or certified or other copies of such documents as
the Purchaser or its counsel may reasonably request.

         (h) Adverse Change. From the date of the Acquisition  Agreement through
and  including  the  Closing  Date,  neither  the  Corporation  nor  any  of its
Subsidiaries  shall have suffered any Material  Adverse  Change  (whether or not
such change is described in any supplement to a Schedule hereto).

         (i)      Approval of Vendor.  The Vendor, as sole shareholder of the 
orporation, shall have approved the Merger in accordance with the DGCL.
<PAGE>

9.3  Conditions  to the  Obligations  of the  Vendor to Effect the  Merger.  The
obligations  of the Vendor  under  this  Agreement  to effect  the  transactions
contemplated  hereby are subject to the fulfilment or satisfaction,  at or prior
to the Closing Date, of the following conditions, unless waived by the Vendor in
its sole discretion:

         (a) Accuracy of Representations and Warranties. The representations and
warranties  of the  Purchaser  set forth in  Article V hereof  shall be true and
correct in all  material  respects as of the date when made and at and as of the
Closing Date,  except to the extent a representation  or warranty speaks only as
of an earlier  date and  except  for  changes  contemplated  by this  Agreement;
provided,  however,  that any  inaccuracy  of a  representation  or  warranty in
existence on the Closing  Date,  and which arose  subsequent  to the date of the
Acquisition Agreement,  shall not result in the non-satisfaction of this Section
9.3(a) unless any such inaccuracy or inaccuracies, either (i) individually or in
the aggregate, results in a Material Adverse Change to the Purchaser or (ii) are
willful and intentional misrepresentations that constitute common law fraud.

         (b) Covenants and  Agreements.  The Purchaser shall have duly performed
and  complied,  in all material  respects,  with the  covenants  and  agreements
required by this Agreement to be performed or complied with by it prior to or at
the Closing Date.

         (c)  Consents.  Any  consent  required  for  the  consummation  of  the
transactions  contemplated  by this  Agreement  under any Contract or License to
which the Purchaser is a party shall have been obtained.

         (d) Opinion of Counsel.  The Vendor shall have  received the opinion of
Purchaser's  Counsel  dated the  Closing  Date in the form  attached  as Exhibit
9.3(d) on or before the Closing Date.

         (e)  Certificates  of the  Purchaser.  The Vendor shall have received a
certificate of the Purchaser,  satisfactory in form and substance to the Vendor,
executed  on  behalf  of the  Purchaser  by its Chief  Executive  Officer  as to
compliance  with the matters set forth in paragraphs  (a), (b), (c), (f) and (h)
of this Section 9.3.

         (f) No  Adverse  Decision.  There  shall  not be any  action  taken  or
threatened,  or  any  statute,  rule,  regulation  or  order  enacted,  entered,
threatened, or deemed applicable to the transactions contemplated hereby, by any
foreign,  Canadian  or  United  States  federal,   provincial,  state  or  local
government or Governmental Entity or Regulatory Authority or court that, whether
in connection with the grant of a Requisite Regulatory  Approval,  any agreement
proposed by any foreign,  Canadian or United  States  federal,  state,  local or
provincial  government  or  Governmental  Entity  or  Regulatory  Authority,  or
otherwise,  which (i)  requires or could  reasonably  be expected to require any
divestiture by the Purchaser,  the  Corporation or any of its  Subsidiaries of a
portion of its business that the Vendor in its reasonable judgment believes will
result in a Material  Adverse Change to the Purchaser or the Corporation or (ii)
imposes  any  condition  upon  the  Purchaser  that in the  Vendor's  reasonable
judgment  (x)  would be  materially  burdensome  to the  Purchaser  or (y) would
materially  increase  the  costs  incurred  or that  could  be  incurred  by the
Purchaser as a result of consummating the transactions contemplated hereby.

         (g)  Proceedings;   Receipt  of  Documents.  All  corporate  and  other
proceedings  taken or required to be taken in connection  with the  transactions
contemplated  hereby and all  documents  incident  thereto  shall be  reasonably
satisfactory in form and substance to the Vendor and the Vendor's  counsel,  and
the Vendor and the Vendor's counsel shall have received all such information and
such counterpart originals or certified or other copies of such documents as the
Vendor or its counsel may reasonably request.
<PAGE>

         (h) Adverse Change. From the date of the Acquisition Agreement, through
and  including  the Closing  Date,  the  Purchaser  shall not have  suffered any
Material  Adverse  Change  (whether  or not  such  change  is  described  in any
supplement to a Schedule  hereto).  The failure of the Purchaser to obtain on or
prior to the Closing Date the written consent of the lessors, or the sublessors,
as the case may be,  under  the CPI  Leases  set out on  Schedule  9.3(h) to the
transactions  contemplated  by this  Agreement  shall be deemed to be a Material
Adverse  Change in the  Purchaser.  Notwithstanding  the preceding  sentence and
Section  10.3(b),  if the  Purchaser  fails to obtain the  written  consent of a
lessor or sublessor of a CPI Lease for a store in Arizona,  the Purchaser  shall
only be  required to pay the  Vendor's  Expenses  if such  failure  results in a
change or a development  involving a prospective change which, alone or together
with any other such change or development,  has or would  reasonably be expected
to have a material  adverse  effect on the value of the assets or the  financial
condition, which includes the earnings and cash flow streams, of the Purchaser.

         (i) Voting Agreement.  From the date hereof,  through and including the
date   of  the   CPI   Meeting,   each  of  the   Voting   Agreements   executed
contemporaneously  with this  Agreement  shall  remain in full force and effect,
unamended, in the form attached as Exhibit 9.3(i).

         (j) Nasdaq  Listing.  If the CPI Common  Stock is trading on the Nasdaq
National Market or the Nasdaq SmallCap Market at the time of Closing, the shares
of CPI  Common  Stock to be issued to the Vendor  pursuant  to the terms of this
Agreement  shall have been approved for listing on the stock market on which the
CPI Common Stock is so trading.

         (k) Officers and Directors.  Alton McEwen,  or such other person as the
Vendor shall  designate in its  discretion if not Alton McEwen,  shall have been
appointed  Chief Executive  Officer of the Purchaser,  following the CPI Meeting
effective as of the Closing.  The Vendor's  Nominees  shall have been elected to
the board of directors of the Purchaser effective as of the Closing.

         (l) Financial Statements Unqualified.  The audited financial statements
of the Purchaser to be delivered to the Vendor pursuant to Section 7.8, shall be
unqualified and shall not reflect any Material  Adverse Change since the date of
the interim  financial  statements dated June 30, 1997, except for the impact of
the costs and expenses incurred as a result of the transactions  contemplated by
this Agreement, which costs shall be no more than $1,250,000.

         (m) Approval of Bank of America.  The Purchaser shall have received the
approval of Bank of America to this Agreement and the transactions  contemplated
hereby or, in the alternative, the Purchaser shall have provided the Vendor with
evidence satisfactory to the Vendor that a financial  institution  comparable to
Bank of America has committed to finance the Purchaser following the Closing and
that such financing  shall be on  substantially  the same terms as the financing
arrangements  currently  in place with Bank of America with respect to principal
amount, interest rate and term and shall include covenants that are commercially
reasonable for loans of a similar  nature;  provided that Vendor shall have used
its best efforts to assist  Purchaser in obtaining  such approval or alternative
financing,  as the case may be (which  best  efforts  shall  not,  in any event,
include an  obligation  to invest any capital in the  Purchaser);  and  provided
further that Vendor, pursuant to its obligations under Section 6.5 hereof, shall
have agreed to enter into any subordination  agreement  reasonably  requested by
Bank of America, or such other financial institution, as the case may be.

<PAGE>

                                ARTICLE X
                   TERMINATION, AMENDMENTS AND WAIVERS

10.1     Termination.  This Agreement may be terminated at any time prior to the
Closing Date:

         (a)      by the mutual consent of the Purchaser and the Vendor;

         (b)  by  the  Purchaser,  if  it is  not  in  material  breach  of  its
obligations  under  this  Agreement,  and if (A)  there has been a breach by the
Vendor of any of its representations and warranties  hereunder such that Section
9.2(a) will not be satisfied; or (B) there has been a willful breach on the part
of the Vendor of any of its covenants or agreements  contained in this Agreement
such that the first  sentence of Section  9.2(b) will not be satisfied,  and, in
both case (A) and case (B),  such breach has not been cured within ten (10) days
after notice to the Vendor;

         (c) by the Vendor,  if it is not in material  breach of its obligations
under this Agreement, and if (A) there has been a breach by the Purchaser of any
of its  representations  and warranties  hereunder such that Section 9.3(a) will
not be  satisfied;  or (B) there  has been a  willful  breach on the part of the
Purchaser of any of its covenants or agreement  contained in this Agreement such
that the first  sentence of Section  9.3(b) will not be satisfied,  and, in both
case (A) and (B),  such  breach  has not been  cured  within ten (10) days after
notice to the Purchaser;

         (d) by the Purchaser, if, after the date of this Agreement, there shall
have occurred a Material Adverse Change in the Corporation and its Subsidiaries
taken as a whole;

         (e) by the Vendor if, after the date of this Agreement, there shall 
have occurred a Material Adverse Change in the Purchaser;

         (f) by the Purchaser, if, after the date of this Agreement, one or more
of the conditions set out in Section 9.1 or 9.2 has not been fulfilled by the
Closing Date; or

         (g) by the Vendor, if, after the date of this Agreement, one or more of
the  conditions  set out in  Section  9.1 or 9.3 has not been  fulfilled  by the
Closing Date.

         Any  termination  of this  Agreement  under this  Section  10.1 will be
effective  by the  delivery of written  notice by the  terminating  party to the
other party hereto.

10.2 Effect of Termination.  Except as provided in Sections 10.3, 10.4 and 10.5,
in the event of the termination of this Agreement  pursuant to Section 9.1, this
Agreement shall forthwith  become void,  there shall be no liability on the part
of the Purchaser or the Vendor or any of their respective corporate  affiliates,
officers or directors to the other and all rights and  obligations  of any party
hereto shall cease;  provided,  however,  that nothing  herein shall relieve any
party  from  liability  for the  wilful  breach  of any of its  representations,
warranties, covenants or agreements set forth in this Agreement.

10.3     Expenses.

         (a) Subject to paragraph  (b) of this Section 10.3,  all  out-of-pocket
cost and expenses,  including,  without  limitation,  fees and  disbursements of
counsel, financial advisers and accounting, incurred by the parties hereto shall
be borne  solely and  entirely  by the party which has  incurred  such costs and
expenses (with respect to such party, its "Expenses");  provided,  however, that
all costs and expenses related to printing,  filing and mailing the Registration
Statement  and Proxy  Statement  and all U.S.  Commission  and other  regulatory
filing fees incurred in connection with the Registration Statement and the Proxy
Statement  shall be borne solely by the  Purchaser  and all filing fees required
under the HSR Act, if any, shall be borne equally  between the Purchaser and the
Vendor.
<PAGE>

         (b) The  Purchaser  and the  Vendor  agree  that if this  Agreement  is
terminated  pursuant to Section 10.1(d) or Section 10.1(e),  then, the party who
has suffered the Material Adverse Change shall pay to the other party that other
party's Expenses incurred subsequent to September 16, 1997. Any payment required
to be made  pursuant  to this  Section  10.3(b)  shall  be made as  promptly  as
practicable  but not later  than 10  Business  Days  after  receipt by the party
required to pay the Expenses of the statement  setting forth the Expenses of the
other  party  in  reasonable  detail  and  shall  be made by  wire  transfer  of
immediately  available funds to the account  designated by the party entitled to
payment of its Expenses.

10.4     Termination Fee.

         (a) Payment by Purchaser. Subject to Section 10.6, if this Agreement is
terminated  pursuant to Section 10.1(g) because the condition set out in Section
9.1(a) is not met (due to no failure of the  Vendor),  or because the  Purchaser
has failed to satisfy  the  condition  set out in  Section  9.3(a)(ii),  9.3(b),
9.3(d), 9.3(g), 9.3(k), 9.3(m) or, to the extent that the failure to satisfy the
condition  is not a  result  of a  Material  Adverse  Change,  9.3(1),  then the
Purchaser  shall pay to the Vendor a fee of $500,000 and the  Vendor's  Expenses
incurred  subsequent  to  September  16, 1997 (by wire  transfer in  immediately
available   funds)  within  15  Business  Days  after  delivery  of  the  notice
contemplated in Section 10.1.

         (b) Payment by Vendor.  If this  Agreement  is  terminated  pursuant to
Section  10.1(f)  because the Vendor has failed to satisfy the condition set out
in Section 9.2(a)(ii),  9.2(b),  9.2(d), 9.2(g), or 9.2(i) then the Vendor shall
pay to the  Purchaser a fee of $500,000 and the  Purchaser's  Expenses  incurred
subsequent  to September  16, 1997 (by wire  transfer in  immediately  available
funds)  within 15 Business  Days after  delivery of the notice  contemplated  in
Section 10.1.

         A party shall not be entitled to receive any payment under this Section
10.4  if,  at the time of  delivery  of the  applicable  notice  of  termination
pursuant to Section 10.1, the party  alleging a breach is in material  breach of
this Agreement.

10.5  Alternate  Transaction  Fee.  Subject to Section 10.6, if on or before the
Closing  Date,  an offer  is  publicly  announced,  received  by the  Purchaser,
commenced  or made with  respect  to the sale of more than 10% of the issued and
outstanding  shares of CPI  Common  Stock  (other  than (i) shares of CPI Common
Stock traded on the Nasdaq National Market,  and (ii) shares of CPI Common Stock
issued  upon the  exercise  of stock  options)  or the sale of the assets of the
Purchaser (other than non-intellectual  property assets of the Purchaser located
outside of Oregon and Arizona) outside of the ordinary course of business or the
merger,  amalgamation,  or other form of business  combination with or involving
the  Purchaser,  its assets or the shares of CPI  Common  Stock (the  "Alternate
Transaction") and the Alternate Transaction is thereafter completed on or before
August 15, 1998 (whether or not on its original terms), and the Vendor continues
to use its  commercially  reasonable  best  efforts  to close  the  transactions
contemplated   by  this   Agreement   after  becoming  aware  of  the  Alternate
Transaction,  the  Purchaser  shall pay to the  Vendor in  consideration  of its
efforts a fee of $500,000.  Notwithstanding the foregoing,  the Vendor shall not
be required to continue to use its commercially reasonable best efforts to close
the  transactions  contemplated  by this Agreement if the Purchaser is precluded
from dealing with the Vendor or the  Purchaser  ceases to discuss or prepare for
the closing of the transactions contemplated by this Agreement.

10.6 Maximum  Payment by Purchaser.  Notwithstanding  the  provisions set out in
Sections 10.3,  10.4 and 10.5,  the aggregate  maximum amount that the Purchaser
shall be required to pay for the Expenses and the fees  contemplated  by Section
10.4(a) and 10.5 shall in no event exceed $1,000,000 and, to the extent that the
amount payable would otherwise exceed $1,000,000, the amount to be paid shall be
$1,000,000.
<PAGE>


                               ARTICLE XI
                              PROJECTIONS

11.1  Vendor's Acknowledgement.  The Vendor acknowledges having received the 
projections attached to theDisclosure Letter.

11.2  Representation  and Warranty of Purchaser.  The Purchaser  represents  and
warrants to the Vendor that the  projections  attached to the Disclosure  Letter
represent a reasonable,  best efforts  projection for the Purchaser,  (excluding
the expenses contemplated by this Agreement,  which expenses shall be no greater
than $1,250,000) based on all facts known by the Purchaser as at the date of the
Disclosure Letter, for the 1998 calendar year.


                              ARTICLE XII
                           GENERAL PROVISIONS

12.1 Taking of Necessary  Action.  Subject to the terms and  conditions  of this
Agreement, each of the parties hereto agrees, subject to applicable laws, to use
all best  efforts  promptly to take or cause to be taken all action and promptly
to do or  cause to be done all  things  necessary,  proper  or  advisable  under
applicable   laws  and   regulations   to  consummate  and  make  effective  the
transactions contemplated by this Agreement. Without limiting the foregoing, the
Vendor and the  Purchaser  shall use their  commercially  reasonable  efforts to
obtain and make all consents, approvals, assurances and filings of or with third
parties and Governmental Entities necessary, or in the reasonable opinion of the
Purchaser  or the Vendor  advisable  for the  consummation  of the  transactions
contemplated  by this  Agreement.  Each party shall  cooperate with the other in
good faith to help the other satisfy its obligations hereunder.

12.2     Employment Terms.  The parties agree that Exhibit 12.2 sets out the 
terms of employment for Taylor H. Devine and Kenneth Ross following Closing.

12.3 Effect of Due Diligence.  No investigation by or on behalf of the Purchaser
into the  business,  operations,  prospects,  assets or condition  (financial or
otherwise) of the Corporation and its Subsidiaries shall diminish in any way the
effect of any representations or warranties made by the Vendor in this Agreement
or shall relieve the Vendor of any of its obligations  under this Agreement.  No
investigation  by or on  behalf of the  Vendor  into the  business,  operations,
prospects,  assets or condition  (financial or otherwise) of the Purchaser shall
diminish in any way the effect of any  representations or warranties made by the
Purchaser  in this  Agreement  or  shall  relieve  the  Purchaser  of any of its
obligations under this Agreement.

12.4 Successors and Assigns.  This Agreement will inure to the benefit of and be
binding upon the parties  hereto and their  respective  successors and permitted
assigns.  Neither this Agreement nor any of the rights, interests or obligations
hereunder  shall be assigned by either of the parties  hereto  without the prior
written consent of the other party hereto.

12.5   Non-survival   of   Representations   and   Warranties.   None   of   the
representations,  warranties  and covenants  made herein,  or in any  instrument
delivered  pursuant  to  this  Agreement,  shall  survive  the  Closing  Date or
<PAGE>

termination  of this  Agreement,  except for the  provisions of Sections  8.1(d)
(which  shall  survive  for a  period  of  three  years  from  the  date  of the
Confidentiality  Agreement),  6.7, 8.9 and 8.10 (each of which shall  survive in
accordance with their terms) and, 10.2,  10.3, 10.4, 10.5 and 10.6 each of which
shall survive indefinitely.

12.6 Entire Agreement. This Agreement,  together with the Schedules and Exhibits
hereto and the Confidentiality  Agreement  constitute the entire agreement among
the parties hereto with respect to the  transactions  contemplated  hereby,  and
controls and supersedes any prior understandings,  agreements or representations
by or between the parties,  written or oral with  respect to the subject  matter
hereof.

12.7 Notices. All notices or other communications  hereunder shall be in writing
and shall be deemed to have been duly given if delivered  personally  or sent by
telefax  communication,  by recognized  overnight  courier  marked for overnight
delivery,  or by registered or certified  mail,  postage  prepaid,  addressed as
follows:

         (a)      If to the Purchaser:

                      c/o Coffee People, Inc.
                      15100 S.W. Koll Parkway, Suite J
                      Beaverton, Oregon 97006
                      Attention:    Kenneth B. Ross
                      Fax:  (503) 672-9013

                  with a copy to:

                      Tonkon Torp LLP
                      1600 Pioneer Tower
                      888 S.W. Fifth Avenue
                      Portland, Oregon
                      97204-2099
                      Attention:  Ronald L. Greenman
                      Fax:  (503) 274-8779

         (b)      If to the Vendor:

                      c/o The Second Cup Ltd.
                      175 Bloor Street East
                      South Tower, Suite 801
                      Toronto, Ontario
                      M4W 3R8
                      Attention:    Michael Bregman
                      Fax:  (416) 975-9856


<PAGE>



                  with a copy to:

                      Goodman Phillips & Vineberg
                      250 Yonge Street
                      Suite 2400
                      Toronto, Ontario
                      M5B 2M6
                      Attention:    David Matlow
                      Fax:  (416) 979-1234

or such other addresses as shall be furnished by like notice by such party.  All
such notices and communications  shall, when telefaxed  (immediately  thereafter
confirmed by telephone),  be effective when telefaxed,  or if sent by nationally
recognized  overnight  courier service,  be effective one Business Day after the
same has been delivered to such courier  service marked for overnight  delivery,
or, if mailed, be effective when received.

12.8     Applicable Law.  This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware, without reference
to or application of any conflicts of laws principles.

12.9 Consent to Jurisdiction;  Receipt of Process. Each party hereby consents to
the jurisdiction of, and confers non-exclusive jurisdiction upon, any federal or
state court located in the City of Portland,  Oregon, and appropriate  appellate
courts therefrom, over any action, suit or proceeding arising out of or relating
to this Agreement,  or any of the transactions  contemplated  hereby. Each party
hereby  irrevocably  waives,  and  agrees not to assert as a defense in any such
action, suit or proceeding,  any objection which it may now or hereafter have to
venue of any such  action,  suit or  proceeding  brought in any such  federal or
state court and hereby irrevocably  waives any claim that any such action,  suit
or  proceeding  brought in any such  court or  tribunal  has been  brought in an
inconvenient forum. Process in any such action, suit or proceeding may be served
on any party  anywhere  in the world,  whether  within or  without  the State of
Oregon,  provided that notice  thereof is provided  pursuant to  provisions  for
notice under this Agreement.

12.10 Counterparts.  This Agreement may be executed in one or more counterparts,
each of which  shall be  deemed an  original,  but all of which  together  shall
constitute one and the same instrument.

12.11 Headings. The headings used in this Agreement are for convenience only and
are not to be considered in construing or interpreting  any term or provision of
this Agreement.

12.12 Amendment. This Agreement may be amended by the parties hereto at any time
prior to the  Closing  Date.  This  Agreement  may not be  amended  except by an
instrument in writing signed on behalf of each of the parties hereto.

12.13  Waiver.  The  failure  of any  party  to  enforce  at any time any of the
provisions  of this  Agreement  or any of the rights of such party with  respect
thereto or to insist upon strict  adherence to any term of this Agreement  shall
not be considered to be a waiver of such provision,  right or term or in any way
to effect the validity of this Agreement or deprive the applicable  party of the
right  thereafter  to insist upon strict  adherence  to that term or any term of
this  Agreement.  The  exercise  by any party of any of the rights of such party
provided  by this  Agreement  shall not  preclude or  prejudice  such party from
exercising  any  other  rights  such  party  may  have  under  this   Agreement,
irrespective  or any previous  action or proceeding  taken by it hereunder.  Any
waiver  by any  party  of the  performance  of any  of the  provisions  of  this
Agreement  shall be effective only if in writing and signed by a duly authorized
representative of such party.
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly  authorized  officers  of the  parties  hereto as of the date  first
written above.


                               THE SECOND CUP INC.



                               By:      /s/KA Welsh
                                        --------------------

                               Title:   Secretary


                               COFFEE PEOPLE, INC.



                               By:      /s/ Kenneth B. Ross
                                        ---------------------

                               Title:   Chief Financial Officer