EPITOPE INC/OR/, 10-Q, 1997-05-15

EPITOPE INC/OR/
10-Q, 1997-05-15
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
- - - - - - - - -

FORM 10-Q
(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended March 31, 1997

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _ _ _ _ _ _ _ to _ _ _ _

Commission File Number 1-10492

EPITOPE, INC.
(Exact name of Registrant as specified in its charter)

OREGON 93-0779127
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

8505 SW Creekside Place
Beaverton, Oregon 97008-7108
(Address of principal executive offices) (Zip code)

(503) 641-6115
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Number of shares of Common Stock, no par value, outstanding as of March 31,
1997: 13,718,135

<PAGE>

PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE NO.
--------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
EPITOPE MEDICAL PRODUCTS
Condensed Combined Balance Sheets
at September 30, 1996 and March 31, 1997............................... 3
Condensed Combined Statements of Operations
for the three and six months ended March 31, 1997 and 1996 ............ 4
Condensed Combined Statements of Changes in Group Equity
for the six months ended March 31, 1997................................ 5
Condensed Combined Statements of Cash Flows
for the six months ended March 31, 1997 and 1996....................... 6

AGRITOPE
Condensed Combined Balance Sheets
at September 30, 1996 and March 31, 1997............................... 7
Condensed Combined Statements of Operations
for the three and six months ended March 31, 1997 and 1996............. 8
Condensed Combined Statements of Changes in Group Equity
for the six months ended March 31, 1997................................ 9
Condensed Combined Statements of Cash Flows
for the six months ended March 31, 1997 and 1996...................... 10

EPITOPE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
at September 30, 1996 and March 31, 1997............................... 11
Condensed Consolidated Statements of Operations
for the three and six months ended March 31, 1997 and 1996............. 12
Condensed Consolidated Statements of Changes in Group Equity
for the six months ended March 31, 1997................................ 13
Condensed Consolidated Statements of Cash Flows
for the six months ended March 31, 1997 and 1996...................... 14

Notes to Condensed Financial Statements.................................... 15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................................. 18

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS...................................................... 22

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................... 23

</TABLE>

2
<PAGE>

EPITOPE MEDICAL PRODUCTS

CONDENSED COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
3/31/97 9/30/96
(Unaudited)

ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 2) .................................... $ 151,520 $ 795,787
Marketable securities (Note 2) ........................................ 10,244,510 18,818,120
Trade accounts receivable, net ........................................ 1,111,704 1,147,599
Other receivables ..................................................... 268,811 174,083
Inventories (Note 2) .................................................. 1,442,544 1,157,930
Prepaid expenses ...................................................... 370,890 89,518
------------ ------------
13,589,979 22,183,037

Property and equipment, net ........................................... 1,437,854 1,542,757
Patents and proprietary technology, net ............................... 662,177 601,234
Other assets and deposits ............................................ 11,868 22,758
------------ ------------
$ 15,701,878 $ 24,349,786

LIABILITIES AND GROUP EQUITY
Current liabilities
Accounts payable ...................................................... $ 306,343 $ 449,170
Salaries, benefits and other accrued liabilities ...................... 1,989,475 1,368,166
------------ ------------
2,295,818 1,817,336

Commitments and contingencies.......................................... - -

Group equity (Note 2)
Contributed capital ................................................... 56,520,719 64,237,350
Accumulated deficit.................................................... (43,114,659) (41,704,900)
----------- -----------
13,406,060 22,532,450

$ 15,701,878 $ 24,349,786

</TABLE>

3
<PAGE>

EPITOPE MEDICAL PRODUCTS

CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED

3/31/97 3/31/96 3/31/97 3/31/96
Revenues
<S> <C> <C> <C> <C>
Product sales ................................... $ 2,152,208 $ 1,052,818 $ 4,511,359 $ 1,887,696
Grants and contracts ............................ 183,729 154,419 465,339 544,082
----------- ----------- ---------- -----------
2,335,937 1,207,237 4,976,698 2,431,778
Costs and expenses
Product costs ................................... 832,597 682,595 1,801,855 1,168,554
Research and development costs .................. 1,063,057 741,857 1,867,030 1,458,134
Selling, general and administrative expenses..... 1,678,648 1,395,028 3,156,345 2,703,137
----------- ----------- ---------- -----------
3,574,302 2,819,480 6,825,230 5,329,825

Loss from operations ............................ (1,238,365) (1,612,243) (1,848,532) (2,898,047)

Other income (expense), net
Interest income.................................. 193,146 220,047 422,285 443,663
Other, net....................................... 16,550 (1,802) 16,488 (1,007)
----------- ------------ ---------- ------------
209,696 218,245 438,773 442,656

Net loss......................................... $ (1,028,669) $ (1,393,998) $ (1,409,759) $ (2,455,391)

Proforma net loss per share...................... $ (.08) $ (.11) $ (.10) $ (.20)

Proforma weighted average number of
shares outstanding.......................... 13,714,551 12,547,795 13,428,920 12,519,936

</TABLE>

4
<PAGE>

EPITOPE MEDICAL PRODUCTS

CONDENSED COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED
CAPITAL DEFICIT TOTAL

<S> <C> <C> <C>
Balances at September 30, 1996....................... $ 64,237,350 $ (41,704,900) $ 22,532,450
Common stock issued upon
exercise of options .............................. 48,008 - 48,008
Common stock issued as
compensation ..................................... 31,172 - 31,172
Compensation expense for
stock option grants .............................. 218,705 - 218,705
Net assets transferred to Agritope .................. (8,014,516) (8,014,516)
Net loss for the period ............................. - (1,409,759) (1,409,759)
------------- ------------- --------------
Balances at March 31, 1997 .......................... $ 56,520,719 $ (43,114,659) $ 13,406,060

</TABLE>

5
<PAGE>

EPITOPE MEDICAL PRODUCTS

CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED

3/31/97 3/31/96
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss .............................................................. $ (1,409,759) $ (2,455,391)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization ......................................... 363,080 457,363
Increase in accounts receivable and other receivables ................. (58,833) (315,627)
(Increase) decrease in inventories .................................... (284,614) 81,167
Increase in prepaid expenses .......................................... (281,372) (302,085)
Increase (decrease) in accounts payable and accrued liabilities ....... 478,482 (762,711)
Common stock issued as compensation for services....................... 31,172 37,687
Compensation expense for stock option grants and
deferred salary increases .......................................... 218,705 471,336
Other, net ............................................................ 9,403 (1,089)
------------ -------------
Net cash used in operating activities.................................. (933,736) (2,789,350)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities ................................... (11,245,688) (18,943,849)
Proceeds from sale of marketable securities ........................... 19,820,785 23,425,034
Additions to property and equipment ................................... (157,201) (30,681)
Expenditures for patents and proprietary technology ................... (161,919) (223,619)
------------ ------------
Net cash provided by investing activities.............................. 8,255,977 4,226,885

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ................................ 48,008 1,002,570
Cash advances to Agritope ............................................. (8,014,516) (279,941)
------------- -------------
Net cash provided by (used in) financing activities.................... (7,966,508) 722,629

Net increase (decrease) in cash and cash equivalents .................. (644,267) 2,160,164
Cash and cash equivalents at beginning of period ...................... 795,787 13,210
------------ ------------
Cash and cash equivalents at end of period............................. $ 151,520 $ 2,173,374

</TABLE>

6
<PAGE>

AGRITOPE

CONDENSED COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
3/31/97 9/30/96
(Unaudited)

ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 2) .................................... $ 37,880 $ 4,903,476
Marketable securities (Note 2) ........................................ 2,561,128 -
Trade accounts receivable, net ........................................ 192,453 264,986
Other receivables ..................................................... 18,849 32,337
Inventories (Note 2) .................................................. 1,484,030 509,745
Prepaid expenses ...................................................... 30,408 812
------------ ------------
4,324,748 5,711,356

Property and equipment, net ........................................... 2,105,462 1,286,196
Patents and proprietary technology, net (Note 2)....................... 1,162,349 510,244
Investment in affiliated companies (Note 3)............................ 443,490 2,448,623
Net assets of discontinued operations (Note 5)......................... 6,188,190 -
Other assets and deposits ............................................. 63,517 140,513
------------ ------------
$ 14,287,756 $ 10,096,932

LIABILITIES AND GROUP EQUITY
Current liabilities
Accounts payable ...................................................... $ 135,203 $ 91,474
Convertible notes due June 30, 1997 (Note 4)........................... 240,000 3,620,003
Salaries, benefits and other accrued liabilities ...................... 1,955,429 735,478
------------ ------------
2,330,632 4,446,955

Long-term debt......................................................... 10,601 -
Minority interest in consolidated subsidiaries......................... 110,727 215,407
Commitments and contingencies (Note 5)................................. - -

Group equity (Note 2)
Contributed capital ................................................... 56,257,295 36,714,932
Accumulated deficit.................................................... (44,421,499) (31,280,362)
----------- -----------
11,835,796 5,434,570

$ 14,287,756 $ 10,096,932
</TABLE>

7
<PAGE>

AGRITOPE

CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED

3/31/97 3/31/96 3/31/97 3/31/96

Revenues
<S> <C> <C> <C> <C>
Product sales ................................... $ 163,634 $ - $ 163,634 $ -
Grants and contracts ............................ 62,526 262,669 88,322 349,267
------------ ------------- ------------ -------------
226,160 262,669 251,956 349,267
Costs and expenses
Product costs ................................... 112,146 - 112,146 -
Research and development costs .................. 364,145 333,563 784,954 662,839
Selling, general and administrative expenses..... 660,956 356,789 1,413,150 702,323
------------ ------------- ------------ -------------
1,137,247 690,352 2,310,250 1,365,162

Loss from operations ............................ (911,087) (427,683) (2,058,294) (1,015,895)

Other income (expense), net
Interest income.................................. 64,382 64,392 154,577 133,628
Interest expense................................. (4,187) (59,848) (23,871) (131,841)
Valuation loss (Note 3).......................... - - (1,900,000) -
Cost of debt conversion (Note 4)................. - - (1,216,654) -
Other, net....................................... 41,913 - 109,605 -
------------ ------------- ------------ -----------
102,108 4,544 (2,876,343) 1,787

Loss from continuing operations ................. (808,979) (423,139) (4,934,637) (1,014,108)

Discontinued operations
Income from discontinued operations (Note 5) .... 48,312 - 170,646 -
Estimated loss on disposal (Note 5).............. (8,377,146) - (8,377,146) -
------------- ------------- ------------- -------------
(8,328,834) - (8,206,500) -

Net loss......................................... $ (9,137,813) $ (423,139) $(13,141,137) $ (1,014,108)

Proforma loss per share from continuing
operations.................................... $ (.12) $ (.07) $ (.73) $ (.16)

Proforma net loss per share...................... (1.33) (.07) (1.96) (.16)

Proforma weighted average number of
shares outstanding............................ 6,857,276 6,273,898 6,714,460 6,259,968

</TABLE>

8
<PAGE>

AGRITOPE

CONDENSED COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED
CAPITAL DEFICIT TOTAL

<S> <C> <C> <C>
Balances at September 30, 1996....................... $ 36,714,932 $ (31,280,362) $ 5,434,570
Common stock issued upon
exercise of options .............................. 29,576 - 29,576
Common stock issued as
compensation ..................................... 14,564 - 14,564
Compensation expense for
stock option grants .............................. 20,832 - 20,832
Common stock issued upon exchange of
convertible notes................................. 4,442,875 - 4,442,875
Common stock issued upon acquisition (Note 5)........ 7,020,000 - 7,020,000
Net assets transferred from
Epitope Medical Products.......................... 8,014,516 - 8,014,516
Net loss for the period ............................. - (13,141,137) (13,141,137)
------------- ------------- --------------
Balances at March 31, 1997 .......................... $ 56,257,295 $ (44,421,499) $ 11,835,796
</TABLE>

9
<PAGE>

AGRITOPE

CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED

3/31/97 3/31/96

CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss .............................................................. $ (13,141,137) $ (1,014,108)
Adjustments to reconcile net loss
to net cash used in operating activities:
Income from discontinued operations (Note 5)........................... (170,646) -
Non-cash portion of estimated loss on disposal (Note 5)................ 7,767,653 -
Depreciation and amortization ......................................... 226,755 125,903
Decrease in accounts receivable and other receivables ................. 86,021 306,216
Increase in inventories ............................................... (974,285) -
(Increase) decrease in prepaid expenses ............................... (29,596) 54,502
Increase (decrease) in accounts payable and accrued liabilities ....... 263,680 (164,859)
Common stock issued as compensation for services....................... 14,564 -
Compensation expense for stock option grants........................... 20,832 114,582
Minority interest in subsidiary operating results...................... (104,680) -
Valuation loss......................................................... 1,900,000 -
Non-cash portion of cost of debt conversion............................ 1,149,054 -
Other, net............................................................. (4,150) 1,884
------------- ------------
Net cash used in operating activities.................................. (2,995,935) (575,880)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities.................................... (2,561,128) -
Additions to property and equipment ................................... (1,003,379) (29,815)
Expenditures for patents and proprietary technology ................... (692,687) (459)
Investment in affiliated companies .................................... - (171,735)
Investment in discontinued operations (Note 5)......................... (5,767,160) -
------------- ------------
Net cash used in investing activities.................................. (10,024,354) (202,009)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt............................................. 10,898 -
Principal payments on long-term debt................................... (297) -
Proceeds from issuance of stock........................................ 29,576 -
Minority interest investment in subsidiary............................. 100,000 -
Cash advanced from Epitope Medical Products ........................... 8,014,516 279,941
------------ ------------
Net cash provided by financing activities.............................. 8,154,693 279,941

Net decrease in cash and cash equivalents ............................. (4,865,596) (497,948)
Cash and cash equivalents at beginning of period ...................... 4,903,476 4,246,687
------------ ------------
Cash and cash equivalents at end of period............................. $ 37,880 $ 3,748,739

</TABLE>

10
<PAGE>

EPITOPE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
3/31/97 9/30/96
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 2) .................................... $ 189,400 $ 5,699,263
Marketable securities (Note 2) ........................................ 12,805,638 18,818,120
Trade accounts receivable, net ........................................ 1,304,157 1,412,585
Other receivables ..................................................... 287,660 206,420
Inventories (Note 2) .................................................. 2,926,574 1,667,675
Prepaid expenses ...................................................... 401,298 90,330
------------ ------------
17,914,727 27,894,393

Property and equipment, net............................................ 3,543,316 2,828,953
Patents and proprietary technology, net (Note 2)....................... 1,824,526 1,111,478
Investment in affiliated companies (Note 3)............................ 443,490 2,448,623
Net assets of discontinued operations (Note 5)......................... 6,188,190 -
Other assets and deposits ............................................. 75,385 163,271
------------ ------------
$ 29,989,634 $ 34,446,718

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ...................................................... $ 441,546 $ 540,644
Convertible notes due June 30, 1997 (Note 4)........................... 240,000 3,620,003
Salaries, benefits and other accrued liabilities ...................... 3,944,904 2,103,644
------------ ------------
4,626,450 6,264,291

Shareholders' equity (Note 2)
Preferred stock, no par value - 1,000,000 shares authorized
no shares issued or outstanding..................................... - -
Common stock, no par value - 30,000,000 shares authorized
13,718,135 and 12,937,383 shares issued and outstanding,
respectively........................................................ 112,778,014 100,952,282
Accumulated deficit.................................................... (87,536,158) (72,985,262)
----------- -----------
25,241,856 27,967,020

$ 29,989,634 $ 34,446,718
</TABLE>

11
<PAGE>

EPITOPE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED

3/31/97 3/31/96 3/31/97 3/31/96

Revenues
<S> <C> <C> <C> <C>
Product sales ................................... $ 2,315,842 $ 1,052,818 $ 4,674,993 $ 1,887,696
Grants and contracts ............................ 246,255 417,088 553,661 893,349
------------ ------------- ------------ -------------
2,562,097 1,469,906 5,228,654 2,781,045
Costs and expenses
Product costs ................................... 944,743 682,595 1,914,001 1,168,554
Research and development costs .................. 1,427,202 1,075,420 2,651,984 2,120,973
Selling, general and administrative expenses..... 2,339,604 1,751,817 4,569,495 3,405,460
------------ ------------- ------------ -------------
4,711,549 3,509,832 9,135,480 6,694,987

Loss from operations ............................ (2,149,452) (2,039,926) (3,906,826) (3,913,942)

Other income (expense), net
Interest income.................................. 257,528 284,439 576,862 577,291
Interest expense................................. (4,187) (59,848) (23,871) (131,841)
Valuation loss (Note 3).......................... - - (1,900,000) -
Cost of debt conversion (Note 4)................. - - (1,216,654) -
Other, net....................................... 58,463 (1,802) 126,093 (1,007)
------------ ------------- ------------ -------------
311,804 222,789 (2,437,570) 444,443

Net loss from continuing operations.............. (1,837,648) (1,817,137) (6,344,396) (3,469,499)

Discontinued operations
Income from discontinued operations (Note 5)..... 48,312 - 170,646 -
Estimated loss on disposal (Note 5).............. (8,377,146) - (8,377,146) -
------------- ------------- ------------- -------------
(8,328,834) - (8,206,500) -

Net loss......................................... $(10,166,482) $ (1,817,137) $(14,550,896) $ (3,469,499)

Loss per share from continuing operations........ $ (.13) $ (.14) $ (.47) $ (.28)

Net loss per share............................... (.74) (.14) (1.08) (.28)

Weighted average number of shares
outstanding................................... 13,714,551 12,547,795 13,428,920 12,519,936
</TABLE>

12
<PAGE>

EPITOPE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
SHARES DOLLARS DEFICIT TOTAL

<S> <C> <C> <C> <C>
Balances at September 30, 1996................... 12,937,383 $ 100,952,282 $ (72,985,262) $ 27,967,020
Common stock issued upon
exercise of options .......................... 6,096 77,584 - 77,584
Common stock issued as
compensation ................................. 4,289 45,736 - 45,736
Compensation expense for
stock option grants .......................... - 239,537 - 239,537
Common stock issued upon exchange of
convertible notes............................. 250,367 4,442,875 - 4,442,875
Common stock issued upon acquisition (Note 5).... 520,000 7,020,000 - 7,020,000
Net loss for the period ......................... - - (14,550,896) (14,550,896)
------------ ------------- ------------ -------------
Balances at March 31, 1997 ...................... 13,718,135 $ 112,778,014 $ (87,536,158) $ 25,241,856

</TABLE>

13
<PAGE>

EPITOPE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED

3/31/97 3/31/96

CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss .............................................................. $ (14,550,896) $ (3,469,499)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Income from discontinued operations (Note 5)........................... (170,646) -
Non-cash portion of estimated loss on disposal (Note 5)................ 7,767,653 -
Depreciation and amortization ......................................... 589,835 583,266
(Increase) decrease in accounts receivable and other receivables ...... 27,188 (9,411)
(Increase) decrease in inventories .................................... (1,258,899) 81,167
Increase in prepaid expenses .......................................... (310,968) (247,583)
Increase (decrease) in accounts payable and accrued liabilities ....... 742,162 (927,570)
Common stock issued as compensation for services....................... 45,736 37,687
Compensation expense for stock option grants and
deferred salary increases .......................................... 239,537 585,918
Minority interest in subsidiary operating results...................... (104,680) -
Valuation loss......................................................... 1,900,000 -
Non-cash portion of cost of debt conversion............................ 1,149,054 -
Other, net............................................................. 5,253 795
------------ ------------
Net cash used in operating activities.................................. (3,929,671) (3,365,230)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in marketable securities ................................... (13,806,816) (18,943,849)
Proceeds from sale of marketable securities ........................... 19,820,785 23,425,034
Additions to property and equipment ................................... (1,160,580) (60,496)
Expenditures for patents and proprietary technology ................... (854,606) (224,078)
Investment in discontinued operations (Note 5)......................... (5,767,160) -
Investment in affiliated companies .................................... - (171,735)
------------ -------------
Net cash provided by (used in) investing activities.................... (1,768,377) 4,024,876

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt............................................. 10,898 -
Principal payments on long-term debt................................... (297) -
Proceeds from issuance of common stock ................................ 77,584 1,002,570
Minority interest investment in subsidiary............................. 100,000 -
------------ ------------
Net cash provided by financing activities.............................. 188,185 1,002,570

Net increase (decrease) in cash and cash equivalents .................. (5,509,863) 1,662,216
Cash and cash equivalents at beginning of period ...................... 5,699,263 4,259,897
------------ ------------
Cash and cash equivalents at end of period............................. $ 189,400 $ 5,922,113

</TABLE>

14
<PAGE>

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 THE COMPANY

Epitope, Inc. (the Company or Epitope) is an Oregon corporation utilizing
biotechnology to develop and market medical diagnostic products through its
Epitope Medical Products group (Epitope Medical Products) and superior new
plants and related products through its Agritope group (Agritope).

The interim condensed financial statements included herein are unaudited;
however, in the opinion of the Company, the interim data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for the
interim periods. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K. Results of operations for the
six-month period ended March 31, 1997 are not necessarily indicative of the
results of operations expected for the full fiscal year.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. The accompanying combined financial statements of Epitope
Medical Products and Agritope have been prepared using the amounts included in
the consolidated financial statements of the Company. Assets, liabilities,
revenues and expenses of each group are included in the respective financial
statements of the applicable group. Cash, cash equivalents and marketable
securities have been allocated 80% to Epitope Medical Products and 20% to
Agritope. Cash, cash equivalents and marketable securities advanced and
allocated by the Company to Agritope have been reflected as contributed capital
in the combined financial statements. The presentation of separate financial
statements for each group is consistent with a proposal, currently undergoing
further study, to create two classes of common stock, one targeted to the
operations of the Epitope Medical Products group, and the other to the Agritope
group (the Agritope Stock Proposal).

On December 12, 1996, a subsidiary of the Company completed a merger with Andrew
and Williamson Sales, Co. (A&W), a producer and wholesale distributor of fresh
and frozen fruits and vegetables based in San Diego, California. Under the terms
of the merger, the Company issued 520,000 shares of common stock of Epitope,
Inc. in exchange for all of the outstanding common stock of A&W. In accordance
with Accounting Principles Board Opinion No. 16, Business Combinations (APB No.
16), the merger was initially accounted for as a pooling of interests.

On May 4, 1997, the Company reached agreement with the former owners of A&W to
rescind the merger. Accordingly, as required by APB Opinion No. 16, the merger
has now been accounted for as a purchase transaction rather than as a pooling of
interests. The purchase price was $7,020,000 based on the fair market value of
the Company's stock used to acquire A&W. A&W's net assets as of March 31, 1997
and its results of operations for the period from December 13, 1996 through
March 31, 1997 are presented in the accompanying financial statements as
discontinued operations reflecting the agreement to rescind the merger (Note 5).
A&W's results of operations reflect the amortization of acquired goodwill over a
15 year period under the straight-line method.

Patents and Proprietary Technology. On November 11, 1996, the Company amended an
agreement pursuant to which it acquired Agritope's patented ethylene control
technology in 1987. A co-inventor of the technology who is an officer of the
Company relinquished all rights to future compensation under the agreement in
exchange for a one-time cash payment of $590,000. The amount is included in
Agritope's combined balance sheet under the caption "Patents and proprietary
technology" and is being amortized over 15 years, the remaining life of the
related patent.

15
<PAGE>

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Inventories.
<TABLE>
<CAPTION>
3/31/97 9/30/96
(Unaudited)

EPITOPE MEDICAL PRODUCTS
<S> <C> <C>
Raw materials.......................................................... $ 574,602 $ 522,824
Work-in-process ....................................................... 352,624 389,642
Finished goods ........................................................ 433,907 192,882
Supplies .............................................................. 81,411 52,582
----------- -----------
$ 1,442,544 $ 1,157,930
AGRITOPE
Work-in-process ....................................................... $ 1,484,030 $ 471,208
Finished goods ........................................................ - 38,537
----------- -----------
$ 1,484,030 $ 509,745
CONSOLIDATED
Raw materials ......................................................... $ 574,602 $ 522,824
Work-in-process ....................................................... 1,836,654 860,850
Finished goods ........................................................ 433,907 231,419
Supplies .............................................................. 81,411 52,582
----------- -----------
$ 2,926,574 $ 1,667,675
</TABLE>

Net Loss Per Share. Consolidated net loss per share has been computed using the
weighted average number of shares of common stock outstanding during the period.
Common stock equivalents were excluded from the computation because their effect
is anti-dilutive. Net loss per share for Epitope Medical Products and Agritope
is presented on a proforma basis assuming a ratio of one-half share of Agritope
common stock for each share of Epitope common stock as contemplated under the
Agritope Stock Proposal.

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). This new
standard is effective for interim and annual periods ending after December 15,
1997. SFAS 128 will require the reporting of "basic" and "diluted" earnings per
share (EPS) instead of "primary" and "fully diluted" EPS as required under
current accounting principles. Basic EPS eliminates the common stock equivalents
considered in calculating primary EPS. Diluted EPS is similar to fully diluted
EPS. Since common stock equivalents were excluded as anti-dilutive in the
computation of EPS, basic EPS would have been the same as primary EPS.

NOTE 3 INVESTMENT IN AFFILIATED COMPANIES

The Company's investment in affiliated companies includes its 9% interest in
UAF, Limited Partnership, a fresh flower distribution operation in Charlotte,
North Carolina, and its 19.5% interest in Petals USA, Inc., an affiliate of a
Canadian fresh flower wholesaler. During the first quarter of fiscal 1997, the
Company determined that the value of its investment in affiliated companies had
more than temporarily declined, and accordingly, recorded a non-cash charge to
results of operations of $1.9 million reflecting the permanent impairment in the
value of its investment in these companies.

NOTE 4 DEBT

Bank Line of Credit. Effective December 17, 1996, A&W entered into a new $6.5
million revolving bank line of credit and terminated its prior agreement. The
new agreement expires February 5, 1998 and advances bear interest at prime or
LIBOR plus 2.5%, at the Company's option. The line is secured by A&W's accounts
receivable, inventory and equipment. Epitope has agreed to guarantee the line of
credit and any succeeding line of credit through November 1, 1998. The Company's
guarantee contains various financial covenants including minimum tangible net
worth levels. The balance outstanding under the line was $2,375,000 at March 31,
1997.

16
<PAGE>

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Convertible Notes. In November 1996, the Company exchanged $3,380,000 principal
amount of Agritope convertible notes for 250,367 shares of common stock of the
Company at a reduced exchange price of $13.50 per share. Accordingly, the
Company recognized a charge to results of operations of $1.2 million in the
first quarter of fiscal 1997 representing the conversion expense.

NOTE 5 DISCONTINUED OPERATIONS, COMMITMENTS AND CONTINGENCIES

On March 29, 1997, the Centers For Disease Control and Prevention (CDC)
associated an outbreak of Hepatitis A in Michigan with frozen strawberries
produced by A&W. A&W immediately initiated a voluntary recall of the
strawberries. There has been no further incidence of Hepatitis A attributed to
the strawberries.

A former officer of A&W certified that the strawberries were grown in the U.S.
when they were in fact grown in Mexico. The strawberries were grown, harvested,
processed and sold prior to the Company's acquisition of A&W on December 12,
1996 (Note 2). A&W, its former shareholders, and Epitope have been named in
lawsuits pertaining to the frozen strawberries. The Company intends to
vigorously defend against the proceedings. While it is not possible to determine
with certainty what the ultimate outcome of these lawsuits will be, management
does not expect the final disposition of such proceedings to have a material
adverse effect on the Company's financial position or future results of
operations.

On May 4, 1997, Epitope and A&W reached agreement to rescind the merger (Note
2). Under the rescission agreement, the former shareholders of A&W will return
the 520,000 shares of Epitope common stock they received, and Epitope will
return all of the outstanding shares of A&W common stock. Epitope will also
receive A&W preferred stock in satisfaction of intercompany loans made to A&W
between December 12, 1996 and March 19, 1997. This preferred stock carries a
$5.7 million liquidation preference, dividend preferences, and various
redemption features.

The results of operations of A&W from December 13, 1996 through March 31, 1997
have been presented as discontinued operations in the accompanying financial
statements. Revenues of A&W were $10,169,000 for the three months ended March
31, 1997, and $13,569,000 for the period from December 13, 1996 through March
31, 1997.

The net assets of A&W, presented as discontinued operations, are summarized as
follows:

3/31/97
(Unaudited)

Receivables.................................................. $ 4,005,272
Inventories.................................................. 5,846,128
Property and equipment, net.................................. 1,631,568
Intangible assets resulting from purchase, net............... 6,353,323
Other assets................................................. 274,940
Accounts payable and accrued expenses........................ (1,736,103)
Bank line of credit.......................................... (2,375,000)
Long-term debt............................................... (434,792)
Estimated valuation loss..................................... (7,377,146)
-------------
$ 6,188,190

17
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion of operations and financial condition should be read in
conjunction with the Financial Statements and Notes thereto included in the
Company's 1996 Annual Report on Form 10-K and with the Financial Statements and
Notes thereto included in this Form 10-Q. Certain statements set forth below
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company or industry results
to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These factors with
respect to the Company include litigation against the Company related to A&W;
damage to business reputation resulting from the Hepatitis A outbreak; loss or
impairment of sources of capital; development of competing products; market
acceptance of oral testing and genetically engineered produce; development of
other methods for controlling fruit and vegetable ripening; crop failure;
changes in federal or state law or regulations; and loss of key personnel. Given
these uncertainties, readers are cautioned not to place undue reliance on the
forward-looking statements.

DISCONTINUED OPERATIONS

On May 4, 1997, the Company reached agreement with the former owners of A&W to
rescind the merger. Under the rescission agreement, the former shareholders of
A&W will return the 520,000 shares of Epitope common stock they received, and
Epitope will return all of the outstanding shares of A&W common stock. Epitope
will also receive A&W preferred stock in satisfaction of intercompany loans made
to A&W between December 12, 1996 and March 19, 1997. This preferred stock
carries a $5.7 million liquidation preference, dividend preferences, and various
redemption features.

Accordingly, as required by APB No. 16, the merger has now been accounted for as
a purchase transaction rather than as a pooling of interests. A&W's net assets
as of March 31, 1997 and its results of operations for the period from December
13, 1996 through March 31, 1997 are presented in the accompanying financial
statements as discontinued operations reflecting the agreement to rescind the
merger. A&W's results of operations include the amortization of the excess of
the purchase price over the identifiable net assets at acquisition, using the
straight-line method and a 15 year amortization period. The estimated loss on
disposal of $8.4 million results from several factors, including a $1.8 million
reduction in market price of the Company's stock from the purchase date to the
rescission date, a $4.6 million discount of the A&W preferred stock to its
estimated net present value as compared with the face amount of the loans made
to A&W, the estimated $1 million loss resulting from the operations of A&W from
April 1, 1997 through the expected recission date, and the accrual of $1 million
in estimated costs of disposition.

EPITOPE MEDICAL PRODUCTS
RESULTS OF OPERATIONS

Revenues. Total revenues increased by $1,129,000 or 93% in the current quarter
as compared to the second quarter of fiscal 1996, and by $2,545,000 or 105% in
the comparable six month periods. Revenues by product line are shown below:

18
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 (IN THOUSANDS, EXCEPT %) 1997 1996
DOLLARS PERCENT DOLLARS PERCENT
Product sales
<S> <C> <C> <C> <C>
Oral collection device................................. $ 1,676 72% $ 650 54%
Western blot HIV confirmatory test..................... 476 20 403 33
------ --- ------- ---
2,152 92 1,053 87
Grants and contracts...................................... 184 8 154 13
------ --- ------- ---
$ 2,336 100% $ 1,207 100%
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31 (IN THOUSANDS, EXCEPT %) 1997 1996
DOLLARS PERCENT DOLLARS PERCENT
Product sales
<S> <C> <C> <C> <C>
Oral collection device................................. $ 3,576 72% $ 1,143 47%
Western blot HIV confirmatory test..................... 935 19 745 31
------ --- ------- ---
4,511 91 1,888 78
Grants and contracts...................................... 466 9 544 22
------ --- ------- ---
$ 4,977 100% $ 2,432 100%
</TABLE>

Sales of the Company's oral collection device increased by $1,026,000 or 158% in
the current quarter as compared to the second quarter in fiscal 1996, and by
$2,433,000 or 213% in the comparable six month periods. The increase is
primarily attributable to increased use of the device for insurance testing
purposes following approval of the device by the Food and Drug Administration
(FDA) in June 1996 for use in conjunction with an oral-based confirmatory test.
As of March 31, 1997, the Company had firm orders for the device totaling
$1,664,000 scheduled for shipment before June 30, 1997.

Sales of the Company's Western blot HIV confirmatory test increased by $73,000
or 18% in the current quarter as compared to the second quarter in fiscal 1996,
and by $190,000 or 26% in the comparable six month periods. Sales in the prior
year were negatively affected by a reduction in orders from the Company's
exclusive distributor for this product as the distributor lowered inventory
stock levels. In addition, current year sales of the oral-based Western blot HIV
confirmatory tests have increased as a result of increased sales of the related
oral collection device. As of March 31, 1997, the Company had firm orders for
the confirmatory HIV test totaling $445,000 scheduled for shipment before June
30, 1997.

Grant and contract revenues increased by $30,000 or 19% in the current quarter
as compared to the second quarter of fiscal 1996, and decreased by $79,000 or
14% in the comparable six month periods. These fluctuations are primarily
related to research and development projects conducted in collaboration with the
Company's strategic partner, SmithKline Beecham plc (SB). These research
projects are directed at developing new applications for the oral collection
device, and at making improvements to the device. The Company has entered into a
research and development arrangement with SB whereby SB funds a portion of the
cost of such projects in exchange for distribution rights to any resulting new
products. Revenue from such projects can vary significantly from quarter to
quarter as new projects are started while other projects may be extended,
completed, or terminated. As of March 31, 1997, the Company had deferred revenue
of $439,000 included in "Salaries, benefits and other accrued liabilities"
related to these projects.

Gross Margins on product sales were 61% and 60% of sales in the second quarter
and first six months of fiscal 1997 as compared to 35% and 38% of sales in the
comparable periods of fiscal 1996. The improvement in gross margins is
attributable to increased sales volume of the oral collection device which
resulted in lower per unit costs and to the shift in product mix towards the
oral collection device which carries a higher gross margin than does the Western
blot confirmatory HIV test.

Research and development costs increased by $321,000 or 43% in the current
quarter as compared to the second quarter of fiscal 1996 and by $409,000 or 28%
in the comparable six month periods. This increase is a result of increased
research and development expenses incurred under arrangements with SB and for
other projects

19
<PAGE>

conducted by the Company. Expenditures for these projects can vary significantly
from quarter to quarter as new projects are started while other projects may be
extended, completed, or terminated.

Selling, general and administrative expenses increased by $284,000 or 20% in the
current quarter as compared to the second quarter in fiscal 1996 and by $453,000
or 17% in the comparable six month periods, primarily as a result of increased
selling and marketing efforts. These expenses include charges for corporate
overhead allocation of shared services of $1,062,000 and $893,000, respectively,
for the current and prior year quarters and $1,826,000 and $1,722,000,
respectively, for the current and prior year six month periods.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
(IN THOUSANDS) 3/31/97 9/30/96
<S> <C> <C>
Cash and cash equivalents.............................................. $ 151 $ 796
Marketable securities.................................................. 10,245 18,818
Working capital........................................................ 11,294 20,366
</TABLE>

During the six months ended March 31, 1997, proceeds from the sale of marketable
securities represented the primary source of funds for meeting the Company's
requirements for operations and business expansion. Inventories increased during
the period by $285,000 as a result of increased production levels. Salaries,
benefits and other accrued liabilities increased by $621,000 primarily due to
$439,000 of grant and contract funding received in advance of the related
research efforts.

AGRITOPE

RESULTS OF OPERATIONS

Revenues. Total revenues decreased by $37,000 or 14% in the current quarter as
compared to the second quarter of fiscal 1996 and by $97,000 or 28% in the
comparable six month periods. Revenues by product line are shown below:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 (IN THOUSANDS, EXCEPT %) 1997 1996
DOLLARS PERCENT DOLLARS PERCENT
Product Sales
<S> <C> <C> <C> <C>
Grape plant sales...................................... $ 164 72% $ - -%

Grants and contracts...................................... 62 28 263 100
------- ---- ------- ---
$ 226 100% $ 263 100%

SIX MONTHS ENDED MARCH 31 (IN THOUSANDS, EXCEPT %) 1997 1996
DOLLARS PERCENT DOLLARS PERCENT
Product Sales
Grape plant sales...................................... $ 164 65% $ - -%

Grants and contracts...................................... 88 35 349 100
------- ---- ------- ---
$ 252 100% $ 349 100%
</TABLE>

Sales in the Company's grape plant propagation subsidiary (Vinifera) are highly
seasonal and generally occur in the spring and summer planting seasons. Vinifera
was acquired by the Company in August 1996 and therefore its results are not
included in the comparable periods of fiscal 1996. As of March 31, 1997,
Vinifera had firm orders totaling $1,297,000 for delivery in the spring and
summer of 1997.

Grant and contract revenues decreased by $200,000 or 76% in the current quarter
as compared to the second quarter of fiscal 1996, and by $261,000 or 75% in the
comparable six month periods. Grant and contract revenues

20
<PAGE>

in the second quarter of fiscal 1996 included $200,000 received from a strategic
partner for a research project. These research projects are directed at
developing superior new plants through genetic engineering. Revenue from such
projects can vary significantly from quarter to quarter as new projects are
started while other projects may be extended, completed, or terminated.

Gross margins on product sales were 31% of sales in the second quarter and first
six months of fiscal 1997. There were no comparable product sales for the prior
year periods.

Research and development costs increased by $31,000 or 9% in the current quarter
as compared to the second quarter in fiscal 1996 and by $122,000 or 18% in the
comparable six month periods. The higher research and development costs in the
current year reflect increased efforts to develop and propagate crops containing
the Company's patented ethylene control technology as well as research and
development efforts to improve grape plant propagation conducted by Vinifera.
Vinifera was acquired by the Company in August 1996 and therefore its results
are not included in the comparable periods of fiscal 1996.

Selling, general and administrative expenses increased by $304,000 or 85% in the
current quarter as compared to the second quarter in fiscal 1996 and by $711,000
or 101% in the comparable six month periods. The increases are attributable to
$439,000 of expenses incurred by Vinifera, which was not part of the combined
group in the comparable periods of fiscal 1996, and to expenses of $256,000
related to development of a proposal, currently undergoing further study, to
create two classes of common stock, one targeted to the operations of the
Epitope Medical Products group, and the other to the Agritope group. These
expenses also include charges for corporate overhead allocation of shared
services of $369,000 and $261,000, respectively, for the current and prior year
quarters and $639,000 and $518,000, respectively, for the comparable six month
periods.

Other income (expense), net was impacted by two significant non-recurring
charges in the first quarter of fiscal 1997. First, the Company recorded a
non-cash charge to results of operations of $1,900,000, reflecting the permanent
impairment in the value of its investment in affiliated companies. Secondly,
conversion of $3,380,000 principal amount of the Agritope convertible notes at a
reduced exchange price resulted in a charge to results of operations of
$1,217,000. Interest expense decreased by $56,000 or 93% in the current quarter
as compared to the second quarter in fiscal 1996 and by $108,000 or 82% in the
comparable six month periods due to the conversion of notes into common stock.

LIQUIDITY AND CAPITAL RESOURCES

<TABLE>
<CAPTION>
(IN THOUSANDS) 3/31/97 9/30/96
<S> <C> <C>
Cash and cash equivalents.............................................. $ 38 $ 4,903
Marketable securities.................................................. 2,561 -
Working capital ....................................................... 1,994 1,264
</TABLE>

Working capital increased as a result of the conversion in November 1996 of
$3,380,000 principal amount of Agritope notes into 250,367 shares of common
stock of the Company, partially offset by the accrual of estimated costs of
disposal of discontinued operations. Inventories increased by $974,000 due to a
buildup at Vinifera in anticipation of sales in the spring and summer planting
seasons. Expenditures for property and equipment were $1,003,000, largely as a
result of expansion of greenhouse capacity at Vinifera. During the current year,
Agritope made a one-time cash payment of $590,000 to a co-inventor of Agritope's
ethylene control technology in exchange for all rights to future compensation.
Such amount is included in "Patents and proprietary technology, net." Agritope's
investment in affiliated companies, obtained in connection with divestiture of
its fresh flower distribution business, was reduced by a non-cash charge of
$1,900,000 reflecting the permanent impairment in the value of these
investments. During the current year, the Company made intercompany loans
totaling $5,765,000 to its discontinued operation, A&W.

21
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Product Liability and Related Claims
- ------------------------------------

Lawsuits, described in more detail below, have been filed against the Company,
Andrew & Williamson Sales, Co. ("A&W"), and various other parties arising out of
the alleged association of certain frozen strawberries sold by A&W with an
outbreak of Hepatitis A in Michigan in late March 1997. The berries were
processed by A&W in the spring of 1996 and distributed in several states through
the United States Department of Agriculture ("USDA") school lunch program. A&W's
former chief executive officer certified to the USDA in November 1996 that the
berries were grown in the United States, as required by the USDA school lunch
program, although the berries in fact were grown in Mexico. The Company acquired
A&W on December 12, 1996 without knowledge of the USDA contract or the
certification.

Separate lawsuits regarding A&W strawberries have been instituted on behalf of a
number of individual plaintiffs against the Company and A&W in the Circuit Court
of the State of Michigan for the County of Calhoun. The causes of action alleged
in the suits include product liability, fraudulent, negligent and innocent
misrepresentation related to the USDA certification, negligence, and violation
of the Michigan Consumer Protection Act. The lawsuits, filed in April 1997, seek
compensatory and exemplary damages in an unspecified amount. The lawsuits have
been removed to the United States District Court for the Western District of
Michigan.

On April 8, 1997, a suit was filed in the Superior Court of the State of
California for the County of Los Angeles, Central District, against the Company,
A&W, and an unrelated company in connection with the A&W strawberries. The
plaintiffs purport to represent a class of California residents and allege
causes of action for gross negligence, negligence, breach of express and implied
warranties, product liability, fraud, negligent misrepresentation, intentional
and negligent infliction of emotional distress, unfair business practices and
false and misleading advertising. The suit seeks compensatory and punitive
damages in an unspecified amount, equitable relief in the form of disgorgement
of profits from the sale of strawberries and creation of a fund to monitor the
health and reimburse the medical expenses of the class members, and attorney
fees. The suit has been removed to the United States District Court for the
Central District of California.

On April 14, 1997, a suit was filed in the United States District Court for the
Southern District of California against the Company, A&W, and four individuals
who were then the former owners of A&W in connection with the A&W strawberries.
The plaintiffs purport to represent a class and allege claims for relief for
medical monitoring, unfair trade practices under the California Business and
Professions Code, and violation of the federal Perishable Agricultural
Commodities Act of 1930. The suit seeks compensatory, consequential and punitive
damages in an unspecified amount. A class action alleging the same claims for
relief against the same defendants was also filed on April 14, 1997, in the
United States District Court for the District of Oregon.

Defense of each of the lawsuits described above has been tendered to the
Company's insurance carriers and, as discussed under "Rescission of A&W
Acquisition" below, A&W has agreed to indemnify the Company for joint and
several judgments and certain defense costs to the extent not reimbursed by
insurance. The Company intends to vigorously defend against the proceedings.
While it is not possible to determine with certainty what the ultimate outcome
of these lawsuits will be, management does not expect the final disposition of
such proceedings to have a material adverse effect on the Company's financial
position or future results of operations.

Rescission of A&W Acquisition
- -----------------------------

The Company previously reported in its Current Report on Form 8-K dated April
22, 1997, its commencement of a suit in the United States District Court for the
District of Oregon to rescind its acquisition of A&W. On May 4, 1997, the
parties entered into a settlement agreement pursuant to which the acquisition is
to be rescinded. Pursuant to the settlement, the Company will exchange the
outstanding A&W common stock for the 520,000

22
<PAGE>

shares of the Company's common stock issued in the acquisition, and will also
receive A&W nonvoting preferred stock with a liquidation preference of $5.7
million in return for the cancellation of loans by the Company to A&W.

Other terms of the settlement include:

(1) Fred L. Williamson, Fred M. Williamson, and Keith Andrew will
personally guarantee the $6.5 million credit facility provided by A&W's
bank lender. The facility is secured by A&W accounts receivable and
inventory. The Company's guarantee of the facility will also continue
in effect through November 1, 1998, but the three individual guarantors
have agreed to reimburse the Company for any amounts it is required to
pay under its guarantee.

(2) A&W has agreed to indemnify the Company for joint and several
judgments against the two companies and for certain defense costs, to
the extent not reimbursed by insurance. The Company and A&W have each
reserved the right to assert claims against the other in connection
with suits in which only one is named as a defendant. The parties will
otherwise release each other from liabilities arising out of events
occurring before the rescission.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibits are listed on the attached exhibit index following the signature page
of this report.

(b) Reports on Form 8-K

On April 3, 1997, the Company filed a current report on Form 8-K dated April 1,
1997, to report under Item 5 events related to the recall of frozen strawberries
by A&W.

On April 22, 1997, the Company filed a current report on Form 8-K dated April 7,
1997, to report under Item 5 the filing of a suit by the Company in federal
court seeking damages and rescission of its acquisition of A&W and developments
and legal proceedings relating to A&W's distribution of frozen strawberries
which the CDC associated with an outbreak of Hepatitis A.

23
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

EPITOPE, INC., an Oregon corporation

May 15, 1997 ADOLPH J. FERRO, Ph.D.
Date Adolph J. Ferro, Ph.D.
President, Chief Executive Officer and Director
(Principal Executive Officer)

May 15, 1997 GILBERT N. MILLER
Date Gilbert N. Miller
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)

May 15, 1997 MARK V. ALLRED
Date Mark V. Allred
Controller
(Principal Accounting Officer)

24
<PAGE>

EXHIBIT INDEX

3. Bylaws of the Company, as amended.

10.1 Settlement Agreement and Release dated as of May 4, 1997, among the
Company, Keith R. Andrew and Kevin S. Andrew as cotrustees under the Fred W. and
Virginia S. Andrew 1990 Revocable Living Trust, Keith R. Andrew individually,
Fred L. Williamson, Fred M. Williamson, and Andrew and Williamson Sales, Co.

10.2 Credit Agreement between Andrew and Williamson Sales, Co. ("A&W"), and
Wells Fargo Bank, National Association ("Wells Fargo"), Continuing Guaranty of
the Company, and Subordination Agreement among A&W, the Company, and Wells
Fargo, each dated as of December 17, 1996.

27. Financial Data Schedule

RESTATED BYLAWS

EPITOPE, INC.

ARTICLE I

Shareholders

Section 1. Annual Meeting. The annual meeting of the shareholders of
the corporation shall be held each year on a date designated by the Board of
Directors, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. In case of incomplete financial
or other information, unavailability of shareholders, directors, officers or
other persons whose attendance at the annual meeting would be desirable, or
other similar circumstances, the president in his discretion may postpone the
annual meeting. If the annual meeting is postponed, or if the election of
directors shall not be held on the day designated herein for any annual meeting
of the shareholders, or at any adjournment thereof, a special meeting shall be
held as soon as may be convenient as determined by the president, either in lieu
of the annual meeting if the annual meeting was postponed or for the election of
directors if the election was not held at the annual meeting or at any
adjournment thereof. Written or printed notice, stating the place, day, hour and
purpose of the special meeting shall be delivered not less than ten nor more
than sixty days before the date of the special meeting, either personally or by
mail, by the president or, at the direction of the president, by the secretary
to each shareholder of record entitled to vote at the meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mails
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.

Section 2. Special Meetings. Special meetings of the shareholders may
be called for any purpose or purposes by the president, the Board of Directors,
the holders of not less than one-tenth (1/10) of all the shares entitled to vote
at the meeting or as provided in the Oregon Business Corporation Act. Notice of
special meetings shall be given by the president or, at the direction of the
president, by the secretary or assistant secretary to each shareholder of record
entitled to vote at such meetings in the same manner as hereinabove provided in
Section 1 of this Article.

Section 3. Place of Meeting. Meetings, annual or special, of the
shareholders shall be held at such place either within or without the state of
Oregon as shall be designated by the Board of Directors, or in the absence of
such a designation, at the main office of the corporation.

Section 4. Quorum; Waiver of Notice. A proposal voted upon by the
shareholders, other than the election of directors, shall be approved if the
votes cast favoring the matter exceed the votes cast opposing the matter, unless
the corporation's articles of incorporation, bylaws, or

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applicable provisions of the Oregon Business Corporation Act require a greater
number of affirmative votes. If a quorum be not present at any annual or special
meeting, a majority of the shareholders present, either in person or by proxy,
may adjourn to such time and place as may be decided upon by the holders of the
majority of the shares present, and notice of such adjournment shall be given in
accordance with Section 4 of this Article; but if a quorum be present,
adjournment may be taken from day to day or to such time and place as may be
decided by the holders of the majority of the shares present, and no notice of
such adjournment need be given. No business shall be transacted at an adjourned
meeting that could not have been transacted at the meeting from which the
adjournment was taken. Whenever any notice is required to be given pursuant to
statute, to the articles of incorporation, or to these bylaws, a waiver thereof
signed by the shareholder entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Any shareholder attending a
meeting without objection thereof shall be deemed to have waived notice of such
meeting. Notice otherwise complying with the terms hereof may be given by
prepaid telegram as the equivalent of notice by mail.

Section 5. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
11 months from the date of its execution, unless otherwise provided in the
proxy.

ARTICLE II

Board of Directors

Section 1. Board of Directors. The business and affairs of the
corporation shall be managed by a Board of Directors.

Section 2. Meetings. A regular annual meeting of the Board of Directors
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. No notice of the annual meeting other than this bylaw need be
given unless the meeting is to be held at a place other than the main office of
the corporation, in which case the notice shall be given in the manner provided
in Section 1 of Article I of these restated bylaws. The Board of Directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution. Special meetings of the
Board of Directors may be called by or at the request of the president or any
director. Notice of any special meeting shall be given at least three (3) days
prior thereto by oral notice given in person, by telephone, or by other means of
oral electronic two-way communication, or by written notice delivered personally
or sent by mail, courier, fax, or similar means to the director's residential or
business address. Directors may waive notice of meetings of the Board of
Directors, and a waiver thereof signed by the director entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where the director attends the meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.

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Section 3. Quorum and Voting. A majority of the elected and acting
directors shall constitute a quorum for the transaction of business. If at any
meeting of the Board of Directors there shall be less than a quorum present, a
majority of the directors present may adjourn to such time and place as may be
decided upon by the majority of the directors present, and notice of such
adjournment shall be given in accordance with Section 2 of this Article; but if
a quorum be present, adjournment may be taken from day to day or to such time
and place as may be decided by the majority of the directors present, and no
notice of such adjournment need be given. When a quorum exists, action may be
taken by a majority vote of the directors present.

Section 4. Notification of Nominations. Nominations for the election of
directors may be made by the Board of Directors or a proxy committee appointed
by the Board of Directors or by a shareholder entitled to vote in the election
of directors generally. However, any shareholder entitled to vote in the
election of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the secretary of the corporation
not later than (a) with respect to an election to be held at an annual meeting
of shareholders, 60 days in advance of the date of the previous year's annual
meeting of shareholders, and (b) with respect to an election to be held at a
special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to shareholders. Each such notice shall set forth: (i) the name
and address of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (ii) a representation that the shareholder is
a holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made; (iv) such other information regarding
each nominee proposed by such shareholder as would be required to be included in
a proxy statement filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, and the related proxy regulations of the
Securities and Exchange Commission promulgated thereunder, had the nominee been
nominated, or intended to be nominated, by the Board of Directors; and (v) the
consent of each nominee to serve as a director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.

ARTICLE III

Executive Committee

The majority of the Board of Directors may designate two or more
directors to constitute an executive committee, which committee between meetings
of the Board of Directors shall have and may exercise all of the authority and
powers of the Board of Directors in the management of the business and affairs
of the corporation, except that the committee may not: (a) authorize
distributions, except as permitted by clause (g) below; (b) approve or propose
to shareholders

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actions that the Oregon Business Corporation Act requires to be approved by
shareholders; (c) fill vacancies on the board of directors or on any of its
committees; (d) amend the articles of incorporation, except as permitted by the
Oregon Business Corporation Act; (e) adopt, amend, or repeal bylaws; (f) approve
a plan of merger not requiring shareholder approval; (g) authorize or approve
reacquisition of shares, except within limits prescribed by the board of
directors; (h) authorize or approve the issuance or sale or contract for sale of
shares or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except as permitted by the Oregon
Business Corporation Act; or (i) appoint or remove officers of the corporation.

ARTICLE IV

Officers and Agents

Section 1. Executive Officers.

(a) Number: The officers of the corporation shall consist of a
chairman of the board, president, chief executive officer, that number
of vice presidents which the Board of Directors may from time to time
determine and with such designations and seniority as the directors may
assign, a secretary and a treasurer. Any two or more offices may be
held by one person.

(b) Election and Tenure: The officers of the corporation shall
be elected at the organizational meeting and thereafter at each regular
annual meeting. In the event of a failure to hold the annual meeting as
herein provided, officers may be elected at any time thereafter at a
special meeting of directors called for that purpose. Each officer
shall hold office for the term of one year and until his successor
shall be elected except where expressly provided to the contrary in a
contract authorized by the Board of Directors. All officers and agents
shall be subject to removal at any time by the vote of a majority of
the entire Board of Directors whenever in the judgment of the directors
the best interests of the corporation will be served by such removal,
without prejudice, however, to any contract rights of the person so
removed.

(c) Vacancies: A vacancy in any office shall be filled by the
Board of Directors at any regular meeting, or at any special meeting
called for that purpose.

(d) Additional Officers and Agents: The Board of Directors may
also elect one or more assistant secretaries, one or more assistant
treasurers, and such other officers or agents as it may deem necessary,
with such authority and duties as from time to time may be prescribed
by the Board of Directors.

Section 2. Chairman of the Board. The chairman of the board, if one is
elected by the Board of Directors, shall preside at and conduct all meetings of
the shareholders and

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directors. The chairman of the board may designate another officer to preside at
and conduct any such meeting in his absence. The chairman of the board shall
exercise such other powers and perform such other duties as shall be prescribed
by the directors from time to time.

Section 3. Chief Executive Officer. The chief executive officer shall
have general and active charge of the business and management of the
corporation, subject to control by the Board of Directors. In the absence of the
chairman of the board or another officer designated by the chairman of the board
at any meeting of the shareholders or the directors, the chief executive officer
or another officer designated by the chief executive officer shall preside at
the meeting. The chief executive officer is authorized to sign all certificates
of stock, and all deeds, leases, notes, mortgages and contracts, including those
in any way affecting real property or interests therein, as the same may be
required in the regular course of the corporation's business. He shall have the
power to appoint and discharge agents and employees, subject to approval of the
Board of Directors.

Section 4. President. The president shall exercise such powers and
perform such duties as may be prescribed by the Board of Directors or by the
chief executive officer. In the absence or incapacity of the chief executive
officer, and at the direction of the Board of Directors, he is authorized to
sign all certificates of stock, and all deeds, leases, notes, mortgages and
contracts, including those in any way affecting real property or interests
therein, as the same may be required in the regular course of the corporation's
business.

Section 5. Vice Presidents. The vice presidents, in the order of
seniority as designated by the Board of Directors, shall in the absence or
disability of the president exercise the powers and perform the duties of the
president. Each vice president shall also exercise such other powers and perform
such other duties as shall be prescribed by the directors, and such powers and
duties of the president as may be designated by the president.

Section 6. Secretary. The secretary shall give such notices of meetings
of the shareholders and of the Board of Directors as required by these restated
bylaws, and shall keep a record of the proceedings of all such meetings. Such
record shall be kept at the principal or registered office of the corporation.
He shall have custody of all books and records and papers of the company except
those which are in the care of the treasurer or some other person authorized to
have custody and possession thereof by resolution of the Board of Directors. He
shall, with the president, sign all certificates of stock of the corporation and
shall affix the seal of the corporation to such certificates of stock. He is
authorized to sign with the president or vice president in the name of the
corporation all deeds, notes, mortgages and contracts including those in any way
affecting real property or interests therein and shall affix the seal of the
corporation thereto when required in the regular course of business. He shall
submit such reports to the Board of Directors as may be requested by them from
time to time.

Section 7. Assistant Secretary. The assistant secretary shall, in the
absence or disability of the secretary, exercise the powers and perform the
duties of the secretary. He shall also exercise such other powers and perform
such other duties as may be prescribed by the

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Board of Directors and such powers and duties of the secretary as may be
designated by the president or secretary.

Section 8. Treasurer. The treasurer shall from time to time make such
reports to the officers, Board of Directors and shareholders as may be required,
and shall perform such other duties as the Board of Directors shall from time to
time delegate to him.

Section 9. Assistant Treasurer. The assistant treasurer shall, in the
absence or disability of the treasurer, exercise the powers and perform the
duties of the treasurer. He shall also exercise such other powers and perform
such other duties as may be prescribed by the Board of Directors and such powers
and duties of the treasurer as may be designated by the president or treasurer.

ARTICLE V

Section 1. Right to Indemnification. The corporation shall indemnify
any director or former director of the corporation or any person who may have
served at its request as a director of another corporation in which it owns
shares of capital stock or of which it is a creditor against expenses and
liability actually and necessarily incurred by such director in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, in
which such director is a party by reason of being or having been such director,
except in relation to matters as to which indemnification is prohibited by the
Oregon Business Corporation Act as it shall be amended from time to time (the
"Act"); but such indemnification shall not be deemed exclusive of any other
rights to which such director may be entitled, under any bylaw, agreement,
general or specific action of the Board of Directors, vote of shareholders or
otherwise. As used herein, "expenses" shall include, without limitation,
expenses of investigations, arbitrations, mediations, judicial or administrative
proceedings or appeals, attorney fees and disbursements and any expenses of
establishing a right to indemnification. "Liability" shall include the
obligation to pay a judgment, settlement, penalty, fine, including an excise tax
assessed with respect to an employee benefit plan, or reasonable expenses
incurred with respect to an arbitration, mediation, action, suit or proceeding
in which a director is entitled to indemnification hereunder.

Section 2. Procedure for Indemnification. After the final disposition
of any threatened, pending or completed arbitration, mediation, action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal, in which a director may be entitled to indemnification, such
director may send to the corporation a written request for indemnification. The
corporation shall, in accordance with the provisions of the Act regarding the
determination and authorization of indemnification, make a finding whether the
indemnification requested is permitted by the laws of the state of Oregon no
later than 60 days following receipt by the corporation of such request. The
corporation shall cause the indemnification requested to be authorized and paid
unless the corporation finds that the indemnification requested is not so
permitted. The director shall be given an opportunity to be heard and to present
evidence in connection with the consideration of the party or parties
determining the right to indemnification under the Act. If the corporation does
not authorize

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indemnification hereunder, the director shall have the right to seek
court-ordered indemnification in accordance with the provisions of the Act. In
any such action, neither the making of, nor the failure to make, any finding by
the corporation that indemnification of the director is proper or not proper in
the circumstances shall be a defense to such action or create a presumption that
the director has not met the standard of conduct required by the Act. In making
its determination and in any court proceeding, the corporation shall have the
burden of proving that the director has not met the standards of conduct
required by the Act to authorize indemnification.

Section 3. Procedure for Advancement of Expenses. The corporation shall
pay for or reimburse the reasonable expenses incurred by a director as a result
of being party to a threatened, pending or completed arbitration, mediation,
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, in advance of final disposition of
such arbitration, mediation, action, suit or proceeding promptly upon receipt of
a written request for payment of such expenses that is in accordance with
requirements of the Act for such written statement. Such written statement shall
also include or be accompanied by documentation of the expenses incurred and,
when available, such documentation of expenses shall include copies of bills or
statements evidencing the expenses incurred. If the requirements of this
provision are met, the corporation shall pay the amount requested promptly
notwithstanding the absence of a final disposition of the arbitration,
mediation, action, claim or proceeding.

Section 4. Indemnification of Officers, Employees and Agents. The
corporation may, by action of its Board of Directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to officers, employees and agents of the corporation to the same
extent and effect as provided in this Article with respect to the
indemnification and advancement of expenses of directors of the corporation or
pursuant to rights granted pursuant to, or provided by, the Act or otherwise.

Section 5. Insurance. The corporation may, but shall not be required
to, purchase and keep in force a policy or policies of liability insurance on
behalf of its officers and directors against liability and expenses incurred in
any arbitration, mediation, action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal.

Section 6. Nonexclusivity; Nature of Rights. The indemnification
provided herein shall not be deemed exclusive of any other rights consistent
with the laws of the state of Oregon to which a director may be entitled under
the corporation's articles of incorporation, bylaws or any other agreement, vote
of shareholders, or otherwise, both as to action in the director's official
capacity and as to action in another capacity while holding office, and shall
continue notwithstanding that the director may have ceased to be connected with
the corporation. The right of indemnification provided for herein shall be
deemed to create contractual rights in favor of directors entitled to
indemnification hereunder and shall be applicable to claims commenced after the
adoption hereof, whether arising from acts or omissions occurring before or
after the adoption hereof. The right of indemnification provided for herein may
not be amended or

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repealed so as to limit in any way the indemnification provided for herein with
respect to any acts or omissions occurring prior to any such amendment or
repeal.

ARTICLE VI

Action Without a Meeting

Section 1. Written Consent. Any action required to be taken or which
may be taken at a meeting of the shareholders or directors may be taken without
a meeting if a consent in writing setting forth the action so taken shall be
signed by all of the shareholders or directors entitled to vote; and such
consent shall have the same force and effect as a unanimous vote of such
shareholders or directors.

Section 2. Electronic Communications. The Board of Directors, or any
committee designated by the directors, may hold any meeting of the directors or
committee, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
simultaneously hear each other. Participation in such a meeting shall constitute
presence in person at the meeting.

ARTICLE VII

Section 1. Certificates. Shares of stock of the corporation shall be
represented by stock certificates which shall be in a form adopted by the Board
of Directors, provided all such stock certificates within one series of the same
class of stock shall be consecutively numbered, and shall express upon their
face the number thereof, the date of issuance, the number of shares for which
and the person to whom issued and the class and series, if any, thereof, and all
such stock certificates shall be signed by the president or a vice president and
by the secretary or assistant secretary and may be sealed with the corporate
seal, if any. In addition, each certificate shall express upon its face that the
corporation is organized under the laws of the state of Oregon and shall also
express the par value of the shares represented by the certificate, or shall
state that the shares are without par value, as may be appropriate. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the designations, preferences, limitations, restrictions on transfer and
relative rights of the shares of each class and series authorized to be issued,
or shall indicate where such information may be found.

Section 2. Subscriptions. Subscriptions for shares of stock of the
corporation shall be paid in full at such time, or in such installments and at
such times, as the Board of Directors may determine. In case of default in the
payment of any installment or call when such payment is due, the Board of
Directors may declare the shares and all previous payments thereon forfeited for
the use of the corporation, in the manner prescribed by the Oregon Business
Corporation Act.

Section 3. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney

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thereunto authorized by power of attorney duly executed and filed with the
secretary of the corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the books
of the corporation shall be deemed by the corporation to be owner thereof for
all purposes. All certificates surrendered to the corporation for transfer shall
be canceled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the corporation as the Board of
Directors may prescribe. The record of shareholder and stock transfer books
shall be kept at the principal or registered office of the corporation or at the
office of its transfer agent or registrar, if any.

ARTICLE VIII

Amendments

Bylaws may be adopted, altered, amended or repealed, in whole or in
part, at any regular or special meeting of the Board of Directors.

Approved by the Board of Directors December 17, 1996.

Amended April 28, 1997.

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SETTLEMENT AGREEMENT AND RELEASE

This Settlement Agreement and Release (the "Agreement") is
between Epitope, Inc., an Oregon corporation ("Epitope"), Keith R. Andrew and
Kevin S. Andrew as cotrustees under the Fred W. and Virginia S. Andrew 1990
Revocable Living Trust (collectively, the "Trustees"), Keith R. Andrew
individually ("K. Andrew"), Fred L. Williamson ("Williamson, Sr."), Fred M.
Williamson ("Williamson, Jr."), and Andrew and Williamson Sales, Co., a
California corporation ("A&W") (collectively, the "Parties").

BACKGROUND

Epitope acquired all of the outstanding capital stock of A&W
on December 12, 1996 (the "Acquisition Date"), from Fred W. Andrew ("F.
Andrew"), K. Andrew, Williamson, Sr., and Williamson, Jr. (collectively with the
Trustees, the "Former Owners"), pursuant to an Acquisition and Merger Agreement
among Epitope, Thamscoe, Inc., A&W, F. Andrew, K. Andrew, Williamson, Sr., and
Williamson, Jr., dated November 6, 1996 (the "Acquisition Agreement"). As part
of the acquisition, the number of outstanding shares of A&W common stock was
reduced from 20,000 to 100 (the "A&W Shares"). Following the acquisition,
Epitope made a $2.2 million subordinated loan to A&W (the "First Loan") and a
subsequent $3.5 million loan to A&W (the "Second Loan").

On February 28, 1997, Agritope, Inc., purchased A&W's
membership interest in Superior Tomato Associates, L.L.C., a Delaware limited
liability company ("STA"), for $25,032, representing A&W's investment in STA and
its share of losses through the purchase date, and assumed all ongoing
obligations of such membership. Agritope, Inc., an Oregon corporation, is a
wholly-owned subsidiary of Epitope.

Epitope has filed a complaint against F. Andrew, K. Andrew,
Williamson, Sr., and Williamson, Jr. in the United States District Court for the
District of Oregon, Civil No. CV 97-506 (the "Complaint"), seeking damages and
rescission of the A&W acquisition. The Former Owners have not yet answered the
complaint, but dispute the allegations made by Epitope and do not admit any
wrongdoing.

The Parties have sought to settle their differences without
litigation. Therefore, the Parties enter into this Agreement in consideration of
the mutual promises contained herein.

AGREEMENT

The Parties therefore agree as follows:

1. Rescission of Stock Acquisition. At Closing, as defined
below, subject to the terms and conditions of this Agreement, Epitope and the
Former Owners shall mutually renounce and rescind Epitope's acquisition of A&W,
including the issuance of

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520,000 shares of Epitope common stock (the "Epitope Shares") for the
then-outstanding shares of A&W common stock. To effect the rescission, each of
the Former Owners shall deliver to Epitope certificates for all Epitope Shares
originally issued in his name, duly endorsed or accompanied by appropriate stock
powers for transfer to Epitope. Epitope shall deliver the certificate for the
A&W Shares, accompanied by stock powers transferring the outstanding A&W Shares
as follows:

Former Owner Shares
------------ ------

Trustees, for the Trust, as defined below 40
K. Andrew 10
Williamson, Jr. 10
Williamson, Sr. 40

2. Preferred Stock.

a. As soon as practicable after execution of this Agreement,
Epitope, as sole shareholder of A&W, shall take all steps necessary to cause
A&W's articles of incorporation to be amended to read as set forth in Exhibit A
and to cause an officer's certificate to be filed establishing the rights and
preferences of preferred stock as stated in Exhibit B, subject to approval by
A&W's board of directors. As a result of the amendment and filing of the
officer's certificate, A&W shall have the ability to issue two series of
preferred stock having the rights and preferences stated in Exhibits A and B.

b. At Closing, as defined below, A&W shall issue 100 shares of
Class A preferred stock to Epitope (the "Class A Preferred Shares"), having a
redemption value equal to the First Loan amount. A&W shall redeem the Class A
Preferred Shares beginning no later than three years after the Closing Date, as
defined below, by payment of the redemption value as required by Exhibit A. The
holders of the Class A Preferred Shares shall have the right to receive a
dividend equal to 33.3 percent of any dividends paid by A&W to holders of A&W
Common Stock, shall have a liquidation preference equal to the redemption value,
and shall have no voting rights, except as required by law.

c. At Closing, A&W shall issue 100 shares of Class B preferred
stock to Epitope (the "Class B Preferred Shares"), having a redemption value for
the first five years after the Closing Date equal to 80 percent of the Second
Loan amount and thereafter equal to 90 percent of the Second Loan amount. The
Class B Preferred Shares shall be subject to redemption, at the option of A&W,
upon the terms set forth in Exhibit A. The holders of the Class B Preferred
Shares shall have the right to receive a dividend equal to 66.7 percent of any
dividends paid by A&W to holders of A&W Common Stock, shall have a liquidation
preference equal to the Second Loan amount, and shall have no voting rights,
except as required by law.

3. WFB Guaranty.

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a. Epitope's guaranty of the operating credit facility and
term loan (the "WFB Loan Facility") from Wells Fargo Bank, National Association
("WFB") shall remain in effect after Closing, subject to the terms and
conditions of this Agreement. If required by a new lender (the "Replacement
Facility Lender") providing any single new working capital credit facility to
A&W to replace the WFB Loan Facility (the "Replacement Loan Facility"), Epitope
shall guarantee the Replacement Loan Facility, provided (a) that the Replacement
Loan Facility and guaranty have substantially the same terms and conditions as
the WFB Loan Facility and guaranty and (b) the replacement occurs on or prior to
November 1, 1998. Epitope may terminate the WFB guaranty or any replacement
guaranty as to any advances after the date hereof if A&W fails to comply with
its obligations under the loan documents or if A&W has not procured a new
working capital credit facility (without Epitope's guaranty) to replace the then
current working capital credit facility by November 1, 1998.

b. K. Andrew, Williamson, Jr., and any transferee of either of
their A&W Shares (together, the "Individual Guarantors") shall each guarantee
the entire amount of the WFB Loan Facility and any Replacement Loan Facility,
using the standard guaranty forms of WFB and the Replacement Facility Lender,
respectively. No Individual Guarantor shall terminate his guaranty so long as
Epitope's guaranty remains in effect. As between the Individual Guarantors and
Epitope, Epitope shall have the right of full recourse (and immediate
reimbursement) against the Individual Guarantors, jointly and severally, for any
amounts paid by Epitope under its guaranty.

c. Williamson, Sr. shall also guarantee the entire amount of
the WFB Loan Facility and any Replacement Loan Facility. Except as hereinafter
provided, as between Williamson, Sr., the Individual Guarantors and Epitope,
Epitope shall have the right of full recourse (and immediate reimbursement)
against the Individual Guarantors and Williamson, Sr., jointly and severally,
for any amounts paid by Epitope under its guaranty.

Notwithstanding the above, Williamson, Sr.'s guaranty shall
provide that he will be unconditionally released from his guaranty if and when
(1) he is no longer a shareholder of A&W or (2) Epitope's guaranty no longer
remains in effect; at which time Williamson, Sr. shall have no further
obligations of any kind whatsoever under his guaranty.

4. Releases.

a. "Epitope Parties" means Epitope, its subsidiaries (other
than A&W and its subsidiaries), and the directors, officers, agents, employees,
accountants, partners, successors, and assigns of Epitope and each of its
subsidiaries (other than A&W and its subsidiaries).

b. "A&W Parties" means A&W, its subsidiaries, the Former
Owners, and the respective directors, officers, agents, employees, accountants,
partners, successors, and assigns of A&W, each of its subsidiaries, and each
Former Owner.

c. Effective upon Closing, Epitope, on behalf of the Epitope
Parties, hereby releases the A&W Parties from any and all claims, losses,
liabilities, and causes of

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<PAGE>

action, whether known or unknown (other than those created under this
Agreement), including all claims stated in the Complaint, arising from events
occurring before Closing.

d. Effective upon Closing, A&W and each of the Former Owners,
on behalf of the A&W Parties, hereby release the Epitope Parties from any and
all claims, losses, liabilities, and causes of action, whether known or unknown
(other than those created under this Agreement), arising from events occurring
before Closing.

e. Each of the releasing parties shall be deemed to have
waived and relinquished, to the fullest extent permitted by law, the provisions,
rights, and benefits of Section 1542 of the California Civil Code, which
provides that:

"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor."

Each of the releasing parties waives any and all provisions, rights, and
benefits conferred by any laws of any state or territory of the United States,
or principles of common law, which are similar, comparable, or equivalent to
Section 1542 of the California Civil Code. The releasing parties may discover
after Closing facts in addition to or different from those that they know or
believe to be true with respect to the subject matter of the released claims but
hereby stipulate and agree that as of Closing they each fully, finally, and
forever settle and release any and all released claims, known or unknown, as
described above.

5. Indemnification.

a. Tender. If any third party asserts a claim or institutes an
action against Epitope and A&W and/or A&W's Former Owners, the parties shall
first tender the third party claim to their insurance carriers. A&W shall not be
obligated to indemnify or reimburse Epitope for any loss, liability, damage,
cost, fees, or other expenses to the extent actually reimbursed by insurance. If
the insurance carrier does not defend the third party claim, Epitope may at its
option tender its defense to A&W and A&W will defend Epitope, along with itself,
at its own expense. If Epitope elects to defend the third party claim (e.g.,
hires its own attorneys, etc.), then Epitope shall bear the cost of its defense
subject to the terms of indemnification herein. A&W shall have no obligation to
defend Epitope in actions where A&W and/or a Former Owner are not also named as
party defendants.

b. Reservation of Right to Cross Claim. Epitope and A&W
reserve the right to bring the other into any action where they are not named as
a co-defendant. In such cases Epitope and A&W shall have reciprocal rights
against each other including the right of cross and/or counter claim,
notwithstanding the releases provided elsewhere in this Agreement.

c. Indemnity. A&W shall indemnify and hold harmless Epitope
against judgments for damages awarded by a court of competent jurisdiction and
damages payable

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<PAGE>

under all settlements entered into with A&W's consent (which shall not be
unreasonably withheld), wherein A&W and Epitope are jointly and severally
liable, and against reasonable attorney fees (up to a maximum of $125 per hour
and only when no part of the fees is paid by insurance) incurred in defense of
the relevant claim or action.

d. Notice. If any third party claim is brought or asserted
against Epitope but not against A&W, and Epitope claims it is or will be
entitled to indemnity by A&W, Epitope shall notify A&W in writing. Any failure
to so notify A&W shall relieve A&W of any obligation to indemnify Epitope
regarding that third party claim.

6. Closing.

a. Closing. The consummation of the transactions contemplated
by this agreement (the "Closing") shall occur at a time and date mutually agreed
upon by the Parties (the "Closing Date"), but in no event later than five
business days after the conditions to Closing have been satisfied. Closing shall
occur at such location, shall begin at such time, and shall be conducted in such
manner, as may be agreed by the Parties.

b. Actions at Closing. At Closing, subject to satisfaction or
waiver of all conditions precedent set forth in this Agreement:

(1) Epitope shall deliver the certificate for the A&W Shares
and stock powers, as required by Section .

(2) Each Former Owner shall deliver to Epitope certificates
for the Epitope Shares issued in his name, as required by Section .

(3) A&W shall issue the Class A Preferred Shares and the Class
B Preferred Shares and deliver certificates for such shares to Epitope,
as required by Section .

(4) K. Andrew and Williamson, Jr., shall each execute the
guaranty of the WFB Loan Facility.

(5) A&W shall execute and deliver to Epitope such documents as
are reasonably requested by Epitope to evidence the transfer of A&W's
membership interest in STA to Agritope.

(6) Adolph J. Ferro, Ph.D., Gilbert N. Miller, Matthew G.
Kramer, and Richard K. Bestwick, Ph.D., shall deliver to A&W written
resignations of their positions as A&W directors and officers.

(7) The Parties shall each deliver the various other documents
that are described elsewhere in this Agreement or reasonably requested
by another Party at least three business days before Closing, and shall
take any other

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<PAGE>

actions expressly required by this Agreement or reasonably requested by
another Party at least three business days before Closing.

7. Representations and Warranties of Former Owners. Each
Former Owner, as to Section , and each of Kevin S. Andrew, K. Andrew and
Williamson, Jr., as to Sections and , represents and warrants to Epitope as
follows:

a. No Conflict; Title. The execution, delivery, and
performance of this Agreement by the Former Owner will not conflict with any
undertaking, agreement, decree, order, or judgment by which he is bound. The
Former Owner has good and marketable title to his Epitope Shares, free and clear
of all liens (statutory or otherwise), security interests, pledges, or other
encumbrances of any nature whatsoever, and has not assigned any interest in his
Epitope Shares to any third party.

b. Investment Representations.

(1) Access to Information. On account of his involvement in
the day-to-day business of A&W, the Former Owner has had access to such
information regarding A&W as he deems relevant to a decision to enter
this Agreement.

(2) Experience. The Former Owner has sufficient knowledge and
experience in financial and business matters to be capable of
evaluating the merits and risks of an investment in A&W common stock
and has the ability to bear the economic risk of that investment.

(3) Investment Intent. The Former Owner is acquiring A&W
common stock for the Former Owner's own account and not on behalf of
any other person. The Former Owner is not acquiring A&W common stock
with a view to distribution or with the intent to divide the Former
Owner's participation with others by reselling or otherwise
distributing A&W common stock, other than in a registered offering, or
pursuant to the will of F. Andrew.

c. Nature of Shares. The Former Owner is aware that:

(1) No SEC or State Registration. A&W common stock will not be
registered under federal or state securities laws when transferred to
the Former Owner, must be held indefinitely unless registered or unless
an exemption from registration is available, and will bear
substantially the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER UNITED STATES FEDERAL OR STATE SECURITIES
LAWS. THEY MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED UNLESS THE TRANSACTION IS REGISTERED OR
UNLESS THE ISSUER IS FURNISHED A

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<PAGE>

SATISFACTORY OPINION OF COUNSEL THAT REGISTRATION IS NOT
REQUIRED.

(2) No Obligation. A&W has no obligation to register A&W
common stock, comply with any exemptions from registration, or
repurchase A&W common stock at any time.

8. Representations and Warranties of Epitope. Epitope
represents and warrants to the Former Owners as follows:

a. No Conflict. The execution, delivery, and performance of
this Agreement by Epitope will not conflict with any undertaking, agreement,
decree, order, or judgment by which Epitope is bound.

b. Investment Representations.

(1) Accredited Investor Status. Epitope is an "accredited
investor" for purposes of the Securities Act of 1933, as amended.

(2) Access to Information. On account of Epitope's ownership
of the common stock of A&W, Epitope has had access to such information
regarding A&W as it deems relevant to a decision to enter this
Agreement.

(3) Experience. Epitope has sufficient knowledge and
experience in financial and business matters to be capable of
evaluating the merits and risks of an investment in A&W preferred stock
and has the ability to bear the economic risk of that investment.

(4) Investment Intent. Epitope is acquiring A&W preferred
stock for Epitope's own account and not on behalf of any other person.
Epitope is not acquiring A&W preferred stock with a view to
distribution or with the intent to divide Epitope's participation with
others by reselling or otherwise distributing A&W preferred stock,
other than in a registered offering.

c. Nature of Shares. Epitope is aware that:

(1) No SEC or State Registration. A&W preferred stock will not
be registered under federal or state securities laws when transferred
to Epitope, must be held indefinitely unless registered or unless an
exemption from registration is available, and will bear substantially
the following legend:

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<PAGE>

(2) No Obligation. A&W has no obligation to register A&W
preferred stock or comply with any exemptions from registration.

9. Trust and Estate Matters. Trustees represent and warrant
that they are the cotrustees of the Fred W. and Virginia S. Andrew 1990
Revocable Living Trust and of the Administration Trust, the Survivors Trust, the
Marital Trust, the Residual Trust, and any other trust established under the
1990 Revocable Living Trust Agreement (the "Trust") and are nominated as
alternate coexecutors of the will and estate of Fred W. Andrew in the event
Virginia S. Andrew shall for any reason fail to qualify or cease to act as
executor. Trustees further represent, covenant, and warrant that at the date of
death of Fred W. Andrew on April 11, 1997, the Trust was the owner of 208,000 of
the Epitope Shares (the "Trust Shares"); that the estate of Fred W. Andrew will
not be probated; that no person, association, firm or corporation other than the
Trustees has any claim or interest in or to the Trust Shares; that to the best
of their knowledge, the assets of the Trust, other than the Trust Shares, are
more than sufficient to satisfy all known claims, taxes, and expenses of
administration of the decedent's estate and of the Trust; and that the Trustees
have full power and authority to transfer the Trust Shares. The representations,
covenants, and warranties of this section shall survive Closing.

10. Conditions.

a. Conditions to Each Party's Obligations. The respective
obligation of each Party to effect the Closing shall be subject to the
satisfaction of the following condition:

(1) No order, injunction or decree issued by any court or
agency of competent jurisdiction or other legal restraint or
prohibition (an "Injunction") preventing the consummation of the
transactions contemplated by this Agreement shall be in effect. No
statute, rule, regulation, or Injunction shall have been enacted,
entered, promulgated or enforced which prohibits, restricts or makes
illegal consummation of the transactions.

b. Conditions to Obligations of Epitope. The obligation of
Epitope to effect the transactions contemplated by this Agreement is also
subject to the satisfaction or waiver by Epitope of all the following
conditions:

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<PAGE>

(1) Epitope's board of directors shall have approved the terms
of this Agreement and authorized Epitope to consummate the transactions
contemplated by this Agreement.

(2) A&W's articles of incorporation shall have been amended to
read as set forth in Exhibit A and A&W's board of directors shall have
authorized the issuance of the Class A Preferred Shares and Class B
Preferred Shares on the terms set forth in this Agreement.

(3) A&W and the Former Owners shall have performed in all
material respects all obligations required to be performed by them
under this Agreement at or prior to the Closing Date, and Epitope shall
have received a certificate signed on behalf of A&W by an officer of
A&W and by each of the Former Owners to such effect.

(4) Epitope shall have received a satisfactory opinion of its
counsel, Miller, Nash, Wiener, Hager & Carlsen LLP, in form and
substance reasonably satisfactory to Epitope, to the effect that the
transfer of the A&W Shares as required by Section 1 does not require
registration under the Securities Act or applicable state law. Such
counsel may rely upon certificates of the Parties and upon the
representations and warranties of the Parties in this Agreement and any
document or agreement referred to in this Agreement or delivered in
connection with the transactions contemplated hereby. The opinion shall
not be provided to, and may not be relied upon by, any Party to this
Agreement other than Epitope.

(5) WFB shall have agreed to continue making advances to A&W
on the current terms of the WFB Loan Facility agreements.

c. Conditions to Obligations of Former Owners. The obligation
of the Former Owners to effect the transactions contemplated by this Agreement
is also subject to the satisfaction or waiver by the Former Owners of all the
following conditions:

(1) Adolph J. Ferro, Ph.D., Gilbert N. Miller, Matthew G.
Kramer, and Richard Bestwick, Ph.D. shall have resigned as directors
and officers of A&W.

(2) Epitope shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or
prior to the Closing Date, and the Former Owners shall have received a
certificate signed on behalf of Epitope by the Chief Executive Officer
of Epitope to such effect.

11. Management through Closing. So long as A&W and the Former
Owners comply with this Agreement, K. Andrew and Williamson, Jr., shall have
primary responsibility and authority for day-to-day management of A&W's business
and

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<PAGE>

affairs from the date of this agreement through the Closing Date, subject only
to the ultimate direction of A&W's board of directors as required by statute.

12. Covenants. Through and after Closing:

a. The Parties shall continue to cooperate to minimize the
costs of the recent recall of A&W frozen strawberries, through the date of the
FDA's notice of termination of recall, and shall cooperate in asserting any
mutual defenses.

b. Epitope and A&W shall not take any action to terminate or
reduce the coverage provided to A&W under their respective existing insurance
policies, through the end of the current policy year. For the same period,
Epitope and A&W shall use their best efforts to assure that no gaps occur in
their present coverage, provided that each Party shall be responsible for paying
any additional premiums charged to maintain coverage for that Party.

c. A&W shall use its best efforts to obtain a working capital
credit facility not guaranteed by Epitope to replace the WFB Loan Facility (and
any other A&W credit facility guaranteed by Epitope) by November 1, 1998.

d. So long as Epitope continues to be a guarantor of any
credit facility extended to A&W, A&W shall provide Epitope with full access
during normal business hours to its books and records upon reasonable notice,
and shall provide Epitope with its unaudited monthly financial statements and
any other financial information required to be delivered to WFB or any
Replacement Facility Lender, when provided to WFB or the Replacement Facility
Lender. The provisions of this section are in addition to any statutory rights
Epitope may have as a holder of A&W preferred stock.

e. So long as Epitope's guaranty of A&W indebtedness remains
outstanding, neither K. Andrew nor Williamson, Jr., shall transfer any A&W
shares unless Epitope gives its written consent to the transfer, which shall not
be unreasonably withheld.

13. Termination and Amendment.

a. Termination. This Agreement may be terminated at any time
prior to Closing:

(1) By mutual consent of Epitope and the Former Owners in a
written instrument.

(2) By any Party if the Closing shall not have occurred on or
before June 1, 1997, unless the failure of the Closing to occur by such
date shall be due to the breach by the Party seeking to terminate this
Agreement of any representation, warranty, covenant, or other agreement
of such Party set forth herein.

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<PAGE>

(3) By Epitope (provided that Epitope is not then in material
breach of any representation, warranty, covenant or other agreement
contained herein) if there shall have been a material breach of any of
the covenants or agreements or any of the representations or warranties
set forth in this Agreement on the part of the Former Owners, which
breach is not cured within fifteen (15) days following written notice
to the Party committing such breach, or which breach, by its nature,
cannot be cured prior to Closing.

(4) By the Former Owners (provided that the Former Owners are
not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a
material breach of any of the covenants or agreements or any of the
representations or warranties set forth in this Agreement on the part
of Epitope, which breach is not cured within fifteen (15) days
following written notice to Epitope, or which breach, by its nature,
cannot be cured prior to Closing.

b. Effect of Termination. In the event of termination of this
Agreement as provided in Section , this Agreement shall become void and have no
effect. Notwithstanding anything to the contrary contained in this Agreement, no
Party shall be relieved or released from any liabilities or damages arising out
of its intentional or willful breach of any provision of this Agreement.

c. Extension; Waiver. At any time prior to Closing, Epitope
and the Former Owners, may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations or other acts of the other Parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a Party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such Party,
but such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.

14. General Provisions.

a. Expenses. Except as otherwise stated herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such expense.

b. Notices. All notices under this Agreement shall be in
writing and shall be deemed given when delivered personally, when sent by fax
(with prompt confirmation by mail), four business days after mailed by certified
mail (return receipt requested), or one business day after being sent by a
recognized overnight courier, to the

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<PAGE>

Parties at the following addresses (or at such other address for a Party as
shall be specified by like notice):

If to Epitope, or to A&W before Closing, to:

8505 S.W. Creekside Place
Beaverton, Oregon 97005
Facsimile: (503) 641-8665
Attention: President

with copies to:

Miller, Nash, Wiener, Hager & Carlsen LLP
3500 U. S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, Oregon 97204
Facsimile: (503) 224-0155
Attention: Erich W. Merrill, Jr., P.C.

If to A&W after Closing to:

Andrew & Williamson Sales, Co.
9940 Marconi Drive
San Diego, California 92173
Facsimile: (619) 661-6007
Attention: President

with copies to:

Klein, Wegis, DeNatale, Goldner & Muir, llp
P.O. Box 11172
Bakersfield, California 93389-1172
Facsimile: (805) 395-0319
Attention: Claude P. Kimball

and

Huth, Lynett and Scudi
5440 Morehouse Drive
Suite 4400
San Diego, California 92121-1798
Facsimile: (619) 558-1122
Attention: Morgan J. C. Scudi

If to a Former Owner, to the address set forth in the records
of A&W.

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<PAGE>

c. Interpretation. When a reference is made in this Agreement
to Sections, Exhibits, or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes," and "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." No provision of this
Agreement shall be construed to require any person to take any action that would
violate any applicable law, rule, or regulation.

d. Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when counterparts have been signed by each of the Parties
and delivered to the other Parties, it being understood that all Parties need
not sign the same counterpart. Facsimile transmission of a signed original shall
have the same effect as delivery of the original.

e. Entire Agreement. This Agreement (including the documents
and the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the Parties with respect to the subject matter hereof other than the agreements
specifically referred to herein.

f. Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.

g. Assignment. Neither this Agreement nor any of the rights,
interests, or obligations shall be assigned by any of the Parties hereto without
the prior written consent of the other Parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by the Parties and their respective successors and assigns. This
Agreement (including the documents and instruments referred to herein) is not
intended to confer upon any person other than the Parties hereto any rights or
remedies hereunder.

h. Attorney Fees. In the event any Party shall seek
construction or enforcement of any covenant, warranty, indemnity, or other term
or provision of this Agreement, the Party that prevails in such construction or
enforcement proceeding shall be entitled to recover such reasonable costs and
attorney fees which shall be determined by the arbitrator or court (including
any appellate court).

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<PAGE>

i. Governing Law. This Agreement shall be governed and
interpreted pursuant to the law of the State of California, and the Parties
consent to the jurisdiction of California courts for any action brought
concerning this Agreement whether for declaratory judgment, breach of contract,
damages, or otherwise.

The Parties have executed this Agreement as of the 4th day of
May, 1997.

EPITOPE, INC.

By
Title:

ANDREW AND WILLIAMSON SALES, CO.

By
Title:

Kevin S. Andrew, as cotrustee under the Trust

Keith R. Andrew, individually and as cotrustee
under the Trust

Fred L. Williamson

Fred M. Williamson

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<PAGE>

The undersigned spouses of the Former Owners hereby consent
and agree to the terms of this Agreement.

Virginia S. Andrew, individually and as
prospective executor of the estate of Fred W.
Andrew

Lisa B. Andrew

Judith M. Williamson

Stephanie Williamson

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<PAGE>
Exhibit A

RESTATED ARTICLES OF INCORPORATION
OF
ANDREW AND WILLIAMSON SALES, CO.

1. Name. The name of this corporation is ANDREW AND WILLIAMSON
SALES, CO.

2. Purpose. The purpose of this corporation is to engage in
any lawful act or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking business, the trust
company business, or the practice of a profession permitted to be incorporated
by the California Corporations Code.

3. Authorized Capital Stock. This corporation is authorized to
issue two classes of stock, 100,000 shares of Common Stock and 200 shares of
Preferred Stock. The Preferred Stock shall consist of 100 shares of Class A
Preferred Stock and 100 shares of Class B Preferred Stock.

(a) Common Stock. Holders of Common Stock are
entitled to one vote per share on all matters submitted to a vote of
shareholders. No dividends shall be declared or paid on shares of Common Stock
unless all obligations to pay dividends on Preferred Stock are satisfied. On
dissolution of this corporation, after payment of all amounts that the holders
of Preferred Stock are entitled to receive, the holders of Common Stock may
receive, pro rata, any remaining assets of the corporation.

(b) Preferred Stock. The Board of Directors is
authorized, subject to limitations prescribed by the California General
Corporation Law, to provide for the issuance of shares of Preferred Stock in two
series of 100 shares each and to determine the relative rights, preferences, and
limitations of the shares of each series. Holders of Preferred Stock shall be
entitled to receive such dividends as shall be lawfully declared by this
corporation's board of directors.

4. Limitation of Liability. The liability of the directors of
this corporation for monetary damages shall be eliminated to the fullest extent
permitted under California law.

- 1 -
<PAGE>
Exhibit B

RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS
OF PREFERRED STOCK

Class A Preferred Stock and Class B Preferred Stock shall have
the following relative rights, privileges and limitations:

1. Dividend Preference. No dividends shall be declared or paid
on shares of Common Stock unless a dividend of at least the aggregate amount
indicated below is declared and paid simultaneously on shares of Preferred
Stock:

Class of Stock Aggregate Dividend

Class A Preferred Stock 33.3 percent of aggregate dividend
declared and paid on Common
Stock

Class B Preferred Stock 66.7 percent of aggregate dividend
declared and paid on Common
Stock

2. Voting Rights. Except as otherwise required by the
California General Corporation Law, the Preferred Stock shall not be entitled to
vote on any matter submitted to a vote of the shareholders.

3. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the corporation, whether voluntary or involuntary,
including any sale of substantially all assets of the corporation, each holder
of shares of Preferred Stock shall be entitled to receive cash or other value
out of the assets of the corporation equal to the liquidation value of their
shares. If the assets of the corporation are insufficient to pay such amount in
full, then the corporation shall distribute all its assets, pro rata in
proportion to the liquidation value to which the shares are entitled, to holders
of the Preferred Stock.

4. Liquidation Value.

(a) Class A Preferred Stock. The liquidation value
of each share of Class A Preferred Stock shall be $22,000.

(b) Class B Preferred Stock. The liquidation value
of each share of Class B Preferred Stock shall be $35,000.

- 1 -

<PAGE>

5. Redemption at Corporation's Option. The corporation, at the
option of the Board of Directors, may at any time redeem all or any part of the
outstanding Preferred Stock by paying the redemption value for each share to be
redeemed. In the case of a redemption of only a portion of the outstanding
Preferred Stock, the corporation shall designate the shares to be redeemed. In
the case of either a complete or partial redemption, at least 30 days prior
written notice shall be given to the holders of record of the Preferred Stock to
be redeemed, such notice to be addressed to each shareholder at the address
appearing for that shareholder in the corporation's records or at the
address given to the corporation by such shareholder for the purpose of notice.
Such notice shall state the date fixed for redemption and the total value of
shares to be redeemed and shall designate the place for surrender of such
holder's certificate or certificates representing the shares to be redeemed.
On or after the date fixed for redemption in such notice, the holder of each
share of Preferred Stock called for redemption shall surrender the certificate
evidencing such shares to the corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the redemption value of
the shares surrendered. If less than all the shares represented by any
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.

6. Mandatory Redemption of Class A Preferred Stock. If less
than all the outstanding shares of Class A Preferred Stock have been redeemed at
the corporation's option as of April 15, 2000, the corporation shall redeem
any outstanding shares of Class A Preferred Stock by annual redemption of shares
of Class A Preferred Stock with an aggregate value of $440,000, beginning with
an initial redemption on April 15, 2000, and continuing annually until all
outstanding shares of Class A Preferred Stock have been redeemed. Such
redemption shall otherwise be made in accordance with the provisions of Section
5 above applicable to the redemption of shares of Preferred Stock at the
corporation's option.

7. Redemption Value.

(a) Class A Preferred Stock. The redemption value of
each share of Class A Preferred Stock shall be its liquidation value, $22,000.

(b) Class B Preferred Stock. The redemption value of
each share of Class B Preferred Stock shall be $28,000 until April 15, 2002.
After April 15, 2002, the redemption value for each share of Class B Preferred
Stock shall be $31,500.

8. Effect. If the corporation deposits funds equal to the
aggregate redemption value of the Preferred Stock to be redeemed into a separate
bank

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<PAGE>

account solely for the benefit of holders of Preferred Stock to be redeemed and
not subject to claims of other creditors, then the Preferred Stock called for
redemption shall represent only the right to receive the redemption value on and
after the date fixed for redemption. Otherwise, the holders of the Preferred
Stock called for redemption shall continue to have all rights as shareholders of
such shares until such shares are surrendered for redemption and the full
redemption value has been paid.

- 3 -

CREDIT AGREEMENT

THIS AGREEMENT is entered into as of December 17, 1996, by and between
ANDREW AND WILLIAMSON SALES, CO., a California corporation ("Borrower"), and
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").

RECITAL

Borrower has requested from Bank the credit accommodations described below
(each, a "Credit" and collectively, the "Credits"), and Bank has agreed to
provide the Credits to Borrower on the terms and conditions contained herein.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:

ARTICLE I
THE CREDITS

SECTION 1.1. LINE OF CREDIT.

(a) Line of Credit. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make advances to Borrower from time to time up to and
including February 5, 1998, not to exceed at any time the aggregate principal
amount of Six Million Five Hundred Thousand Dollars ($6,500,000.00) ("Line of
Credit"), the proceeds of which shall be used to finance working capital.
Borrower's obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note substantially in the form of Exhibit A attached
hereto ("Line of Credit Note"), all terms of which are incorporated herein by
this reference.

(b) Limitation on Borrowings. Outstanding borrowings under the Line of
Credit, to a maximum of the principal amount set forth above, shall not at any
time exceed an aggregate of ninety percent (90%) of Borrower's eligible accounts
receivable less grower payables, plus fifty percent (50%) of the value of
Borrower's eligible inventory (exclusive of work in process and inventory which
is obsolete, unsaleable or damaged), with inventory defined as processed fruit
and produce and with value defined as the lower of cost or market value.

All of the foregoing shall be determined by Bank upon receipt and review
of all collateral reports required hereunder and such other documents and
collateral information as Bank may from time to time require. Borrower
acknowledges that said borrowing base was established by Bank with the
understanding that, among other items, the aggregate of all returns, rebates,
discounts, credits and allowances for the immediately preceding three (3) months
at all times shall be less than five percent

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(5%) of Borrower's gross sales for said period. If such dilution of Borrower's
accounts for the immediately preceding three (3) months at any time exceeds five
percent (5%) of Borrower's gross sales for said period, or if there at any time
exists any other matters, events, conditions or contingencies which Bank
reasonably believes may affect payment of any portion of Borrower's accounts,
Bank, in its sole discretion, may reduce the foregoing advance rate against
eligible accounts receivable to a percentage appropriate to reflect such
additional dilution and/or establish additional reserves against Borrower's
eligible accounts receivable.

As used herein, "eligible accounts receivable" shall consist solely of
trade accounts created in the ordinary course of Borrower's business, upon which
Borrower's right to receive payment is absolute and not contingent upon the
fulfillment of any condition whatsoever, and in which Bank has a perfected
security interest of first priority, and shall not include:

(i) any account which is past due more than twice Borrower's
standard selling, except with respect to any account for which Borrower
has provided extended payment terms not to exceed one hundred eighty (180)
days, any such account which is more than thirty (30) days past due;

(ii) that portion of any account for which there exists any right of
setoff, defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for which any
defense or counterclaim has been asserted;

(iii) any account which represents an obligation of any state or
municipal government or of the United States government or any political
subdivision thereof (except accounts which represent obligations of the
United States government and for which Bank's forms N-138 and N-139 have
been duly executed and acknowledged);

(iv) any account which represents an obligation of an account debtor
located in a foreign country;

(v) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of, an employee,
affiliate, partner, member, parent or subsidiary of Borrower;

(vi) that portion of any account which represents interim or
progress billings or retention rights on the part of the account debtor;

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(vii) any account which represents an obligation of any account
debtor when twenty percent (20%) or more of Borrower's accounts from such
account debtor are not eligible pursuant to (i) above;

(viii) that portion of any account from an account debtor which
represents the amount by which Borrower's total accounts from said account
debtor exceeds twenty-five percent (25%) of Borrower's total accounts;

(ix) any account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the
account debtor, or the industry in which the account debtor is engaged, to
be unsatisfactory.

(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.

SECTION 1.2. TERM LOAN.

(a) Term Loan. Bank has made a loan to Borrower in the original principal
amount of Two Hundred Fifty-three Thousand Five Hundred Dollars ($253,500.00)
("Term Loan"), on which the outstanding principal balance as of the date hereof
is Two Hundred Two Thousand Eight Hundred Dollars ($202,800.00). Borrower's
obligation to repay the Term Loan shall be evidenced by a promissory note
substantially in the form of Exhibit B attached hereto ("Term Note"), all terms
of which are incorporated herein by this reference. Any reference in the Term
Note to any prior loan agreement between Bank and Borrower shall be deemed a
reference to this Agreement.

(b) Repayment. The principal amount of the Term Loan shall be repaid
in accordance with the provisions of the Term Note.

(c) Prepayment. Borrower may prepay principal on the Term Loan at any
time, in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.

SECTION 1.3. INTEREST/FEES.

(a) Interest. The outstanding principal balances of the Line of
Credit and the Term Loan (collectively, the "Credits")

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shall bear interest at the rates of interest set forth in the Line of Credit
Note and Term Note (collectively, the "Notes").

(b) Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Notes.

SECTION 1.5. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under each Credit by charging Borrower's
demand deposit account number 4160- 085460 with Bank, or any other demand
deposit account maintained by Borrower with Bank, for the full amount thereof.
Should there be insufficient funds in any such demand deposit account to pay all
such sums when due, the full amount of such deficiency shall be immediately due
and payable by Borrower.

SECTION 1.6. COLLATERAL. As security for all indebtedness of Borrower to
Bank under the Line of Credit, Borrower hereby grants to Bank security interests
of first priority in all Borrower's accounts receivables and other rights to
payment, general intangibles, inventory and equipment.

As security for all indebtedness of Borrower to Bank under the Term Loan
Borrower hereby grants to Bank a lien of not less than first priority on that
certain real property located at Traver, California, as more fully described on
Exhibit D attached hereto, all terms of which are incorporated herein by this
reference.

All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.

SECTION 1.7. GUARANTIES. All indebtedness of Borrower to Bank shall be
guaranteed by Epitope, Inc. ("Guarantor") in the principal amount of Six Million
Seven Hundred Fifty-six Thousand Eight Hundred Dollars ($6,756,800.00), as
evidenced by and subject to the terms of guaranties in form and substance
satisfactory to Bank.

SECTION 1.8. SUBORDINATION OF DEBT. All obligations of Borrower to
Epitope, Inc. shall be subordinated in right of repayment to all obligations of
Borrower to Bank, as evidenced by and subject to the terms of subordination
agreements in form and substance satisfactory to Bank.

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ARTICLE II
REPRESENTATIONS AND WARRANTIES

Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.

SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of California, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.

SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.

SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.

SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated September 30, 1996, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been

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prepared in accordance with generally accepted accounting principles
consistently applied. Since the date of such financial statement there has been
no material adverse change in the financial condition of Borrower, nor has
Borrower mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.

SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.

SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract
or instrument to which Borrower is a party or by which Borrower may be bound
that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.

SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.

SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.

SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.

SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of

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1986, the Federal Resource Conservation and Recovery Act of 1976, and the
Federal Toxic Substances Control Act, as any of the same may be amended,
modified or supplemented from time to time. None of the operations of Borrower
is the subject of any federal or state investigation evaluating whether any
remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.

SECTION 2.12. REAL PROPERTY COLLATERAL. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, with respect to any real property
collateral required hereby:

(a) All taxes, governmental assessments, insurance premiums, and
water, sewer and municipal charges, and rents (if any) which previously
became due and owing in respect thereof have been paid as of the date
hereof.

(b) There are no mechanics' or similar liens or claims which have
been filed for work, labor or material (and no rights are outstanding that
under law could give rise to any such lien) which affect all or any
interest in any such real property and which are or may be prior to or
equal to the lien thereon in favor of Bank.

(c) None of the improvements which were included for purpose of
determining the appraised value of any such real property lies outside of
the boundaries and/or building restriction lines thereof, and no
improvements on adjoining properties materially encroach upon any such
real property.

(d) There is no pending, or to the best of Borrower's knowledge
threatened, proceeding for the total or partial condemnation of all or any
portion of any such real property, and all such real property is in good
repair and free and clear of any damage that would materially and
adversely affect the value thereof as security and/or the intended use
thereof.

ARTICLE III
CONDITIONS

SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Bank to grant any of the Credits is subject to

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the fulfillment to Bank's satisfaction of all of the following conditions:

(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.

(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:

(i) This Agreement and the Notes.
(ii) Articles of Incorporation (Borrower and Guarantor).
(iii) Continuing Guaranty.
(iv) Subordination Agreement.
(v) Security Agreement: Equipment and Fixtures.
(vi) Security Agreement: Crops.
(vii) Continuing Security Agreement: Rights to Payment and
Inventory.
(viii) Deed of Trust.
(ix) UCC Financing Statements.
(x) Such other documents as Bank may require under any other Section
of this Agreement.

(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower or any guarantor hereunder, nor any material decline, as determined by
Bank, in the market value of any collateral required hereunder or a substantial
or material portion of the assets of Borrower or any such guarantor.

(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank, including without
limitation, policies of fire and extended coverage insurance covering all real
property collateral required hereby, with replacement cost and mortgagee loss
payable endorsements, and such policies of insurance against specific hazards
affecting any such real property as may be required by governmental regulation
or Bank.

(e) Appraisals. Bank shall have obtained, at Borrower's cost, an
appraisal of all real property collateral required hereby, and all improvements
thereon, issued by an appraiser acceptable to Bank and in form, substance and
reflecting values satisfactory to Bank, in its discretion.

(f) Title Insurance. Bank shall have received an ALTA Policy of
Title Insurance, with such endorsements as Bank

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may require, including without limitation, CLTA endorsements issued by a company
and in form and substance satisfactory to Bank, in such amount as Bank shall
require, insuring Bank's lien on the real property collateral required hereby to
be of first priority, subject only to such exceptions as Bank shall approve in
its discretion, with all costs thereof to be paid by Borrower.

(g) Tax Service Contract. Borrower shall have procured and delivered
to Bank, at Borrower's cost, such tax service contract as Bank shall require for
any real property collateral required hereby, to remain in effect as long as
such real property secures any obligations of Borrower to Bank as required
hereby.

SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:

(a) Compliance. The representations and warranties contained herein
and in each of the other Loan Documents shall be true on and as of the date of
the signing of this Agreement and on the date of each extension of credit by
Bank pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.

(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.

ARTICLE IV
AFFIRMATIVE COVENANTS

Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:

SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of any of the

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Credits at any time exceeds any limitation on borrowings applicable thereto.

SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.

SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:

(a) not later than 90 days after and as of the end of each fiscal
year, an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include balance sheet, income statement,
statement of cash flow and all footnotes;

(b) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include
balance sheet and income statement;

(c) not later than 15 days after and as of the end of each month, a
borrowing base certificate, an inventory collateral report, an aged listing of
accounts receivable and accounts payable and grower accounts payable;

(d) not later than 90 days after and as of the end of each fiscal
year, an audited financial statement of Guarantor, prepared by a certified
public accountant acceptable to Bank, to include balance sheet, income
statement, statement of cash flow and all footnotes;

(e) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Guarantor, prepared by Guarantor, to include
balance sheet and income statement;

(f) from time to time such other information as Bank may reasonably
request, including without limitation, copies of rent rolls and other
information with respect to any real property collateral required hereby.

SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.

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SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types
and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.

SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.

SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.

SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$250,000.00.

SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition
as follows using generally accepted accounting principles consistently applied
and used consistently with prior practices (except to the extent modified by the
definitions herein):

(a) Working Capital not at any time less than $1,500,000.00, with
"Working Capital" defined as total current assets minus total current
liabilities.

(b) Tangible Net Worth not at any time less than $2,600,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.

(c) Total Liabilities divided by Tangible Net Worth not at any time
greater than 3.5 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" as defined above.

(d) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end.

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SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5)
days after the occurrence of each such event or matter) give written notice to
Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any
condition, event or act which with the giving of notice or the passage of time
or both would constitute an Event of Default; (b) any change in the name or the
organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property.

ARTICLE V
NEGATIVE COVENANTS

Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:

SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article I hereof.

SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed
assets in any fiscal year in excess of an aggregate of $150,000.00.

SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, and (b) any
other liabilities of Borrower existing as of, and disclosed to Bank prior to,
the date hereof.

SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.

SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable

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instruments for deposit or collection in the ordinary course of business),
accommodation endorser or otherwise for, nor pledge or hypothecate any assets of
Borrower as security for, any liabilities or obligations of any other person or
entity, except any of the foregoing in favor of Bank.

ARTICLE VI
EVENTS OF DEFAULT

SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:

(a) Borrower shall fail to pay when due any principal, interest,
fees or other amounts payable under any of the Loan Documents; provided,
however, that no Event of Default shall be deemed to have occurred under this
subsection (a) unless (i) Bank sends written notice to Borrower and to Epitope,
Inc. of such failure to pay and (ii) Borrower and/or Epitope, Inc. fail to pay
such amount within five (5) Business Days of the date Bank sends such notice. As
used herein, "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.

(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.

(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of thirty (30) days from its occurrence.

(d) Any default in the payment or performance of any obligation, or
any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower or any
guarantor hereunder has incurred any debt or other liability to any person or
entity, including Bank; provided, however, that in the case of a default or
defined event of default under the terms of indebtedness to a person or entity
other than Bank, such indebtedness is in excess of $100,000.00 individually or
in the aggregate for all such defaults by Borrower or any guarantor hereunder
combined.

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(e) The filing of a notice of judgment lien against Borrower or any
guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any guarantor hereunder in any county in which Borrower or such
guarantor has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any guarantor hereunder; or the entry of a judgment
against Borrower or any guarantor hereunder.

(f) Borrower or any guarantor hereunder shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower or any guarantor hereunder shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any guarantor
hereunder, or Borrower or any such shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any such guarantor shall be adjudicated a bankrupt, or
an order for relief shall be entered against Borrower or any such guarantor by
any court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.

(g) The dissolution or liquidation of Borrower or any guarantor
hereunder; or Borrower or any such guarantor, or any of its their directors,
stockholders or members, shall take action seeking to effect the dissolution or
liquidation of Borrower or such guarantor.

(h) The sale, transfer, hypothecation, assignment or encumbrance,
whether voluntary, involuntary or by operation of law, without Bank's prior
written consent, of all or any part of or interest in any real property
collateral required hereby.

(i) The failure of Guarantor to maintain Tangible Net Worth at all
times greater than or equal to $20,000,000.00, with "Tangible Net Worth" defined
as the

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<PAGE>

aggregate of total stockholders' equity plus subordinated debt less any
intangible assets.

SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by each Borrower;
(b) the obligation, if any, of Bank to extend any further credit under any of
the Loan Documents shall immediately cease and terminate; and (c) Bank shall
have all rights, powers and remedies available under each of the Loan Documents,
or accorded by law, including without limitation the right to resort to any or
all security for any of the Credits and to exercise any or all of the rights of
a beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity. Notwithstanding anything to the contrary contained herein, if
Borrower fails to pay when due any principal, interest, fees or other amounts
payable under any of the Loan Documents, Bank shall have no obligation to extend
any further credit under any of the Loan Documents unless and until such amount
is paid within the five (5) Business-Day period specified in Section 6.1 (a)
above.

ARTICLE VII
MISCELLANEOUS

SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.

SECTION 7.2. NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:

BORROWER: ANDREW AND WILLIAMSON, SALES CO.
9940 Marconi Drive
San Diego, CA 92173

with copies of any notices of payment defaults to

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<PAGE>

EPITOPE, INC.
8505 S.W. Creekside Place
Beaverton, Oregon 97008

BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Bakersfield Regional Commercial Banking Office
5401 California Avenue, 2nd Floor
Bakersfield, CA 93309

or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.

SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits, Borrower or its business, any guarantor
hereunder or the business of such guarantor, or any collateral required
hereunder. Prior to disclosing any confidential information relating to Borrower
or any guarantor hereunder, Bank shall use its best efforts to cause the
proposed

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<PAGE>

purchaser, assignee or participant to enter into a confidentiality agreement
relating to such confidential information.

SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only in writing signed by each party
hereto. If Borrower requests an amendment or modification to this Agreement or
to any of the other Loan Documents, Bank shall consider such request in good
faith and in a reasonable period of time.

SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.

SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.

SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.

SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
Agreement.

SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.

SECTION 7.11. ARBITRATION.

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<PAGE>

and other activities, transactions or obligations of any kind related directly
or indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party may
by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.

(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AA") or such other administrator as the
parties shall mutually agree upon in accordance with the AA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AA or other administrator. If there is any inconsistency between
the terms hereof and any such rules, the terms and procedures set forth herein
shall control. All statutes of limitation applicable to any Dispute shall apply
to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. ss.91 or any similar applicable state law.

(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.

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<PAGE>

the state of California could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award, and (iii) shall
have the power to award recovery of all costs and fees, to impose sanctions and
to take such other actions as they deem necessary to the same extent a judge
could pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator who
shall not render an award of greater than $5,000,000 (including damages, costs,
fees and expenses). By submission to a single arbitrator, each party expressly
waives any right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by majority vote
of a panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations.

(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.

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<PAGE>

arbitration, the Dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this general
reference agreement is intended to be specifically enforceable in accordance
with said Section 638. A referee with the qualifications required herein for
arbitrators shall be selected pursuant to the AA's selection procedures.
Judgment upon the decision rendered by a referee shall be entered in the court
in which such proceeding was commenced in accordance with California Code of
Civil Procedure Sections 644 and 645.

(g) Miscellaneous. To the maximum extent practicable, the AA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the AA.
No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.

WELLS FARGO BANK,
ANDREW AND WILLIAMSON SALES, CO. NATIONAL ASSOCIATION

By: /s/ Fred L. Williamson By: /s/ Steven M. Del Papa
Title: President/Chief Steven M. Del Papa
Executive Officer Vice President

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<PAGE>

Acknowledged by the undersigned ("Guarantor"), which specifically
acknowledges that the failure of Guarantor to maintain Tangible Net Worth
(defined as the aggregate of total stockholders' equity plus subordinated debt
less any intangible assets) at all times greater than or equal to $20,000,000.00
shall constitute an "Event of Default" under the foregoing Credit Agreement.

EPITOPE, INC.

By: /s/ Gilbert N. Miller
Gilbert N. Miller
Executive Vice President/
Chief Financial Officer

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<PAGE>

Exhibit A

REVOLVING LINE OF CREDIT NOTE

$6,500,000.00 Bakersfield, California
December 17, 1996

FOR VALUE RECEIVED, the undersigned ANDREW AND WILLIAMSON SALES, CO.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Bakersfield RCBO, 5401 California Avenue,
2nd Floor, Bakersfield, California, or at such other place as the holder hereof
may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of Six Million Five Hundred
Thousand Dollars ($6,500,000.00), or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement (computed on the basis of a 360-day year, actual days
elapsed) either (i) at a fluctuating rate per annum equal to the Prime Rate in
effect from time to time, or (ii) at a fixed rate per annum determined by Bank
to be two and one-half percent (2.50%) above Bank's LIBOR in effect on the first
day of the applicable Fixed Rate Term. When interest is determined in relation
to the Prime Rate, each change in the rate of interest hereunder shall become
effective on the date each Prime Rate change is announced within Bank. With
respect to each LIBOR option selected hereunder, Bank is hereby authorized to
note the date, principal amount, interest rate and Fixed Rate Term applicable
thereto and any payments made thereon on Bank's books and records (either
manually or by electronic entry) and/or on any schedule attached to this Note,
which notations shall be prima facie evidence of the accuracy of the information
noted.

A. DEFINITIONS:

As used herein, the following terms shall have the meanings set forth
after each:

1. "Business Day" means any day except a Saturday, Sunday or any other day
designated as a holiday under Federal or California statute or regulation.

2. "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1), two (2), three (3), six (6) or twelve (12) months, as
designated by Borrower, during which all or a portion of the outstanding
principal balance of this Note bears interest determined in relation to Bank's
LIBOR; provided however, that no Fixed Rate Term may be selected for a principal
amount less than Two Hundred Fifty Thousand Dollars ($250,000.00); and provided
further, that no Fixed Rate Term shall extend beyond the scheduled maturity date
hereof. If any

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<PAGE>

Fixed Rate Term would end on a day which is not a Business Day, then such Fixed
Rate Term shall be extended to the next succeeding Business Day.

3. "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) and determined pursuant to the following formula:

LIBOR = Base LIBOR
100% - LIBOR Reserve Percentage

(a) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.

(b) "LIBOR Reserve Percentage" means the reserve percentage prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.

4. "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office in San Francisco as its Prime
Rate, with the understanding that the Prime Rate is one of Bank's base rates and
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto, and is evidenced by the recording thereof
after its announcement in such internal publication or publications as Bank may
designate.

B. INTEREST:

1. Payment of Interest. Interest accrued on this Note shall be payable on
the fifth day of each month, commencing January 5, 1997.

2. Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to Bank's LIBOR, it may be continued
by Borrower at the end of the Fixed Rate Term applicable thereto so that all or
a portion thereof bears interest determined in relation to the Prime Rate

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<PAGE>

or in relation to Bank's LIBOR for a new Fixed Rate Term designated by Borrower.
At any time any portion of this Note bears interest determined in relation to
the Prime Rate, Borrower may convert all or a portion thereof so that it bears
interest determined in relation to Bank's LIBOR for a Fixed Rate Term designated
by Borrower. At the time each advance is requested hereunder or Borrower wishes
to select the LIBOR option for all or a portion of the outstanding principal
balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank
notice specifying (a) the interest rate option selected by Borrower, (b) the
principal amount subject thereto, and (c) if the LIBOR option is selected, the
length of the applicable Fixed Rate Term. Any such notice may be given by
telephone so long as, with respect to each LIBOR selection, (i) Bank receives
written confirmation from Borrower not later than three (3) Business Days after
such telephone notice is given, and (ii) such notice is given to Bank prior to
10:00 a.m., California time, on the first day of the Fixed Rate Term. For each
LIBOR option requested hereunder, Bank will quote the applicable fixed rate to
Borrower at approximately 10:00 a.m., California time, on the first day of the
Fixed Rate Term. If Borrower does not immediately accept the rate quoted by
Bank, any subsequent acceptance by Borrower shall be subject to a
redetermination by Bank of the applicable fixed rate; provided however, that if
Borrower fails to accept any such rate by 11:00 a.m., California time, on the
Business Day such quotation is given, then the quoted rate shall expire and Bank
shall have no obligation to permit a LIBOR option to be selected on such day. If
no specific designation of interest is made at the time any advance is requested
hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have
made a Prime Rate interest selection for such advance or the principal amount to
which such Fixed Rate Term applied.

3. Additional LIBOR Provisions.

(a) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining Bank's LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until such
notice has been withdrawn by Bank, than (i) no new LIBOR option may be selected
by Borrower, and (ii) any portion of the outstanding principal balance hereof
which bears interest determined in relation to Bank's LIBOR, subsequent to the
end of the Fixed Rate Term applicable thereto, shall bear interest determined in
relation to the Prime Rate.

(b) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(i) to make LIBOR options available hereunder, or (ii) to maintain interest
rates based on Bank's LIBOR, then in the former event, any obligation of Bank to
make available such unlawful LIBOR options shall immediately be

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<PAGE>

canceled, and in the latter event, any such unlawful LIBOR-based interest rates
then outstanding shall be converted, at Bank's option, so that interest on the
portion of the outstanding principal balance subject thereto is determined in
relation to the Prime Rate; provided however, that if any such Change in Law
shall permit any LIBOR-based interest rates to remain in effect until the
expiration of the Fixed Rate Term applicable thereto, then such permitted
LIBOR-based interest rates shall continue in effect until the expiration of such
Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower
shall pay to Bank immediately upon demand such amounts as may be necessary to
compensate Bank for any fines, fees, charges, penalties or other costs incurred
or payable by Bank as a result thereof and which are attributable to any LIBOR
options made available to Borrower hereunder, and any reasonable allocation made
by Bank among its operations shall be conclusive and binding upon Borrower.

(c) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:

(i) subject Bank to any tax, duty or other charge with respect to
any LIBOR options, or change the basis of taxation of payments to Bank of
principal, interest, fees or any other amount payable hereunder (except
for changes in the rate of tax on the overall net income of Bank); or

(ii) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or
other liabilities in or for the account of, advances or loans by, or any
other acquisition of funds by any office of Bank; or

(iii) impose on Bank any other condition;

and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.

4. Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the

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<PAGE>

outstanding principal balance of this Note shall bear interest until paid in
full at an increased rate per annum (computed on the basis of a 360-day year,
actual days elapsed) equal to four percent (4%) above the rate of interest from
time to time applicable to this Note.

C. BORROWING AND REPAYMENT:

1. Borrowing and Repayment. Borrower may from time to time during the term
of this Note borrow, partially or wholly repay its outstanding borrowings, and
reborrow, subject to all of the limitations, terms and conditions of this Note
and of any document executed in connection with or governing this Note; provided
however, that the total outstanding borrowings under this Note shall not at any
time exceed the principal amount stated above. The unpaid principal balance of
this obligation at any time shall be the total amounts advanced hereunder by the
holder hereof less the amount of principal payments made hereon by or for any
Borrower, which balance may be endorsed hereon from time to time by the holder.
The outstanding principal balance of this Note shall be due and payable in full
on February 5, 1998.

2. Advances. Advances hereunder, to the total amount of the principal sum
stated above, may be made by the holder at the oral or written request of (a)
Fred W. Andrew or Fred L. Williamson or Alma Chavez or Ira Gershow, any one
acting alone, who are authorized to request advances and direct the disposition
of any advances until written notice of the revocation of such authority is
received by the holder at the office designated above, or (b) any person, with
respect to advances deposited to the credit of any account of any Borrower with
the holder, which advances, when so deposited, shall be conclusively presumed to
have been made to or for the benefit of each Borrower regardless of the fact
that persons other than those authorized to request advances may have authority
to draw against such account. The holder shall have no obligation to determine
whether any person requesting an advance is or has been authorized by any
Borrower.

3. Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
Bank's LIBOR, with such payments applied to the oldest Fixed Rate Term first.

4. Prepayment.

(a) Prime Rate. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.

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<PAGE>

(b) LIBOR. Borrower may prepay principal on any portion of this Note which
bears interest determined in relation to Bank's LIBOR at any time and in the
minimum amount of One Hundred Thousand Dollars ($100,000.00); provided however,
that if the outstanding principal balance of such portion of this Note is less
than said amount, the minimum prepayment amount shall be the entire outstanding
principal balance thereof. In consideration of Bank providing this prepayment
option to Borrower, or if any such portion of this Note shall become due and
payable at any time prior to the last day of the Fixed Rate Term applicable
thereto by acceleration or otherwise, Borrower shall pay to Bank immediately
upon demand a fee which is the sum of the discounted monthly differences for
each month from the month of prepayment through the month in which such Fixed
Rate Term matures, calculated as follows for each such month:

(i) Determine the amount of interest which would have accrued each
month on the amount prepaid at the interest rate applicable to
such amount had it remained outstanding until the last day of
the Fixed Rate Term applicable thereto.

(ii) Subtract from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the
amount prepaid for the remaining term of such Fixed Rate Term
at Bank's LIBOR in effect on the date of prepayment for new
loans made for such term and in a principal amount equal to
the amount prepaid.

(iii) If the result obtained in (ii) for any month is greater than
zero, discount that difference by Bank's LIBOR used in (ii)
above.

Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum four percent (4%) above
the Prime Rate in effect from time to time (computed on the basis of a 360-day
year, actual days elapsed).

D. EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions
of that certain Credit Agreement between Borrower and Bank dated as of December
17, 1996, as amended from time to time (the "Credit Agreement"). Any default in
the payment or performance of any obligation under this Note, or any defined

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<PAGE>

event of default under the Credit Agreement, shall constitute an "Event of
Default" under this Note.

E. MISCELLANEOUS:

1. Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by each Borrower, and the obligation, if any, of the holder to extend any
further credit hereunder shall immediately cease and terminate. Each Borrower
shall pay to the holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the holder's in-house
counsel), incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.

2. Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.

3. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of California law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.

ANDREW AND WILLIAMSON SALES, CO.

By: ____________________________
Title: _______________________

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<PAGE>

April 19, 1996

Andrew & Williamson Sales, Co.
9940 Marconi Dr.
San Diego, CA 92173

Re: Your $253,500.00 credit accommodation evidenced by
promissory note dated as of March 18, 1993 (the "Note")

Dear Sirs:

This letter is to advise you that, effective as of April 19, 1996, the
variable rate of interest applicable to the above-described credit accommodation
from Wells Fargo Bank, National Association ("Bank.) is hereby reduced to
one-half percent (0.50%) above the Prime Rate in effect from time to time. The
Note is hereby deemed modified by this letter to reflect said interest rate
reduction. Except as expressly set forth herein, all terms and conditions of the
Note remain in full force and effect, without waiver or modification.

Sincerely,

WELLS FARGO BANK,
NATIONAL ASSOCIATION

By: /s/ Mary R. Grider
Mary R. Grider
Vice President

Acknowledged and agreed as of May 6, 1996:

ANDREW & WILLIAMSON SALES, CO.

By: /s/ Fred W. Andrew
Title: Secretary

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<PAGE>

WELLS FARGO BANK PROMISSORY NOTE

$253,500.00 Bakersfield, California
March 18, 1993

Interest accrued on this Note shall be payable on the fifth day of each
month, commencing April 5, 1993.

Principal shall be payable in installments as follows:

Principal shall be payable annually on the fifth day of each March in four (4)
equal successive installments of Sixteen Thousand Nine Hundred and No/100
Dollars ($16,900.00) each, commencing March 5, 1994, and continuing up to and
including March 5, 1997,

with a final installment consisting of all remaining unpaid principal due and
payable in full on March 5, 1998. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.

From and after the maturity date of this Note, or such earlier date as all
principal owing hereunder becomes due and payable by acceleration or otherwise,
the outstanding principal balance of this Note shall bear interest until paid in
full at an increased rate per annum (computed on the basis of a 360-day year,
actual days elapsed) equal to four percent (4%) above the rate of interest from
time to time applicable to this Note.

The occurrence of any of the following shall constitute an "Event of
Default" under this Note:

1. The failure to pay any principal, interest, fees or other charges when
due under this Note or any contract, instrument or document executed in
connection with this Note.

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<PAGE>

2. The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.

3. The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation. partnership, joint venturer or any other type of
entity.

4. Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation or any other liability of
any kind to any person or entity, including the holder.

5. Any financial statement provided by any Borrower or Third Party Obligor
to Bank proves false.

6. Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of business.

7. Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust or other document executed in connection with
or securing this Note.

Upon the occurrence of any Event of Default, the holder of this Note, at
the holder's option, may declare all sums of principal and interest outstanding
hereunder to be immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are expressly waived by each Borrower. Each
Borrower shall pay to the holder immediately upon demand the full amount of all
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), incurred
by the holder in connection with the enforcement of the holder's rights and/or
the collection of any amounts which become due to the holder under this Note,
and the prosecution or defense of any

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<PAGE>

action in any way related to this Note, including without limitation, any action
for declaratory relief.

Should more than one person or entity sign this Note as a Borrower, the
obligations of each such Borrower shall be joint and several.

This Note shall be governed by and construed in accordance with the laws
of the State of California, except to the extent Bank has greater rights or
remedies under Federal law, whether as a national bank or otherwise, in which
case such choice of California law shall not be deemed to deprive Bank of any
such rights and remedies as may be available under Federal law.

See Addendum to Promissory Note attached hereto, all terms of which are
incorporated herein by this reference.

ANDREW AND WILLIAMSON SALES, CO. This Note is secured by a Deed
of Trust of even date
herewith.
By: /s/ Fred W. Andrew
Fred W. Andrew, Secretary

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<PAGE>

ADDENDUM TO PROMISSORY NOTE

THIS ADDENDUM is attached to and made a part of that certain promissory
note executed by ANDREW AND WILLIAMSON SALES, CO. ("Borrower") and payable to
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), or order, dated as of March 18,
1993, in the principal amount of Two Hundred Fifty-Three Thousand Five Hundred
Dollars ($253,500.00) (the "Note").

The following provisions are hereby incorporated into the Note:

1. So long as Bank remains committed to extend credit to Borrower under
this Note and until payment in full of all obligations of Borrower hereunder,
Borrower shall unless Bank otherwise consents in writing:

(a) Provide to Bank all of the following, in form and detail
satisfactory to Bank:

(i) not later than 90 days after and as of the end of each fiscal
year, a reviewed financial statement of Borrower, prepared by a certified
public accountant acceptable to Bank, to include a balance sheet, income
statement, statement of retained earnings, cash flow and accompanying
footnotes;

(ii) not later than 20 days after and as of the end of each quarter,
a compiled financial statement of Borrower, prepared by Borrower, to
include a balance sheet and income statement;

(iii) not later than each May 15, a financial statement of each
Guarantor, dated not more than 12 months after the date of the most recent
financial statement received by Bank from each Guarantor, prepared by each
Guarantor, to include a balance sheet, and within 30 days after filing,
but in no event later than each May 15, a copy of each Guarantor's filed
federal income tax return for such year;

(iv) from time to time such other information as Bank may reasonably
request.

(b) Maintain its financial condition as follows using generally
accepted accounting principles consistently applied and used consistently
with prior practices, except to the extent modified by the following
definitions:

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<PAGE>

(i) Working Capital (defined as total current assets, excluding
prepaids, less total current liabilities) not at any time less than
$450,000.00.

(ii) Tangible Net Worth (defined as the aggregate of total
stockholders' equity plus subordinated debt less the aggregate of any
treasury stock, any intangible assets and any obligations due from
stockholders, employees and/or affiliates) not at any time less than
$1,100,000.00 on an annual basis, determined as of each fiscal year end.

(iii) Cash Flow Coverage Ratio (defined as the aggregate of net
income after taxes plus depreciation and other non-cash expenses, less
gain on sale of assets, dividends, withdrawals and treasury stock
purchases divided by the aggregate of the current portion of long-term
debt) not less than 1.5 to 1.0 on an annual basis, determined as of each
fiscal year end.

(iv) not make any additional investment in fixed assets in any
fiscal year in excess of an aggregate of $150,000.00.

(v) not declare or pay any dividend or distribution either in cash,
stock or any other property on Borrower's stock now or hereafter
outstanding; nor redeem, retire, repurchase or otherwise acquire any
shares of any class of Borrower's stock now or hereafter outstanding;
provided however, that so long as Borrower maintains its valid election as
an S corporation, Borrower may pay cash dividends or distributions to its
shareholders in any fiscal year to cover its shareholders' federal income
tax liability for the immediately preceding fiscal year arising as a
direct result of Borrower's reported income for such fiscal year, but not
to exceed the minimum amount so required, and Borrower shall provide to
Bank, upon request, any documentation required by Bank to substantiate the
appropriateness of amounts paid or to be paid.

(vi) give notice in writing to Bank of any litigation pending or
threatened against Borrower in excess of $50,000.00.

2. All obligations of Borrower to Fred L. Williamson and Fred W. Andrew
shall be subordinated in right of repayment to all obligations of Borrower to
Bank, up to an aggregate of $460,000.00, as evidenced by and subject to the
terms of

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<PAGE>

subordination agreements in form and substance satisfactory to Bank.

3. Borrower shall pay to Bank a non-refundable commitment fee for the Note
in the amount of $3,802.50, which commitment fee shall be due and payable in
full upon execution of loan documents.

IN WITNESS WHEREOF, this Addendum has been executed as of the same date as
the Note.

ANDREW AND WILLIAMSON SALES, CO.

By: /s/ Fred W. Andrew
Fred W. Andrew, Secretary

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<PAGE>

EXHIBIT C

Exhibit A to Deed of Trust executed by ANDREW AND WILLIAMSON SALES, CO. as
Trustor, to AMERICAN SECURITIES COMPANY, as Trustee, for the benefit of WELLS
FARGO BANK, NATIONAL ASSOCIATION, as Beneficiary, dated as of March 18, 1993.

DESCRIPTION OF PROPERTY

The land referred to in this report is situated in the State of
California, County of Tulare and is described as follows:

The South half of the West half of the Norwest quarter and the East half of the
Norwest quarter of the Norwest quarter, Section 22, Township 17 South, Range 23
East, Mount Diablo Base and Meridian, according to the official plat thereof.

EXCEPTING from the North half of the Southwest quarter of the Norwest quarter
all oil and mineral rights in and to said property as reserved from Dolly E.
Edmiston to J. B. Bare, dated December 1, 1933, recorded December 8, 1933, in
Book 533, Page 371, Official Records.

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<PAGE>
CONTINUING GUARANTY

TO: WELLS FARGO BANK, NATIONAL ASSOCIATION

1. GUARANTY; DEFINITIONS. In consideration of any credit or other
financial accommodation heretofore, now or hereafter extended or made to ANDREW
& WILLIAMSON SALES CO., INC. ("Borrower") by WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank"), and for other valuable consideration, the undersigned
EPITOPE, INC. ("Guarantor"), jointly and severally unconditionally guarantees
and promises to pay to Bank, or order, on demand in lawful money of the United
States of America and in immediately available funds, any and all Indebtedness
of Borrower to Bank. The term "Indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations and
liabilities of Borrower, heretofore, now or hereafter made, incurred or created,
whether voluntary or involuntary and however arising, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
and whether Borrower may be liable individually or jointly with others, or
whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.

2. MAXIMUM LIABILITY; SUCCESSIVE TRANSACTIONS; REVOCATION; OBLIGATION
UNDER OTHER GUARANTIES. The liability of Guarantor shall not exceed at any one
time the sum of Six Million Seven Hundred Fifty-Six Thousand Eight Hundred
Dollars ($6,756,800.00) for principal, plus all interest thereon and costs and
expenses pertaining to the enforcement of this Guaranty and/or the collection of
the Indebtedness of Borrower to Bank. Notwithstanding the foregoing, Bank may
permit the Indebtedness of Borrower to exceed Guarantor's liability. This is a
continuing guaranty and all rights, powers and remedies hereunder shall apply to
all past, present and future Indebtedness of Borrower to Bank, including that
arising under successive transactions which shall either continue the
Indebtedness, increase or decrease it, or from time to time create new
Indebtedness after all or any prior Indebtedness has been satisfied, and
notwithstanding the death, incapacity, dissolution, liquidation or bankruptcy of
Borrower or Guarantor or any other event or proceeding affecting Borrower or
Guarantor. This Guaranty shall not apply to any new Indebtedness created after
actual receipt by Bank of written notice of its revocation as to such new
Indebtedness; provided however, that loans or advances made by Bank to Borrower
after revocation under commitments existing prior to receipt by Bank of such
revocation, and extensions, renewals or modifications, of any kind, of
Indebtedness incurred by Borrower or committed by Bank prior to receipt by Bank
of such revocation, shall not be considered new Indebtedness. Any such notice
must be sent to Bank by registered U.S. mail, postage prepaid, addressed to its
office at Bakersfield Regional Commercial Banking Office, 5401 California

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<PAGE>

Avenue, 2nd Floor, Bakersfield, California 93309, or at such other address as
Bank shall from time to time designate. Any payment by Guarantor shall not
reduce Guarantor's maximum obligation hereunder unless written notice to that
effect is actually received by Bank at or prior to the time of such payment. The
obligations of Guarantor hereunder shall be in addition to any obligations of
Guarantor under any other guaranties of any liabilities or obligations of
Borrower or any other person heretofore or hereafter given to Bank unless said
other guaranties are expressly modified or revoked in writing; and this Guaranty
shall not, unless expressly herein provided, affect or invalidate any such other
guaranties.

3. OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE OF
LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are joint and
several and independent of the obligations of Borrower, and a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Borrower or any other person, or whether Borrower or any other
person is joined in any such action or actions. Guarantor acknowledges that this
Guaranty is absolute and unconditional, there are no conditions precedent to the
effectiveness of this Guaranty, and this Guaranty is in full force and effect
and is binding on Guarantor as of the date written below, regardless of whether
Bank obtains collateral or any guaranties from others or takes any other action
contemplated by Guarantor. Guarantor waives the benefit of any statute of
limitations affecting Guarantor's liability hereunder or the enforcement
thereof, and Guarantor agrees that any payment of any Indebtedness or other act
which shall toll any statute of limitations applicable thereto shall similarly
operate to toll such statute of limitations applicable to Guarantor's liability
hereunder. The liability of Guarantor hereunder shall be reinstated and revived
and the rights of Bank shall continue if and to the extent for any reason any
amount at any time paid on account of any Indebtedness guaranteed hereby is
rescinded or must otherwise be restored by Bank, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, all as though such
amount had not been paid. The determination as to whether any amount so paid
must be rescinded or restored shall be made by Bank in its sole discretion;
provided however, that if Bank chooses to contest any such matter at the request
of Guarantor, Guarantor agrees to indemnify and hold Bank harmless from and
against all costs and expenses, including reasonable attorneys' fees, expended
or incurred by Bank in connection therewith, including without limitation, in
any litigation with respect thereto.

4. AUTHORIZATIONS TO BANK. Guarantor authorizes Bank either before or
after revocation hereof, without notice to or demand on Guarantor, and without
affecting Guarantor's liability hereunder, from time to time to: (a) alter,
compromise, renew, extend, accelerate or otherwise change the time for payment
of,

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<PAGE>

or otherwise change the terms of the Indebtedness or any portion thereof,
including increase or decrease of the rate of interest thereon; (b) take and
hold security for the payment of this Guaranty or the Indebtedness or any
portion thereof, and exchange, enforce, waive, subordinate or release any such
security; (c) apply such security and direct the order or manner of sale
thereof, including without limitation, a non-judicial sale permitted by the
terms of the controlling security agreement or deed of trust, as Bank in its
discretion may determine; (d) release or substitute any one or more of the
endorsers or any other guarantors of the Indebtedness, or any portion thereof,
or any other party thereto; and (e) apply payments received by Bank from
Borrower to any Indebtedness of Borrower to Bank, in such order as Bank shall
determine in its sole discretion, whether or not such Indebtedness is covered by
this Guaranty, and Guarantor hereby waives any provision of law regarding
application of payments which specifies otherwise. Bank may without notice
assign this Guaranty in whole or in part. Upon Bank's request, Guarantor agrees
to provide to Bank copies of Guarantor's financial statements.

5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Bank that: (a) this Guaranty is executed at Borrower's request; (b) Guarantor
shall not, without Bank's prior written consent, sell, lease, assign, encumber,
hypothecate, transfer or otherwise dispose of all or a substantial or material
part of Guarantor's assets other than in the ordinary course of Guarantor's
business; (c) Bank has made no representation to Guarantor as to the
creditworthiness of Borrower; and (d) Guarantor has established adequate means
of obtaining from Borrower on a continuing basis financial and other information
pertaining to Borrower's financial condition. Guarantor agrees to keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect Guarantor's risks hereunder, and Guarantor further
agrees that Bank shall have no obligation to disclose to Guarantor any
information or material about Borrower which is acquired by Bank in any manner.

6. GUARANTOR'S WAIVERS.

(a) Guarantor waives any right to require Bank to: (i) proceed against
Borrower or any other person; (ii) marshal assets or proceed against or exhaust
any security held from Borrower or any other person; (iii) give notice of the
terms, time and place of any public or private sale of personal property
security held from Borrower or any other person, or otherwise comply with the
provisions of Section 9504 of the California Uniform Commercial Code; (iv) take
any action or pursue any other remedy in Bank's power; or (v) make any
presentment or demand for performance, or give any notice of nonperformance,
protest, notice of protest or notice of dishonor hereunder or in connection with
any obligations or evidences of indebtedness held by Bank as security for or
which constitute in whole or in part

- 3 -

<PAGE>

the Indebtedness guaranteed hereunder, or in connection with the
creation of new or additional Indebtedness.

(b) Guarantor waives any defense to its obligations hereunder based upon
or arising by reason of: (i) any disability or other defense of Borrower or any
other person; (ii) the cessation or limitation from any cause whatsoever, other
than payment in full, of the Indebtedness of Borrower or any other person; (iii)
any lack of authority of any officer, director, partner, agent or any other
person acting or purporting to act on behalf of Borrower which is a corporation,
partnership or other type of entity, or any defect in the formation of such
Borrower; (iv) the application by Borrower of the proceeds of any Indebtedness
for purposes other than the purposes represented by Borrower to, or intended or
understood by, Bank or Guarantor; (v) any act or omission by Bank which directly
or indirectly results in or aids the discharge of Borrower or any portion of the
Indebtedness by operation of law or otherwise, or which in any way impairs or
suspends any rights or remedies of Bank against Borrower; (vi) any impairment of
the value of any interest in any security for the Indebtedness or any portion
thereof, including without limitation, the failure to obtain or maintain
perfection or recordation of any interest in any such security, the release of
any such security without substitution, and/or the failure to preserve the value
of, or to comply with applicable law in disposing of, any such security; or
(vii) any modification of the Indebtedness, in any form whatsoever, including
any modification made after revocation hereof to any Indebtedness incurred prior
to such revocation, and including without limitation the renewal, extension,
acceleration or other change in time for payment of, or other change in the
terms of, the Indebtedness or any portion thereof, including increase or
decrease of the rate of interest thereon. Until all Indebtedness shall have been
paid in full, Guarantor shall have no right of subrogation, and Guarantor waives
any right to enforce any remedy which Bank now has or may hereafter have against
Borrower or any other person, and waives any benefit of, or any right to
participate in, any security now or hereafter held by Bank. Guarantor further
waives all rights and defenses Guarantor may have arising out of (A) any
election of remedies by Bank, even though that election of remedies, such as a
non-judicial foreclosure with respect to any security for any portion of the
Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's rights
to proceed against Borrower for reimbursement, or (B) any loss of rights
Guarantor may suffer by reason of any rights, powers or remedies of Borrower in
connection with any anti-deficiency laws or any other laws limiting, qualifying
or discharging Borrower's Indebtedness, whether by operation of Sections 726,
580a or 580d of the Code of Civil Procedure as from time to time amended, or
otherwise, including any rights Guarantor may have to a Section 580a fair market
value hearing to determine the size of a deficiency following any trustee's
foreclosure sale or other disposition of any real property security for any
portion of the Indebtedness.

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<PAGE>

7. BANK'S RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN BANK'S
POSSESSION. In addition to all liens upon and rights of setoff against the
monies, securities or other property of Guarantor given to Bank by law, Bank
shall have a lien upon and a right of setoff against all monies, securities and
other property of Guarantor now or hereafter in the possession of or on deposit
with Bank, whether held in a general or special account or deposit or for
safekeeping or otherwise, and every such lien and right of setoff may be
exercised without demand upon or notice to Guarantor. No lien or right of setoff
shall be deemed to have been waived by any act or conduct on the part of Bank,
or by any neglect to exercise such right of setoff or to enforce such lien, or
by any delay in so doing, and every right of setoff and lien shall continue in
full force and effect until such right of setoff or lien is specifically waived
or released by Bank in writing.

8. SUBORDINATION. Any Indebtedness of Borrower now or hereafter held by
Guarantor is hereby subordinated to the Indebtedness of Borrower to Bank. Such
Indebtedness of Borrower to Guarantor is assigned to Bank as security for this
Guaranty and the Indebtedness and, if Bank requests, shall be collected and
received by Guarantor as trustee for Bank and paid over to Bank on account of
the Indebtedness of Borrower to Bank but without reducing or affecting in any
manner the liability of Guarantor under the other provisions of this Guaranty.
Any notes or other instruments now or hereafter evidencing such Indebtedness of
Borrower to Guarantor shall be marked with a legend that the same are subject to
this Guaranty and, if Bank so requests, shall be delivered to Bank. Guarantor
will, and Bank is hereby authorized in the name of Guarantor from time to time
to, execute and file financing statements and continuation statements and
execute such other documents and take such other action as Bank deems necessary
or appropriate to perfect, preserve and enforce its rights hereunder.

9. REMEDIES; NO WAIVER. All rights, powers and remedies of Bank hereunder
are cumulative. No delay, failure or discontinuance of Bank in exercising any
right, power or remedy hereunder shall affect or operate as a waiver of such
right, power or remedy; nor shall any single or partial exercise of any such
right, power or remedy preclude, waive or otherwise affect any other or further
exercise thereof or the exercise of any other right, power or remedy. Any
waiver, permit, consent or approval of any kind by Bank of any breach of this
Guaranty, or any such waiver of any provisions or conditions hereof, must be in
writing and shall be effective only to the extent set forth in writing.

10. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and

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<PAGE>

all allocated costs of Bank's in-house counsel), expended or incurred by Bank in
connection with the enforcement of any of Bank's rights, powers or remedies
and/or the collection of any amounts which become due to Bank under this
Guaranty, and the prosecution or defense of any action in any way related to
this Guaranty, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to Guarantor or any other person or entity. All of the
foregoing shall be paid by Guarantor with interest from the date of demand until
paid in full at a rate per annum equal to the greater of ten percent (10%) or
the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that
Bank from time to time establishes and which serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto.

11. SUCCESSORS; ASSIGNMENT. This Guaranty shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Guarantor may not
assign or transfer any of its interests or rights hereunder without Bank's prior
written consent. Guarantor acknowledges that Bank has the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, any Indebtedness of Borrower to Bank and any obligations with
respect thereto, including this Guaranty. In connection therewith, Bank may
disclose all documents and information which Bank now has or hereafter acquires
relating to Guarantor and/or this Guaranty, whether furnished by Borrower,
Guarantor or otherwise. Guarantor further agrees that Bank may disclose such
documents and information to Borrower.

12. AMENDMENT. This Guaranty may be amended or modified only in writing
signed by Bank and Guarantor.

13. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Guaranty as a Guarantor hereby expressly agrees that recourse may be had against
his or her separate property for all his or her obligations under this Guaranty.

14. UNDERSTANDING WITH RESPECT TO WAIVERS; SEVERABILITY OF PROVISIONS.
Guarantor warrants and agrees that each of the waivers set forth herein is made
with Guarantor's full knowledge of its significance and consequences, and that
under the circumstances, the waivers are reasonable and not contrary to public
policy or law. If any waiver or other provision of this Agreement shall be held
to be prohibited by or invalid under applicable public policy or law, such
waiver or other provision shall be ineffective only to the extent of such
prohibition or

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<PAGE>

invalidity, without invalidating the remainder of such waiver or other provision
or any remaining provisions of this Agreement.

15. GOVERNING LAW. This Guaranty shall be governed by and construed in
accordance with the laws of the State of California.

16. ARBITRATION.

(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Guaranty. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Guaranty and each other
document, contract and instrument required hereby or now or hereafter delivered
to Bank in connection herewith (collectively, the "Documents"), or any past,
present or future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the Documents,
including without limitation, any of the foregoing arising in connection with
the exercise of any self-help, ancillary or other remedies pursuant to any of
the Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.

(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Documents.
The arbitration shall be conducted at a location in California selected by the
AAA or other administrator. If there is any inconsistency between the terms
hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. ss. 91 or any similar applicable state law.

(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure

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<PAGE>

against or sale of any real or personal property collateral or security, or to
obtain provisional or ancillary remedies, including without limitation
injunctive relief, sequestration, attachment, garnishment or the appointment of
a receiver, from a court of competent jurisdiction before, after or during the
pendency of any arbitration or other proceeding. The exercise of any such remedy
shall not waive the right of any party to compel arbitration or reference
hereunder.

(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.

- 8 -

<PAGE>

an award in such a proceeding may be entered only if a court determines the
award is supported by substantial evidence and not based on legal error under
the substantive law of the state of California.

(f) Real Property Collateral; Judicial Reference. Notwithstanding anything
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Documents or the subject matter of the Dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Documents or any relationship between the parties.

17. PAYMENT DEFAULT BY BORROWER. Notwithstanding anything to the contrary
contained herein, no "Event of Default" shall be deemed to have occurred under
that certain Credit Agreement dated as of December 17, 1996 between Borrower and
Bank as a consequence of Borrower's failure to pay when due any principal,
interest, fees or other amounts payable thereunder or under any of the loan
documents related thereto unless (a) Bank sends written notice to Borrower and
to Guarantor of such failure to pay and (b) Borrower and/or Guarantor fail to
pay such amount

- 9 -

<PAGE>

within five (5) Business Days of the date Bank sends such notice. As used
herein, "Business Day" means any day except a Saturday, Sunday or any other day
on which commercial banks in California are authorized or required by law to
close.

IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of December 17, 1996.

EPITOPE, INC.

By: /s/ Gilbert N. Miller
Gilbert N. Miller
Executive Vice President/
Chief Financial Officer

- 10 -

<PAGE>

SUBORDINATION AGREEMENT

THIS AGREEMENT is entered into by and among ANDREW & WILLIAMSON SALES CO.,
INC. ("Borrower"), EPITOPE, INC. ("Creditor"), and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank").

RECITALS

A. Borrower is indebted to Creditor, and Borrower proposes to obtain
credit or has obtained credit from Bank; and

B. Bank has indicated that it will extend or continue credit to Borrower
if certain conditions are met, including without limitation, the requirement
that Creditor execute this Agreement.

NOW, THEREFORE, as an inducement to Bank to extend or continue credit and
for other valuable consideration, the parties hereto agree as follows:

1. INDEBTEDNESS SUBORDINATED. Creditor subordinates all Indebtedness now
or at any time hereafter owing from Borrower to Creditor (including without
limitation, interest thereon which may accrue subsequent to Borrower becoming
subject to any state or federal debtor-relief statute) ("Junior Debt") to all
Indebtedness now or at any time hereafter owing from Borrower to Bank ("Senior
Debt"). Creditor irrevocably consents and directs that all Senior Debt shall be
paid in full prior to Borrower making any payment on any Junior Debt, except
such payments as are expressly permitted by Section 3 of this Agreement.
Creditor will, and Bank is authorized in the name of Creditor from time to time
to, execute and file such financing statements and other documents as Bank may
require in order to give notice to other persons and entities of the terms and
provisions of this Agreement. As long as this Agreement is in effect, Creditor
will not take any action or initiate any proceedings, judicial or otherwise, to
enforce Creditor's rights or remedies with respect to any Junior Debt, including
without limitation, any action to enforce remedies with respect to any
collateral securing any Junior Debt or to obtain any judgment or prejudgment
remedy against Borrower or any such collateral.

2. INDEBTEDNESS DEFINED. The word "Indebtedness" is used herein in its
most comprehensive sense and includes any and all advances, debts, obligations
and liabilities of Borrower heretofore, now or hereafter made, incurred or
created, whether voluntary or involuntary and however arising, whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Borrower may be liable individually or jointly with
others, including without limitation, obligations and liabilities arising from
notes, repurchase agreements and trust receipts.

- 1 -

<PAGE>

3. RESTRICTION OF PAYMENT OF JUNIOR DEBT; DISPOSITION OF PAYMENTS RECEIVED
BY CREDITOR. Borrower will not make, and Creditor will not accept or receive,
any payment or benefit in cash, by setoff or otherwise, directly or indirectly,
on account of principal, interest or any other amounts owing on any Junior Debt,
except such payments as are expressly permitted herein. Borrower is permitted to
make and Creditor to receive payments of principal and interest on the Junior
Debt; provided however, that no payment of principal or interest on the Junior
Debt shall be made by Borrower, or received by Creditor, if (a) a default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute a default, has occurred under the terms of any
Senior Debt, or (b) a default would exist under the terms of any Senior Debt
after giving effect to any such payment. Borrower agrees that Bank may disclose
to Creditor at any time (i) the existence of a default under any Senior Debt,
(ii) the existence of any condition, event or act which with the giving of
notice or the passage of time or both would constitute a default under any
Senior Debt, and/or (iii) whether a default under any Senior Debt would or might
exist after giving effect to any payment on the Junior Debt. If any payment is
made in violation of this Agreement, Creditor shall promptly deliver the same to
Bank in the form received, with any endorsement or assignment necessary for the
transfer of such payment or amounts setoff from Creditor to Bank, to be either
(in Bank's sole discretion) held as cash collateral securing the Senior Debt or
applied in reduction of the Senior Debt in such order as Bank shall determine,
and until so delivered, Creditor shall hold such payment in trust for and on
behalf of, and as the property of, Bank.

4. DISPOSITION OF EVIDENCE OF INDEBTEDNESS. If there is any existing
promissory note or other evidence of any of the Junior Debt, or if any
promissory note or other evidence of Indebtedness is executed at any time
hereafter with respect thereto, then Borrower and Creditor will mark the same
with a legend stating that it is subject to this Agreement, and if asked to do
so, will deliver the same to Bank. Creditor shall not, without Bank's prior
written consent, assign, transfer, hypothecate or otherwise dispose of any claim
it now has or may at any time hereafter have against Borrower at any time that
any Senior Debt remains outstanding and/or Bank remains committed to extend any
credit to Borrower.

5. AGREEMENT TO BE CONTINUING; APPLIES TO BORROWER'S EXISTING INDEBTEDNESS
AND ANY INDEBTEDNESS HEREAFTER ARISING. This Agreement shall be a continuing
agreement and shall apply to any and all Indebtedness of Borrower to Bank or
Creditor now existing or hereafter arising, including any Indebtedness arising
under successive transactions, related or unrelated, and notwithstanding that
from time to time all Indebtedness theretofore existing may have been paid in
full.

- 2 -

<PAGE>

6. TERMINATION BY CREDITOR. Creditor may, to the extent provided herein,
terminate this Agreement by delivering written notice to Bank. Any such notice
must be sent to Bank by registered U.S. mail, postage prepaid, addressed to its
office at Bakersfield Regional Commercial Banking Office, 5401 California
Avenue, 2nd Floor, Bakersfield, California, 93309, or at such other address as
Bank shall from time to time designate. If such notice is received by Bank, this
Agreement shall terminate as of the date of receipt, except that the obligations
of Creditor and the rights of Bank hereunder shall continue with respect to all
Senior Debt which existed at the time of Bank's receipt of such notice, or
thereafter arose pursuant to any agreement to extend credit by which Bank is
bound at the time of its receipt of such notice, and any extensions, renewals or
modifications of any such then existing or committed Senior Debt, including
without limitation, modifications to the amount of principal or interest payable
on any Senior Debt and the release of any security for or any guarantors of all
or any portion of any Senior Debt.

7. REPRESENTATIONS AND WARRANTIES; INFORMATION. Borrower and Creditor
represent and warrant to Bank that: (a) no interest in the Junior Debt has been
assigned or otherwise transferred to any person or entity; (b) payment of the
Junior Debt has not been heretofore subordinated to any other creditor of
Borrower; and (c) Creditor has the requisite power and authority to enter into
and perform its obligations under this Agreement. Creditor further represents
and warrants to Bank that Creditor has established adequate, independent means
of obtaining from Borrower on a continuing basis financial and other information
pertaining to Borrower's financial condition. Creditor agrees to keep adequately
informed from such means of any facts, events or circumstances which might in
any way affect Creditor's risks hereunder, and Creditor agrees that Bank shall
have no obligation to disclose to Creditor information or material about
Borrower which is acquired by Bank in any manner. Bank may, at Bank's sole
option and without obligation to do so, disclose to Creditor any information or
material relating to Borrower which is acquired by Bank by any means, and
Borrower hereby agrees to and authorizes any such disclosure by Bank.

8. TRANSFER OF ASSETS OR REORGANIZATION OF BORROWER. If any petition is
filed or any proceeding is instituted by or against Borrower under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, or
any other or similar law relating to bankruptcy, insolvency, reorganization or
other relief for debtors, or generally affecting creditors' rights, or seeking
the appointment of a receiver, trustee, custodian or liquidator of or for
Borrower or any of its assets, any payment or distribution of any of Borrower's
assets, whether in cash, securities or any other property, which would be
payable or deliverable with respect to any Junior Debt, shall be paid or
delivered to Bank until all Senior Debt is paid in full. Creditor grants to Bank
the right to enforce, collect and receive

- 3 -

<PAGE>

any such payment or distribution and to give releases or acquittances therefor,
and Creditor authorizes Bank as its attorney-in-fact to vote and prove the
Junior Debt in any of the above-described proceedings or in any meeting of
creditors of Borrower relating thereto.

9. OTHER AGREEMENTS; NO THIRD PARTY BENEFICIARIES. Bank shall have no
direct or indirect obligations to Creditor of any kind with respect to the
manner or time in which Bank exercises (or refrains from exercising) any of its
rights or remedies with respect to the Senior Debt, Borrower or any of
Borrower's assets. Creditor understands that there may be various agreements
between Bank and Borrower evidencing and governing the Senior Debt, and Creditor
acknowledges and agrees that such agreements are not intended to confer any
benefits on Creditor. Creditor further acknowledges that Bank may administer the
Senior Debt and any of Bank's agreements with Borrower in any way Bank deems
appropriate, without regard to Creditor or the Junior Debt. Creditor waives any
right Creditor might otherwise have to require a marshalling of any security
held by Bank for all or any part of the Senior Debt or to direct or affect the
manner or timing with which Bank enforces any of its security. Nothing in this
Agreement shall impair or adversely affect any right, privilege, power or remedy
of Bank with respect to the Senior Debt, Borrower or any assets of Borrower,
including without limitation, Bank's right to: (a) waive, release or subordinate
any of Bank's security or rights; (b) waive or ignore any defaults by Borrower;
and/or (c) restructure, renew, modify or supplement the Senior Debt, or any
portion thereof, or any agreement with Borrower relating to any Senior Debt. All
rights, privileges, powers and remedies of Bank may be exercised from time to
time by Bank without notice to or consent of Creditor.

10. BREACH OF AGREEMENT BY BORROWER OR CREDITOR. In the event of any
breach of this Agreement by Borrower or Creditor, then and at any time
thereafter Bank shall have the right to declare immediately due and payable all
or any portion of the Senior Debt without presentment, demand, notice of
nonperformance, protest, notice of protest or notice of dishonor, all of which
are hereby expressly waived by Borrower and Creditor. No delay, failure or
discontinuance of Bank in exercising any right, privilege, power or remedy
hereunder shall be deemed a waiver of such right, privilege, power or remedy;
nor shall any single or partial exercise of any such right, privilege, power or
remedy preclude, waive or otherwise affect the further exercise thereof or the
exercise of any other right, privilege, power or remedy. Any waiver, permit,
consent or approval of any kind by Bank with respect to this Agreement must be
in writing and shall be effective only to the extent set forth in such writing.

11. LIQUIDATED DAMAGES. Inasmuch as the actual damages which could result
from a breach by Creditor of its duties under

- 4 -

<PAGE>

Section 3 hereof are uncertain and would be impractical or extremely difficult
to fix, Creditor shall pay to Bank, in the event of any such breach by Creditor,
as liquidated and agreed damages, and not as a penalty, all sums received by
Creditor in violation of this Agreement on account of the Junior Debt, which
sums represent a reasonable endeavor to estimate a fair compensation for the
foreseeable losses that might result from such a breach.

12. COSTS, EXPENSES AND ATTORNEYS' FEES. If any party hereto institutes
any arbitration or judicial or administrative action or proceeding to enforce
any provisions of this Agreement, or alleging any breach of any provision hereof
or seeking damages or any remedy, the losing party or parties shall pay to the
prevailing party or parties all costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of such
prevailing party's in-house counsel), expended or incurred by the prevailing
party or parties in connection therewith, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to Borrower, Creditor or any other person
or entity.

13. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties. This Agreement may be
amended or modified only in writing signed by all parties hereto. If Borrower or
Creditor requests an amendment or modification to this Agreement, Bank shall
consider such request in good faith and in a reasonable period of time.

14. OBLIGATIONS JOINT AND SEVERAL; CONSTRUCTION. If this Agreement is
executed by more than one Creditor, it shall bind them jointly and severally.
All words used herein in the singular shall be deemed to have been used in the
plural where the context so requires.

15. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such waiver or other provision or any
remaining provisions of this Agreement.

16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

- 5 -

<PAGE>

17. ARBITRATION.

(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Agreement and each other
document, instrument or contract required hereby or now or hereafter delivered
to Bank in connection herewith (collectively, the "Documents"), or any past,
present or future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the Documents,
including without limitation, any of the foregoing arising in connection with
the exercise of any self-help, ancillary or other remedies pursuant to any of
the Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.

- 6 -

<PAGE>

- 7 -

<PAGE>

property unless (i) the holder of the mortgage, lien or security interest
specifically elects in writing to proceed with the arbitration, or (ii) all
parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of California, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable. If any such Dispute is not submitted to
arbitration, the Dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this general
reference agreement is intended to be specifically enforceable in accordance
with said Section 638. A referee with the qualifications required herein for
arbitrators shall be selected pursuant to the AAA's selection procedures.
Judgment upon the decision rendered by a referee shall be entered in the court
in which such proceeding was commenced in accordance with California Code of
Civil Procedure Sections 644 and 645.

18. PAYMENT DEFAULT BY BORROWER. Notwithstanding anything to the contrary
contained herein, no "Event of Default" shall be deemed to have occurred under
the Senior Debt subject to that certain Credit Agreement dated as of December
17, 1996 between Borrower and Bank as a consequence of Borrower's failure to pay
when due any principal, interest, fees or other amounts payable thereunder or
under any of the loan documents related thereto unless (a) Bank sends written
notice to Borrower and to Creditor of such failure to pay and (b) Borrower
and/or Creditor fail to pay such amount within five (5) Business Days of the
date Bank sends such notice. As used herein "Business Day" means any day except
a Saturday, Sunday or any other day on which commercial banks in California are
authorized or required by law to close.

- 8 -

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
December 17, 1996.

BORROWER: WELLS FARGO BANK,
NATIONAL ASSOCIATION
ANDREW AND WILLIAMSON SALES, CO.
By: /s/ Steven M. Del Papa
Steven M. Del Papa
By: /s/ Gilbert N. Miller Vice President
Gilbert N. Miller
Executive Vice President

CREDITOR:

EPITOPE, INC.

By: /s/ Gilbert N. Miller
Gilbert N. Miller
Executive Vice President/
Chief Financial Officer

- 9 -

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements included herein and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997

<S> <C>
<CASH> 189,400
<SECURITIES> 12,805,638
<RECEIVABLES> 1,310,799
<ALLOWANCES> (6,642)
<INVENTORY> 2,926,574
<CURRENT-ASSETS> 17,914,727
<PP&E> 8,563,073
<DEPRECIATION> (5,019,757)
<TOTAL-ASSETS> 29,989,634
<CURRENT-LIABILITIES> 4,626,450
<BONDS> 0
0
0
<COMMON> 112,778,014
<OTHER-SE> (87,536,158)
<TOTAL-LIABILITY-AND-EQUITY> 29,989,634
<SALES> 4,674,993
<TOTAL-REVENUES> 5,228,654
<CGS> 1,914,001
<TOTAL-COSTS> 9,135,480
<OTHER-EXPENSES> (513,699)
<LOSS-PROVISION> (1,900,000)
<INTEREST-EXPENSE> (23,871)
<INCOME-PRETAX> (6,344,396)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,344,396)
<DISCONTINUED> (8,206,500)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,550,896)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> 0

</TABLE>