Document:

Exhibit 10.5

                                   DrugMax.com

                            ------------------------
                                Statement of Work
                                        &
                            Network Access Agreement
                            ------------------------

                              [LOGO]PURCHASEPRO.COM

                              PurchasePro.com, Inc.
                         3291 N. Buffalo Drive, Suite 2
                               Las Vegas, NV 89129
                               702-316-7000 Phone
                                702-316-7001 Fax
<PAGE>

                                                   DrugMax.com Statement of Work
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THIS AGREEMENT is entered into effective February 15, 2000 (hereinafter the
"Effective Date of this Agreement"), between PURCHASEPRO.COM INC. (hereinafter
"PPRO"), with its offices at 3291 N. Buffalo Drive, Suite 2, Las Vegas, NV
89129, and DrugMax.com, Inc. (hereinafter "Customer"), with its offices at 12505
Starkey Road, Suite A, Largo, FL 33733. PPRO is the owner of a computer-based
information network (the "PPRO Network"). Information about goods and services
and a profile of each vendor will be accessible by Customer using the PPRO
Network pursuant to this Agreement.

TABLE OF CONTENTS

1.0   Confidentiality

2.0   Business Objective

3.0   Executive Summary

4.0   Functionality
      4.1 Features
      4.2 Hardware and Software Requirements

5.0   Project Implementation
      5.1 Phase I (Setup)
      5.2 Phase II (Full Implementation)

6.0   Responsibilities and Deliverables
      6.1 DrugMax.com
      6.2 PurchasePro.com

7.0   Financial Considerations
      7.1 PurchasePro.com
      7.2 Terms of Payment

8.0   Network Access

9.0   Mutual Nondisclosure
<PAGE>

                                                   DrugMax.com Statement of Work
--------------------------------------------------------------------------------

1.0 CONFIDENTIALITY

      This document contains proprietary information regarding PurchasePro.com
      Inc. and is not to be disclosed in whole, or in part, for any other reason
      than to evaluate this proposal. A mutual nondisclosure agreement is in
      effect for the duration of this agreement; see Section 9.0.

2.0 BUSINESS OBJECTIVE

      PurchasePro.com will deliver a Virtual Private Marketplace (VPM) and
      desktop purchasing solution that DrugMax.com will offer to its clients to
      its DrugMax.com WebSite.

3.0 EXECUTIVE SUMMARY

      PurchasePro.com will design and develop a "sell-side" private
      e-marketplace labeled to include the marks and logos of DrugMax.com and
      powered by PurchasePro.com. This custom e-marketplace will be utilized
      within the DrugMax.com site. PurchasePro.com will grant DrugMax.com
      administrative rights to determine what classifications, vendors and
      products are seen by their clients. PurchasePro.com will waive all "buyers
      only" fees for DrugMax.com clients.

      DrugMax.com's Private e-MarketPlace will have access to PurchasePro's
      National Preferred Provider agreements. DrugMax.com will also be allowed
      to pull vendors and classifications from PurchasePro.com's public network
      into their Private Marketplace.

      PurchasePro.com's development and unlimited buyer license fee for private
      e-Marketplace will be issued in the form of 200,000 DrugMax.com Warrants
      exercisable at $15 and revenue sharing will take place on transactions and
      subscriptions resulting from the DrugMax.com Marketplace. For the hosting,
      archiving, maintenance and recurring customization of the private
      e-Marketplace, DrugMax.com will guarantee PurchasePro.com at least $80,000
      in annual transaction revenue.

      DrugMax.com plans to use the sell-side e-Marketplace to primarily sell
      pharmaceuticals and health supplements as well as the value added services
      from PurchasePro.com's preferred providers.

4.0 FUNCTIONALITY

      4.1 Features

      Listed below are a few of the PurchasePro.com features:

      o     Each DrugMax.com client will have a unique ID and Password that are
            necessary to gain entry into system and validate the user

      o     Online Buyer Registration

      o     Buyer-to-vendor two-way messaging capability

      o     Complete search engine capability to find vendors, products, orders,
            etc.

      o     Contracted vendors can load all items with current pricing

      o     Access and select products from electronic catalogs and place
            paperless purchase orders directly with PurchasePro.com's database
            of vendors and with DrugMax.com's Preferred Vendors
<PAGE>

                                                   DrugMax.com Statement of Work
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      o     Requisitioning functionality

      o     Track all purchase orders that DrugMax.com clients place

      o     Clients can reduce the overall time involved with placing recurring
            weekly or bi-weekly orders by using the favorite order function

      o     Save purchase orders to be copied, and reused

      o     View order history

      o     Generate reports on usage by clients including client specific
            reports, vendor specific reports, and regional reporting

      o     Bidding

      4.2 Hardware and Software Requirements

      Browser Application (User Level)

      o     Internet connection (any ISP) at least 28.8 kpbs

      o     Any web browser that supports Java Script and Secure Sockets Layer
            (for example: Netscape Navigator 3.0 or better, MS Internet Explorer
            3.0 or better)

      o     Microsoft Office

      o     Any operating system that can "surf the web" using a standard
            browser

      Administration Group Utility (Marketplace Regulator)

      o     Pentium 133 or better

      o     32MB RAM (64MB recommended for NT)

      o     50MB of available hard disk space

      o     Windows 95/98 or Windows NT 4.0

      o     CD-ROM or 3.5" disk drive

      o     1MB PCI Video Card in 800X600 pixels (2MB recommended for Hi-Res
            image scanning)

      o     MS Internet Explorer 4.01 SP2

      o     Internet connection (any ISP) at least 28.8 kpbs

      Catalog Maintenance Utility (Vendor who maintains own catalog)

      o     Pentium 133 or better

      o     32MB RAM (64MB recommended for NT)

      o     50MB of available hard disk space

      o     Windows 95/98 or Windows NT 4.0

      o     CD-ROM or 3.5" disk drive

      o     1MB PCI Video Card in 800X600 pixels (2MB recommended for Hi-Res
            image scanning)

      o     MS Internet Explorer 4.01 SP2

      o     Internet connection (any ISP) at least 28.8 kpbs
<PAGE>

                                                   DrugMax.com Statement of Work
--------------------------------------------------------------------------------

5.0 PROJECT IMPLEMENTATION

      5.1 Phase I (Setup)

      Scope of Work

      o     Vendor and preferred agreement selection

      o     Analyze current work flow

      o     Create and test new processes

      o     Buyer and Vendor account setup/test

      o     Build Custom Browser Skin

      o     Create and test e-Marketplace/e-Catalogs

      o     Train e-Marketplace Regulator

      o     Integration (hyperlink) to current web site

      o     Train beta users

      o     Beta Test and signoff system preparation for Phase II rollout

      Timing

      o     Mockup of Custom Browser Skin will be available for DrugMax.com's
            approval within 30 days of execution of this agreement

      o     Custom Browser Skin available for testing 30 days after
            DrugMax.com's approval of mockup

      o     Beta test to last 30 to 80 days after Custom Browser Skin available
            for testing

      o     Vendor data will be loaded into the catalog within 14 days of both
            receipt of properly formatted data from the vendor and approval
            and/or selection of the data by DrugMax.com

      5.2 Phase II (Full Implementation/Rollout)

      Scope of Work

      o     Implement new processes DrugMax.com-wide

      o     Train DrugMax.com staff

      o     All vendors in VPM

      o     All buyers and vendors accounts setup/tested

      o     As vendors are added to the Private Marketplace, they will be
            responsible for building their electronic catalogs within the
            DrugMax.com marketplace

      Timing

      o     Full rollout to last 30-60 days

      o     As DrugMax.com signs on new buyers as well as new buyers/suppliers
            those accounts will be set up on an ongoing basis. New
            buyers/suppliers wanting catalogs will be responsible for building
            and maintaining their products using the Catalog Maintenance
            Utility. DrugMax.com buyers/suppliers will get the same startup kits
            and phone customer support given to all PurchasePro.com clients.
<PAGE>

                                                   DrugMax.com Statement of Work
--------------------------------------------------------------------------------

6.0 RESPONSIBILITIES AND DELIVERABLES

      6.1 DrugMax.com agrees to the following after signing of contract:

      o     DrugMax.com will designate a Project Manager with decision-making
            authority to see that DrugMax.com's responsibilities under this
            Agreement are met.

      o     Said Project Manager, and any other key designated executive(s) with
            decision-making authority will (1) follow-up on all matters related
            to DrugMax.com's responsibilities toward contacting its vendors and
            emphasizing the importance of said vendors signing up for the
            PurchasePro.com Network, and (2) have the authority to carry out the
            terms of this Section 6.0, including producing all deliverables
            required under this Agreement.

      o     Provide all data necessary to build the DrugMax.com Purchasing
            Electronic Marketplace. All information must be provided in the
            precise format set forth by PurchasePro.com.

      o     Provide a complete list of vendors and list of all categories that
            will populate the Electronic Marketplace.

      o     Specify the design for the look and feel of the Custom Browser Skin.

      o     Communicate with current clients informing them of DrugMax.com's
            decision to work with PurchasePro.com to implement its electronic
            commerce initiative.

      o     Provide all computer hardware and software for DrugMax.com and
            corporate staff to access the PurchasePro.com Network.

      o     Determine the best method of connectivity to the electronic catalog
            and ordering system for DrugMax.com (i.e. ISP, ISDN, T1).

      o     DrugMax.com will designate individual(s) to be trained by
            PurchasePro.com. This/These individual(s) will be responsible for
            training all DrugMax.com users.

      o     PurchasePro.com's use of the DrugMax.com name as a marketing tool to
            existing clients and potential clients. PurchasePro.com sends out
            marketing materials that list some of our customers.
<PAGE>

                                                   DrugMax.com Statement of Work
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      6.2 PurchasePro.com agrees to the following after signing of contract:

      o     Provide pre-installation. Project Management services per Section
            7.0 of this agreement including project coordination.

      o     Provide Network Access and any upgrades to all DrugMax.com Buyers
            per Section 7.0 of this agreement.

      o     Provide a Custom Browser Skin based on initial design supplied by
            DrugMax.com per Section 7.0 of this agreement.

      o     Host the DrugMax.com Electronic Marketplace per Section 7.0 of this
            agreement.

      o     Provide initial training by PurchasePro.com employees for
            DrugMax.com users through PurchasePro.com's "train the trainer"
            program. Under the train the trainer program, PurchasePro.com will
            train selected DrugMax.com representatives who then will train
            remaining DrugMax.com clients. When available, CD-ROM and web-based
            training and a training manual will be provided at no charge to
            DrugMax.com.

      o     Provide on-going telephone customer support and help desk coverage
            to all DrugMax.com buyers and Preferred Vendors per Section 7.0 of
            this agreement. Such support and help desk coverage to be available
            on the same timetable and using the same methods as such services
            are made available to any other PurchasePro.com customer.

      o     Provide the following catalog services per Section 7.0 of this
            agreement:

            o     Vendor data entry available at extra cost

            o     Catalog Maintenance Utility training for all DrugMax.com
                  vendors
<PAGE>

                                                   DrugMax.com Statement of Work
--------------------------------------------------------------------------------

7.0 FINANCIAL CONSIDERATIONS

      7.1 PurchasePro.com Virtual Private Marketplace Fee Schedule

--------------------------------------------------------------------------------
        NATURE OF SERVICES                              PRICE
--------------------------------------------------------------------------------
ONE-TERM NETWORK ACCESS FEE

Includes buyer and vendor account setup      INCLUDED IN MARKETPLACE DEVELOPMENT
and buyer license.
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CUSTOM BROWSER SKIN

The design of a custom skin for
DrugMax.com to give the marketplace
DrugMax.com's branding identity.             INCLUDED IN MARKETPLACE DEVELOPMENT
DrugMax.com must approve and sign-off on
the final version of the skin.
--------------------------------------------------------------------------------
MARKETPLACE DEVELOPMENT

Importing selected catalogs, vendors and        200,000 DRUGMAX.COM WARRANTS
CLASSIFICATIONS. BIDDING, PURCHASE              EXERCISABLE AT A PRICE OF $15
Orders, Receiving, Messaging, Reporting,
Spending limits and workflow rules
--------------------------------------------------------------------------------
REVENUE SHARING

o DrugMax.com Transaction Revenues          *DEFINITION OF TRANSACTION REVENUES
                                                   AND %'S TO BE DETERMINED

O PURCHASEPRO.COM PREFERRED PROVIDER        *DEFINITION OF TRANSACTION REVENUES
  AGREEMENTS                                       AND %'S TO BE DETERMINED

O ADVERTISING, SUBSCRIPTION AND SLOTTING           50% PURCHASEPRO.COM
  FEES DERIVED FROM THE DRUGMAX.COM                  50% DRUGMAX.COM
  e-Marketplace
--------------------------------------------------------------------------------
ANNUAL MAINTENANCE FEES

Includes customer support for all               DRUGMAX.COM WILL GUARANTEE
MEMBERS OF THE MARKETPLACE, SYSTEM       PURCHASEPRO.COM AT LEAST $80,000 IN NET
MAINTENANCE, HOSTING, AND SOFTWARE        TRANSACTION REVENUE GENERATED FROM THE
UPGRADES AND SERVICE PACKS.                    ABOUT REVENUE SHARING LAYOUT.
--------------------------------------------------------------------------------
<PAGE>

                                                   DrugMax.com Statement of Work
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      7.2 TERMS OF PAYMENT

      DrugMax.com shall issue to PurchasePro.com, Inc. a warrant to acquire Two
      Hundred Thousand (200,000) shares of common stock of DrugMax.com. The
      Warrant shall be exercisable for six (6) months from the date of this
      Agreement at an exercise price per share of Fifteen Dollars ($15.00), as
      adjusted to reflect any stock dividend, stock split, or other conversion
      of the number of shares of the Company into a different number of shares,
      however denominated.

      In the event that the guaranteed annual transaction revenues ($80,000) are
      not met at the end of each fiscal year, DrugMax.com shall pay the
      difference upon invoice by PurchasePro.com.

8.0 NETWORK ACCESS

      8.1 TERM

      PPRO agrees to provide Customer with the computer service that will allow
      access to the PPRO Network by Customer. Exact terms and conditions of this
      contract will be noted in the attached Statement of Work document
      incorporated herein by this reference. This Agreement, unless terminated
      earlier by mutual agreement of the parties, shall expire on February 15,
      2003. Prior to the end of the initial agreement, Customer must notify
      PPRO, and PPRO must notify Customer in writing of their respective intent
      to renew. Upon such written notifications to continue service, this
      contract will be renewed for an additional one (1) year term. The renewal
      shall contain the same terms and conditions of this agreement except,
      initial payment costs, including the one time network access fee, initial
      training fee, and initial catalog set up fees, shall not be payable by
      Customer. All other terms, including the monthly maintenance fee and any
      additional catalog set up fees shall be on the same terms as set forth in
      the initial term of this Agreement. In addition to the right to payment
      for goods provided or services rendered by PPRO completely and strictly
      according to the terms of this Agreement prior to the effective date of
      termination, PPRO's remedies for any alleged breach of this Agreement by
      Customer shall include all legal remedies it may have, including monetary
      damages and injunctive relief, in connection with any breach by Customer
      of Customer's obligations under this Agreement. Following termination,
      Customer shall not be precluded or restricted in any manner whatsoever
      from separately transacting business with vendors who are or were
      participants in the PPRO Network. However, while this Agreement is in
      effect, and prior to PPRO's receipt of Customer's notice to terminate,
      PPRO may include Customer's name in promotional materials listing users of
      the PPRO Network with prior consent from Customer.

      8.2 CONFIDENTIALITY

      The PPRO Network contains computer software which is valuable proprietary
      information owned by PPRO and is treated as confidential (such software
      being referred to hereafter as "PPRO Proprietary Information"). Customer
      is granted a non-assignable, non-exclusive, fully revocable license to
      install or make available the PPRO Proprietary Information on any
      computers designated by the Customer and to use the PPRO Network and PPRO
      Proprietary Information during the term of this Agreement solely for
      Customer's use in its purchasing operations. Customer shall neither
      disclose, disseminate, or otherwise give the PPRO Proprietary Information
      to any other person,
<PAGE>

                                                   DrugMax.com Statement of Work
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      firm, or organization or any employee or agent of Customer who does not
      need to obtain access thereto unless such information is, at the time of
      such disclosure or dissemination, already part of the public domain or
      known or available to Customer from a source other than PPRO. Under no
      circumstances may Customer modify, decompile, or reverse assemble any
      object code contained within the PPRO Proprietary Information. Nor may
      Customer copy, otherwise duplicate or use any of the PPRO Proprietary
      Information not already in Customer's possession as of the date of this
      Agreement or which becomes known or available to Customer from a source
      other than PPRO. Customer shall use reasonable efforts to ensure that all
      persons afforded access to the PPRO Proprietary Information refrain from
      any such unauthorized use, copying, or disclosure. Customer's obligations
      respecting the confidentiality of the PPRO Propriety Information shall
      survive termination of this Agreement and shall remain in effect for as
      long as Customer continues to possess or control any copyrighted PPRO
      Proprietary Information.

      8.3 WARRANTIES

      In recognition of the fact that the unauthorized disclosure, copying, or
      use of the PPRO Proprietary Information could cause irreparable harm and
      significant injury to PPRO, which may be difficult to measure with
      certainty or to compensate through damages, Customer agrees that any court
      in the State of Nevada may grant such injunctive or other equitable relief
      as appropriate to enforce the provisions of this Agreement. PPRO warrants
      and represents that it owns the rights in the PPRO network, including all
      necessary software, and has the power and authority to perform this
      Agreement. PPRO agrees to indemnify, defend and hold harmless Customer
      against any loss, liability, claim, or damage that Customer may incur
      should any third party successfully challenge PPRO's rights in the PPRO
      Network or any related software.

                                       10
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                                                   DRUGMAX.COM STATEMENT OF WORK
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      8.4 ASSIGNABILITY

      Customer may not assign or transfer this Agreement or any interest herein
      (including, without limitation, rights and duties of performance) and this
      Agreement may not be involuntarily assigned or assigned by operation of
      law, without the prior written consent of PPRO, which consent may be
      withheld by PPRO in the sole and absolute exercise of its discretion.

      8.5 OWNERSHIP OF SUPPLIED DATA

      Under this Agreement, Customer and its vendors, customers and end users
      will be providing data to PPRO to be used in connection with the VPM
      (collectively, the "Supplied Data"). In addition, PPRO will become aware
      of certain confidential and proprietary business information of Customer,
      including but not limited to vendor and customer lists, pricing data, and
      methods of doing business (the "Customer Data"). PPRO acknowledges and
      agrees that the Supplied Data and the Customer Data is owned by Customer
      and/or its vendors, customers and end users. PPRO acknowledges and agrees
      that the Supplied Data and the Customer Data is of a confidential and
      proprietary nature, and PPRO agrees to hold and maintain all such data in
      strict confidence and not to use any such data except as permitted by this
      Agreement. PPRO shall use reasonable efforts to ensure that all persons
      afforded access to the Supplied Data and the Customer Data refrain from
      any unauthorized use, copying or disclosure. PPRO shall implement
      industry-recognized security standards to prevent the access of Supplied
      Data by PPRO's other customers or other third parties. Upon the
      termination of this Agreement for any reason, PPRO shall return to
      Customer any Supplied Data and Customer Data then in its possession.

      8.6 TERMINATION

      Customer may terminate this agreement upon notice to PPRO in the event
      that Customer does not accept either the trial version, beta version or
      final version of the VPM due to its failure to conform to the
      specifications and requirements of this Agreement. If Customer terminates
      this Agreement under these conditions, it shall be entitled to an
      immediate refund of all fees paid to PPRO under this Agreement. Either
      party may terminate this Agreement immediately upon written notice to the
      other party in the event any material breach of a term of this Agreement
      by such other party that remains uncured 30 days after notice of such
      breach (other than a breach of a payment obligation) was received by such
      other party or, if the breach is not reasonably capable of cure within 30
      days, such longer period, not to exceed 60 days, so long as the cure is
      commenced within the 30-day period and thereafter is diligently prosecuted
      to completion as soon as possible and in any event within 60 days.

      8.7 GOVERNING LAW

      This Agreement shall be governed by and construed in accordance with laws
      of the State of Nevada. This Agreement constitutes the entire agreement
      between the parties, and there are no understanding or agreements relative
      hereto other than those that are expressed herein. No change, waiver, or
      discharge hereof shall be valid unless in writing and executed by the
      party against whom such change, waiver, or discharge is sought to be
      enforced.

                                       11
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                                                   DRUGMAX.COM STATEMENT OF WORK
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      8.8 FORCE MAJEURE

      Force Majeure. Each party to this agreement shall be excused from any
      delay or failure in its performance hereunder or under any Ancillary
      Agreement, other than for payment of money, caused by any labor dispute,
      government requirement, act of God, or any other cause beyond its control.
      Such party shall undertake reasonable commercial efforts to cure any such
      failure or delay in performance arising from a force majeure condition,
      and shall timely advise the other party of such efforts. If such delaying
      cause shall continue for more than ten (10) days, the party injured by the
      inability of the other to perform shall have the right upon ten (10) days
      prior written notice to terminate the Agreement.

      8.9 ARBITRATION AND ATTORNEYS' FEES

      (a) Arbitration

      In the event of a dispute between the parties arising under this Agreement
      or an Ancillary Agreement, the parties shall submit to binding arbitration
      in Las Vegas, Nevada, before a single arbitrator knowledgeable of
      e-commerce under the Commercial Arbitration Rules of the American
      Arbitration Association, except that temporary restraining orders or
      preliminary injunctions, or their equivalent, may be obtained from any
      court of competent jurisdiction. The decision of the arbitrator shall be
      final and binding with respect to the dispute subject to the arbitration
      and shall be enforceable in any court of competent jurisdiction. The
      arbitrator shall not have the power to award any damages of the types
      excluded by this Agreement, regardless of the nature of the claim.

      (b) Attorneys' Fees

      If any arbitration or litigation is commenced between or among parties to
      this Agreement or any Ancillary Agreement or their personal
      representatives concerning any provisions of this Agreement or any
      Ancillary Agreement, or the rights and duties of any person in relation
      thereto, the court or arbitrator, as the case may be, may award to the
      party or parties prevailing in such arbitration or litigation, in addition
      to such other relief as may be granted, a reasonable sum for their
      attorneys' fees.

9.0 MUTUAL NONDISCLOSURE

Each undersigned party (the "Receiving Party") understands that the other party
(the "Disclosing Party") has disclosed or may disclose information relating to
the Disclosing Party's business including, but not limited to:

      1.    Disclosing Party's affiliate programs

      2.    Transaction and channel partners

      3.    Web site statistics and demographics

      4.    Computer programs

      5.    Names and expertise of employees and consultants

      6.    Know-how

      7.    Formulas

      8.    Processes

      9.    Ideas

      10.   Systems architectures

      11.   Communication methods

      12.   Marketing strategies

                                       12
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                                                   DRUGMAX.COM STATEMENT OF WORK
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and, without limitation, other technical, business, financial, customer and
product development plans, forecasts, strategies and information, which to the
extent previously, presently, or subsequently disclosed to the Receiving Party
is hereinafter referred to as "Proprietary Information" of the Disclosing Party.

Notwithstanding the foregoing, nothing will be considered "Proprietary
Information" of the Disclosing Party unless either:

      (1)   it is disclosed in tangible form and is conspicuously marked
            "Confidential," "Proprietary" or the like, or

      (2)   it is first disclosed in non-tangible form and orally identified as
            confidential at the time of disclosure and is summarized in tangible
            form conspicuously marked "Confidential" within thirty (30) days of
            the original disclosure.

In consideration of the parties' discussions and any access the Receiving Party
may have to Proprietary Information of the Disclosing Party, the Receiving Party
hereby agrees as follows:

1. USE OF PROPRIETARY INFORMATION. The Receiving Party agrees:

      (a)   to hold the Disclosing Party's Proprietary Information in confidence
            and to take reasonable precautions to protect such Proprietary
            Information (including, without limitation, all precautions that
            Receiving Party employs with respect to its confidential materials),

      (b)   not to divulge any such Proprietary Information or any information
            derived therefrom to any third person except consultants, subject to
            the conditions stated below,

      (c)   not to make any use whatsoever at any time of such Proprietary
            Information except to evaluate internally whether to enter into an
            agreement with the Disclosing Party; and

      (d)   not to copy or reverse engineer any such Proprietary Information.

Any employee or consultant given access to any such Proprietary Information must
have a legitimate "need to know" and shall be similarly bound in writing.
Without granting any right or license, the Disclosing Party agrees that the
foregoing clauses (a), (b), (c) and (d) shall not apply to any information that
the Receiving Party can document (1) is generally available to the public, or
(2) was in its possession or known by it prior to receipt from the Disclosing
Party, or (3) was rightfully disclosed to it by a third party without
restriction, provided the Receiving Party complies with any restrictions imposed
by the third party, or (4) was independently developed without use of any
Proprietary Information of the Disclosing Party by employees of the Receiving
Party who have had no access to such information.

2. RETURN OF PROPRIETARY INFORMATION. Immediately upon (a) the decision by
either party not to enter into an agreement contemplated by paragraph 1, or (b)
a request by the Disclosing Party at any time which will be effective if
actually received or three days after mailed first class postage prepaid to
Receiving Party, the Receiving Party will turn over to the Disclosing Party all
Proprietary Information of the Disclosing Party and all documents or media
containing any such Proprietary Information and any and all copies or extracts
thereof.

                                       13
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                                                   DRUGMAX.COM STATEMENT OF WORK
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3. DISCLOSURE. Except to the extent required by law, neither party shall
disclose the existence or subject matter of the negotiations or business
relationship contemplated between the parties.

4. MISCELLANEOUS. The Receiving Party acknowledges and agrees that due to the
unique nature of the Disclosing Party's Proprietary Information, there can be no
adequate remedy at law for any breach of its obligations hereunder, that any
such breach may allow the Receiving Party or third parties to unfairly compete
with the Disclosing Party resulting in irreparable harm to the Disclosing Party,
and therefore, that upon any such breach or any threat thereof, the Disclosing
Party shall be entitled to appropriate equitable relief in addition to whatever
remedies it might have at law and to be indemnified by the Receiving Party from
any loss or harm, including, without limitation, attorneys' fees, in connection
with any breach or enforcement of the Receiving Party's obligations hereunder or
the unauthorized use or release of any such Proprietary Information.

The Receiving Party will notify the Disclosing Party in writing immediately upon
the occurrence of any such unauthorized release or other breach of which it is
aware. In the event that any of the provisions of this Agreement shall be held
by a court or other tribunal of competent jurisdiction to be illegal, invalid or
unenforceable, such provisions shall be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force and
effect.

This Agreement shall be governed by the law of the State of Nevada without
regard to the conflicts of law provisions thereof. This Agreement supersedes all
prior discussions and writings and constitutes the entire agreement between the
parties with respect to the subject matter hereof. No waiver or modification of
this Agreement will be binding upon either party unless made in writing and
signed by a duly authorized representative of such party and no failure or delay
in enforcing any right will be deemed a waiver. This Agreement shall be
construed as to its fair meaning and not strictly for or against either party.

In witness whereof, the parties have executed this Agreement as of the Effective
Date of this Agreement above.

PurchasePro.com, Inc.                   DrugMax.com, Inc.

By: /s/ [Illegible] Date: 3/22/00       By: /s/ STEPHEN WATTERS   Date: 3-22-00
   ----------------      --------          --------------------        --------
Title: PRESIDENT                        Title: PRESIDENT
       ---------                               ---------

                                       14
<PAGE>

                                     WARRANT

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE
SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.

No.                                                   Warrant to Purchase Shares
                                                      of common stock

                        WARRANT TO PURCHASE COMMON STOCK

                                       OF

                                DRUGMAX.COM, INC

In consideration of the sum of Ten dollars ($10.00) previously paid to
DRUGMAX.COM, INC., a Nevada corporation (the "Company"), receipt and sufficiency
of which are hereby acknowledged, this certifies that, for value received,
PURCHASEPRO.COM, INC. or its registered assigns ("Holder") is entitled, subject
to the terms and conditions set forth below, to purchase from the Company, in
whole or in part that number of fully paid and nonassessable shares of the
common stock, par value $0.001 per share, of the Company (the "Warrant Shares")
as set forth in Section 2 below and at a purchase price per share (the "Exercise
Price") as set forth in Section 2 below. The term "Warrant" as used herein shall
mean this Warrant, and any warrants delivered in substitution or exchange
therefor as provided herein.

      1. TERM OF WARRANt. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the date hereof (the "Initial Exercise Date"), and ending at 5:00
p.m., Pacific standard time, six months after the Initial Exercise Date (the
"Exercise Period"), and shall be void thereafter.

      2. NUMBER OF SHARES, EXERCISE PRICE.

      (a) This Warrant shall be exercisable for two hundred thousand (200,000)
shares of common stock of the Company at an exercise price per share of $15.00
(fifteen dollars) (the "Exercise Price"), As adjusted to reflect any stock
dividend, stock split or other conversion of the number of shares of the Company
into a different number of shares, however denominated.

      3. EXERCISE OF WARRANt.

      (a) This Warrant may be exercised by the Holder by (i) the surrender of
this Warrant to the Company, with the Notice of Exercise annexed hereto duly
completed and executed on

                                       1
<PAGE>

behalf of the Holder, at the office of the Company (or such other office or
agency of the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company) during the
Exercise Period and (ii) the delivery of payment to the Company, for the account
of the Company, by cash, wire transfer of immediately available funds to a bank
account specified by the Company, or by certified or bank cashier's check, of
the Exercise Price for the number of Warrant Shares specified in the Exercise
Form in lawful money of the United States of America. The Company agrees that
such Warrant Shares shall be deemed to be issued to the Holder as the record
holder of such Warrant Shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for the Warrant Shares
as aforesaid. A stock certificate or certificates for the Warrant Shares
specified in the Exercise Form shall be delivered to the Holder as promptly as
practicable, and in any event within 10 days, thereafter. If this Warrant shall
have been exercised only in part, the Company shall, at the time of delivery of
the stock certificate or certificates, deliver to the Holder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant. No
adjustments shall be made on Warrant Shares issuable on the exercise of this
Warrant for any cash dividends paid or payable to holders of record of common
stock prior to the date as of which the Holder shall be deemed to be the record
holder of such Warrant Shares. However, the number of Warrant Shares shall be
adjusted to reflect any stock dividend, stock split or other conversion of the
number of shares of the Company into a different number of shares, however
denominated.

      (b) This Warrant shall be deemed to have been exercised immediately prior
to the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of common stock issuable
upon such exercise shall be treated for all purposes as the holder of record of
such shares as of the close of business on such date. As promptly as practicable
on or after such date and in any event within ten (10) days thereafter, the
Company at its expense shall issue and deliver to the person or persons entitled
to receive the same a certificate or certificates for the number of shares
issuable upon such exercise. In the event that this Warrant is exercised in
part, the Company at its expense will execute and deliver a new Warrant of like
tenor exercisable for the number of shares for which this Warrant may then be
exercised.

      4. NO FRACTIONAL SHARES OR SCRIp. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.

      5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.

      6. RIGHTS OF STOCKHOLDERS. The Holder of this Warrant shall not be
entitled to vote or receive dividends or be deemed the holder of common stock
nor shall anything contained herein be construed to confer upon the Holder, as
such, any of the rights of a stockholder of the

                                       2
<PAGE>

Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value, or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised as provided herein.

      7. TRANSFER OF WARRANT.

      (a) WARRANT REGISTER. The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder or Holders. Any
Holder of this Warrant or any portion thereof may change his address as shown on
the Warrant Register by written notice to the Company requesting such change.
Any notice or written communication required or permitted to be given to the
Holder may be delivered or given by mail to such Holder as shown on the Warrant
Register and at the address shown on the Warrant Register. Until this Warrant is
transferred on the Warrant Register of the Company, the Company may treat the
Holder as shown on the Warrant Register as the absolute owner of this Warrant
for all purposes, notwithstanding any notice to the contrary.

      (b) WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the common stock, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.

      (c) TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This Warrant may not
be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Notwithstanding the foregoing, no investment representation letter
or opinion of counsel shall be required for any transfer of this Warrant (or any
portion thereof) or any shares of common stock issued upon exercise hereof (i)
in compliance with Rule 144 or Rule 144A of the Act, or (ii) by gift, will or
intestate succession by the Holder to his or her spouse or lineal descendants or
ancestors or any trust for any of the foregoing; provided that in each of the
foregoing cases the transferee agrees in writing to be subject to the terms of
this Section 7(c). In addition, if the holder of the Warrant (or any portion
thereof) or any common stock issued upon exercise hereof delivers to the Company
an unqualified opinion of counsel that no subsequent transfer of such Warrant or
common stock shall require registration under the Act, the Company shall, upon
such contemplated transfer, promptly deliver new documents/certificates for such
Warrant or common stock that do not bear the legend set forth in Section
7(e)(ii) below. Subject to the provisions of this Warrant with respect to
compliance with the Securities Act of 1933, as amended (the "Act"), title to
this Warrant may be transferred by endorsement (by the Holder executing the
Assignment Form annexed hereto) and delivery in the same manner as a negotiable
instrument transferable by endorsement and delivery.

      (d) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this Warrant for
exchange, properly endorsed on the Assignment Form and subject to the provisions
of this

                                       3
<PAGE>

Warrant with respect to compliance with the Act and with the limitations on
assignments and transfers and contained in this Section 7, the Company at its
expense shall issue to or on the order of the Holder a new warrant or warrants
of like tenor, in the name of the Holder or as the Holder (on payment by the
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.

      (e) COMPLIANCE WITH SECURITIES LAWS.

            (i) The initial Holder of this Warrant represents and warrants to
      the Company that it is an institutional accredited investor under the Act
      and that it has received and reviewed the Form S-1 for the Company's IPO.
      The initial Holder represents and warrants to the Company that it has all
      of the information necessary for it to evaluate an investment in the
      Company's securities. The initial Holder consents to the disclosure of the
      terms of this Warrant in the Form S-1 and the filing of this Warrant as an
      exhibit to the Form S-1.

            (ii) The Holder of this Warrant, by acceptance hereof, acknowledges
      that this Warrant and the shares of common stock to be issued upon
      exercise hereof are being acquired solely for the Holder's own account and
      not as a nominee for any other party, and for investment, and that the
      Holder will not offer, sell or otherwise dispose of this Warrant or any
      shares of common stock to be issued upon exercise hereof except under
      circumstances that will not result in a violation of the Act or any
      applicable state securities laws. Upon the exercise of this Warrant, the
      Holder shall, if requested by the Company, confirm in writing, in a form
      satisfactory to the Company, that the shares of common stock so purchased
      are being acquired solely for the Holder's own account and not as a
      nominee for any other party, for investment, and not with a view toward
      distribution or resale.

            (iii) This Warrant and all shares of common stock issued upon
      exercise hereof shall be stamped or imprinted with a legend in
      substantially the following form (in addition to any legend required by
      state securities laws):

      "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES
      ISSUED HEREUNDER MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
      REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
      AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR
      TRANSFER OR SALE MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
      HOLDER OF RECORD HEREOF TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL
      EXECUTIVE OFFICES."

            (iv) The Company agrees to remove promptly, upon the request of the
      holder of this Warrant and Securities issuable upon exercise of the
      Warrant, the legend set forth in Section 7(e)(ii) above from the
      documents/certificates for such securities upon full compliance with this
      Agreement and Rules 144 and 145.

                                       4
<PAGE>

      8. RESERVATION OF STOCK. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued common stock a sufficient number of shares to provide for the issuance
of common stock upon the exercise of this Warrant (including any adjustment in
the number of Warrant Shares pursuant to Section 3(a) above). The Company
further covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
or otherwise specified herein). The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of common stock upon the exercise of this Warrant.

      9. REGISTRATION RIGHTS; COMPANY REGISTRATION.

      (a) If the Company shall determine to register any of its securities
either for its own account, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:

            (i) promptly give to Holder written notice thereof; and

            (ii) use its best efforts to include in such registration (and any
      related qualification under blue sky laws or other compliance), except as
      set forth in Section 9(b) below, and in any underwriting involved therein,
      all or any part (in minimum increments of 100,000 Shares) of the Warrant
      Shares specified in a written request or requests, made by Holder and
      received by the Company within twenty (20) days after the written notice
      from the Company described in clause (i) above is mailed or delivered by
      the Company. Such written request may specify all or a part of Holder's
      Warrant Shares.

      (b) UNDERWRITING. if the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise Holder as a part of the written notice given pursuant to Section 9(a)(i).
In such event, the right of Holder to registration pursuant to this Section 9
shall be conditioned upon Holder's participation in such underwriting and the
inclusion of Holder's Warrant Shares in the underwriting to the extent provided
herein. A Holder proposing to distribute its securities through such
underwriting shall (together with the Company and the other holders of
securities of the Company with registration rights to participate therein
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.

      Notwithstanding any other provision of this Section 9, if the
representative of the underwriters advises the Company, in good faith, in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the representative may (subject to the limitations set forth
below) exclude all Warrant Shares from, or limit the number of Warrant Shares to
be included in, the registration and underwriting, If the registration is the
first Company-initiated registered offering of the Company's securities to the
general public, the Company may limit, to the extent so advised by the
underwriters, the amount of securities

                                       5
<PAGE>

(including Warrant Shares) to be included in the registration by the Company's
stockholders (including the Holder), and such securities shall be apportioned
pro rata among the selling stockholders according to the total amount of
securities entitled to be included therein owned by each selling stockholder, or
the Company may exclude, to the extent so advised by the underwriters, such
underwritten securities entirely from such registration. If such registration is
the second or any subsequent Company-initiated registered offering of the
Company's securities to the general public, the Company may limit, to the extent
so advised by the underwriters, the amount of securities to be included in the
registration by the Company's stockholders (including the Holder); provided,
however, that the aggregate value of Warrant Shares to be included in such
registration may not be so reduced to less than twenty-five percent (25%) of the
total value of all securities included in such registration, to be apportioned
pro rata among the holders of registrable securities according to the total
amount of securities entitled to be included therein owned by each holder of
registrable securities. If any person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the Company
or the underwriter. Any Warrant Shares or other securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.

      If shares are so withdrawn from the registration or if the number of
shares of Warrant Shares to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn.

      10. REGISTRATION ON FORM S-3.

      (a) After its IPO, the Company shall use its best efforts to qualify for
registration on Form S-3 or any comparable or successor form or forms. After the
Company has qualified for the use of Form S-3, in addition to the rights
contained in the foregoing provisions of Section 9, Holder shall have the right
to request one or more registrations on Form S-3 (such requests shall be in
writing and shall state the number of shares of Warrant Shares to be disposed of
and the intended methods of disposition of such shares by Holder), provided,
however, that the Company shall not be obligated to effect any such registration
if (i) Holder proposes to sell Warrant Shares on Form S-3 at an aggregate price
to the public of less than $500,000, or (ii) in the event the Company shall
furnish the certification described in paragraph 10(d)(ii) (but subject to the
limitations set forth therein), or (iii) the Company has, within the six (6)
month period preceding the date of such request already effected one
registration on Form S-3 for the Holders pursuant to this Section 10.

      (b) If a request complying with the requirements of Section 10(a) hereof
is delivered to the Company, the provisions of Sections 9(a)(i) and (ii) and
Section 10(c) hereof shall apply to such registration. If the registration is
for an underwritten offering, the provisions of Sections 9(b) hereof shall apply
to such registration.

      (c) The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 10:

            (i) In any particular jurisdiction in which the Company would be
      required to execute a general consent to service of process in effecting
      such

                                       6
<PAGE>

      registration, qualification, or compliance, unless the Company is already
      subject to service in such jurisdiction and except as may be required by
      the Securities Act;

            (ii) During the period starting with the date sixty (60) days prior
      to the Company's good faith estimate of the date of filing of, and ending
      on a date one hundred eighty (180) days after the effective date of, a
      Company-initiated registration; provided that (i) the Company is actively
      employing in good faith all reasonable efforts to cause such registration
      statement to become effective;

      (d) Subject to the foregoing clauses (i) and (ii), the Company shall file
a registration statement covering the Warrant Shares so requested to be
registered as soon as practicable after receipt of the request of Holder;
provided, however, that if (i) in the good faith judgment of the Board of
Directors of the Company, such registration would be seriously detrimental to
the Company and the Board of Directors of the Company concludes, as a result,
that it is essential to defer the filing of such registration statement at such
time, and (ii) the Company shall furnish to Holder a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company for
such registration statement to be filed in the near fixture and that it is,
therefore, essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for the period during
which such disclosure would be seriously detrimental, provided that (except as
provided in clause (C) above) the Company may not defer the filing for a period
of more than one hundred eighty (180) days after receipt of the request of
Holder, and, provided further, that the Company shall not defer its obligation
in this manner more than once in any twelve (12) month period.

      11. EXPENSES OF REGISTRATION. All Registration Expenses (as defined
herein) incurred in connection with any registration, qualification or
compliance pursuant to Sections 9 and 10 hereof and reasonable fees of one
counsel for Holder shall be borne by the Holder. All Selling Expenses (as
defined herein) relating to securities so registered shall be borne by the
holders of such securities pro rata on the basis of the number of shares of
securities so registered on their behalf. "Registration Expenses" shall mean all
expenses incurred in effecting any registration pursuant to this Warrant,
including, without limitation, all registration, qualification, and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, fees and disbursements of one special counsel for the selling
stockholders, blue sky fees and expenses, accounting fees and expenses of any
regular or special audits incident to or required by any such registration, but
shall not include Selling Expenses and fees and disbursements of additional
counsel for the stockholders. Registration Expenses do not include the
compensation of regular employees of the Company, which shall be paid in any
event by the Company. "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Warrant Shares and fees and
disbursements of counsel for any Holder (other than the fees and disbursements
of counsel included in Registration Expenses).

      12. AMENDMENTS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.

                                       7
<PAGE>

      13. MARKET-STANDOFF PROVISIONS. If requested by the Company and an
underwriter of the common stock of the Company, Holder shall not sell or
otherwise transfer or dispose of any Warrant Shares held by Holder (other than
those included in the registration) during the one hundred eighty (180) day
period following the effective date of the IPO. Holder shall sign at the same
time it signs this Warrant the letter requested by Prudential Securities as lead
manager in the IPO containing the 180 day lock up restrictions.

      14. MISCELLANEOUS.

      (a) This Warrant shall be governed by the laws of the State of Nevada as
applied to agreements entered into in the State of Nevada by and among residents
of the State of Nevada.

      (b) In the event of a dispute with regard to the interpretation of this
Warrant, the prevailing party may collect the cost of attorney's fees,
litigation expenses or such other expenses as may be incurred in the enforcement
of the prevailing party's rights hereunder.

      (c) The rights to cause the Company to register securities granted to a
Holder by the Company under Section 10 may be transferred or assigned by Holder
only to a transferee or assignee of not less than 100,000, provided that the
Company is given written notice at the time of or within a reasonable time after
such transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and, provided further, that the
transferee or assignee of such rights assumes the obligations of such Holder
under this Warrant.

                                       8
<PAGE>

      (d) This Warrant shall be exercisable as provided for herein, except that
in the event that the expiration date of this Warrant shall fall on a Saturday,
Sunday or United States federally recognized Holiday, this expiration date for
this Warrant shall be extended to 5:00 p.m. Pacific standard time on the
business day following such Saturday, Sunday or recognized Holiday.

      IN WITNESS WHEREOF, DRUGMAX.COM, INC. has caused this Warrant to be
executed by its officers thereunto duly authorized.

      Dated: 3-22, 2000.

                                     HOLDER

                                     /s/ CHRISTOPHER P. [ILLEGIBLE]
                                     -------------------------------------------
                                                   (Signature)

                                     Christopher P. [Illegible]
                                     -------------------------------------------
                                                   (Print Name)

                                     DRUGMAX.COM, INC., a Nevada corporation

                                     By /s/ STEPHEN WATTERS
                                       -----------------------------------------
                                                 Steve Watters
                                           Chief Executive Officer

                                       9
<PAGE>

                               NOTICE OF EXERCISE

To: DRUGMAX.COM, INC.,

      (1) The undersigned hereby elects to purchase shares of common stock of
DRUGMAX.COM, INC., pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price for such shares in full.

      (2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of common stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, or for investment, and that the undersigned will
not offer, sell or otherwise dispose of any such shares of common stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any applicable state securities laws.

      (3) Please issue a certificate or certificates representing said shares of
common stock in the name of the undersigned or in such other name as is
specified below:

                                     -------------------------------------------
                                                       (Name)

                                     -------------------------------------------
                                                       (Name)

      (4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:

                                     -------------------------------------------
                                                       (Name)

---------------------------          -------------------------------------------
(Date)                                                 (Name)

                                       10
<PAGE>

                                 ASSIGNMENT FORM

      FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of common stock set forth below:

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

and does hereby irrevocably constitute and appoint Attorney to make such
transfer on the books of DRUGMAX.COM, INC., maintained for the purpose, with
full power of substitution in the premises.

      The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any
shares of stock to be issued upon exercise hereof or conversion thereof except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended, or any applicable state securities laws. Further, the
Assignee has acknowledged that upon exercise of this Warrant, the Assignee
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the shares of stock so purchased are being acquired for
investment and not with a view toward distribution or resale.

      Dated: _________, __

                                         ----------------------------------
                                                 Signature of Holder

                                      SB-11<PAGE>

                                                                   EXHIBIT 10.31

                                  ITERIS,INC.

                           SUBORDINATED CONVERTIBLE
                            NOTE PURCHASE AGREEMENT

                                January 25, 2000
<PAGE>

                                 ITERIS, INC.

               SUBORDINATED CONVERTIBLE NOTE PURCHASE AGREEMENT

     This Agreement is made as of January 25, 2000 by and between Iteris, Inc.,
a Delaware corporation (the "Company"), and DaimlerChrysler Venture GmbH, a
German limited liability company ("Purchaser").

                                   RECITALS

     A.  Purchaser is not a U.S. Person as defined in Rule 902(k) of Regulation
S (`Regulation S"), as promulgated under the Securities Act of 1933, as amended
(the "Securities Act").

     B.  The Company desires to sell to Purchaser and Purchaser desires to
purchase from the Company the subordinated convertible promissory note described
herein, the offer and sale of which is being made in reliance upon the
provisions of Regulation S.

                                   AGREEMENT

                                  SECTION 1.
                        AUTHORIZATION AND SALE OF NOTE

          1.1  Authorization. The Company has authorized the sale and issuance
               -------------
of an 8% subordinated convertible promissory note in the principal amount of
$3.75 million (the "Note"), substantially in the form attached hereto as Exhibit
A.

          1.2  Sale of Note. Subject to the terms and conditions hereof, the
               ------------
Company will issue and sell to the Purchaser and the Purchaser will buy from the
Company the Note for an amount of $3.75 million. Such purchase price shall be
paid in the manner set forth in Section 2.2. The number of shares of Common
Stock into which the Note is convertible shall be subject to certain adjustment
provisions.

          1.3  Company Records and Use of Proceeds. Upon issuance, the Note will
               -----------------------------------
be registered in the Purchaser's name in the Company's records. The proceeds
from the sale and issuance of the Note shall be used for general corporate
purposes and not for the retirement of any shareholder debt, except as
authorized in this Agreement.

                                  Section 2.
                            CLOSING DATE & DELIVERY

          2.1  Closing. The closing of the purchase and sale of the Note
               -------
hereunder (the "Closing") shall be held at the offices of DaimlerChrysler
Venture GmbH, Stuttgart, Germany, promptly after the execution of this Agreement
or at such other time and place upon which the Company and the Purchaser shall
agree (the date of the Closing is hereinafter referred to as the "Closing
Date").

                                       1
<PAGE>

          2.2  Payment and Delivery. At the Closing, the Company will deliver to
               --------------------
Purchaser the Note, against payment of the purchase price therefor, by check
payable to the Company, or by wire transfer per the Company's instructions.

                                  Section 3.
                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to the Purchaser as follows as of the
execution of this Agreement and the Closing:

          3.1  Organization and Standing: Certificate and Bylaws. The Company is
               -------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the state of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as proposed to be conducted. The Company is
qualified to do business as a foreign corporation in each jurisdiction where
failure to be so qualified would have a material adverse effect on the Company's
business as presently conducted and as currently proposed to be conducted. The
Company has made available to the Purchaser copies of the Company's Certificate
of Incorporation and Bylaws, as amended to date. Said copies are true, correct
and complete and contain all amendments through the date hereof.

          3.2  Corporate Power. The Company has all requisite corporate power
               ---------------
and authority to execute and deliver the Registration Rights Agreement (as
defined in Section 5.10 hereof) and this Agreement, to sell and issue the Note
hereunder, to issue the Common Stock issuable upon conversion of the Note (the
"Conversion Stock"), and to carry out and perform its obligations under the
terms of this Agreement and the Registration Rights Agreement.

          3.3  Capitalization. The authorized capital stock of the Company
               --------------
consists of 40,000,000 shares of Common Stock, $0.01 par value (the "Common
Stock"), of which 6,432,100 shares are issued and outstanding as of the Closing
Date, and 5,000,000 shares of Preferred Stock, $0.01 par value, none of which
are outstanding. The Company has reserved a sufficient number of shares of
Common Stock for issuance upon conversion of the Note. Shares of the Conversion
Stock have the rights, preferences, privileges and restrictions set forth in the
Certificate of Incorporation. Except as set forth above and options to purchase
[1,400,000] shares of Common Stock, there are no options, warrants, conversion
privileges or other rights to purchase or otherwise acquire any of the Company's
authorized and unissued capital stock. The outstanding shares of the capital
stock of the Company are duly and validly issued, fully paid and nonassessable,
and such shares have been issued in compliance with the Securities Act and any
applicable state securities law, or in compliance with applicable exemptions
therefrom.

          3.4  Subsidiaries. Except for Meyer, Mohaddes Associates, Inc., a
               ------------
wholly owned subsidiary of the Company, the Company has no subsidiaries.

          3.5  Financial Statements. The Company has delivered at or prior to
the Closing to the Purchaser the Company's unaudited financial statements for
the fiscal period ended December 31, 1999 (the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with

                                       2
<PAGE>

generally accepted accounting principles ("GAAP") applied on a basis consistent
with prior accounting periods, except to the extent that the unaudited financial
statements are subject to normal and recurring year-end adjustments. The
Financial Statements present fairly the financial condition and operating
results of the Company as of the date and during the periods indicated therein.
Except to the extent reflected or reserved against or disclosed in the Financial
Statements, the Company as of the date of the Financial Statements had no
material liabilities or obligations of any kind, whether accrued, absolute,
contingent or otherwise, which under GAAP should have been reflected or reserved
against or disclosed.

          3.6  Absence of Certain Changes. Since December 31, 1999, and at all
               --------------------------
times up to the Closing, there has not been, nor, so far as reasonably can be
foreseen at this time, is there reasonably likely to be, any event or condition
of any character which has materially adversely affected, or is likely to
materially affect, the Company's consolidated business operations, assets,
condition (financial or otherwise), liabilities, earnings or prospects including
but not limited to:

               (a)  any event which materially, adversely affects the Company's
business as it is currently being conducted;

               (b)  any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company, other than the repurchase of unvested shares of Common Stock of the
Company issued to employees, officers or directors of or consultants to the
Company;

               (c)  any waiver by the Company of a valuable right or of a
material debt owed to it;

               (d)  any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;

               (e)  any material commitment, transaction or other action by the
Company other than in the ordinary course of business and consistent with past
practice;

               (f)  any amendment or other change to the Certificate of
Incorporation or Bylaws of the Company (except as contemplated by this
Agreement);

               (g)  any sale or other disposition of any right, title or
interest in or to any material assets or properties of the Company or any
revenues derived therefrom other than in the ordinary course of business and
consistent with past practice;

               (h)  any creation, incurrence or assumption of any indebtedness
for money borrowed by the Company exceeding $50,000 (not including net increases
in accounts payable or intercompany debt incurred in the ordinary course of the
Company's business);

               (i)  any material capital expenditures by the Company not in the
ordinary course of business;

                                       3
<PAGE>

               (j)  any material change in any accounting principle or method or
election for federal income tax purposes used by the Company;

               (k)  any change in the assets, liabilities, prospects, financial
condition or operations of the Company from those reflected in the Financial
Statements, except changes in the ordinary course of business which have not
been, either in any case or in the aggregate, materially adverse;

               (l)  any material change in the outstanding indebtedness owed by
the Company;

               (m)  any material change in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty or otherwise;

               (n)  any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Company;

               (o)  any loans made by the Company to its employees, officers or
directors other than advances of expenses made in the ordinary course of
business;

               (p)  any agreements made with any affiliates of the Company,
other than agreements relating to or contemplated by the Separation and
Distribution Agreement between the Company and Odetics, Inc. dated December 31,
1999; or

               (q)  any authorization, approval, agreement or commitment to do
any of the foregoing.

          3.7  Absence of Undisclosed Liabilities. The Company does not have any
               ----------------------------------
material obligation or material liability arising out of any transaction entered
into at or prior to the Closing, or any act or omission to act at or prior to
the Closing, except (a) to the extent set forth or reserved against in the
Financial Statements, (b) as disclosed in the Disclosure Schedule, and (c)
current liabilities incurred and obligations under agreements entered into in
the usual and ordinary course of business since December 31, 1999, none of which
(individually or in the aggregate) materially and adversely affects the
business, properties, finances or prospects (financial or otherwise) of the
Company.

          3.8  Authorization, No Breach. The execution, delivery and performance
               ------------------------
of this Agreement and the Registration Rights Agreement and the consummation of
all transactions contemplated hereby or thereby, including but not limited to
the offering, sale and issuance of the Note pursuant to this Agreement has been
duly authorized by all required corporate actions of the Company and its
shareholders and the Company has taken all corporate acts necessary for the due
and valid authorization, execution, issuance and performance of the Agreement,
the Registration Rights Agreement, the Note and the Conversion Stock. This
Agreement, the Registration Rights Agreement and the Note constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms, except as the indemnification provisions of Section 2.7 of the
Registration Rights Agreement may be limited by principles of public policy, and
subject to laws of general application relating to bankruptcy, insolvency
reorganization, moratorium and the relief of debtors and rules of law governing
specific performance, injunctive relief or

                                       4
<PAGE>

other equitable remedies. The Note, when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will have the rights, preferences and privileges described
therein; the Conversion Stock has been duly and validly reserved and, when
issued in compliance with the provisions of this Agreement and the Certificate
of Incorporation, will be duly and validly authorized, validly issued and
outstanding, fully paid and nonassessable; and the Note and such Conversion
Stock will be free of any liens or encumbrances, other than any liens or
encumbrances created by or imposed upon the holders; provided, however, that the
Note and the Conversion Stock may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein.

          3.9   Material Contracts and Commitments. A list of and copies of the
                ----------------------------------
contracts, mortgages, indentures, agreements, instruments, leases and
transactions to which the Company is a party or by which it is bound which
involve obligations of, or payments to, the Company in excess of Two Hundred
Thousand Dollars ($200,000) and all agreements between the Company and its
officers, directors, consultants and employees (the "Material Contracts"), have
been delivered to the Purchaser. All of the Material Contracts are valid,
binding and in full force and effect in all material respects and enforceable by
the Company in accordance with their respective terms in all material respects,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' fights and rules or laws concerning equitable
remedies. To the Company's knowledge, the Company is not in material default
under any of such Material Contracts and no other party to any of the Material
Contracts is in material default thereunder.

          3.10  Litigation, etc.  There are no actions, suits, proceedings or
                ---------------
investigations pending or claims asserted (or, to the Company's knowledge, any
basis therefor or threat thereof), to which the Company is a party or its
property is subject or, to the Company's knowledge, against any officer,
director or employee of the Company in connection with such person's
relationship with or actions taken on behalf of the Company or which question
the validity or enforceability of this Agreement, the Registration Rights
Agreement or the Note which might result in (i) any material adverse change in
the business, prospects or financial condition of the Company or any of its
properties or assets, (ii) any material impairment of the right or ability of
the Company to carry on its business as now conducted or as proposed to be
conducted or to pay amounts under the Note as they become due or (iii) in any
material liability on the part of the Company, and none which question the
validity of this Agreement or any action taken or to be taken in connection
herewith.

          3.11  Consents. No consent, approval, qualification, order or
                --------
authorization of, or filing with, any governmental authority is required in
connection with the Company's valid execution, delivery or performance of this
Agreement or the Registration Rights Agreement, or the offer, sale or issuance
of the Note by the Company, the issuance of Conversion Stock, or the
consummation of any other transaction contemplated on the part of the Company
hereby, except such filings as may be required under the applicable securities
laws.

          3.12  Title to Properties; Liens and Encumbrances. The Company has
                -------------------------------------------
good and marketable title to its properties and assets and, with respect to the
property and assets leased by the Company, holds valid leasehold interests
therein, in each case subject to

                                       5
<PAGE>

no mortgage, pledge, lien, security interest, conditional sale agreement,
encumbrance or charge or other equitable interest, except (i) tax, materialmens'
or like liens for obligations not yet due or payable or being contested in good
faith by appropriate proceedings, (ii) security interests granted to
Transamerica Business Credit Corporation pursuant to that certain Loan and
Security Agreement to which the Company is a party dated December 28, 1998, and
related documentation, or (iii) liens or encumbrances which do not individually
or the aggregate in any case materially impair the Company's use thereof or
materially detract from the value of the Company and which have arisen in the
ordinary course of business.

          3.13  Proprietary Information and Other Rights. The Company uses
                ----------------------------------------
patents, trade secrets, including know-how, concepts, computer programs and
other technical data (the "Proprietary Information") for the development,
manufacture and sale of its products. The Company owns or has the right to use
all such Proprietary Information necessary for its business as now conducted
and, to the knowledge of the Company, the Proprietary Information under
development or intended to be used by the Company in its business as currently
proposed, will not infringe upon the proprietary rights of third parties.
Reasonable security measures have been taken by the Company to protect the
secrecy, confidentiality and value of the Proprietary Information referred to in
this Section 3.13. Each officer of the Company or subsidiary has executed a
proprietary information agreement, copies of which have been provided to
Purchaser. The Company, after reasonable investigation, is not aware that any of
its officers is in violation thereof, and the Company will use its best efforts
to prevent any such violation.

          3.14  Insurance. The Company maintains insurance of the types and in
                ---------
the amounts generally deemed adequate for its business and consistent with
insurance coverage maintained by similar companies in similar businesses,
including but not limited to, insurance covering real and personal property
owned or leased by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect and all premiums with respect thereto are
currently paid.

          3.15  Brokers or Finders. The Company has not incurred, and will not
                ------------------
incur, directly or indirectly, as a result of any action taken by the Company,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement.

          3.16  Compliance With Other Instruments.
                ---------------------------------

                (a)  The Company is not in violation or default of any
provisions of its Certificate of Incorporation or Bylaws or of any judgment,
order, writ, decree or Material Contract to which it is a party or by which it
is bound or, to its knowledge, of any provision of federal or state statute,
rule or regulation applicable to the Company or its subsidiaries, except to the
extent that such violation or default would not have a material adverse effect
on the Company, its business or its operations. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement or the Note and
the consummation of the transactions contemplated herein will not result in any
such violation nor be in conflict with or constitute, with or without the
passing of time and giving of notice, either a default under any such provision,
judgment, order, writ, decree or Material Contract or any event which results in
the creation of any lien, charge or encumbrance upon any assets of the Company
or any of its subsidiaries (other than such liens as are contemplated hereby).

                                       6
<PAGE>

               (b)  The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in its loss of any right
granted under any license, distribution or other agreement. The Company believes
that has received fair value for all licenses assigned or transferred to third
parties.

          3.17  Registration Rights. Except as set forth in the Registration
                -------------------
Rights Agreement and the Registration Rights Agreement dated October 16, 1998,
among the Company, Michael P. Meyer, Abbas Mohaddes, Viggen Davidian and Gary
Hamrick, the Company is not under any contractual obligation to register any of
its securities which are outstanding or any of its securities which may
hereafter be issued.

          3.18  Offering.  Subject to the accuracy of the Purchaser's
                --------
representations in Section 4 hereof, the offer, sale and issuance of the Note
and the issuance of the Conversion Stock, constitute transactions exempt from
the registration requirement of Section 5 of the Securities Act and applicable
state securities laws.

          3.19  Disclosure. There is no fact known to the Company that has not
                ----------
been disclosed to the Purchaser which the Company reasonably expects will have a
material adverse effect upon the financial condition, operating results or
assets of the Company, taken as a whole. The Company has fully provided the
Purchaser with all the information which the Purchaser has requested for
deciding whether to purchase the Note and, to the extent applicable, the
Conversion Stock and all information which the Company believes is reasonably
necessary to enable the Purchaser to make such decision.

          3.20  Minute Books. The minute books of the Company contain copies of
                ------------
minutes for all meetings of directors and shareholders since the time of
incorporation. The Purchaser (or its counsel) has been provided with an
opportunity to review the minute books or copies of such minutes.

          3.21  Employees; Proprietary Information Agreement. To the best of the
                --------------------------------------------
Company's knowledge, no employee of the Company is in violation of any term of
any employment contract, patent disclosure agreement or any other contract,
agreement, order or decree relating to the relationship of such employee with
the Company or any other party because of the nature of the business conducted
or to be conducted by the Company. To the best of the Company's knowledge, none
of its employees is obligated under any contact, agreement or judgment that
would interfere with such employee exercising his or her best efforts to promote
the interests of the Company or that would conflict with the Company's business
as currently proposed.

          3.22  Dividends. The Company has not declared or paid any dividends,
                ---------
or authorized or made any distribution upon or with respect to any class or
series of its capital stock.

          3.23  Intellectual Property Rights. The Company (a) owns or has the
                ----------------------------
right to use, free and clear of all liens, charges, claims and restrictions
(except for those disclosed in Section 3.13), all patents, trademarks, service
marks, trade names, copyrights, computer software programs, databases, domain
names, licenses, trade secrets and rights and any other intellectual property
necessary to its business as now conducted and, to the Company's knowledge, is
not infringing upon or otherwise acting adversely to the right or

                                       7
<PAGE>

claimed right of any person under or with respect to any of the foregoing and
(b) is not obligated or under any liability whatsoever to make any payments by
way of royalties, fees or otherwise to any owner of, licensor of, other claimant
to, any patent, trademark, trade name, copyright, database, domain name, or
other intangible asset, except pursuant to the Cooperative Development Agreement
for a Lane Departure Detection and Warning System between the Company and
DaimlerChrysler Corporation dated July 22, 1998, and the Asset Sale Agreement
between the Company and Rockwell Collins, Inc. dated June 20, 1997 (the "License
Agreements"). There are no outstanding options, licenses, or agreements of any
kind relating to the foregoing nor, is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, databases, domain names,
trade secrets, licenses, information, computer software programs, proprietary
rights and processes of any other person or entity, except for the License
Agreements the Agreement between Freightliner Corporation and the Company dated
January 11, 1999,confidential nondisclosure agreements and the like.

          3.24  Operating Rights. The Company has all operating authority,
                ----------------
licenses, franchises, permits, certificates, consents, rights and privileges as
are necessary or appropriate to the operation of its business as now or as
proposed to be conducted, the absence of which would have a material and adverse
effect on the business of the Company ("collectively, the "Permits"). Such
Permits are in full force and effect, no violations have been or are expected to
have been recorded in respect of any such Permits, and no proceeding is pending
or, to the Company's knowledge, threatened that could result in the revocation
or limitation of any of such Permits. The Company has conducted its business so
as to comply in all material respects with all such Permits.

          3.25  Related Party Transactions. Except for officers or directors of
                --------------------------
the Company who are also officers or directors of Odetics, Inc., no officer or
director of the Company (a) is an officer, director or general partner of, or
directly or indirectly owns beneficially more than 5% of the equity of, any
business which (i) furnishes or sells services or products which compete with
services or products furnished or sold by the Company or (ii) purchases from or
sells or furnishes to the Company any goods or services, or (b) has a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected involving the payment or receipt of in excess
of $50,000, other than any agreements governing the purchase of shares of the
Company's Common Stock and agreements relating to the employment of such
persons, copies of which agreements have been delivered to the Purchaser'
counsel. The Company is not a guarantor or indemnitor of an indebtedness of any
other person, firm or corporation.

          3.26  Environmental Regulations. The Company has met, and continues to
                -------------------------
meet in all material respects, all applicable local, state and federal
environmental regulations. The Company has disposed of its waste products and
effluents, and has used reasonable efforts to cause others to dispose of waste
products and effluents for the Company, in accordance with, in all material
respects, all applicable state, local and federal environmental regulations and
in such a manner that, to the best of the Company's knowledge, no harm has
resulted or will result to any of the employees or properties of the Company or
to any other persons or entities or their properties.

          3.27  Taxes. The Company believes that it has accurately prepared in
                -----
all material respects and has filed all tax returns that are required to have
been filed on or before

                                       8
<PAGE>

the Closing with appropriate federal, state, county and local governmental
agencies or instrumentalities. The Company has paid or established adequate
reserves for all material income, franchise and other taxes, assessments,
governmental charges, penalties, interest and fines due and payable by it on or
before the Closing. There is no pending dispute with any taxing authority
relating to any of such returns, and the Company has no knowledge of any
proposed liability for any tax to be imposed upon the properties or assets of
the Company.

          3.28  Inventory. All inventory is of a quality and quantity usable in
                ---------
the ordinary course of business, except for obsolete items, or materials below
standard quality, which, in the aggregate, are not material in amount and have
been written off or written down to net realizable value on the books of the
Company.

          3.29  Returns and Complaints. The Company has not received any
                ----------------------
customer complaints concerning its products or services that have not been
resolved and which are indicative of a problem that is reasonably likely to
result in a material adverse effect on the Company, its business or its
operations.

          3.30  Foreign Corrupt Practices Act. The Company has not made, offered
                -----------------------------
or agreed to offer anything of value to any governmental official, political
party or candidate for political office (or any person that the Company knows or
has reason to know will offer anything of value to any such person) in violation
of the Foreign Corrupt Practices Act of 1977, as amended.

          3.31  No Cancelled Contracts. No Material Contracts or purchase orders
                ----------------------
have been cancelled, rescinded, continued or modified in any material respect
which would have a material adverse effect on the Company, its business or its
operations.

                                  Section 4.
                REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     Purchaser hereby represents and warrants to the Company with respect to the
purchase of the Note as follows:

          4.1   Accredited Investor. It is an "accredited investor" as such term
                -------------------
is defined in Rule 501(a) of Regulation D of the Securities Act.

          4.2   Experience. It has substantial experience in evaluating and
                ----------
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
Investment in the Company and has the capacity to protect its own interests.

          4.3   Economic Risk. It understands that the purchase of the Note
                -------------
hereunder is a speculative investment which involves a high degree of risk of
loss of its investment therein. It is able to bear the economic risk of its
investment in the Note for an indefinite period of time, including the risk of a
complete loss of its investment in such securities. It acknowledges that such
Note and the Conversion Stock have not been registered under the Securities Act
and, therefore, cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available. The
foregoing does

                                       9
<PAGE>

not, however, limit or modify the representations and warranties of the Company
set forth in Section 3 of this Agreement or the fight of the Purchaser to rely
thereon.

          4.4  Strategic Investment. It is acquiring the Note and the underlying
               --------------------
Common Stock for investment for its own account, not as a nominee or agent, not
for the account or benefit of any U.S. Person and not with the view to, or for
resale in connection with, any distribution thereof. It understands that the
Note and the underlying Common Stock have not been, and will not be, registered
under the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
its representations as expressed herein.

          4.5  Execution, Delivery and Performance. It has full right, power and
               -----------------------------------
authority to execute and deliver this Agreement and the Registration Rights
Agreement and to perform its obligations hereunder and thereunder. At or before
the Closing hereunder, it will execute and deliver to the Company the
Registration Rights Agreement, and it acknowledges and agrees that the Note
purchased will be subject to the terms and provisions of the Registration Rights
Agreement, and the Company's Certificate of Incorporation and Bylaws. This
Agreement and the Registration Rights Agreement, when so executed and delivered
by the Purchaser, will constitute valid and binding obligations of each
Purchaser enforceable in accordance with their respective terms, except as the
indemnification provisions of the Registration Rights Agreement may be limited
by principles of public policy, and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
No consent, approval, authorization, order, filing, registration or
qualification of or with any court, governmental authority or third person is
required to be obtained by the Purchaser in connection with the execution and
delivery of this Agreement or the Registration Rights Agreement or the
performance of each Purchaser's obligations hereunder or thereunder.

          4.6  Regulation S and Rule 144. Purchaser acknowledges that the Note
               -------------------------
and the underlying Common Stock are being purchased in reliance upon Regulation
S and that the Note and the Conversion Stock must be held indefinitely unless
subsequently transferred in accordance with Regulation S, registered under the
Securities Act or an exemption from such registration is available. Purchaser is
aware of the provisions of Regulation S, which prohibits the offer or sale of
the Note and the Conversion Stock to or for the benefit or account of any U.S.
Person for a period of one year following the Closing, and Rule 144 promulgated
under the Securities Act ("Rule 144") which permit limited resale of securities
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the securities, the availability of certain current public information about the
Company, the resale occurring not less than one year after a party has purchased
and paid for the security to be sold, the sale being effected through a
"broker's transaction" or in transactions directly with a "market maker" and the
number of securities being sold during any three (3) month period not exceeding
specified limitations.

          4.7  No Public Market. Purchaser understands that no public market now
               ----------------
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Company's
securities.

                                       10
<PAGE>

          4.8  Access to Data. Purchaser acknowledges that it has had a full
               --------------
opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Note and has had full access to the Company's
officers and such other information concerning the Company as it has requested.

          4.9  Brokers or Finders. Purchaser has not incurred and will not
               ------------------
incur, directly or indirectly, as a result of any action taken by the Purchaser,
any liability for brokerage or finder's fees or agent's commissions or any
similar charges in connection with this Agreement.

          4.10 Tax Liability. Purchaser has reviewed with its own tax advisors
               -------------
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. It relies solely on such
advisors and not on any statements or representations of the Company or any of
its agents. It understands that it (and not the Company) shall be responsible
for any of its own tax liability that may arise as a result of this investment
or the transactions contemplated by this Agreement.

          4.11 Investor Counsel. Purchaser acknowledges that it has had the
               ----------------
opportunity to review this Agreement, the exhibits attached hereto and the
transaction contemplated by this Agreement with its own legal counsel. It is
relying solely on such counsel and not on any statements or representations of
the Company, Stradling Yocca Carlson & Rauth (counsel solely to the Company) or
any of its agents for legal advice with respect to this investment or the
transactions contemplated by this Agreement.

          4.12 Foreign Investor. Purchaser is a German limited liability company
               ----------------
with its principal place of business in Stuttgart, Germany, has no branch or
other operations within the United States and is not a U.S. Person. All
decisions concerning the purchase of the Note and the acquisition, if any, of
the Conversion Stock, have been and will be made at Purchaser's principal place
of business where this Agreement and the Registration Rights Agreement will be
executed and delivered and where the Note will be received. The Note was not
offered to Purchaser in the United States and at the time of execution of this
Agreement and the time of any offer to Purchaser to purchase the Note, the
Purchaser was physically outside of the United States.

                                  Section 5.
                    CONDITIONS TO CLOSING OF THE PURCHASER

     The Purchaser's obligations to purchase the Note at the Closing are, at the
option of the Purchaser, subject to the fulfillment on or prior to the Closing
Date of the following conditions:

          5.1  Representations and Warranties Correct. The representations and
               --------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct as
of the Closing Date with the same force and effect as if made on such date.

          5.2  Covenants. All covenants, agreements and conditions contained in
               ---------
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with.

                                       11
<PAGE>

          5.3  Compliance Certificate. The Company shall have delivered to the
               ----------------------
Purchaser a certificate of the Company, executed by the President of the
Company, dated the Closing Date, and certifying as to the fulfillment of the
conditions specified in Sections 5.1 and 5.2 of this Agreement.

          5.4  Good Standing Certificates. The Company shall have delivered to
               --------------------------
the Purchaser certificates dated as of the most recent practicable date prior to
the Closing Date issued by the Delaware Secretary of State to the effect that
the Company is legally existing and in good standing, and similar good standing
certificates from the state of incorporation for each of the subsidiaries.

          5.5  Secretary's Certificate. The Company shall have delivered to the
               -----------------------
Purchaser a certificate executed by the Secretary of the Company dated as of the
Closing, certifying the following matters: (a) resolutions adopted by the Board
approving the transactions contemplated by this Agreement; (b) Certificate of
Incorporation of the Company; (c) Bylaws of the Company; (d) incumbency of those
officers of the Company signing the various agreements; and (e) such other
matters as the Purchaser may reasonably request.

          5.6  Note. A Note substantially in the form of Exhibit A shall have
               ----
been executed and delivered by the Company and the Purchaser and shall be in
full force and effect as of the Closing.

          5.7  Registration Rights Agreement.  An Registration Rights Agreement
               -----------------------------
substantially in the form of Exhibit B (the "Registration Rights Agreement")
shall have been executed and delivered by the Company and the Purchaser and
shall be in full force and effect as of the Closing.

          5.8  Legal Opinion. The Purchaser shall have received from Stradling
               -------------
Yocca Carlson & Rauth, counsel to the Company, a legal opinion addressed to them
substantially in the form of Exhibit C.

          5.9  Debt Conversion. Odetics, Inc. shall have agreed to contribute to
               ---------------
the capital of the Company a portion of the amount of debt owed by the Company
to Odetics, Inc.

                                  Section 6.
                       CONDITIONS TO CLOSING OF COMPANY

     The Company's obligation to sell and issue the Note at the Closing is, at
the option of the Company, subject to the fulfillment as of the Closing Date of
the following conditions with the same force and effect as if made on such date:

          6.1  Representations. The representations and warranties made by the
               ---------------
Purchaser in Section 4 hereof shall be true and correct as of the Closing Date.

          6.2  Registration Rights Agreement. The Purchaser shall have executed
               -----------------------------
and delivered the Registration Rights Agreement.

                                       12
<PAGE>

          6.3  Payment of Purchase Price. The Purchaser shall have delivered to
               -------------------------
the Company the purchase price for the Note being purchased at such Closing.

          6.4  Forms W-9 or W-8. Each Purchaser shall have delivered to the
               ----------------
Company a complete and executed Internal Revenue Service Form W-8 or Form W-9,
as applicable.

                                  Section 7.
            AFFIRMATIVE COVENANTS OF THE COMPANY AND THE PURCHASER

          7.1  Compliance with Documents. The Company will perform and observe
               -------------------------
all of its obligations to the holders of the Note (and the Conversion Stock) set
forth in this Agreement, the Certificate of Incorporation, the Bylaws, and all
of its obligations set forth in the Investor Rights Agreement.

          7.2  Observation of Board of Directors. For as long as the Note
               ---------------------------------
remains outstanding or Purchaser holds at least 200,000 shares of Common Stock,
if Purchaser so requests, the Company will permit a representative of Purchaser
to receive notice of and attend all Board meetings and to receive all documents
provided generally to the Board at the same time as such materials are provided
to the Board. Purchaser's representative shall be capable of discussing
strategic objectives and implementation relating to the Company's business and
shall be permitted to attend portions of any Board meeting related specifically
to operations or financial matters. Purchaser's representative shall be able to
attend any other portions of Board meeting at the sole discretion of the Board.
Notwithstanding the foregoing, Purchaser acknowledges and agrees that the
Company's management will have the right to exclude any such representative from
all or portions of meetings of the Board, or omit to provide such representative
with certain information, if the Company's management believes it is necessary
in order to preserve the attorney-client privilege, or fulfill the Company's
obligations with respect to confidential or proprietary information of third
parties, or if such meeting or information involves matters where a director
would customarily not participate in a meeting or be provided such information.
In addition, Purchaser acknowledges and agrees that any such representative will
maintain the confidentiality of all information obtained through such
representative's position and will be bound by the same obligations of
confidentiality as Purchaser is bound.

          7.3  Information Rights. In addition to the rights set forth in the
               ------------------
Investor Rights Agreement, the Company hereby covenants and agrees to the
following with Purchaser:

               (a)  The Company shall provide to Purchaser (i) as soon as
available and in any event within ninety (90) days after the end of each fiscal
year of the Company, a balance sheet of the Company as of the end of such fiscal
year and the related statements of income, retained earnings and changes in
financial position for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on by a
firm of independent public accountants of nationally recognized standing, (ii)
as soon as available and in any event within 30 days after the end of each of
month, internal balance sheet and income statement as are produced in the
ordinary course of business by the Company.

                                       13
<PAGE>

               (b)  The Company will permit representatives of the Purchaser to
visit and inspect any of its properties and to examine and make copies of any of
its books and records and to discuss its affairs, finances and accounts with its
officers, employees and agents all at such reasonable times and as often as may
reasonably be desired, provided Purchaser provides the Company with reasonable
notice in advance of such visit.

               (c)  The information rights under this Section 7.3 shall
terminate upon the closing of the Company's initial public offering registered
under the Securities Act.

          7.4  Advancement of Strategic Relationship. The parties intend to
               -------------------------------------
cooperate in the following areas:

               (a)  Purchaser will support and use its international networks to
facilitate the adoption of the AutoVue product in DaimlerChrysler commercial
vehicles and passenger cars.

               (b)  Purchaser will support and use its international networks to
facilitate joint initiatives between DaimlerChrysler and the Company to bring
eBusiness solutions, such as Personalized Traveler Information, to mobile
internet users in DaimlerChrysler commercial vehicles and passenger cars.

          7.5  Publicity. Purchaser and the Company agree that neither shall
               ---------
publicly disclose, whether by a press release or otherwise, the existence of or
the terms and conditions of this Agreement until the Closing, at which time the
Purchaser and the Company shall cooperate in the drafting and issuance of press
releases in the United States and Europe. Neither party shall issue a press
release without the prior consent of the other party. Purchaser acknowledges
that the company may be required to file this Agreement and the agreements
contemplated hereby with the Securities Exchange Commission in connection with
its initial Public Offering, and Purchaser hereby consents to such filing.

                                  Section 8.
                RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
                        COMPLIANCE WITH SECURITIES ACT

          8.1  Restrictions on Transferability. In addition to the restrictions
               -------------------------------
set forth in Section 8.2, Purchaser agrees that all offers and sales of the Note
and the Conversion Stock prior to the expiration of a period commencing on the
Closing Date and ending one year thereafter shall not be made to U.S. Persons or
for the account or benefit of any U.S. Person and shall otherwise be made in
compliance with Regulation S. Purchaser will cause any proposed purchaser,
assignee, transferee, or pledgee of the Note or the Conversion Stock held by
such Purchaser to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section 8.

          8.2  Lock Up Agreement. For the period commencing on the Closing Date
               -----------------
and ending fifteen (15) months following the Closing Date (the "Lock Up
Period"), Purchaser will not, without the prior written consent of the Company,
(which consent may be withheld in its sole discretion), directly or indirectly,
issue, sell, offer or agree to sell, grant any option for the sale of, pledge,
make any short sale or maintain any short position, establish or maintain a "put
equivalent position" (within the meaning of Rule 16-a-1(h) under

                                       14
<PAGE>

the Securities Exchange Act of 1934, as amended), enter into any swap,
derivative transaction or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Note or the
Conversion Stock; provided, however, that in the event the Company has not
consummated an initial public offering of its Common Stock prior to nine (9)
months following the Closing Date, the Lock Up Period shall be extended such
that the Lock Up Period extends to a date that is 180 days following the date of
the Company's final prospectus delivered in connection with its initial public
offering. Notwithstanding the foregoing, Purchaser may transfer the Note or the
Conversion Stock, subject to applicable securities laws, to any entity directly
or indirectly controlling or controlled by or under common control with, the
Purchaser.

          8.3  Restrictive Legend. Each certificate or instrument representing
               ------------------
(i) the Note, (ii) the Conversion Stock, and (iii) any other securities issued
in respect of the Note or the Conversion Stock upon a stock split, stock
dividend, stock exchange or similar event (collectively the "Restricted
Securities"), shall (unless otherwise permitted by the provisions of Rule 144)
be stamped or otherwise imprinted with a legend in the following form (in
addition to any legend required under applicable state securities laws):

    "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
    FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
    SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
    EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
    THERETO OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
    CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
    SECURITIES ACT OF 1933, AS AMENDED.

    THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
    SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
    1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF ANY
    STATE UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED
    PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S
    ("REGULATION S") PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT
    BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR
    TO U. S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS
    THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
    SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE
    PURSUANT TO AN AVAILABLE EXEMPTION OR SAFE HARBOR FORM THE
    REGISTRATION REQUIREMENTS OF THOSE LAWS.

    THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
    CERTAIN RESTRICTIONS ON TRANSFER AND CERTAIN MARKET STAND-OFF
    PROVISIONS WHICH ARE CONTAINED IN A SUBORDINATED CONVERTIBLE NOTE
    PURCHASE AGREEMENT, DATED AS OF JANUARY 25, 2000, COPIES

                                       15
<PAGE>

     OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."

     Purchaser consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Note or the Conversion Stock in
order to implement the restrictions on transfer established in this Section 8.

          8.4  Notice of Proposed Transfers. The holder of each certificate
               ----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.3. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than a
transfer not involving a change in beneficial ownership), the holder thereof
shall give written notice to the Company of such Purchaser's intention to effect
such transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such holder's expense, by either
(i) a written opinion of legal counsel, who shall be and whose legal opinion
shall be reasonably satisfactory to the Company, addressed to the Company, to
the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act or (ii) a "no action"
letter from the Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder to
the Company. Each certificate evidencing the Restricted Securities transferred
as above provided shall bear, except if such transfer is made pursuant to Rule
144, the appropriate restrictive legend set forth in Section 8.2 above, except
that such certificate shall not bear such restrictive legend if in the opinion
of counsel for such holder and the Company such legend is not required in order
to establish compliance with any provision of the Securities Act.

                                  Section 9.
                                 MISCELLANEOUS

          9.1  Governing Law. This Agreement shall be governed and construed in
               -------------
all respects in accordance with the laws of the State of California so applied
to agreements made and performed in California by residents of the State of
California.

          9.2  Survival. The representations, warranties, covenants and
               --------
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby for a period of two (2)
years.

          9.3  Successors and Assigns. Except as otherwise expressly provided
               ----------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of such parties whether so expressed or not.
In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the Purchaser's benefit as the
purchaser or holder of Note or the Conversion Stock are also for the benefit of
and enforceable by any subsequent holder of Note or the Conversion Stock.

                                       16
<PAGE>

          9.4  Entire Agreement; Amendment. This Agreement and the other
               ---------------------------
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.

          9.5  Notices, etc. All notices and other communications required or
               ------------
permitted hereunder shall be in writing, including facsimile, or electronic
communications and shall be effective upon receipt.

          9.6  Delays or Omissions. Except as expressly provided herein, no
               -------------------
delay or omission to exercise any right, power or remedy accruing to any holder
of any Note, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.

          9.7  Remedies. Purchaser will have all of the rights and remedies set
               --------
forth in this Agreement, the Investor Rights Agreement and the Certificate of
Incorporation, as the case may be, and all of the rights and remedies which
Purchaser may have under any law. The Purchaser, having any rights under any
provision of this Agreement or the Investor Rights Agreement, will be entitled
to enforce such rights specifically, to recover damages by reason of any breach
of any provision of this Agreement or the Investor Rights Agreement and to
exercise all other rights granted by law.

          9.8  Severability. If any provision of this Agreement becomes or is
               ------------
declared by a court of competent jurisdiction to be illegal, invalid,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision. In such event, the parties shall negotiate, in good
faith, a legal, valid and enforceable substitute provision which most nearly
effects the intent of the parties in entering into this Agreement.

          9.9  Expenses. The Company shall pay all of Purchaser's expenses in
               --------
connection with the transactions contemplated hereby, provided that the Closing
and the Company's initial public offering of Common Stock registered under the
Securities Act have occurred, including the fees and disbursements of the
Purchaser's counsel, Baker & McKenzie. Total expenses shall not exceed the
amount of $25,000 in the aggregate.

                                       17
<PAGE>

Dated this 25th of January 2000         Dated this 25th of January 2000
At Anaheim, California                  At Stuttgart, Germany

ITERIS, INC.                            DAIMLERCHRYSLER VENTURE
                                        GMBH

By:  /S/ Jack Johnson                   By:  /s/ Dr. Marianne Tumpen
     ----------------                        -----------------------
         Jack Johnson,                           Dr. Marianne Tumpen,
         President                               Managing Director

                                       18

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